<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1996
REGISTRATION NO. 33-71666
REGISTRATION NO. 33-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------------------
AVITAR, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8172 06-1174053
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------------
556 Washington Avenue, Suite 202 PETER P. PHILDIUS
North Haven, Connecticut 06473 556 Washington Street, Suite 202
(203) 234-7737 North Haven, Connecticut 06473
(203) 234-7737
(Address, including zip code, and (Name, address, zip code, and
telephone number, including area code, telephone number, including area
of registrant's principal executive office code, of agent for service)
--------------------------------------
Copies to:
EUGENE M. CRONIN, ESQ
DOLGENOS NEWMAN & CRONIN LLP
96 SPRING STREET
NEW YORK, NEW YORK 10012
(212) 925-2800
Approximate date of commencement of proposed sale to the public: As
soon as practicable following the date on which this Registration Statement
becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box:
/X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: / /
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED SHARE OFFERING REGISTRATION
REGISTERED (1) PRICE FEE
<S> <C> <C> <C> <C>
COMMON STOCK,$0.01 PAR VALUE 6,850,714 (2)(11) $1.96 $13,427,400 $4,630.14
VALUE
COMMON STOCK 361,084 (3) $0.96875 (4) $349,800 $120.62
COMMON STOCK 142,857 (5)(11) $0.96875 (4) $138,393 $47.72
COMMON STOCK 272,321 (6)(11) $1.12 $305,000 $105.17
COMMON STOCK 300,000 (7)(11) $0.96875 (4) $290,625 $100.22
COMMON STOCK 1,485,000 (8)(11) $0.96875 (4) $1,438,594 $496.07
COMMON STOCK 150,000 (9)(11) $0.96875 (4) $145,313 $50.11
COMMON STOCK 595,714 (10)(11) $1.96 $1,167,599 $402.62
TOTAL COMMON STOCK 10,157,690 - $17,262,724 $5,952.67 (12)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 (c) and (g) under the Securities Act of 1933.
(2) Issuable upon exercise of 1,918,200 Redeemable Warrants registered under
Registration Statement 33-47365 with current exercise price of $1.96 per
share.
(3) Outstanding shares issued in private placements that may be sold by Selling
Stockholders.
(4) Fee calculated upon the basis of the average of the bid and asked price of
the Company's Common Stock reported on July 26, 1996 of $0.96875, which
date is within five (5) business days prior to the date of filing of this
Registration Statement.
(5) Issuable upon exercise of warrants granted in a private placement to D.H.
Blair Holdings, Inc. with current exercise price of $0.035 per share.
(6) Issuable upon exercise of warrants granted in connection with private
placements with current exercise price of $1.12 per share.
(7) Issuable upon exercise of bridge warrants granted in a private placement to
Phildius Kenyon & Scott ("PKS") with current exercise price of $0.65 per
share.
(8) Issuable upon exercise of bridge warrants granted in private placements to
PKS and its partners and others with current exercise price of $0.50 per
share.
(9) Issuable upon exercise of warrants granted in private placement in
connection with a lease for real property with current exercise price of
$0.50 per share.
(10) Issuable upon exercise of 166,800 Redeemable Warrants which are issuable
upon exercise of Underwriter's Warrants granted pursuant to an Underwriting
Agreement with A.S. Goldmen & Co., Inc. related to the offering of Common
Stock and Redeemable Warrants registered under Registration Statement No.
33-47365.
(11) Pursuant to Rule 416 under the Securities Act of 1933, as amended, this
Registration Statement covers an indeterminate amount of additional shares
of Common Stock issuable by virtue of anti-dilution provisions of the
warrants referred to in notes (2), (5), (6), (7), (8), (9) and (10).
(12) 2,910,782 shares are being carried forward from Registration Statement No.
33-71666 for which a filing fee of $1,966.11 was paid.
2
<PAGE> 3
Pursuant to Rule 429, this Registration Statement also serves as Post- Effective
Amendment No. 1 to Registration Statement No. 33-71666 (the "Prior Registration
Statement"). The Prospectus contained herein covers securities registered under
this Registration Statement and 2,910,782 shares of Common Stock registered
under the Prior Registration Statement.
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
3
<PAGE> 4
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED JULY 31, 1996
PROSPECTUS
AVITAR, INC.
13,068,472 SHARES OF COMMON STOCK
This Prospectus relates to an aggregate offering of up to 13,068,472 shares
of Common Stock of Avitar, Inc. (the "Company") which may be offered and sold
from time to time. Of the 13,068,472 shares offered hereby, 12,707,388 are being
offered by the Company which consist of (i) 9,761,496 shares of Common Stock
issuable, if at all, upon the exercise of redeemable Common Stock purchase
warrants (the "Redeemable Warrants") previously issued by the Company and upon
payment to the Company of the exercise price, currently $1.96 per share; (ii)
2,350,178 shares of Common Stock issuable, if at all, upon the exercise of other
Common Stock purchase warrants (the "Other Warrants") previously issued by the
Company or its predecessors in connection with various private placement
transactions including bridge loans and upon payment to the Company of the
relevant exercise price, currently $0.035 to $1.12 per share; and (iii) 595,714
shares of Common Stocks issuable, if at all, upon the exercise of Redeemable
Warrants underlying underwriter's warrants previously issued by the Company in
connection with a 1992 public offering.
THE WARRANT EXPIRATION DATE OF THE REDEEMABLE WARRANTS IS NOVEMBER 30,
1996. The Other Warrants expire on specified dates from December 31, 1996
through October 31, 1999.
Additionally, this Prospectus covers 361,084 shares of Common Stock
previously issued by the Company in connection with private placement
transactions which may be offered by the Selling Stockholders identified in this
Prospectus. The shares of Common Stock may be offered by the Selling
Stockholders for sale from time to time in regular brokerage transactions on
Nasdaq or to dealers, in private sales or negotiated transactions, or otherwise,
at prices related to then prevailing market prices. The Company will not receive
any of the proceeds of the sale of Common Stock by the Selling Stockholders. See
"SELLING STOCKHOLDERS" and "PLAN OF DISTRIBUTION".
The Company will assume no responsibility for the sale of the shares of
Common Stock of the Selling Stockholders, nor can there be any assurances that a
liquid trading market will exist for the sale of the shares of Common Stock to
be offered by the Selling Stockholders. See "RISK FACTORS."
The Company's Common Stock is included on the SmallCap Market of the
National Association of Securities Dealers Automated Quotation System ("Nasdaq")
under the symbol "AVIT". The closing bid price of the Company's Common Stock as
reported by Nasdaq on July 26, 1996 was $0.90625.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN AS CONTAINED HEREIN, IN CONNECTION WITH THE OFFER
MADE IN THIS PROSPECTUS, AND ANY INFORMATION OR REPRESENTATION NOT CONTAINED
HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
SELLING STOCKHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED
BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
ANY OFFER TO BUY ANY SHARES OF COMMON STOCK OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION WHERE IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH
PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
PURCHASE OF THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. A DISCUSSION OF
THESE RISK FACTORS APPEARS ON PAGES 9 - 22.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
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<PAGE> 5
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
CLASS OF Price to Public Underwriting Proceeds to
SECURITY Discounts and Company and Selling
Commissions Shareholders
<S> <C> <C> <C>
Shares of $21,995,000 (1) $0.00 (2) $21,995,000 (1)
Common Stock
</TABLE>
(1) Represents the aggregate exercise prices of outstanding warrants ranging
from $0.035 to $1.96 per share and the anticipated sale by the Selling
Stockholders at $1.03125 per share, the closing asked price reported on
NASDAQ on July 26, 1996. There can be no assurances, however, that the
Selling Stockholders will be able to sell their shares at this price, or
that a liquid market will exist for the Company's Common Stock. The Company
will receive no proceeds upon the sale of shares of Common Stock by the
Selling Stockholders.
(2) This does not take into account the cost of this Offering, including
printing and professional fees and other expenses estimated at $75,000
which will be borne entirely by the Company.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
The date of this Prospectus is ____________ , 1996.
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<PAGE> 6
AVAILABLE INFORMATION
Avitar, Inc. (the "Company") is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith it files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and its regional offices located as follows: 7 World Trade Center,
13th Floor, New York, New York 10048; Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 5757 Wilshire
Boulevard, Suite 500 East, Los Angeles, California 90036-3648. Copies of such
material can also be obtained at prescribed rates by writing to the Securities
and Exchange Commission, Public Reference Section , Washington, D.C. 20549. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission. The address of such site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933 with respect to the securities offered
by this Prospectus. As permitted by the rules and regulations of the Commission,
this Prospectus does not contain all of the information set forth in such
Registration Statement. Copies of the Registration Statement, including the
exhibits to the Registration Statement and other material that is not included
herein, may be inspected, without charge, at the offices of the Commission
referred to above, or obtained at prescribed rates from the Public Reference
Section of the Commission at the address set forth above.
Statements made in this Prospectus concerning the contents of any
contract or other documents are not necessarily complete. With respect to each
contract or other document filed as an appendix to the Registration Statement,
reference is hereby made to that appendix for a more complete description of the
matter involved, and each such statement is hereby qualified in its entirety by
such reference.
The Company will provide without charge to any registered warrant
holder or stockholder of the Company, upon their written or oral request, a copy
of the Company's Annual Report on Form 10-KSB, including audited financial
statements for the fiscal year ended September 30, 1995, and Quarterly Reports
for periods thereafter on Form 10-QSB. Written requests should be directed to
Jay C. Leatherman, Jr., Secretary, Avitar, Inc., 556 Washington Avenue, Suite
202, North Haven, Connecticut 06473 and oral requests at (203) 234-7737.
The Company intends to furnish upon request to the holders of the
Common Stock, after the close of each fiscal year, annual reports containing
audited consolidated financial statements with a report thereon by its
independent auditors. Quarterly reports
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<PAGE> 7
containing unaudited financial information for the first three quarters of each
fiscal year may be furnished by the Company to the holders of the Common Stock
from time to time or as required by applicable law.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE MATTERS
REFERRED TO HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES COVERED BY THE PROSPECTUS OR BY ANY PERSON IN
ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL.
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<PAGE> 8
PROSPECTUS SUMMARY
The following is a summary of certain information contained in this
Prospectus and is qualified in its entirety by reference to the more detailed
information and consolidated financial statements appearing elsewhere in this
Prospectus, other documents incorporated herein and in the Registration
Statement of which this Prospectus is a part. Each prospective investor is urged
to read this Prospectus in its entirety. The Common Stock offered hereby
involves a high degree of risk.
Avitar, Inc. (the "Company") is a holding company that operates through
two subsidiaries: Managed Health Benefits Corporation ("MHB") and Avitar
Technologies, Inc. ("ATI").
MHB is in the business of providing cost containment services to assist
employers and other third party payors in controlling the costs of group medical
and disability benefits. MHB provides its services to employers and third party
payors which are located nationwide and which incur the rising costs of
health-related services but frequently do not routinely control or closely
monitor the payment, accuracy or justification of these costs. The services
provided by MHB primarily consist of (i) psychiatric utilization review, (ii)
psychiatric bill review; and (iii) psychiatric disability case management. As of
July 1996, MHB furnished its services to over twenty companies such as The
Guardian Life Insurance Company, Chubb LifeAmerica, Northwestern National Life
Insurance Company, Pioneer National Life Insurance Company, Allmerica Property
and Casualty Company, Merit Behavioral Care, American International Group and
John Alden.
ATI has developed proprietary biomaterials and processing technologies
that it has applied and intends to continue to apply to a variety of medical and
dental products. In proceeding with the commercial exploitation of its core
technologies, ATI has established distribution agreements with large medical
product companies to market products designed, and/or licensed, and/or
manufactured by ATI. ATI currently has marketing relationships with medical
firms including the Convatec Division of E.R. Squibb & Sons, Inc., Smith &
Nephew Richards, Inc., Medi Bayreuth, Knoll Pharmaceutical, Inc. and Simplex
Medical Systems, Inc.
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<PAGE> 9
<TABLE>
THE OFFERING
<S> <C>
Securities Offered by 12,707,388 shares of Common Stock pursuant
the Company to outstanding warrants (including
2,733,219 Redeemable Warrants).
Securities Offered by 361,084 shares of Common Stock may be sold
the Selling Stockholders by the Selling Stockholders. The Company
will not receive any of the proceeds from
any sales by the Selling Stockholders.
Terms of the Redeemable Each Redeemable Warrant entitles the
Warrants holder thereof to purchase approximately
3.57 shares of Common Stock, at a current
exercise price of $1.96 per share at any
time until November 30, 1996, subject, in
certain circumstances, to earlier
redemption by the Company. The exercise
price and number of shares issuable upon
the exercise of the Redeemable Warrants
are subject to adjustment in certain
circumstances.
Shares of Common Stock
Outstanding prior
to this Offering(1) .................................... 6,966,884
Shares of Common Stock
to be Outstanding After
this Offering(1) ................................ 19,674,272
</TABLE>
- --------------
(1) Does not include (i) 1,290,114 shares of Common Stock issuable upon the
exercise of outstanding stock options and warrants (other than the
Redeemable Warrants and Other Warrants); or (ii) 3,825,783 shares of Common
Stock issuable upon the conversion of the Preferred Stock.
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<PAGE> 10
<TABLE>
<S> <C>
Use of Proceeds .................. The Company intends to use the net
proceeds, if any, of this Offering to
develop and expand its operation and
administrative systems; to expand its
sales and marketing activities; for
product and service development and
possible acquisitions; and for general
working capital.
NASDAQ Symbols
Common Stock .................. AVIT
Redeemable Warrants ........... AVITW
RISK FACTORS THIS OFFERING INVOLVES A HIGH.
AND DILUTION DEGREE OF RISK AND, IN MOST
CASES, IMMEDIATE AND
SUBSTANTIAL DILUTION FROM THE
PUBLIC OFFERING PRICE.
</TABLE>
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<PAGE> 11
SUMMARY FINANCIAL INFORMATION
AVITAR, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
<TABLE>
<CAPTION>
For the Six Months Ended For The Year Ended
March 31, September 30,
--------------------------------- ------------------------------
1996 1995 (1) 1995 (1) 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 2,492,585 $ 985,552 $ 3,512,825 $ 1,458,170
Gross Profit 922,608 735,044 1,972,229 1,050,978
Income (Loss) from operations (684,250) 114,681 (510,377) (217,959)
Net Income (Loss) (750,360) 207,506 (688,575) (42,267)
Income (Loss) per share (.15) .04 (.14) (.01)
Weighted average number of common
& common equivalent shares
outstanding 5,177,450 4,783,755 4,940,517 3,661,523
</TABLE>
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(1) In May 1995, the Company acquired the predecessor of Avitar Technologies,
Inc. Accordingly, amounts accrued after the date of the acquisition are included
in the amounts reflected above.
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
March 31, 1996 September 30, 1995
-------------- ------------------
Actual Pro Forma (1)
<S> <C> <C> <C>
Working Capital (deficiency) $(1,102,834) $ 397,166 $ (800,583)
Total assets 6,663,200 8,163,200 6,988,223
Long-term debt (excluding
current portion) 316,890 316,890 332,804
Total liabilities 2,759,257 2,483,007 2,481,978
Stockholders' equity 3,903,943 5,680,193 4,506,245
</TABLE>
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(1) As adjusted to reflect (i) the investment of $1.25 million in Common Stock
pursuant to Regulation S placements by the Company after March 31, 1996 and (ii)
the amended Agreements, dated April 19, 1996, with the Convatec Division of E.R.
Squibb & Sons, Inc. See "The Company - Recent Developments."
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<PAGE> 12
RISK FACTORS
AN INVESTMENT IN SHARES OF COMMON STOCK BEING OFFERED BY THIS
PROSPECTUS INVOLVES A MATERIAL DEGREE OF RISK. ACCORDINGLY, PROSPECTIVE
INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, IN ADDITION TO
THE OTHER INFORMATION CONCERNING THE COMPANY AND ITS BUSINESS CONTAINED
ELSEWHERE IN THIS PROSPECTUS, BEFORE PURCHASING SHARES OF COMMON STOCK OFFERED
HEREBY.
History of Losses. The Company's Statement of Operations for the fiscal
year ended September 30, 1995 reflects net losses of ($688,575) and net loss per
share of ($0.14). Each of MHB and ATI has a history of continuing losses. On a
combined basis, MHB and ATI incurred net losses of approximately ($1,800,000)
for their 1994 fiscal years. In addition, the Company has continued to incur
significant operating losses since September 30, 1995. For the six months ended
March 31, 1996, the net loss was ($750,360) or loss per share of ($0.15).
There can be no assurances that future revenues of the Company will
increase or that its operations will ever be profitable. See the financial
statements of the Company in the Annual Report on Form 10-KSB and the Quarterly
Report on Form 10- QSB for the period ended March 31, 1996, both of which are
incorporated herein by reference.
Going Concern Opinions Issued by Independent Auditors. Largely as a
result of the factors discussed in "History of Losses", the reports of the
Company's independent auditors relating to September 30, 1995 and prior reports
with respect to its subsidiaries (year-end) financial statements include
paragraphs expressing substantial doubt respecting the Company's ability to
continue as a going concern.
Working Capital Deficiency; Need for Additional Financing. As of March
31, 1996 and September 30, 1995, there were working capital deficiencies of
approximately ($1,100,000) and ($800,000), respectively. As of such dates, cash
and cash equivalents were approximately $74,000 and $155,000, respectively. The
Company believes that cash, together with the funds expected to be generated
from operations and net proceeds from recent offerings of its securities, are
adequate to fund operations at current levels through at least December 31,
1996. These estimates are, however, based on certain assumptions and there can
be no assurances that a sufficient level of revenues will be attained to fund
operations thereafter or that unbudgeted and/or unexpected costs will not be
incurred. Moreover, the combined transaction costs of the Company's 1995 merger
were approximately $1,000,000, including the fees of attorneys, accountants and
financial advisors. These transaction costs adversely affected the financial
condition and liquidity of the Company. Future events, including the problems,
expenses, difficulties and delays frequently encountered by similar small
companies, as well as changes in economic, regulatory or competitive conditions,
may lead to cost increases that will make
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<PAGE> 13
the Company's working capital insufficient to fund its operations in the
immediate or long-term future. If any of the above events occur, the Company may
need additional financing earlier than anticipated. After September 30, 1995,
the Company obtained a $1,250,000 credit line and raised approximately
$1,250,000 from Regulation S Common Stock placements. However, the Company has
no other arrangements presently in place to raise additional funds, either debt
or equity, and there can be no assurance that it will be able to obtain any
additional financing.
Substantial Dilution. Some of the shares of Common Stock held by the
Company's present holders of Common Stock were purchased for prices lower (some
significantly) than the prices of some of the shares now being offered. At March
31, 1996, the Company had a negative net tangible book value of approximately
$(0.23) per share. Based on an assumed public offering price of $1.96 per share
of Common Stock (the current exercise price of the Redeemable Warrants), a
purchaser in this Offering will experience immediate and substantial dilution.
Conflicts of Interests; Effects of Conflicts on Non-Affiliates. Holders
of Common Stock should be aware of certain conflicts of interest of Phildius,
Kenyon & Scott ("PKS") and Messrs. Phildius and Scott as executive officers,
directors and principal stockholders of the Company. In addition, PK&S and
Messrs. Phildius and Scott have provided significant funds to MHB pursuant to
bridge financing. These conflicts of interests could impact and may continue to
impact the business decisions of Messrs. Phildius and Scott relating to their
employment relationships with the Company and repayment of loans to PK&S.
Ability to Direct Management. Including convertible Preferred Stock and
options and warrants to acquire additional shares of the Company's Common Stock
which are exercisable within 60 days of July 31, 1996, the Company's officers
and directors and affiliates beneficially own, in the aggregate, approximately
35% of the Company's Common Stock, and may be in a position to control the
Company.
Dividend Policy. Since its inception, the Company has not paid any cash
dividend on the Common Stock. The Company intends to retain future earnings, if
any, to provide funds for the operation of its business and, accordingly, does
not anticipate paying cash dividends on Common Stock in the reasonably
foreseeable future.
Regulation S Offerings. After exploring various methods for obtaining
funds to meet its capital requirements, from November 1993 through June 1996,
the Company (and its predecessor, MHB) completed placements of 4,005,820 shares
of Common Stock pursuant to Regulation S promulgated under the Securities Act of
1933. Such shares were sold to offshore investors at prices significantly below
the then prevailing market values thereof. MHB and the Company determined that
the Regulation S placements, which resulted in proceeds of approximately
$2,603,000 to MHB and the Company (net of placement expenses), represented its
then
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<PAGE> 14
most feasible and practical funding solution. As a result of the Regulation S
placements, the pre-Regulation S stockholders of MHB suffered substantial voting
right dilution. In connection with the above-described Regulation S offerings,
an aggregate of approximately 230,000 warrants were issued to the placement
agents engaged for such offerings, of which approximately 90,000 remain
outstanding. The remaining warrants granted to such placement agents have
exercise prices significantly below the market value of Company Common Stock on
the dates of such grants. The warrants, which expire on various dates ranging
from November 1996 through December 1998, pose potential additional dilution to
the Company's stockholders.
Potential Dilutive Effect of Outstanding Warrants, Restricted
Securities and Options; Possible Impact on Future Financing. There are
outstanding a substantial amount of warrants and options to purchase Company's
Common Stock. While such warrants and options are outstanding, they may
adversely affect the ability of the Company to obtain additional equity capital
or debt financing and adversely affect the market price of the Common Stock. In
addition, because the exercise prices of some of the warrants and options are
below the current market price of the Common Stock, if such warrants and options
were exercised, additional substantial dilution to the Company's stockholders
could eventually result. Moreover, a significant number of shares of the Common
Stock, including those issuable upon conversion of Preferred Stock and exercise
of options, will be "restricted securities" under the Securities Act and may be
sold under the Securities Act under certain circumstances (including the passage
of time) without registration pursuant to Rule 144 under the Securities Act.
Also, certain shares of the Company's Common Stock outstanding or issuable
pursuant to warrants have been registered pursuant to demand or piggy-back
registration rights granted by or assumed by the Company. The sale or
availability for sale of substantial amounts of the Company's Common Stock or
other securities convertible into Company's Common Stock, pursuant to Rule 144,
registration rights or otherwise, could adversely affect the market prices of
the outstanding Company's Common Stock and Redeemable Warrants.
Loss of Nasdaq Listing. In order to qualify for continued listing on
Nasdaq, a company must have, among other things, at least $2,000,000 in total
assets, $1,000,000 in capital and surplus, a public float of 100,000 shares, a
market value of public float equal to $200,000, two market makers and a minimum
bid price of $1.00 per share of common stock. If an issuer does not meet the
$1.00 minimum bid price standard, it may, however, remain listed on Nasdaq if
the market value of its public float is at least $1,000,000 and the issuer has
at least $2,000,000 in equity. There can be no assurance that the Company will
continue to satisfy these criteria. Nasdaq has no minimum bid price standard for
warrants. Although the Company has assets of approximately $6,660,000 (a
substantial amount of which is intangible assets), if the Company becomes unable
to meet the continued listing criteria of Nasdaq and is delisted therefrom,
trading, if any, in the Company's Common Stock and the Company's
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Redeemable Warrants, would thereafter have to be conducted in the
over-the-counter market in the so-called "pink sheets" or, if available, the
"Electronic Bulletin Board". As a result, an investor likely would find it more
difficult to dispose of, and to obtain accurate quotations as to the value of
the Company's securities and the absence of a more liquid trading market may
adversely affect the prices thereof.
Risks of Low-Priced Stocks. If the Company's securities were delisted
from Nasdaq, they may become subject to the "penny stock" rules under the
Exchange Act, which impose additional sale practice requirements on
broker-dealers which sell securities to persons other than established customers
and "accredited investors" (generally, individuals with net worths in excess of
$1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their
spouses). For transactions covered by this Rule, a broker-dealer must make a
special suitability determination for the purchaser and must have received the
purchaser's written consent to the transaction prior to sale. Consequently, the
Rule may adversely affect the ability and/or willingness of broker-dealers to
sell the Company's securities and may adversely affect the ability of holders to
sell the Company's securities.
The Commission has adopted regulations which define a "penny stock" as
any equity security that has a market price (as therein defined) of less than
$5.00 per share, subject to certain exceptions. For any transaction involving a
penny stock, unless exempt, the rules require the delivery, prior to any
transaction in a penny stock, of a disclosure schedule prepared by the Company
in accordance with guidelines established by the Commission relating to the
penny stock market, including information regarding a broker-dealer's
obligations to a customer under the penny stock rules under the Exchange Act.
Disclosure must also be made about commissions payable to both the broker-dealer
and the registered representative and setting forth current quotations for the
securities. Finally, monthly statements must be sent disclosing recent market
value information for the penny stock held in the account. If the foregoing
rules were applicable to the Company's securities, they could make it more
difficult to trade such securities in that compliance with such rules could
delay and/or preclude certain trading transactions. As a result, this could have
an adverse effect on the liquidity and/or price of such securities.
The foregoing penny stock restrictions will not apply to the Company's
securities if such securities are (i) listed on the Nasdaq National Market
System or are otherwise listed on Nasdaq and have price and volume information
with respect to transactions in such securities provided on a current and
continuing basis or (ii) meet certain minimum net tangible assets or average
revenues criteria. Although the Company's securities currently are generally
exempt from such restrictions, there can be no assurance that the Company's
securities would likely qualify for exemption from these restrictions in the
future.
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Uncertainties from Health Care Reform and Evolving Industry. The
Company is subject to industry conditions, regulatory changes and economic
conditions affecting the industry in general. Over the last two years, a large
number of Federal healthcare reform bills have been proposed. However, none of
these bills have achieved broad-based Congressional support, and the potential
benefits or harms of any further reform legislation cannot be determined at this
time. In addition, the health care industry is undergoing substantial changes
many of which result from technological advances and regulatory efforts to
respond to these developments. The Company cannot accurately predict the extent
to which future changes in health care costs, treatment technology and industry
regulations will affect the Company's operations or financial condition.
Dependence Upon Personnel. The Company relies heavily upon the
experience and abilities of its senior management and the loss of any one or
more of such individuals, particularly the Chairman of the Board of Directors
and Chief Executive Officer, Peter P. Phildius, and the Company's Chief
Operating Officer and President, Douglas W. Scott, would likely have a material
adverse effect on the Company and its financial condition.
Barriers to Takeover. The Company is governed by the provisions of
Section 203 of the Delaware General Corporation Law, an anti-takeover law
enacted in 1988. In general, the law prohibits a public Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. "Business combination" is defined to include mergers, asset
sales and certain other transactions resulting in a financial benefit to the
stockholders. An "interested stockholder" is defined as a person who, together
with affiliates and associates, owns (or within the prior three years, did own)
15% or more of a corporation's voting stock. As a result of the application of
Section 203, potential acquirors of the Company may be discouraged from
attempting to effect an acquisition transaction with the Company, thereby
possibly depriving holders of the Company's securities of certain opportunities
to sell or otherwise dispose of such securities at above market prices pursuant
to such transactions. In addition, in the event of certain changes of control of
the Company (as defined in the Company's Equity Plan) outstanding options
granted pursuant to the Company's Equity Plan will become immediately
exercisable in full. Such acceleration of exercisability may also discourage
potential acquirors of the Company.
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RISKS RELATING TO MHB'S BUSINESS
Dependence on Key Clients and Psychiatric Review Service Area. During
fiscal year 1995, MHB's largest client, Chubb, accounted for 42% of MHB's
revenues in that year. During the first six months of fiscal year 1996, Guardian
was MHB's largest client and accounted for 24% of MHB's revenues in that six
month period. MHB has become highly dependent on its Psychiatric Review Services
business in relationship to the other services it provides. Therefore, MHB could
be materially affected by adverse developments in such area, as compared to a
more diversified company. During fiscal year 1995, MHB's second largest client,
Guardian, accounted for 33% of MHB's revenues during that year. As a result, for
fiscal year 1995, the two largest clients of MHB accounted for approximately 75%
of MHB's total revenues and 51% of the Company's total revenues. During the
first six months of fiscal year 1996, the same two clients accounted for 44% of
MHB's total revenues and 19% of the Company's total revenues. MHB's arrangements
with Chubb and Guardian are terminable at any time without liability by such
clients. The Company believes that the loss of either of these clients could
have a material adverse effect on the operations and financial condition of MHB.
All of the services provided to Chubb and Guardian were Psychiatric Review
Services.
Uncertain Market for MHB's Services. Even if sufficient funds were
available to implement the Company's future plans for MHB, there can be no
assurance that the Company will be able to locate and reach and maintain
agreements with sufficient purchasers or users of its services to attain and
sustain a profitable level of operations. Correspondingly, there can be no
assurances that MHB's programs will be successfully marketed and administered or
that MHB's operations will ever become or remain profitable. See "Increasing
Competition" below.
Performance-Based Pricing. For MHB's principal service area,
Psychiatric Bill Review, remuneration is based primarily on actual dollars
recovered by audits of psychiatric hospital bills. MHB is separately reimbursed
by almost all its Psychiatric Review Services clients for medical records and
physician review expenses. However, MHB assumes the risk for the personnel,
systems and administrative expenses involved in conducting bill reviews with no
assurance of the actual savings and, therefore, the actual revenues which will
be generated. To date, MHB has been successful in achieving profitable margins
with performance-based pricing but there can be no assurance that such margins
will continue to be realized. Further, MHB is experimenting with alternative
remuneration arrangements, and has established with two customers an arrangement
based on the dollar value of the bills reviewed. There can be no assurance that
alternative remuneration arrangements can be implemented with other clients, or
that such alternative approaches will be more or less profitable than
performance-based pricing.
Lack of Operating History; Changes in MHB. MHB changed its original
business focus in 1989 from being a preferred provider
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<PAGE> 18
organization to a cost containment service organization. As such, MHB generally
commenced its present type of operations in January 1989 and, therefore, has a
somewhat limited operating history for such operations. In addition, MHB has,
over the last few years, attempted to establish (at significant cost and effort)
services, such as workers' compensation injury management and retrospective
Medical Bill Review conducted in-house, which it subsequently found to be
unprofitable. On the other hand, while MHB has established its Psychiatric Bill
Review and Utilization Review Services, which have recently become both
marketable and profitable, it has become increasingly dependent on such service
areas and, as a result, less diversified. See "Dependence on Key Clients and
Psychiatric Review Service Area". In light of this limited and evolving
operating history, and MHB's operating losses, the likelihood of the future
success of MHB must be considered in light of the problems, expenses,
difficulties, risks and complications frequently encountered in connection with
a relatively new and changing business.
Increasing Competition. While the industry in which MHB competes is
relatively young, many other companies, some in related industries, presently
provide services similar to those provided by MHB. Many of these companies have
and/or will have greater financial, marketing, administrative and other
resources than MHB. In an industry and environment that is characterized by
rapid change, in addition to probable regulatory changes of unknown scope and
extent, entities with greater financial wherewithal and other resources than the
Company will be better able to adapt to such changes and prosper in such an
environment. See "Uncertainties from Health Care Reform and Evolving Industry"
above and "Governmental Regulation" below. Moreover, the Company believes that
competition in the health care cost-containment industry is likely to increase
as the industry matures and as more companies both enter the market and expand
the services which they offer. The Company believes that as the industry matures
price will become an increasingly important competitive factor. As a result, the
revenues generated from, and the potential profitability of, certain or all of
MHB's services may be reduced, possibly drastically, as price competition
intensifies, and such reduction could have a material adverse effect on the
business and financial condition of MHB.
Governmental Regulation. Since 1992, several states have enacted
legislation requiring licensure of companies conducting utilization review
services. In January 1993, MHB became licensed to conduct Psychiatric
Utilization Review Services in the State of Connecticut which license was
renewed, most recently in October 1995. MHB intends, to the extent possible, to
renew such license annually. MHB believes that a total of 27 states (including
Connecticut) presently regulate the type of utilization and bill review services
conducted by MHB in its Psychiatric Review Services area. MHB believes that the
nature and scope of its services in this area should not subject it to
regulation by any state other than Connecticut, the location of its only
offices. However, in June 1994, two of MHB's principal clients required that MHB
fulfill the licensing requirements
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<PAGE> 19
imposed by any state before performing services for them in that state. In order
to eliminate any perceived risk by any of its clients, MHB has applied for
licensure in 24 of the states that require licensing and has obtained licenses
in 21 of such states. MHB has found that the regulations governing licensure in
the remaining three states would prohibit MHB from using performance-based
pricing, which would be unprofitable to MHB and, therefore, has opted not to
pursue licenses in such states. Although the laws regulating utilization
management firms, like MHB, vary from state to state, MHB's experience has been
that the requirements for obtaining licensure generally address reviewers'
qualifications, review criteria, timeliness of reviews and the appeal process.
Based upon these factors, the Company believes that MHB is reasonably likely to
be able to meet the licensure requirements of most or all of the remaining three
states in which it has not yet obtained a desired license. There can be,
however, no assurance that it will obtain licenses in each of these states and
maintain licenses in such states and/or the other states in which it presently
has licenses, and the failure to do so could cause one or both of the
above-mentioned principal clients of MHB to terminate or reduce the level of
their relationships with MHB. In any event, the Company expects to incur
significant expenses of time and money in applying for such licenses and in
maintaining its status by complying with applicable state regulatory
requirements.
Regulation of the health care field generally and the area of
cost-containment, in particular, has been increasing and is evolving. Stringent
regulation of this service area and/or an increase in governmental involvement
which lead to regulation of MHB's other operations (and/or its customers, such
as insurance companies) could have a material adverse effect on MHB, its
financial condition and operations. In particular, MHB's business could be
materially adversely affected by its failure to obtain any required licenses and
governmental approvals, its failure to comply with applicable regulations or
significant changes in regulations applicable to its clients. MHB cannot predict
the effect various health care reform proposals submitted to Congress will have
on its business. Finally, although cost-containment is not believed to
constitute the practice of medicine under any state law, if a state should
determine cost-containment to be the practice of medicine, any business
conducted by MHB in that state could be materially adversely affected.
Joint Marketing Agreements and Dependence on Others. MHB has invested
significant time and money in connection with a joint marketing agreement with
Medgate, Inc. ("Medgate") to market Medgate's cost control software. In January
1993, pursuant to such joint marketing agreement, MHB purchased shares of the
common stock of Graph/Max Inc., the parent company of Medgate, for $50,000. The
value of such stock has been written off. MHB has incurred approximately
$100,000 in other expenditures made in fulfillment of the terms of the joint
marketing agreement. Any eventual successes of such agreement and any other
joint marketing agreements are largely within the
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<PAGE> 20
control of Medgate and any other joint marketer and MHB is substantially
dependent on the efforts of such other firms for its own success in such
programs.
Malpractice and Other Liability. MHB is not itself rendering health
services and, accordingly, believes that it is ineligible to obtain medical
malpractice insurance. MHB maintains general liability insurance coverage in the
amount of $1,000,000. MHB also has professional liability insurance coverage of
up to $5,000,000 per claim and $5,000,000 in the aggregate. There can be no
assurances that MHB will not be subject to lawsuits or proceedings as a result
of its activities, or that any such lawsuits or proceedings will not result in a
recovery against MHB in excess of its liability insurance coverage or involve
matters not covered by its insurance coverage. While MHB believes that its
insurance coverage is presently adequate, there can be no assurances that it
will not incur losses in excess of such coverage or in connection with
activities for which it may be uninsured. In addition, in providing certain of
its services, MHB may be deemed to have influenced the treatment of patients and
thereby become liable, in whole or in part, for damages incurred as a result of
patient mistreatment. While MHB does not believe that the services it provides
involve an aggressive intervention in patient treatment, there can be no
assurances that MHB would not be found liable for negatively influencing the
treatment of patients and, if so, in substantial amounts.
Securities Laws Violations. In connection with certain of its private
placements of securities following MHB's initial public offering in October
1987, MHB failed to comply with certain requirements of state securities laws in
some jurisdictions in which its securities had been offered or sold. Prior to
the replacement of MHB's prior senior management with its present senior
management, following the completion of its initial public offering in 1987, MHB
became subject to the reporting requirements of the Exchange Act. As a result,
MHB was required to file a report on Form 10-Q for the fiscal quarter ended June
30, 1987 and a report on Form 10-K for the fiscal year ended September 30, 1987
(containing audited financial statements). Pursuant to Section 15(d) of the
Exchange Act, a company's obligation to file reports under the Exchange Act is
automatically suspended as to any fiscal year, other than the fiscal year within
which a registration statement became effective, if at the beginning of such
fiscal year, the securities of a class to which the registration statement
relates are held of record by less than 300 persons. As of October 1, 1987,
there were less than 300 record holders of the MHB Common Stock. Accordingly,
MHB's obligation to file reports pursuant to Section 15(d) was automatically
suspended by statute as of such date. However, pursuant to Rule 15-d-6
promulgated under the Exchange Act, an issuer whose duty to file reports
pursuant to Section 15(d) is suspended shall be required, within 30 days after
the beginning of the first fiscal year in which it is no longer required to file
such reports, to file a notice on Form 15 informing the Commission of such
suspension. MHB failed to timely file a report on Form 10-Q for the fiscal
quarter ended
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June 30, 1987 and a report on Form 10-K for the fiscal year ended September 30,
1987 or a Form 15. MHB's management determined to file and did file such reports
and Form 15 in October 1991. In addition, MHB failed to provide its stockholders
with annual reports containing audited financial statements, as had been
undertaken in the registration statement in connection with MHB's initial public
offering. The Commission has not written or otherwise communicated with MHB, the
Company or its counsel regarding the late filings. The Company cannot predict,
however, with any certainty, whether and to what extent any penalties or
sanctions will be imposed against it under these state and Federal securities
laws. There are no pending legal proceedings relating to any of the above
violations of law.
RISKS RELATING TO ATI'S BUSINESS
Incurred and Expected Losses; Uncertainty of Product Revenues. ATI has
incurred significant operating losses for the last several years, and it is
expected that ATI will incur continued operating losses as it continues to
change its focus from providing product design and development services to
manufacturing, marketing and selling products. As ATI shifts its focus, it must
also increase its development expenditures for new products and product
improvements. No assurance can be given that ATI's existing and future products
will be successfully developed for commercialization or accepted by the
marketplace or that sufficient revenues will be realized to support future
research and development programs. Delays in the realization of product revenues
may prevent or substantially delay continuing research, development,
manufacturing and marketing efforts and could have a material adverse effect on
the Company, particularly if the Company is unable to raise additional capital
to fund such activities.
Limited Exposure to Medical Community. In terms of its present business
operations, ATI is essentially a start-up entity in a health care climate that
is difficult even for established companies. To date, the medical and dental
communities have had limited exposure to ATI and its technologies. Because the
medical and dental communities are skeptical of new companies and new
technologies, ATI might be unable to gain access to potential customers in order
to demonstrate the operation and possible efficacy of its products. Some
purchasers might be reluctant to purchase devices manufactured by a small
company, like ATI , for fear that such company will be unable to supply such
product or to continue in existence in the future. Even if ATI gains access to
potential customers, no assurance can be given that members of the medical and
dental communities will perceive a need for or accept ATI's products.
Lack of Marketing Experience: Dependence on Third-Party Distributors.
ATI has only limited experience in the direct marketing of medical and dental
devices, and its sales and marketing staff currently consists of only one
employee. ATI is marketing its products through distribution arrangements with
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<PAGE> 22
established health care companies and has entered into distribution arrangements
with other companies for geographical marketing rights to certain products
developed by ATI. In such cases, ATI is substantially dependent on the efforts
of its distributors to generate product revenues for ATI. There can be no
assurance that such distributors will be successful. If ATI is unable to engage
qualified independent distributors or strategic partners to sell or distribute
its products, its market penetration will be restricted, and its ability to
commercialize its products will correspondingly be restricted, if not entirely
eliminated.
Termination of License; Effects of Breach of Convatec Agreements. In
March 1994, after expending approximately $234,000 and a great deal of time and
effort to acquire and develop an exclusive license granted to it to distribute a
diagnostic test for periodontal disease called Perio-AlertTM, such license was
terminated by the licensor. Such license terminated after ATI sold less than
$1,000,000 of Perio-AlertTM, which resulted in ATI's failure to incur any
royalty obligations to the licensor.
Prior to the termination of the Perio-AlertTM license, ATI's resources
were principally focused upon developing and expanding its distribution of such
product. As a result of the termination of the license, however, ATI has shifted
its business focus to the HydrasorbTM line of products. ATI has incurred
significant costs and expenses in the course of such transformation, and has
encountered the difficulties, dislocations and delays associated with shifting
the focus of a business from one product line to another.
The terms of ATI's License and Supply Agreements with Convatec with
respect to ATI's HydrasorbTM products provide that if ATI were to materially
breach such agreements, become subject to a bankruptcy proceeding or suspend its
business operations, Convatec would thereupon have the right to manufacture and
sell HydrasorbTM products in the territory covered by such agreements on its own
behalf. Such an event could result in ATI having a significant competitor for
its HydrasorbTM products, which could have a material adverse effect on ATI's
operating results and financial condition.
Reliance on Limited Product Lines. To date, ATI's sales revenues have
been derived from a limited number of product lines, the continued sales of
which cannot be assured. Although ATI is attempting to expand the markets for
its existing product lines and to develop and market additional products, there
can be no assurance that ATI will be successful in doing so.
Possible Demand Decrease. The current health care reimbursement climate
as well as the uncertainties caused by the proposed health care reform plans are
imposing great pressures on such providers to defer capital purchases and reduce
the number and variety of inventories that they may have maintained previously.
It is possible, therefore, that the demand for ATI
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<PAGE> 23
products may decrease as a result of hospitals and other health care providers
streamlining their respective inventories. Because the medical and dental
communities are often skeptical of new companies and new technologies and
products, ATI might be unable to gain access to potential customers in order to
attempt to demonstrate what ATI believes to be the benefits of its products.
Even if ATI gains access to potential customers, no assurance can be given that
members of the medical or dental communities will perceive a need for or accept
its products. Even if ATI or its product distributors are successful in
convincing doctors, hospitals, clinics and other potential users of ATI's
products of the benefits and advantages of such products, these potential users
might be unwilling or unable to commit funds to the purchase of HydrasorbTM or
other ATI products due to institutional constraints.
Obsolescence of Products; Uncertainties Associated with Development
Activities. It is expected that technological developments will continue at a
rapid pace in the medical and dental products industries, and there can be no
assurance that technological developments will not cause ATI's technologies and
products to be rendered obsolete. ATI's future success will be dependent upon
its ability to be competitive in the development and delivery of effective
medical and dental products. Many companies with substantially greater resources
than ATI are actively engaged in research and development of new products and in
the manufacture and sale of products which compete with ATI's products. Present
or future products of ATI could be rendered obsolete or obsolescent by
technological advances by others. Development activities, by their nature,
preclude definitive statements as to the time required and costs involved in
reaching certain objectives. Due to the limited amount of funds available to
ATI, ATI has reduced and may have to continue to reduce product development
efforts and/or the Company may seek additional financing. In particular, the
Company has limited funds to acquire technologies and equipment used in ATI's
development activities.
Dependence Upon Suppliers. ATI does not have written agreements with
any of its suppliers, and acquires the key components for its HydrasorbTM wound
care from a single supplier. ATI's current supplier of such key components is
the only vendor presently meeting ATI's qualifications. The loss of this
supplier would, at a minimum, require ATI to locate another satisfactory vendor
and/or pay increased costs and experience disruptive delays. If ATI could not
identify a substitute vendor or establish a commercial relationship if such a
vendor is identified, ATI may be required to cease further manufacturing and
sales of its HydrasorbTM products. Such cessation could have a material adverse
effect on ATI, its operations and financial condition and could possibly result
in the termination of ATI's business.
Substantial Regulation by Government Agencies. Many of ATI's products
are subject to regulation by the Food and Drug Administration (the "FDA") and
comparable agencies in various
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states and foreign countries requiring, among other things, pre-market approval
or clearance of new medical or dental devices. In addition, ATI 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 and/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.
Such submissions and review by the FDA could take several years, after which
there could be no assurance that approval would be granted. In February 1994, as
a result of a FDA GMP (Good Management Practices) facility inspection, ATI
received a warning letter from the FDA regarding certain GMP violations. ATI
responded to this letter by taking necessary corrective actions and notifying
the FDA in writing of these corrective steps. The FDA has informed ATI that its
subsequent inspection, in December 1994, confirmed that the corrective actions
taken by ATI were satisfactorily implemented.
Competition. The medical and dental products businesses are intensely
competitive. Most of ATI's present competitors have substantially greater
financial, marketing, administrative and other resources and larger development
staffs than ATI and the Company. In addition, many of such competitors sell a
broader range of dental and medical products than ATI and may be less vulnerable
to changes in the market for such products and changes in regulatory or general
economic conditions.
Dependence on Intellectual Property; No Assurance as to Protection of
Intellectual Property. ATI's ability to compete effectively with other companies
will depend, in part, on its ability to maintain the proprietary nature of its
technologies. ATI intends to rely substantially on unpatented proprietary
information and know-how, and there can be no assurance that others will not
develop such information and know-how independently or otherwise obtain access
to ATI's technology. Similarly, there can be no assurance that ATI's proprietary
technology will not infringe patents or other rights owned by others, licenses
to which may not be available to ATI. Certain of ATI's scientific advisors may
develop portions of ATI's proprietary technology at their respective
universities, and there can be no assurance that the universities will not
assert rights to intellectual property arising out of university-based research
conducted by ATI's consultants or scientific advisors. If ATI is unable to
adequately safeguard and exploit its methods and technologies, its ability to
compete with other companies, a majority of which have greater financial,
technological, human and other resources than the Company, would be materially
adversely affected.
Risk of Product Liability; Limited Insurance Coverage. The testing,
marketing and sale of medical and dental products entails a risk of product
liability claims by consumers and others. Since June 1990, ATI has maintained
product liability
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insurance coverage and currently has such insurance in the amount of up to
$5,000,000. This insurance will not cover liabilities caused by events occurring
prior to the time such policy was purchased by ATI, liabilities caused by events
occurring after such policy is terminated or claims made after 60 days following
termination of the policy or in respect of events excluded from coverage. There
can be no assurances that such insurance will continue to be available at a
reasonable cost, if at all, or will be sufficient to cover all possible
liabilities. In the event of a successful suit against ATI, lack or
insufficiency of insurance coverage would have a material adverse effect on ATI.
Further, certain distributors of medical and dental products require minimum
product liability insurance coverage as a condition precedent to purchasing or
accepting products for distribution. Failure to satisfy such insurance
requirements could impede the ability of ATI to achieve broad distribution of
its products which would have a material adverse effect on ATI.
ATI Securities Laws Violations. ATI's predecessor failed to amend its
Form 10-K for the fiscal year ended July 31, 1992 to include in the Form 10-K
certain information required under the Exchange Act. ATI no longer has its
securities registered under the Exchange Act. There can, however, be no
assurance that the Commission or others will not impose monetary or other
penalties, or take action against the Company, as successor to ATI's
predecessor, as a result of such securities laws violations.
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THE COMPANY
Introduction
Avitar, Inc. (formerly Managed Health Benefits Corporation and
used herein as the "Company") acquired Avitar, Inc., a publicly held corporation
("Old Avitar") pursuant to a merger transaction in which Old Avitar merged with
and into a wholly-owned subsidiary of the Company (the "Merger"). Pursuant to
the Merger, which was effective on May 19, 1995, the Company changed its name to
Avitar, Inc. The surviving corporation in the Merger, which holds all the assets
and business of Old Avitar, is named Avitar Technologies, Inc. and is referred
to herein as "ATI". Following the Merger, the Company transferred all of its
pre-merger business and assets to a wholly-owned subsidiary now named Managed
Health Benefits Corporation ("MHB"). The Company is now a holding company with
two operating subsidiaries. Through MHB and ATI, the Company provides health
care cost containment services and produces disposable medical and dental
products. For the fiscal year ended September 30, 1995, which included the
results of operations of ATI from May 19, 1995, MHB's business accounted for 68%
and ATI's business accounted for 32% of the Company's aggregate revenues.
The Company's strategic goals continue to evolve as management has
responded to rapid changes and anticipated additional changes in the health care
field in general, and in mental health care and disposable medical and dental
products in particular. Increased pressure on health care costs, intense
competition among health care insurers and providers, reduced usage of certain
mental health care services and a consolidation of large health care
organizations, among other factors, have lead management to conclude that it is
necessary to develop new products and services.
The Company anticipates continuing to add and develop new products and
service systems to better enable itself to compete in the rapidly-changing
health care environment.
The Company's executive offices are located at 556 Washington Avenue,
Suite 202, North Haven, Connecticut 06473 and
its telephone number is (203) 234-7737.
Recent Developments.
During the second calendar quarter of 1996, the Company completed
placements of 1,615,260 shares of Common Stock to non-U.S. investors pursuant
to Regulation S under the Securities Act of 1933 in exchange for net proceeds
of approximately $1.25 million.
In addition, 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 a certain Supply Agreement, dated
June 30, 1994, relating to ATI's principal product, Hydrasorb(TM) wound
dressings. Pursuant to the amended agreements, Convatec
-23-
<PAGE> 27
immediately compensated the Company $250,000, all of which will be recognized as
income during the quarter ended June 30, 1996. Furthermore, 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 (of which $276,250 was outstanding as of March 31, 1996). As a
result of the amended agreements, which deleted the obligation of Convatec to
acquire all of its foam wound dressing requirements from ATI, it is possible
that sales to Convatec may decrease. The amended agreements also permit the
Company to sell Hydrasorb(TM) wound dressings through other companies.
Managed Health Benefits Corporation
MHB is in the business of providing containment services to assist
employers and other third-party payors in controlling the costs of group
medical, workers' compensation and disability benefits. The benefit cost
containment industry is a part of the general managed care industry, which
includes health maintenance organizations ("HMOs") and preferred provider
organizations ("PPOs"). The HMO and PPO managed care models attempt to control
costs by being more efficient service providers. Cost containment companies
pursue essentially the same objective by enabling payors to more effectively
manage claims.
Cost containment companies specialize in providing services to those
who pay the bills for health care in the United States. These third-party
payors, which include self-insured employers, governmental employers, insurance
companies, union health and welfare plans and claims administration
organizations, frequently do not have control over the provision of services yet
directly incur the rising costs of health care. Cost containment companies
provide services designed to improve the accuracy and appropriateness of claims
expenditures. In addition, cost containment companies provide services to
managed care payors such as HMO's and PPO's.
MHB has targeted certain economically significant areas where it
believes health benefit payors have difficulty in controlling costs: mental
health, hospitalization and occupational health and safety.
MHB's business strategy in each of its service areas is ultimately to
create a relationship of shared risk and reward with its clients. Presently, MHB
has implemented this strategy with most of its Bill Review Services clients.
Under this strategy, MHB attempts to work with its clients in reducing and/or
recovering the costs of healthcare treatment in a manner which is mutually
beneficial, and in which there is an incentive for both MHB and its clients to
address costly health care treatment in an efficient and cost-effective manner.
Each of MHB's principal service areas are briefly described in the
Company's most recent Annual Report on Form 10-KSB, which is incorporated
herein. Additional information is included in the Company's Quarterly Reports on
Form 10-QSB for the periods
-24-
<PAGE> 28
ended December 31, 1995 and March 31, 1996, which are incorporated herein.
During the six months ended March 31, 1996, MHB derived 92% of its
revenues from Psychiatric Review Services and 7% from sales of Medgate
occupational health, safety and environmental cost control software, both of
which are described in the Annual Report.
Avitar Technologies, Inc.
ATI was founded in 1979 to provide product design and development
services to medical device manufacturers. In the course of providing these
services, ATI developed proprietary biomaterials and processing technologies
that it has applied and intends to continue to apply to a variety of medical and
dental products. In 1989, ATI undertook a strategic shift from product design
and development to the commercial exploitation of its core technologies. This
strategy included the establishment of distribution agreements with large
medical product companies to market products designed, and/or licensed, and/or
manufactured by ATI. ATI currently has marketing relationships with major
medical products firms including Convatec, Smith & Nephew Richards, Inc., Medi
Bayreuth, and Knoll Pharmaceutical, Inc.
ATI does not conduct pure research activities. ATI's primary
development strategy is to develop proprietary products through the generation
and development of product ideas either internally or through strategic
partnerships with persons and entities in the health care or dental fields.
Although secondary to its primary objective, ATI also intends to actively pursue
fee-for-service product design and development arrangements. The ability of ATI
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.
ATI intends to continue to focus on developing proprietary products
related to the health care and dental markets. Whether such products are
developed entirely internally, or in conjunction with strategic partners, a
product will go through several stages of development. After each stage, ATI
will conduct studies to determine the effectiveness of such product. If ATI has
a strategic partner with respect to the development of a particular product, the
strategic partner may also test the product as it is being developed.
Currently, ATI offers the following products which utilize its
proprietary medical polyurethane technology.
- Hydrasorb(TM) wound dressings.
- Customized medical polyurethane products including
bone fixator dressings and island dressings,
mouthpieces and several proprietary products, which
are currently in the development stage.
-25-
<PAGE> 29
Each of ATI's major product offerings are described in more detail in
the Company's most recent Annual Report on Form 10-KSB which is incorporated
herein. Additional information is included in the Company's Quarterly Reports on
Form 10-QSB for the periods ended December 31, 1995 and March 31, 1996, which
are incorporated herein by reference.
For the six months ended March 31, 1996, ATI's Hydrasorb(TM) wound
dressings product line accounted for approximately 69% of its revenues and the
custom medical polyurethane products category accounted for approximately 31% of
its revenues.
In April 1996, ATI and Convatec, a division of E.R. Squibb and Sons,
Inc., determined that it was necessary to modify and clarify their rights and
obligations under the 1994 Supply and License Agreements in light of intervening
business developments, facts and circumstances. In consideration for these
amendments to the agreements, Convatec immediately compensated ATI $250,000 and
agreed to eliminate ATI's obligation to repay any of the $425,000 received from
Convatec in July 1994 as a licensing fee.
See "Recent Developments" above.
In March 1996, ATI entered into a license agreement with Simplex
Medical Systems, Inc. for the production of saliva collection devices.
Thereafter, ATI entered into an agreement with a medical company to produce
saliva collection devices for test kits. In July 1996, that customer reported
the results of correlation studies using its test kits incorporating the
Company's saliva collection device. These studies were conducted in a group of
300 patients tested for HIV and a 300 patient group tested for hepatitis. Both
studies showed a 100% correlation when compared to the results of the standard
control tests. In view of these positive test results, the Company's managers
hope that sales of the saliva collection devices will increase, although there
can be no assurances that such sales increase will in fact occur.
USE OF PROCEEDS
If all of the Redeemable Warrants and Other Warrants were exercised,
the net proceeds to the Company from the sale of the Common Stock offered by the
Company pursuant to such Warrants are estimated to be approximately $21,600,000.
To the extent that the Company receives any proceeds from the exercise of such
Warrants, the Company expects that such proceeds would be used to continue to
expand the business of the Company and for general working capital purposes.
More specifically, the Company expects that any such proceeds would be used to
develop and expand its operation and administrative systems; to expand its sales
and marketing activities; and for product and service development and possible
acquisitions. However, there can be no assurance that all, if any, of such
Warrants will be exercised. If only a small part of the offering is sold, a
larger proportion of the proceeds would be used for sales and marketing
activities. If a majority or larger proportion of the offering is sold, once
management has determined that sufficient expenditures have been
-26-
<PAGE> 30
made for operation and administrative systems and sales and market activities, a
larger proportion of the remaining proceeds would be devoted to product and
service development and possible acquisitions. The Company will not receive any
proceeds from the sale of shares of Common Stock by the Selling Stockholders.
-27-
<PAGE> 31
DETERMINATION OF OFFERING PRICE
The Company is offering 12,707,388 shares at the current exercise
prices provided in the Redeemable Warrants and Other Warrants as set forth
below:
<TABLE>
<CAPTION>
==========================================================================================================
Warrants Number of Number of Exercise
Warrants Shares Price
per Share
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Redeemable Warrants 2,733,219 9,761,496 $ 1.96
issued August 1992 and
May 1995
- ----------------------------------------------------------------------------------------------------------
D.H. Blair Warrants 62,500 142,857 $ 0.035
issued June 1991
- ----------------------------------------------------------------------------------------------------------
Warrants issued 122,000 272,321 $ 1.12
February 1992
- ----------------------------------------------------------------------------------------------------------
Bridge Financing with 300,000 300,000 $ 0.65
PKS issued September
1994
- ----------------------------------------------------------------------------------------------------------
Bridge Financing with 1,485,000 1,485,000 $ 0.50
PKS and others issued
December 1994 to May
1995
- ----------------------------------------------------------------------------------------------------------
Avitar Lease Warrants 150,000 150,000 $ 0.50
issued March 1995
- ----------------------------------------------------------------------------------------------------------
Redeemable Warrants 166,800 595,714 $ 1.96
issuable upon exercise
of 1992 Underwriter's
Warrants
- ----------------------------------------------------------------------------------------------------------
TOTAL 12,707,388 --
==========================================================================================================
</TABLE>
The Selling Stockholders may sell their shares of Common Stock at
market prices. The closing asked price for Common Stock reported on Nasdaq on
July 26, 1996 was $1.03125.
-28-
<PAGE> 32
SELLING STOCKHOLDERS
The Selling Stockholders are listed below together with the number of
shares now owned by each, the number of shares to be offered and the percentage
of class to be owned by each after the offering is complete. None of the Selling
Stockholders has any material relationship with the Company other than ownership
of shares of Common Stock, except that James Groth, George Witt and Craig Taylor
are directors of the Company.
<TABLE>
<CAPTION>
==================================================================================================
Selling Shares Shares Percentage
Stockholders Now Owned Offered of Class
Post-
Offering
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James Groth (Director) 76,647 6,647 1.01%*
- --------------------------------------------------------------------------------------------------
George Witt (Director) 40,127 6,647 **
- --------------------------------------------------------------------------------------------------
Craig Taylor (Director) 8,317 4,674 **
- --------------------------------------------------------------------------------------------------
Wallace MacDermott 100,000 100,000 **
- --------------------------------------------------------------------------------------------------
Thomas O. Murphy 100,000 100,000 **
- --------------------------------------------------------------------------------------------------
Richard Brown, Jr. 59,783 59,783 **
- --------------------------------------------------------------------------------------------------
Scott Cronk 25,000 25,000 **
- --------------------------------------------------------------------------------------------------
Richard Brown, Sr. 20,833 20,833 **
- --------------------------------------------------------------------------------------------------
Linda Brown 20,833 20,833 **
- --------------------------------------------------------------------------------------------------
Robert Gallo 16,667 16,667 **
==================================================================================================
</TABLE>
* Based on the assumption that all 6,647 shares are sold,
but no other shares are sold and no Warrants are
exercised.
** Less than 1% of Company's Common Stock.
-29-
<PAGE> 33
PLAN OF DISTRIBUTION
The Company intends to distribute this Prospectus to all registered
holders of Redeemable Warrants and Other Warrants. The 12,707,388 shares offered
hereby by the Company will be offered and sold in accordance with the terms of
the respective Redeemable Warrants and Other Warrants. See "Determination of
Offering Price."
The Selling Stockholders may offer their respective shares from time to
time in regular brokerage transactions on Nasdaq or to dealers, in private sales
or negotiated transactions, or otherwise, at prices related to the then
prevailing market prices. The Company will not receive any of the proceeds of
the sale of Common Stock by the Selling Stockholders. All expenses of the
registration of such securities will be borne by the Company. The Selling
Stockholders, and not the Company, will pay or assume all applicable brokerage
commissions or other costs for sale as may be incurred in the sale of such
securities.
LEGAL MATTERS
The validity of the Common Stock being offered hereby has been passed
upon for the Company by Dolgenos Newman & Cronin LLP, 96 Spring Street, New
York, New York 10012.
STATEMENT OF INDEMNIFICATION
The Company's Certificate of Incorporation, as amended, provides that a
director will not be personally liable to the Company or its stockholders for
monetary damages for the breach of his or her fiduciary duty of care as a
director, including breaches which constitute gross negligence. By its terms and
in accordance with the Delaware General Corporation Law ("DGCL"), however, this
provision does not eliminate or limit the liability of a director of the Company
(i) for breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL (relating to unlawful payments of dividends or unlawful stock
repurchases or redemptions) or (iv) for any improper benefit.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "1933 Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable.
-30-
<PAGE> 34
EXPERTS
The consolidated financial statements incorporated by reference in this
Prospectus have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the periods set forth in their report (which
contains an explanatory paragraph expressing substantial doubt about the
Company's ability to continue as a going concern) incorporated herein by
reference, and are incorporated herein in reliance upon such report given upon
the authority of said firm as experts in auditing and accounting.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are
incorporated herein by reference:
(a) The Company's Annual Report on Form 10-KSB for the year ended
September 30, 1995.
(b) The Company's Quarterly Reports on Form 10-QB for the quarters
ended December 31, 1995 and March 31, 1996; and
(c) In addition to the foregoing, all documents subsequently filed by
the Company pursuant to Section 13(a), 13(c), 14 and 15(d) of the Act (prior to
the filing of a post-effective amendment which indicates that all securities
offered hereby have been sold or which deregisters all securities remaining
unsold), shall be deemed to be incorporated by reference herein and to be a part
hereof from the date of the filing of such reports and documents.
-31-
<PAGE> 35
ADDITIONAL INFORMATION
As of July 26, 1996, the Company had an aggregate of 30,000,000 shares
of stock authorized, of which 25,000,000 shares are Common Stock and 5,000,000
shares are Preferred Stock. As of the same date, 6,966,884 shares of Common
Stock were issued and outstanding and 1,275,261 shares of Preferred Stock were
issued and outstanding. Further information concerning the Common Stock of the
Company may be found in the documents incorporated by reference above.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH
THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OR A SOLICITATION IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE CIRCUMSTANCES OF THE COMPANY OR THE FACTS
HEREIN SET FORTH SINCE THE DATE HEREOF.
-32-
<PAGE> 36
----------------------------------------
TABLE OF CONTENTS
Available Information..........................................................3
Summary........................................................................5
Risk Factors...................................................................9
The Company...................................................................23
Use of Proceeds...............................................................26
Determination of Offering Price...............................................28
Selling Stockholders..........................................................29
Plan of Distribution..........................................................30
Legal Matters.................................................................30
Statement of Indemnification..................................................30
Experts.......................................................................31
Incorporation of Documents by
Reference...................................................................31
Additional Information........................................................32
13,068,472 SHARES OF COMMON STOCK
AVITAR, INC.
-----------------------------------------
PROSPECTUS
-----------------------------------------
________, 1996
<PAGE> 37
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 14. Other Expenses of Issuance and Distribution.
The expenses in connection with the offering of shares pursuant to this
Registration Statement on Form S-3 are listed below. The Company will pay each
of these expenses.
<TABLE>
<S> <C>
Filing Fee -- Securities and Exchange
Commission $ 5,952.67
Accountants' Fee and Expenses* $ 15,000.00
Fees and Expenses of the Company's
Counsel* $ 30,000.00
Printing and EDGAR Expenses* $ 15,000.00
Miscellaneous Expenses* $ 10,000.00
-------------
Total $ 75,952.67
</TABLE>
----------
* Estimated
Item 15. Indemnification of Directors and Officers.
Section Seven of the Registrant's Certificate of Incorporation, as
amended, provides that the Registrant shall indemnify its officers, directors,
employees and agents to the fullest extent permitted by Delaware General
Corporation Law (the "DGCL"). Section 145 of the DGCL, the relevant
indemnification provision of the DGCL, provides as follows:
(a) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests
II-1
<PAGE> 38
of the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent
of a corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this
section (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in subsections (a) and (b)
of this section. Such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding even though
less than a quorum, or, (2) if there are no such directors or if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
II-2
<PAGE> 39
(e) Expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
(f) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under this section.
(h) For purposes of this section, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise, shall stand in the same position under this section with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to any employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interests of the participants and
beneficiaries of an
II-3
<PAGE> 40
employee benefit plan shall be deemed to have acted in a manner "not opposed to
the best interests of the corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement, vote
of stockholders or disinterested directors, or otherwise. The Court of
Chancery may summarily determine a corporation's obligation to advance expenses
(including attorneys' fees).
In accordance with Section 102(b)(7) of the DGCL, Section
Seven of the Certificate of Incorporation, as amended, of the Registrant
eliminates the personal liability of the Registrant's directors to the
Registrant, or its stockholders for monetary damages for breach of their
fiduciary duties as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Registrant or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for payments of unlawful dividends or unlawful
stock repurchases or redemptions, or (iv) for any transaction from which the
director derived an improper personal benefit.
Item 16. Exhibits.
Exhibit No.
5.1 Opinion re legality of Dolgenos Newman & Cronin LLP
23.1 Consent of BDO Seidman, LLP.
23.2 Consent of Dolgenos Newman & Cronin LLP
Item 17. Undertakings.
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "1933 Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to
II-4
<PAGE> 41
such information in this Registration Statement; provided, however,
that the undertakings set forth in paragraphs (1)(i) and (1)(ii) above
do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed by the Company pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934, as amended (the "1934 Act") that
are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the 1933
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for the purposes of determining any liability under the 1933
Act, each filing of the Company's annual report pursuant to Section 13(a) or
Section 15(d) of the 1934 Act that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the Prospectus, to each person to whom the Prospectus is sent
or given, the latest annual report to stockholders that is incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the 1934 Act; and, where interim
financial information required to be presented by Article 3 of Regulation S-X is
not set forth in the Prospectus, to deliver, or cause to be delivered to each
person to whom the Prospectus is sent or given, the latest quarterly report that
is specifically incorporated by reference in the Prospectus to provide such
interim financial information.
(6) Insofar as indemnification for liabilities arising under the 1933
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the
II-5
<PAGE> 42
opinion of its counsel, the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
II-6
<PAGE> 43
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of North Haven, State of Connecticut, on this 30th day
of July 1996.
AVITAR, INC.
By: /s/ PETER P. PHILDIUS
---------------------------
Name: Peter P. Phildius
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/S/ PETER P. PHILDIUS Chairman of the Board July 30, 1996
- --------------------- and Chief Executive
Peter P. Phildius Officer (Principal
Executive Officer)
/S/ DOUGLAS W. SCOTT President and Chief July 30, 1996
- --------------------- Operating Officer;
Douglas W. Scott Director
/S/ GEORGE WITT, PH.D. Director July 30, 1996
- ---------------------
George Witt, Ph.D.
Director
- ---------------------
Craig Taylor
Director
- ---------------------
James Groth
/S/ JAY LEATHERMAN Controller, Secretary July 30, 1996
- --------------------- and Chief Financial and
Jay Leatherman Accounting Officer
(Principal Accounting
and Financial Officer)
<PAGE> 44
EXHIBIT INDEX
Exhibit No.
- -----------
5.1 Opinion re legality of Dolgenos Newman & Cronin LLP
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Dolgenos Newman & Cronin LLP
II-8
<PAGE> 1
EXHIBIT 5.1
Dolgenos Newman & Cronin LLP
----------------------------
96 Spring Street, New York, N.Y. 10012
212-925-2800 Fax 212-925-0690
July 30, 1996
Avitar, Inc.
556 Washington Avenue, Suite 202
North Haven, Connecticut 06473
Tel.: (203) 234-7737
Gentlemen:
We have acted as counsel to Avitar, Inc., a Delaware corporation (the
"Company"), in connection with the Company's proposed offering of 13,068,472
shares of Common Stock, $0.01 par value (including 361,084 shares of Common
Stock to be offered by Selling Stockholders) as described in that certain
Registration Statement (and the related Prospectus) on Form S-3 executed today
by the Company and to be filed with the Securities and Exchange Commission (as
amended, the "Registration Statement" and "Prospectus") on July 31, 1996.
In rendering this opinion we have examined copies of the Registration
Statement; the Company's Certificate of Incorporation, as amended, and such
other instruments, certificates and documents as we have deemed necessary or
appropriate for the purpose of rendering this opinion.
In such examinations, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to original documents submitted to us as copies. We have
further assumed for the purpose of this opinion the due authorization and, as
applicable, the due execution and delivery by, or on behalf of, each of the
parties thereto of the above-referenced documents and all documents
contemplated by the Registration Statement to be executed.
Based on and subject to the foregoing, and limited in all respects to
matters of New York law and the General Corporation Law of the State of
Delaware, we are of the opinion that:
<PAGE> 2
Dolgenos Newman & Cronin LLP
Avitar, Inc.
July 30, 1996
Page 2
1. The Company is a corporation duly organized and validly
existing under the laws of the State of Delaware.
2. The Company has authorized capitalization of thirty million
(30,000,000) shares, of which twenty-five million (25,000,000) shares
are Common Stock, $0.01 par value, and five million (5,000,000) shares
are Preferred Stock, $0.001 par value.
3. As of the date hereof, 6,966,884 shares of Common Stock have
been duly and validly issued and are fully paid and non-assessable.
4. The shares of Common Stock included in the Registration
Statement will, when issued and paid for in accordance with the terms
and procedures set forth in the Registration Statement upon a closing
of the offering or exercise of Warrants, as the case may be,
constitute legally and validly issued, fully paid and non-assessable
shares of Common Stock.
Very truly yours,
DOLGENOS NEWMAN & CRONIN LLP
By: /s/
-------------------------------
Eugene M. Cronin
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Avitar, Inc.
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated November
17, 1995, relating to the consolidated financial statements of Avitar, Inc.
appearing in the Company's Annual Report on Form 10-KSB for the year ended
September 30, 1995. Our report contains an explanatory paragraph expressing
substantial doubt about the Company's ability to continue as a going concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/
- -----------------------------------
BDO Seidman, LLP
New York, New York
July 26, 1996
<PAGE> 1
Exhibit 23.2
CONSENT OF COUNSEL
Avitar, Inc.
We hereby consent to the filing as an exhibit to this Registration Statement of
our opinion dated July 24, 1996, relating to the validity of the Common Stock
being offered pursuant to the Prospectus constituting a part of this
Registration Statement.
We also consent to the reference to us under the caption "Legal Matters" in the
Prospectus.
In giving this consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission.
/s/ DOLGENOS NEWMAN & CRONIN LLP
Dolgenos Newman & Cronin LLP
New York, New York
July 30, 1996
