Avitar Reports 52% Increase in Third Quarter 2001 Revenues Over Previous Quarter

August 14, 2001

CANTON, Mass., Aug. 14 /PRNewswire/ -- Avitar, Inc. (Amex: - news) today reported financial results for its third fiscal quarter ended June 30, 2001.

Revenues for the third quarter increased approximately 52% to $1.9 million, compared with $1.2 million for the second quarter ended March 31, 2001. The net loss for the third quarter was reduced 17% to $1.3 million, or $0.04 per share, compared with $1.6 million, or $0.09 per share, including cumulative effect of accounting charges, for the second quarter of 2001. Regarding the second quarter's $0.09 loss per share, $0.03 per share was attributable to accounting charges for warrant valuations and original discounts related to preferred stock issuances.

Comparing year-over-year quarters, Avitar's $1.9 million third quarter revenue was an increase of 43% compared with revenue of $1.3 million for the third quarter ended June 30, 2000. The third quarter 2001 net loss of $1.3 million was a 22% reduction compared with a loss of $1.7 million, or $0.06 per share, for the same period last year.

For the nine months ended June 30, 2001, revenues were $4.3 million, compared with revenues of $2.9 million for the same period last year. The net loss for the nine months ended June 30, 2001 was $4.5 million, or $0.22 per share, including cumulative effect of accounting charges, compared with a net loss of $4.7 million, or $0.19 per share, for the comparable period last year. Regarding the nine months $0.22 loss per share, $0.07 per share is attributable to accounting charges for warrant valuations and original discounts related to preferred stock issuances.

``We are extremely pleased with our financial results for the third quarter, especially our significant increase in revenues over the previous quarter,'' said Peter P. Phildius, Avitar's Chairman and Chief Executive Officer. ``The dramatic rise in market acceptance is highlighted by our sales of ORALscreen(TM) products growing 88% over the previous quarter. We also attribute this large revenue gain to important strategic alliances that we have put in place, most significantly with Pinkerton Services Group, where this was the first full quarter of our relationship since we began our partnership earlier this year.''

Pinkerton Services Group entered into an agreement with ChoicePoint® (NYSE: - news) in July 2001. Pending regulatory approval, and as part of the transaction, ChoicePoint will acquire all of the assets of Pinkerton Service Group's drug testing and pre-employment screening services.

Phildius commented, ``We view the ChoicePoint acquisition from Pinkerton as a positive development for Avitar. Pinkerton is already using our ORALscreen test in-house, and we have also been working with Pinkerton to offer customers a complete drug testing program.''

Regarding the quarterly results, Phildius also stated, ``Our 17% reduction in loss from the previous quarter is also notable since it shows our existing infrastructure handling higher revenues. Our expenses for the current fiscal year included an increase in our Research & Development cost as we focused on both our existing drug testing product, as well as our developmental in-vitro diagnostics products for the conditions of Lyme disease, influenza, diabetes, and pregnancy.''

Phildius closed, ``We believe that Avitar and its revolutionary saliva- based drug testing products and programs are now firmly implanted in this marketplace. With our customer base continuing to expand, we look forward to increasing our leadership position even further in upcoming quarters with new products and alliances combined with improved productivity.''

Conference Call Today

Avitar, Inc. will hold its quarterly results conference call for the third quarter ending June 30, 2001, at 11:00 a.m. (Eastern Time) today. During the call, Chairman and Chief Executive Officer Peter P. Phildius and Chief Financial Officer J.C. Leatherman, Jr. will discuss quarterly financial results and be available to answer questions about other topics related to Avitar's strategy and opportunities. At 10:50 a.m. E.T., interested participants should call in the U.S. or internationally. The Participant Code is 437508. There will also be a live Webcast of the call on the Investor Relations section of Avitar's Web site at avitarinc.com.

ABOUT AVITAR

Avitar, Inc. (Amex: - news) headquartered in Canton, Massachusetts, is a diagnostics company that develops, manufactures and markets innovative and proprietary medical devices in two major areas: the oral fluid drugs-of-abuse market and the disease & clinical testing market. Oral fluid diagnostics includes both the drugs-of-abuse testing market estimated to be worth $1.5 billion encompassing the corporate workplace and criminal justice markets. Avitar's products include ORALscreen(TM), the world's first non-invasive, rapid, onsite oral fluid test for drugs-of-abuse, and HAIRscreen(TM), a laboratory-based hair test for detecting long-term drug abuse. In the $20 billion disease & clinical testing market, Avitar is currently developing products that will address the conditions of Lyme disease, influenza and diabetes, as well as pregnancy. For more information, see Avitar's website at avitarinc.com.

This release contains forward looking statements that are subject to risks and uncertainties including the development and marketing of new applications and other risks that are detailed from time to time in the Company's filings with the Securities and Exchange Commission.

                                 Avitar, Inc.
                         Summary of Financial Results
                   (in thousands, except per share amounts)

                           Quarter Ended June 30,  Nine Months Ended June 30,
                              2001          2000         2001          2000
    Sales                   $1,869        $1,306       $4,268        $2,926

    Operating Expenses:
    Cost of Sales            1,073         1,017        2,761         2,362
    Selling, General
     and Administrative      1,580         1,472        4,394         3,956
    Research and Development   457           450        1,402         1,093
    Amortization of Goodwill    77            70          221           211

    Total Operating Expenses 3,187         3,009        8,778         7,622

    Operating Loss         (1,318)       (1,703)      (4,510)       (4,696)

    Other Income (Expenses)   (11)             1         (37)           (5)

    Net Loss              $(1,329)      $(1,702)     $(4,547)      $(4,701)

    Basic and Diluted Loss Per Share:
    Before accounting charges for warrant
    valuations and original discounts
     related to preferred stock
     issuances             $(0.04)       $(0.06)      $(0.15)       $(0.19)

    Accounting charges for warrant valuations
    and original discounts related to preferred
    stock issuances              -             -       (0.07)             -

    Total Basic and Diluted
     Loss Per Share        $(0.04)       $(0.06)      $(0.22)       $(0.19)


    Weighted Average Number of Shares and
    Common Equivalent Shares
     Outstanding        33,459,667    28,850,406   31,768,656    26,667,432


    Selected Balance Sheet Items:

                                                     6/30/01        9/30/00

    Cash                                                 240             82
    Total Assets                                       4,841          4,686
    Total Liabilities                                  2,508          2,199
    Shareholders' Equity                               2,334          2,487

    Total Current Assets                               1,764          1,585
    Total Current Liabilities                          2,498          2,128