SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 9, 1999
AVITAR, INC.
- - ---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-20316 06-1174053
- - -----------------------------------------------------------------
(Sate or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
65 Dan Road, Canton, MA 02021
- - -----------------------------------------------------------------
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 821-2440
<PAGE>
Item 7. Financial Statements and Exhibits
a. Financial statements
Audited financial statements of United States Drug Testing
Laboratories, Inc. for the years ended December 31, 1998
and 1997. F-1 to F-12
b. Pro forma financial information for the Registrant and
United States Drug Testing Laboratories, Inc.
Condensed combined pro forma financial statements (unaudited) F-13
Pro forma condensed combined balance sheet, as of June 30,
1999 (unaudited) F-14
Pro forma condensed combined statement of operations, fiscal
year ended September 30, 1998 (unaudited) F-15
Pro forma condensed combined statement of operations, nine
months ended June 30, 1999 (unaudited) F-16
Notes to the pro forma condensed combined financial
statements (unaudited) F-17 to F-18
c. Unaudited quarterly information F-19
United States Drug Testing Laboratories, Inc. balance sheet
at June 30, 1999 (unaudited) F-20
Condensed quarterly statements of operations of United
States Drug Testing Laboratories, Inc. for the six months
ended June 30, 1999 and 1998 (unaudited) F-21
Condensed statements of cash flows for the six months ended
June 30, 1999 and 1998 (unaudited) F-22
d. Exhibits (previously filed with the Commission)
<PAGE>
United States Drug
Testing Laboratories, Inc.
Report on Financial Statements
Years Ended December 31, 1998 and 1997
F-1
<PAGE>
United States Drug Testing
Laboratories, Inc.
Contents
Independent auditors' report 3
Financial statements:
Balance sheets 4
Statements of operations and deficit 5
Statements of cash flows 6
Notes to financial statements 7-11
F-2
<PAGE>
Independent Auditors' Report
To the Board of Directors of
United States Drug Testing Laboratories, Inc.
Des Plaines, IL
We have audited the accompanying balance sheets of United States Drug Testing
Laboratories, Inc. as of December 31, 1998 and 1997 and the related statements
of operations and deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United States Drug Testing
Laboratories, Inc. as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/BDO Seidman, LLP
August 27, 1999
F-3
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (Note 4)
Current:
Cash and cash equivalents $ 62,351 $ 95,104
Accounts receivable, less allowance for possible losses
of $20,000 and $4,500 225,404 127,480
Prepaid expenses and other 13,110 19,422
- ------------------------------------------------------------------------------------------------
Total current assets 300,865 242,006
- ------------------------------------------------------------------------------------------------
Property and equipment (Note 2):
Vehicles 23,535 23,535
Equipment 259,964 248,348
- ------------------------------------------------------------------------------------------------
283,499 271,883
Less accumulated depreciation and amortization 270,455 257,259
- ------------------------------------------------------------------------------------------------
Net property and equipment 13,044 14,624
- ------------------------------------------------------------------------------------------------
Other assets (Notes 2 and 3) 47,748 62,105
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
$ 361,657 $ 318,735
</TABLE>
F-4
<PAGE>
United States Drug Testing
Laboratories, Inc.
<TABLE>
<CAPTION>
Balance Sheets
December 31, 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Revolving line of credit (Note 4) $ 93,592 $ 59,000
Accounts payable 94,765 132,739
Accrued expenses (Note 5) 48,952 20,296
Due to related party (Note 7) 59,026 42,703
Current maturities of long-term debt (Notes 6 and 7) 8,520 8,969
- -------------------------------------------------------------------------------------------------------------------------
Total current liabilities 304,855 263,707
Long-term debt, less current maturities (Notes 6 and 7) 6,820 15,340
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 311,675 279,047
- -------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 3, 7 and 8)
Shareholders' equity:
Common stock, no par value; shares authorized
1,000,000, issued and outstanding 1,000 143,151 143,151
Deficit (93,169) (103,463)
- -------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 49,982 39,688
- -------------------------------------------------------------------------------------------------------------------------
$ 361,657 $ 318,735
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
United States Drug Testing
Laboratories, Inc.
Statements of Operations and Deficit
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales (Note 9) $ 1,160,046 $ 867,103
Cost of sales 408,503 269,999
- -------------------------------------------------------------------------------------------------------------------------
Gross profit 751,543 597,104
- -------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling, general and administrative 598,941 510,394
Research and development 153,270 127,598
- -------------------------------------------------------------------------------------------------------------------------
Total operating expenses 752,211 637,992
- -------------------------------------------------------------------------------------------------------------------------
Operating loss (668) (40,888)
- -------------------------------------------------------------------------------------------------------------------------
Other income:
Interest expense (18,020) (15,657)
Other income 28,982 6,400
Gain on disposal of equipment - 38,240
- -------------------------------------------------------------------------------------------------------------------------
Other income, net 10,962 28,983
- -------------------------------------------------------------------------------------------------------------------------
Net income (loss) 10,294 (11,905)
Deficit, beginning of year (103,463) (91,558)
- -------------------------------------------------------------------------------------------------------------------------
Deficit, end of year $ (93,169) $ (103,463)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
United States Drug Testing
Laboratories, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 10,294 $ (11,905)
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization 27,553 58,085
Gain on disposal of equipment - (38,240)
Changes in operating assets and liabilities:
Accounts receivable (97,924) (28,713)
Prepaid expenses and other 6,312 2,779
Accounts payable (37,974) 69,613
Accrued expenses 28,656 2,513
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities (63,083) 54,132
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Expenditures for property and equipment (11,616) (821)
Expenditures for license - (25,000)
Proceeds from disposal of equipment - 36,245
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities (11,616) 10,424
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings under revolving line of credit 34,592 59,000
Proceeds from (payments to) related party 16,323 (6,016)
Principal payments on long-term debt (8,969) (28,415)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 41,946 24,569
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (32,753) 89,125
Cash and cash equivalents, beginning of year 95,104 5,979
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 62,351 $ 95,104
- -------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest $ 5,569 $ 13,227
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
United States Drug Testing
Laboratories, Inc.
Notes to Financial Statements
1. Description of The Company is engaged in the business of providing
specialized laboratory testing Operations including substance abuse
identification and other related services.
2. Summary of Accounting Policies
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the Equipment straight-line method over the following estimated
useful lives:
Years
------------------------------------------
Vehicles 5
Equipment 5
License Fees
License fees are being amortized on a straight-line basis over 5
years.
Income Taxes
The absence of a provision for federal income taxes is due to the
election by the corporation, and consent by its shareholders to include
their respective shares of taxable income of the corporation in their
individual tax returns. As a result, no federal income tax is imposed on
the corporation.
Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Estimates and Assumptions.
The preparation of financial statements in conformity with generally
accepted accounting principles requires Company management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and
expenses during the reported period. Actual results could differ from those
estimates and assumptions.
Research and Development
Research and development costs are expensed as incurred.
F-8
<PAGE>
3. Other Assets Other assets consist of the following:
December 31, 1998 1997
-------------------------------------------------------------------------------
License, net of accumulated amortization of
$20,000 and $10,000 $30,000 $40,000
Deposits and other 17,748 22,105
------------------------------------------------------------------------------
$ 47,748 $ 62,105
------------------------------------------
In December 1995, the Company entered into a license agreement with a
university under which the Company obtained the right to use certain of the
university's patented technologies in its drug testing services. The
Company paid the university an initial license fee of $25,000 in 1996 and
$25,000 in 1997. These license fees are being amortized over five years.
Under the agreement, the Company is obligated to pay an annual royalty of
2% of qualified net sales. Minimum royalty payments due for the year ended
December 31, 1998 and future annual periods is $8,000. Royalty expense for
the years ended December 31, 1998 and 1997 amounted to approximately $8,000
and $2,400, respectively.
4. Revolving Line of Credit
The Company has a revolving line of credit of $100,000 with a bank
which is secured by substantially all of the Company's assets. Interest is
at the bank's prime rate (7.75% at December 31, 1998). In addition, the
line of credit requires the Company to maintain specified levels of
tangible net worth among other covenants. Borrowings under the agreement
were $93,592 and $59,000 at December 31, 1998 and 1997, respectively.
F-9
<PAGE>
5. Accrued Expenses
Accrued expenses consist of the following:
December 31, 1998 1997
---------------------------------------------------------------------------
Payroll $ 20,277 $ 17,043
Rent 18,000 -
Other 10,675 3,253
---------------------------------------------------------------------------
Total $ 48,952 $ 20,296
---------------------------------------------------------------------------
6. Long-Term Debt Long-term debt consists
of the following:
December 31, 1998 1997
------------------------------------------------------------------------------
Note payable to bank, repaid in 1998. $- $1,180
Note payable to bank payable in
monthly installments of $710
through September 2000, plus
interest at 9%. 15,340 23,129
-----------------------------------------------------------------------------
15,340 24,309
Less current maturities 8,520 8,969
-----------------------------------------------------------------------------
Long-term portion $ 6,820 $ 15,340
-----------------------------------------------------------------------------
Maturities of long-term debt for the
calendar years ending December 31, are as
follows:
1998
-----------------------------------------------------------------------------
1999 $ 8,520
2000 6,820
-----------------------------------------------------------------------------
$ 15,340
-----------------------------------------------------------------------------
F-10
<PAGE>
7. Related Party Transactions
Due to Related Party
The Company has a demand loan payable to an officer amounting to
$59,026 and $42,703 at December 31, 1998 and 1997, respectively. This loan
payable is subordinated to all bank debt. The interest rate was 8.5% and
8.25% at December 31, 1998 and 1997, respectively.
Lease
The Company entered into a lease with an officer for additional office
space. In addition to minimum lease payments, the Company is required to
pay insurance and maintenance. The lease was terminated in July 1999.
Future minimum rentals at December 31, 1998 amounted to $18,000. Rent
expense charged to operations amounted to $36,800 and $38,800 for the years
ended December 31, 1998 and 1997, respectively.
8. Commitments and Contingencies
Leases (See also Note 7)
The Company has an operating lease for its laboratory facilities
expiring November 1999. As of December 31, 1998 future minimum lease
payments amounted to $45,012.
Rent expense under this lease was approximately $47,800 and $46,400
for the years ended December 31, 1998 and 1997, respectively.
Retirement
Plan The Company has a Profit Sharing and 401(k) Plan ("Plan").
Substantially all employees are covered by the Plan. The Company may elect
to make discretionary contributions to the Plan. For the years ended
December 31, 1998 and 1997, the Company did not make any contributions to
the Plan.
F-11
<PAGE>
8. Commitments and
Contingencies
(Continued)
Year 2000 Issues (Unaudited)
Like other companies, United States Drug Testing Laboratories, Inc.
could be adversely affected if the computer systems the Company, its
suppliers or customers use do not properly process and calculate
date-related information and data during the period surrounding and
including January 1, 2000. This is commonly known as the "Year 2000" issue.
Additionally, this issue could impact non-computer systems and devices such
as production equipment, elevators, etc. At this time, because of the
complexities involved in the issue, management cannot provide assurances
that the Year 2000 issue will not have an impact on the Company's
operations.
9. Significant Sales
The Company had sales to one customer approximating 19% of net sales
for the year ended December 31, 1998. There were no major customers in
1997.
10. Subsequent Event
On July 9, 1999, the Company's shareholders sold all of its
outstanding stock to Avitar, Inc. in exchange for 2,000,000 restricted
shares of Avitar's common stock.
F-12
<PAGE>
Pro Forma Condensed Combined Financial Statements
Introduction:
On July 9, 1999 the Registrant acquired all the outstanding capital stock of
United States Drug Testing Laboratories, Inc. ("USDTL") in exchange for
approximately 2 million restricted shares of common stock of the Registrant. The
amount of consideration was determined by arm's length negotiation between the
Registrant and the majority stockholders of USDTL, taking into account the
revenues and prospects for USDTL. The Registrant acquired the outstanding
capital stock of USDTL from its shareholders Veronica Lewis, Douglas Lewis and
Christine Moore. In connection with the Registrant's acquisition of USDTL,
Douglas Lewis and Christine Moore have entered into Employment Agreements.
The unaudited pro forma condensed combined balance sheet of Avitar, Inc.
("Avitar") as of June 30, 1999 assumes the acquisition of USDTL occurred on that
date.
The unaudited pro forma condensed combined statements of operations for the year
ended September 30, 1998 and the nine months ended June 30, 1999 present the
results of operations as if the USDTL acquisition had been consummated as of
October 1, 1997. The operating results for USDTL for the year ended December 31,
1998 were used to prepare the unaudited pro forma condensed combined statement
of operations for Avitar's fiscal year ended September 30, 1998. Accordingly,
the unaudited operating results for USDTL for the three months ended December
31, 1998, which included revenue of $389,186 and net income of $71,126 have been
included in both periods presented.
The unaudited pro forma condensed combined financial statements have been
prepared by Avitar and all calculations have been made based upon assumptions
deemed appropriate. The unaudited pro forma condensed combined financial
statements were prepared utilizing the accounting policies of Avitar. The pro
forma adjustments reflect the acquisition being recorded as a purchase and the
preliminary allocation of the purchase price and accordingly may be subject to
certain adjustments as the Company finalizes the allocation of the purchase
price in accordance with generally accepted accounting principles. The purchase
price has been allocated based upon the estimated fair value of the assets and
liabilities acquired.
The unaudited pro forma financial information does not purport to be indicative
of the results of operations or the financial position which would have actually
been obtained if the acquisition had been consummated on the dates indicated. In
addition, the unaudited pro forma financial information does not purport to be
indicative of results of operations or financial position which may be achieved
in the future.
The unaudited pro forma financial information should be read in conjunction with
Avitar's historical consolidated financial statements and notes thereto
contained in the 1998 Annual Report on form 10-KSB and the Quarterly Report on
Form 10-QSB for the quarter ended June 30, 1999, and the financial statements of
USDTL presented herein.
F-13
<PAGE>
Avitar, Inc. and Subsidiaries
Pro Forma Condensed Combined
Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
Pro forma
Pro forma Combined
June 30, 1999 Avitar USDTL Adjustments As Adjusted
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 1,234,527 $ 11,882 $ - $ 1,246,409
Accounts receivable, net 245,543 178,900 - 424,443
Inventories 185,777 - - 185,777
Prepaid expenses and other 204,182 18,430 - 222,612
- -------------------------------------------------------------------------------------------------------------------------
Total current assets 1,870,029 209,212 - 2,079,241
Property and equipment (net) 159,735 157,638 - 317,373
Other assets 17,000 41,586 - 58,586
Goodwill - - 2,803,501(a) 2,803,501
- -------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,046,764 $ 408,436 $2,803,501 $ 5,258,701
- -------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Revolving line of credit $ - $ 90,595 $ - $ 90,595
Accounts payable 646,426 93,188 70,000(c) 809,614
Accrued expenses 443,428 53,020 (6,596)(b) 489,852
Notes payable 327,414 - - 327,414
Due to related party - 59,026 (59,026)(b) -
Current portion of long-term debt 70,957 49,717 - 120,674
- -------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,488,225 345,546 4,378 1,838,149
Long-term debt, less current portion 21,631 95,161 - 116,792
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,509,856 440,707 4,378 1,954,941
Stockholders' equity (deficit):
Preferred stock 18,515 - - 18,515
Common stock 214,167 143,151 (143,151)(a) 234,793
316(b)
20,310(a)
Additional paid-in capital 20,113,767 - 65,306(b) 22,859,993
2,680,920(a)
Notes receivable (1,000,000) - (1,000,000)
Deficit (18,809,541) (175,422) 175,422(a) (18,809,541)
- -------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) 536,908 (32,271) 2,799,123 3,303,760
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 2,046,764 $ 408,436 $2,803,501 $ 5,258,701
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to pro forma
condensed combined financial statements.
F-14
<PAGE>
Avitar, Inc. and Subsidiaries
Pro Forma Condensed Combined
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Avitar USDTL
Year Ended Year Ended Pro forma
September 30, December 31, Pro forma Combined
Year ended September 30, 1998 1998 1998 Adjustments As Adjusted
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 2,203,646 $ 1,160,046 $ - $ 3,363,692
Costs and expenses:
Direct cost of revenues 1,920,169 408,503 - 2,328,672
Research and development 546,233 153,270 - 699,503
Selling, general and administrative 1,530,061 598,941 280,350(d) 2,409,352
- -------------------------------------------------------------------------------------------------------------------------
3,996,463 1,160,714 280,350 5,437,527
- -------------------------------------------------------------------------------------------------------------------------
Operating loss (1,792,817) (668) (280,350) (2,073,835)
Other income (expenses), net (101,307) 10,962 3,100(c) (87,245)
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and
discontinued operations (1,894,124) 10,294 (277,250) (2,161,080)
Provision for income taxes - - - -
- -------------------------------------------------------------------------------------------------------------------------
Net income (loss) from continuing operations $(1,894,124) $ 10,294 $(277,250) $(2,161,080)
- -------------------------------------------------------------------------------------------------------------------------
Basic and diluted net loss per share from
continuing operations $ (.12) $ (.12)
- -------------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares 16,577,892 2,062,570(f) 18,640,462
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to pro forma
condensed combined financial statements.
F-15
<PAGE>
Avitar, Inc. and Subsidiaries
Pro Forma Condensed Combined
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Pro forma
Pro forma Combined
Nine months ended June 30, 1999 Avitar USDTL Adjustments As Adjusted
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 1,586,621 $ 881,630 $ - $ 2,468,251
Cost of expenses:
Direct cost of revenues 1,334,407 402,345 - 1,736,752
Research and development 497,534 121,316 - 618,850
Selling, general and administrative 1,430,386 387,795 210,263(d) 2,028,444
- -------------------------------------------------------------------------------------------------------------------------
3,262,327 911,456 210,263 4,384,046
- -------------------------------------------------------------------------------------------------------------------------
Operating loss (1,675,706) (29,826) (210,263) (1,915,795)
Other income (expenses), net (24,626) 18,700 1,400(e) (4,526)
- -------------------------------------------------------------------------------------------------------------------------
Loss before income taxes (1,700,332) (11,126) (208,863) (1,920,321)
Provision for income taxes - - - -
- -------------------------------------------------------------------------------------------------------------------------
Net loss $(1,700,332) $ (11,126) $(208,863) $(1,920,321)
- -------------------------------------------------------------------------------------------------------------------------
Basic and diluted net loss per share $ (0.12) $ (0.12)
- -------------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares
outstanding 19,064,941 2,062,570(f) 21,127,511
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to pro forma
condensed combined financial statements.
F-16
<PAGE>
Avitar, Inc. and Subsidiaries
Notes to Pro Forma Condensed Combined
Financial Statements
(Unaudited)
1. Pro forma Adjustments
The pro forma adjustments to the condensed financial statements are as
follows:
(a) To reflect recording of fair value of assets and liabilities acquired
at their carrying values which approximates fair market value and to
recognize goodwill for the difference between the purchase price paid
and the assets and liabilities acquired calculated as follows:
Fair value of stock issued $ 2,701,230
Estimated direct expenses of the acquisition 70,000
Fair value of net liabilities acquired 32,271
----------------------------------------------------------------------
Goodwill $ 2,803,501
----------------------------------------------------------------------
(b) To reflect the issuance of 31,570 shares of Avitar stock for
conversion of USDTL officer note payable and related interest to
equity in lieu of cash payment.
(c) To reflect estimated direct expenses of acquisition.
(d) To reflect amortization of goodwill over an estimated useful life of
ten years.
(e) To reflect removal of interest expense charged on note payable
converted to equity.
(f) To reflect shares issued in connection with the acquisition.
F-17
<PAGE>
United States Drug Testing
Laboratories, Inc.
Unaudited Quarterly Financial Information
F-19
2. Earnings per Share
The following data show the amounts used in computing earnings per
share:
Historical Pro forma
Year ended September 30, 1998 1998
----------------------------------------------------------------------
Net loss from continuing operations $(1,894,124) $(2,161,080)
Less: preferred stock dividends (5,494) (5,494)
----------------------------------------------------------------------
Loss available to common
stockholders used in
basic and diluted EPS $(1,899,618) $(2,166,574)
----------------------------------------------------------------------
Weighted average number of
common shares 16,577,892 18,640,462
----------------------------------------------------------------------
Historical Pro forma
Nine months ended June 30, 1999 1999
-------------------------------------------------------------------------
Net loss from continuing operations $(1,700,332) $(1,920,321)
Less: preferred stock dividends (517,704) (517,704)
-------------------------------------------------------------------------
Loss available to common stockholders
used in basic and diluted EPS $(2,218,036) $(2,438,025)
-------------------------------------------------------------------------
Weighted average number of
common shares 19,064,941 21,127,511
------------------------------------------------------------------------
F-18
<PAGE>
The accompanying unaudited condensed financial statements presented on pages
F-20 to F-22 of United States Drug Testing Laboratories, Inc. ("USDTL") have
been prepared in accordance with generally accepted accounting principles for
interim financial information and Item 310(G) of Regulation S-B. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. For further
information, refer to the audited financial statements of USDTL included with
this report.
F-19
<PAGE>
United States Drug Testing
Laboratories, Inc.
Balance Sheet
(Unaudited)
June 30, 1999
- -------------------------------------------------------------------------
Assets:
Current assets:
Cash and cash equivalents $ 11,882
Accounts receivable, net 178,900
Prepaid expenses and other 18,430
- -------------------------------------------------------------------------
Total current assets 209,212
Property and equipment (net) 157,638
Other assets 41,586
- -------------------------------------------------------------------------
Total assets $ 408,436
- -------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
Current liabilities:
Revolving line of credit $ 90,595
Accounts payable 93,188
Accrued expenses 53,020
Due to related party 59,026
Current portion of long-term debt 49,717
- -------------------------------------------------------------------------
Total current liabilities 345,546
Long-term debt, less current portion 95,161
- -------------------------------------------------------------------------
Total liabilities 440,707
Stockholder's deficit:
Common stock 143,151
Deficit (175,422)
- --------------------------------------------------------------------------
Total stockholder's deficit (32,271)
- --------------------------------------------------------------------------
Total liabilities and stockholder's deficit $ 408,436
- --------------------------------------------------------------------------
F-20
<PAGE>
United States Drug Testing
Laboratories, Inc.
Statements of Operations
(Unaudited)
Six months ended June 30, 1999 1998
- -------------------------------------------------------------------------------
Net sales $ 492,444 $ 452,245
Costs and expenses:
Cost of sales 149,861 95,359
Research and development 67,067 62,421
Selling, general and administrative 381,502 396,161
- -------------------------------------------------------------------------------
Operating loss (105,986) (101,696)
Other income (expense) 23,734 14,114
- -------------------------------------------------------------------------------
Net loss $ (82,252) $ (87,582)
- -------------------------------------------------------------------------------
F-21
<PAGE>
<TABLE>
<CAPTION>
Six months ended June 30, 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (82,252) $ (87,582)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization 10,837 13,441
Changes in operating assets and liabilities:
Accounts receivable 46,504 (10,261)
Prepaid expenses and other (5,320) 2,274
Accounts payable (1,577) (23,179)
Accrued expenses 4,068 (45)
- ----------------------------------------------------------------------------------------------------
Net cash used for operating activities (27,740) (105,352)
- ----------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Expenditures for property and equipment (7,520) (5,228)
Net expenditures for other assets (1,000) -
- ----------------------------------------------------------------------------------------------------
Net cash used for investing activities (8,520) (5,228)
- ----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings (repayments) under revolving line of credit (2,997) 28,592
Proceeds from related party - 12,000
Net principal payments on long-term debt (11,212) (4,977)
- ----------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (14,209) 35,615
- ----------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (50,469) (74,965)
Cash and cash equivalents, beginning of period 62,351 95,104
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 11,882 $ 20,139
- ----------------------------------------------------------------------------------------------------
</TABLE>
F-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AVITAR, INC.
(Registrant)
Date: September 22, 1999 By:/s/J.C.LEATHERMAN
------------------------
J. C. Leatherman
Chief Financial Officer
