As filed with the Securities and Exchange Commission on May 30, 1997
Registration No. 333-26787
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Post-Effective Amendment No. 1
to
FORM S-8
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------------------
AVITAR, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1174053
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
------------------------------
65 Dan Road
Canton, Massachusetts 02021
(617) 821-2440
(Address of Principal Executive Office)
Avitar Stock Based Compensation Plan
---------------------------------------------
(Full Title of the Plan)
PETER P. PHILDIUS
65 Dan Street
Canton, Massachusetts 02021
(Name and Address of Agent for Service)
Copies to: EUGENE M. CRONIN, ESQ.
DOLGENOS NEWMAN & CRONIN LLP
NEW YORK, NEW YORK 10012
(212) 925-2800
<PAGE>
REOFFER PROSPECTUS
AVITAR, INC.
550,000 Shares of Common Stock
This Reoffer Prospectus relates to an offering by certain employees,
officers and directors (the "Selling Stockholders") of Avitar, Inc. (the
"Company") of an aggregate of up to 550,000 shares of common stock, $.01 par
value, of the Company (the "Common Stock"). The Common Stock was previously
issued by the Company to the Selling Stockholders pursuant to a registration
statement on Form S-8, dated May 9, 1997, in connection with a written
compensation plan whereby the Selling Stockholders are to receive shares of
Common Stock in lieu of salary .
The Common Stock may be offered from time to time by the Selling
Stockholders through ordinary brokerage transactions in the over-the-counter
markets, in negotiated transactions or otherwise, at market prices prevailing at
the time of sale or at negotiated prices. See "Selling Stockholders" and "Plan
of Distribution" and "Use of Proceeds."
The Company will not receive any proceeds from the registration of the
Common Stock. See "Use of Proceeds".
The Common Stock is listed on the SmallCap Market of the NASDAQ Stock
Market, Inc. ("NASDAQ") under the symbol: AVIT. On May 29, 1997, the closing
sale price of the Common Stock as reported by NASDAQ was $0.50.
----------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE
OF RISK AND SHOULD NOT BE PURCHASED BY INVESTORS
WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS."
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS REOFFER PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Reoffer Prospectus is May 30, 1997
<PAGE>
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-8 under the Securities Act of 1933 with respect to the securities offered
by this Reoffer Prospectus. As permitted by the rules and regulations of the
Commission, this Reoffer 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 Reoffer 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, 1996, and Quarterly Reports
for periods thereafter on Form 10-QSB. Written requests should be directed to
Jay C. Leatherman, Jr., Secretary, Avitar, Inc., 35 Thorpe Avenue, Suite 101,
Wallingford, Connecticut 06492 and oral requests at (203) 265-3594.
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 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.
<PAGE>
No person has been authorized to give any information or make any
representation not contained in this Reoffer 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 Reoffer 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 Reoffer
Prospectus or by any person in any jurisdiction where such offer would be
unlawful.
The following is a summary of certain information contained in this
Reoffer Prospectus and is qualified in its entirety by reference to the more
detailed information and consolidated financial statements appearing elsewhere
in this Reoffer Prospectus, other documents incorporated herein and in the
Registration Statement of which this Reoffer Prospectus is a part. Each
prospective investor is urged to read this Reoffer 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
healthrelated 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
May 1997, MHB furnished its services to over twenty companies such as The
Guardian Life Insurance Company, Chubb LifeAmerica, ReliaStar, Pioneer National
Life Insurance Company, Allmerica Property and Casualty Company, 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.
<PAGE>
RISK FACTORS
An Investment in shares of Common Stock being offered by this Reoffer
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 Reoffer 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, 1996 reflects net losses of ($1,591,250) and net loss
per share of ($0.28). Each of MHB and ATI has a history of continuing losses. On
a combined basis, MHB and ATI incurred net losses of approximately ($689,000)
for their 1995 fiscal years. In addition, the Company has continued to incur
significant operating losses since September 30, 1996. For the six months ended
March 31, 1997, the net loss was ($1,789,266) or net loss per share of ($0.21).
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, 1997, 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, 1996 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, 1997 and September 30, 1996, there were working capital deficiencies of
approximately ($887,000) and ($496,000), respectively. As of such dates, cash
and cash equivalents were approximately $95,000 and $371,000, respectively. The
Company anticipates that cash, together with the funds expected to be generated
from operations, net proceeds from recent offerings of its securities and
proceeds from future offerings may be adequate to fund operations until the
Company achieves profitability. However, these estimates are based on certain
assumptions and there can be no assurance that the Company will be able to
obtain such financing, that a sufficient level of revenues will be attained to
fund operations until such time and that unbudgeted and/or unexpected costs will
not be incurred. 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 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 and there can be
no assurance that it will be able to obtain such 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, 1997, the Company had a negative net tangible book value of approximately
$(0.06) per share. Based on an assumed public offering price of $0.60 per share
of Common Stock (the current exercise price of the Redeemable
<PAGE>
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 presently exercisable, the Company's officers and directors and
affiliates beneficially own, in the aggregate, approximately 29% 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 May 1997, the
Company (and its predecessor, MHB) completed placements of 6,724,044 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
$3,297,000 to MHB and the Company (net of placement expenses), represented its
then 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 231,000 warrants were issued to the
placement agents engaged for such offerings, of which approximately 69,000
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 in 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
<PAGE>
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. Currently, the NASD is considering elimination of
this alternative listing criteria, however, no final decision has been reached.
There can be no assurance that the Company will continue to satisfy the listing
criteria. Nasdaq has no minimum bid price standard for warrants. Although the
Company had, at March 31, 1997, assets of approximately $5,654,000 (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 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
<PAGE>
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.
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 acquirers 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 acquirers of the Company.
RISKS RELATING TO MHB'S BUSINESS
DEPENDENCE ON KEY CLIENTS AND PSYCHIATRIC REVIEW SERVICE AREA. During
fiscal year 1996, MHB's largest client, Guardian, accounted for 22% of MHB's
revenues in that year. During the first six months of fiscal year 1997,
ReliaStar was MHB's largest client and accounted for 22% 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 1996,
<PAGE>
MHB's second largest client, Chubb, accounted for 21% of MHB's revenues during
that year. As a result, for fiscal year 1996, the two largest clients of MHB
accounted for approximately 43% of MHB's total revenues and 18% of the Company's
total revenues. During the first six months of fiscal year 1997, Chubb and
ReliaStar accounted for 41% of MHB's total revenues and 24% of the Company's
total revenues. MHB's arrangements with Chubb and ReliaStar 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 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
<PAGE>
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 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
costcontainment, 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
<PAGE>
determine cost-containment to be the practice of medicine, any business
conducted by MHB in that state could be materially adversely affected.
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.
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
established health care companies and has entered into distribution arrangements
with other companies for geographical marketing rights to certain
<PAGE>
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.
EFFECTS OF BREACH OF CONVATEC AGREEMENTS. The terms of ATI's License
and Supply Agreements with Convatec with respect to ATI's Hydrasorb(TM) 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 Hydrasorb(TM) 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 Hydrasorb(TM) 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 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 Hydrasorb(TM) 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.
<PAGE>
DEPENDENCE UPON SUPPLIERS. ATI does not have written agreements with
any of its suppliers, and acquires the key components for its Hydrasorb(TM)
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 Hydrasorb(TM) 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 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.
<PAGE>
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 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.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares of
Common Stock offered hereby.
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.
COMMON STOCK PERCENTAGE
OWNERSHIP OF THAT COULD BE OWNERSHIP OF
COMMON OFFERED FOR SELLING COMMON STOCK
STOCK PRIOR STOCKHOLDERS' POST OFFERING
NAME(1) TO OFFERING(2) ACCOUNT (3)
- - ------------------- -------------- ------------------- -------------
William A. Martin 53,025 28,025 (4)
Peter P. Phildius 2,005,561 185,000 14.3%
Douglas W. Scott 1,935,003 185,000 13.7%
Carl M. Good III 133,075 33,075 (4)
John McCambridge 142,970 42,970 (4)
J.C. Leatherman, Jr. 91,325 38,825 (4)
Jane Freeman 66,461 33,450 (4)
---------- ---------
Total 546,345
- - --------
(1) The Selling Stockholders are directors and/or executive officers of the
Company or its affiliates.
(2) Includes all Common Stock issuable upon exercise of outstanding stock
options or conversion of Preferred Stock
<PAGE>
(3) Assumes that all the shares of Common Stock that could be offered for the
Selling Stockholder's account are actually sold.
(4) Less than 1% of the Company's issued and outstanding Common Stock.
- - --------
PLAN OF DISTRIBUTION
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. The Company, and not the
Selling Stockholders, will pay all applicable brokerage commissions or other
costs for sale as may be incurred in the sale of such securities by issuance of
additional shares of Common Stock to each of the Selling Stockholders.
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.
EXPERTS
The consolidated financial statements incorporated by reference in this
Reoffer 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:
<PAGE>
(a) The Company's Annual Report on Form 10-KSB for the year ended
September 30, 1996.
(b) The Company's Quarterly Reports on Form 10-QSB for the quarters
ended December 31, 1996 and March 31, 1997; 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.
ADDITIONAL INFORMATION
As of May 30, 1997, 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, 12,760,263 shares of Common
Stock were issued and outstanding and 817,256 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.
<PAGE>
No dealer, salesman or other person
has been authorized to give any information
or to make any representation not
contained in this Prospectus in connection
with the offering made hereby.
If given or made, such information or
representation must not be relied upon
as having AVITAR, INC.
been authorized by the Company.
Neither the delivery of this
Prospectus nor any sale made hereunder
shall under any circumstances
create any implication that the
information contained herein is
correct as of any time subsequent
to the date hereof. This Prospectus
does not constitute an offer to sell
or a solicitation of an offer to buy any
securities in any jurisdiction to any
person to whom it would be unlawful to
make such an offer or solicitation in such jurisdiction.
------------------
TABLE OF CONTENTS COMMON STOCK
------------------
PAGE
Available Information
Risk Factors
Use of Proceeds REOFFER
Selling Stockholders PROSPECTUS
Plan of Distribution
Legal Matters
Indemnification
Experts
Incorporation of Certain Documents
by Reference
Additional Information
------------------
May 30, 1997
<PAGE>
SIGNATURES
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-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wallingford, State of Connecticut, on this 28th day
of May 1997.
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 May 28, 1997
- - --------------------- and Chief Executive
Peter P. Phildius Officer (Principal
Executive Officer)
/S/ DOUGLAS W. SCOTT President and Chief May 28, 1997
- - -------------------- Operating Officer;
Douglas W. Scott Director
/S/ GEORGE WITT, PH.D. Director May 28, 1997
- - ---------------------
George Witt, Ph.D.
/S/ JAMES GROTH Director May 28, 1997
- - --------------------
James Groth
/S/ JAY LEATHERMAN Controller, Secretary, May 28, 1997
- - ------------------ and Chief Financial and
Jay Leatherman Accounting Officer,
(Principal Accounting
and Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No.
5.1 Opinion of Dolgenos Newman & Cronin LLP re legality
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Dolgenos Newman & Cronin LLP (contained in the opinion
filed as Exhibit 5.1)
Exhibit 5.1
Opinion re legality of
Dolgenos Newman & Cronin LLP
<PAGE>
EXHIBIT 5.1
Dolgenos Newman & Cronin LLP
-------------------------------------------------
96 Spring Street, New York, N.Y. 10012
212-925 2800 Fax 212-925-0690
May 30, 1997
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 proposed offering of up to 550,000 shares of
Common Stock, $0.01 par value by certain Selling Stockholders as described in
that certain Reoffer Prospectus to be filed as Post-Effective Amendment No. 1 to
the Registration Statement on Form S-8 executed by the Company and filed with
the Securities and Exchange Commission on May 9, 1997 (as amended, the
"Prospectus" and "Registration Statement").
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:
1. The Company is a corporation duly organized and validly
existing under the laws of the State of Delaware.
<PAGE>
Avitar, Inc.
May 30, 1997
Page 2
2. The Company has authorized capitalization of thirty million
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, 12,760,263 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 in accordance with the terms and
procedures set forth in the Registration Statement, constitute
legally and validly issued, fully paid and non-assessable
shares of Common Stock.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement.
Very truly yours,
DOLGENOS NEWMAN & CRONIN LLP
By: /s/EUGENE M. CRONIN
Exhibit 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
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 Post-Effective Amendment No. 1 of our report dated
November 15, 1996, 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, 1996. 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.
BDO Seidman, LLP
/s/BDO SEIDMAN, LLP
New York, New York
May 29, 1997
