U.S.
      Securities and Exchange Commission


Washington,
      D.C. 20549


Form
      10-Q SB





(Mark
      One)





[x]
      Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
      1934 for the quarterly period ended March 31, 2007.





[
      ]
      Transition report pursuant to Section 13 or 15(d) of the Exchange act for the
      transition period from


to


Commission
      File Number:  1-15695


Avitar,
      Inc.


(Exact
      name of small business issuer as specified in its charter)





Delaware           06-1174053


(State
      or
      other jurisdiction of incorporation or organization)    (I.R.S.
      Employer Identification No.)





65
      Dan
      Road, Canton, Massachusetts        02021


(Address
      of principal executive offices)        (Zip
      Code)


( 781)
      821-2440


(Issuer's
      telephone number)




(Former
      name, former address and former fiscal year, if changed since last
      report)





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.   [x]Yes  [
      ]No





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act) [ ] Yes [x] No





Applicable
      Only to Corporate Issuers





State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the latest practicable date:





Common
      Stock: 27,280,981


As
      of May
      10, 2006





Transitional
      Small Business Disclosure Format


(Check
      One):   [
      ]
      Yes  ;  [x]
      No




Page
      1 of
      34 pages


Exhibit
      Index is on Page 30







Table
      of
      Contents








Page








Part
      I:   Financial
      Information 3








Item
      1   Consolidated
      Financial Statements


Balance
      Sheet        4


Statements
      of Operations       5


Statement
      of Stockholders' Deficit      6


Statements
      of Cash Flows       7


Notes
      to
      Consolidated Financial
      Statements 8








Item
      2   Management's
      Discussion and Analysis or Plan of
      Operation 18








Item
      3   Controls
      and
      Procedures 25





Part
      II:  Other
      Information 26





Item
      1   Legal
      Proceedings 27


Item
      2   Unregistered
      Sales of Equity Securities and Use of
      Proceeds 27





Item
      6   Exhibits                                                                                                                             27





Signatures 29





Exhibit
      Index 30


Certifications 31













Part
      I  Financial
      Information
































Item
        1.
        FINANCIAL STATEMENTS
  Avitar,
                  Inc. and SubsidiariesConsolidated
                  Balance SheetMarch
                  31, 2007(Unaudited)ASSETSCURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              23,333Accounts
                  receivable, net of reserve of $3,863
              
              
              189,302Inventories
              
              
              314,555Prepaid
                  expenses and other current assets
              
              
              111,163Assets
                  of discontinued operation (Note 3)
              
              
              60,213Total
                  current assets
              
              
              698,566PROPERTY
                  AND EQUIPMENT, net
              
              
              252,521OTHER
                  ASSETS
              
              
              772,987Total
                  Assets
              
              $
              1,724,074LIABILITIES,
                  PREFERRED STOCK AND STOCKHOLDERS' DEFICITCURRENT
                  LIABILITIES:Notes
                  payable (Note 5)
              
              $
              152,617Convertible
                  notes payable (Note 5)
              
              
              650,000Accounts
                  payable
              
              
              711,017Accrued
                  expenses
              
              
              1,380,257Current
                  portion of long-term capital leases
              
              
              6,971Current
                  portion of deferred lessor incentive
              
              
              13,400Fair
                  value of warrants (Note 10)
              
              
              292,313Fair
                  value of embedded derivatives (Note 10)
              
              
              1,419,866Liabilities
                  of
                  discontinued operation (Note 3)
              
              
              41,181Total
                  current liabilities
              
              
              4,667,622CONVERTIBILE
                  LONG-TERM NOTES PAYABLE
              
              
              3,547,917DEFERRED
                  LESSOR INCENTIVE, LESS CURRENT PORTION
              
              
              30,150Total
                  liabilities
              
              
              8,245,689REDEEMABLE
                  CONVERTIBLE AND CONVERTIBLE PREFERREDSTOCK
                  (Note 6)
              
              
              3,197,065COMMITMENTSSTOCKHOLDERS'
                  DEFICIT:Series
                  B convertible preferred stock, $.01 par value; authorized5,000,000
                  shares; 5,689 shares issued and outstanding
              
              
              58Common
                  Stock, $.01 par value; authorized 100,000,000 shares;23,780,981
                  shares issued and outstanding
              
              
              237,810Additional
                  paid-in capital
              
              
              49,570,426Accumulated
                  deficit
              
              
              (59,526,974
              )Total
                  stockholders' deficit
              
              
              (9,718,680
              )Total
                  Liabilities, Preferred Stock and Stockholders' Deficit
              
              $
              1,724,074See
                  accompanying notes to consolidated financial statements.
 
 Avitar,
        Inc. and Subsidiaries
 Consolidated
        Statements of Operations
 (Unaudited)


THREE
                  MONTHS ENDED MARCH 31,
              
              SIX
                  MONTHS ENDED MARCH 31,2007
              
              2006
              
              2007
              
              2006SALES
              
              $
              712,794
              
              $
              1,175,758
              
              $
              1,661,608
              
              $
              1,960,365OPERATING
                  EXPENSESCost
                  of
                  sales
              
              
              573,564
              
              
              804,242
              
              
              1,241,217
              
              
              1,369,729Selling,
                  general and administrative expenses
              
              
              888,255
              
              
              972,350
              
              
              1,786,534
              
              
              1,948,239Research
                  and
                  development expenses
              
              
              81,341
              
              
              109,248
              
              
              173,265
              
              
              238,954Total
                  operating expenses
              
              
              1,543,160
              
              
              1,885,840
              
              
              3,201,016
              
              
              3,556,922LOSS
                  FROM OPERATIONS
              
              
              (830,366
              )
              
              (710,082
              )
              
              (1,539,408
              )
              
              (1,596,557
              )OTHER
                  INCOME (EXPENSE)Interest
                  expense and financing costs
              
              
              (336,371
              )
              
              (175,851
              )
              
              (646,546
              )
              
              (389,086
              )Other
                  income (expense), net
              
              
              280,930
              
              
              (128,640
              )
              
              379,977
              
              
              (7,298
              )Total
                  other income (expense), net
              
              
              (55,441
              )
              
              (304,491
              )
              
              (266,569
              )
              
              (396,384
              )LOSS
                  FROM CONTINUING OPERATIONS
              
              
              (885,807
              )
              
              (1,014,573
              )
              
              (1,805,977
              )
              
              (1,992,941
              )DISCONTINUED
                  OPERATIONS (Note 3)Loss
                  from the opertions of BJR
              
              
              (13,290
              )
              
              (20,413
              )
              
              (36,508
              )
              
              (53,974
              )Income
                  from disposal of USDTL
              
              
              -
              
              
              -
              
              
              -
              
              
              120,000Income
                  (loss) from discontinued operations
              
              
              (13,290
              )
              
              (20,413
              )
              
              (36,508
              )
              
              66,026NET
                  LOSS
              
              $
              (899,097
              )
              $
              (1,034,986
              )
              $
              (1,842,485
              )
              $
              (1,926,915
              )BASIC
                  AND DILUTED LOSS PER SHARE FROM CONTINUINGOPERATIONS
                  (Note 8)
              
              $
              (0.05
              )
              $
              (0.24
              )
              $
              (0.12
              )
              $
              (0.49
              )BASIC
                  AND DILUTED (LOSS) INCOME PER SHARE FROM DISCONTINUEDOPERATIONS
                  (Note 8)
              
              
              -
              
              
              (0.01
              )
              
              -
              
              
              (0.01
              )BASIC
                  AND DILUTED LOSS PER SHARE (Note 8)
              
              $
              (0.05
              )
              $
              (0.25
              )
              $
              (0.12
              )
              $
              (0.48
              )WEIGHTED
                  AVERAGENUMBER
                  OF COMMON SHARES OUTSTANDING
              
              
              19,796,871
              
              
              4,381,414
              
              
              15,800,253
              
              
              4,211,563See
                  accompanying notes to consolidated financial statements.








Avitar,
                  Inc. and SubsidiariesConsolidated
                  Statement of Stockholders' DeficitSix
                  Months Ended March 31, 2007(Unaudited)Preferred
                  Stock
              
              Common
                  Stock
              
              
              
              
              TotalAdditional
              
              Accumulated
              
              Stockholders'Shares
              
              Amount
              
              Shares
              
              Amount
              
              paid-in
                  capital
              
              deficit
              
              DeficitBalance
                  at September 30, 2006
              
              
              5,689
              
              $
              58.00
              
              
              8,505,036
              
              $
              85,051
              
              $
              49,340,197
              
              $
              (57,608,867
              )
              $
              (8,183,561
              )Conversion
                  of Series E preferred stock
              
              
              -
              
              
              -
              
              
              4,475,945
              
              
              44,759
              
              
              51,221
              
              
              -
              
              
              95,980Conversion
                  of long-term convertible note
              
              
              -
              
              
              -
              
              
              10,500,000
              
              
              105,000
              
              
              96,905
              
              
              -
              
              
              201,905Stock
                  based compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              76,103
              
              
              
              
              
              76,103Stock
                  issued for services
              
              
              
              
              
              
              
              
              300,000
              
              
              3,000
              
              
              6,000
              
              
              
              
              
              9,000Accreation
                  of preferred stock dividends
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (75,622
              )
              
              (75,622
              )Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,842,485
              )
              
              (1,842,485
              )Balance
                  at March 31, 2007
              
              
              5,689
              
              $
              58
              
              
              23,780,981
              
              $
              237,810
              
              $
              49,570,426
              
              $
              (59,526,974
              )
              $
              (9,718,680
              )See
                  accompanying notes to consolidated financial statements.








Avitar,
                  Inc. and SubsidiariesCondensed
                  Consolidated Statements of Cash Flows(Unaudited)SIX
                  MONTHS ENDED MARCH 31,2007
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIES:Loss
                  from continuing operations
              
              $
              (1,805,977
              )
              $
              (1,992,941
              )Loss
                  (income) from discontinued operations
              
              
              (36,508
              )
              
              66,026Net
                  loss
              
              
              (1,842,485
              )
              
              (1,926,915
              )Adjustments
                  to
                  reconcile net loss tonet
                  cash used in operating activities:Depreciation
                  and amortization
              
              
              76,227
              
              
              81,151Amortization
                  of
                  debt discount and deferred financing costs
              
              
              425,080
              
              
              259,398Amortization
                  of
                  deferred lessor incentive
              
              
              (6,700
              )
              
              (6,700
              )Expense
                  for stock based compensation
              
              
              76,103
              
              
              -Common
                  stock issued for services
              
              
              9,000
              
              
              -(Income)
                  expense from changes in value of embedded derivativesand
                  warrants
              
              
              (379,402
              )
              
              8,524Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              371,801
              
              
              100,069Inventories
              
              
              (42,757
              )
              
              (49,967
              )Prepaid
                  expenses and other current assets
              
              
              31,403
              
              
              74,164Other
                  assets
              
              
              -
              
              
              8,542Accounts
                  payable and accrued expenses
              
              
              446,190
              
              
              109,057Deferred
                  revenue
              
              
              (4,400
              )
              
              (150
              )Net
                  assets of discontinued operations
              
              
              (7,926
              )
              
              (36,932
              )Net
                  cash used in operating activities
              
              
              (847,866
              )
              
              (1,379,759
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchases
                  of
                  property and equipment
              
              
              (8,011
              )
              
              (85,957
              )Net
                  cash used in investing activities
              
              
              (8,011
              )
              
              (85,957
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Repayment
                  of
                  notes payable and long-term debt
              
              
              (41,733
              )
              
              (119,437
              )Sales
                  of redeemable preferred stock, common stock and warrants
              
              
              -
              
              
              2,840Net
                  proceeds from issuance of convertible long-term debt
              
              
              640,400
              
              
              1,380,000Redemption
                  of
                  Series A redeemable convertible preferred stock
              
              
              -
              
              
              (150,000
              )Payment
                  of cash dividend on Seires A redeemable convertible preferred
                  stock
              
              
              -
              
              
              (5,417
              )Net
                  cash provided by financing activities
              
              
              598,667
              
              
              1,107,986NET
                  DECREASE IN CASH AND CASH EQUIVALENTS
              
              
              (257,210
              )
              
              (357,730
              )CASH
                  AND CASH EQUIVALENTS, beginning of the period
              
              
              280,543
              
              
              400,363CASH
                  AND CASH EQUIVALENTS, end of the period
              
              $
              23,333
              
              $
              42,633SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATIONCash
                  paid during period:Income
                  taxes
              
              $
              -
              
              $
              -Interest
              
              $
              6,444
              
              $
              23,317SUPPLEMENTAL
                  SCHEDULE OF NONCASH INVESTING ANDFINANCING
                  ACTIVITIES:During
                  the six months ended March 31, 2007, 94,301 shares ofSeries
                  E redeemable convertible preferred stock were converted
                  into4,475,945
                  shares of common stock.During
                  the six months ended March 31, 2007, convertible long-termdebt
                  of
                  $169,109 was converted into 10,500,000 shares ofcommon
                  stock.During
                  the six months ended March 31, 2007, 300,000 shares ofcommon
                  stock were issued for consulting services.During
                  the six months ended March 31, 2006, 224,712 shares ofSeries
                  E redeemable convertible preferred stock were converted
                  into509,162
                  shares of common stock.During
                  the six months ended March 31, 2006, 8,333 shares ofSeries
                  C convertible preferred stock were converted into90,910
                  shares of common stock.See
                  accompanying notes to consolidated financial statements.










Avitar,
      Inc. and Subsidiaries


Notes
      to
      Consolidated Financial Statements


(Unaudited)





1.  Basis
      of Presentation




Avitar,
      Inc.
      (the “Company” or “Avitar”) through its wholly-owned subsidiary Avitar
      Technologies, Inc. (“ATI”) develops, manufactures, markets and sells diagnostic
      test products and proprietary hydrophilic polyurethane foam disposables
      fabricated for medical, diagnostics, dental and consumer use. During the first
      half of Fiscal 2007, the Company continued the development and marketing of
      innovative point of care oral fluid drugs of abuse tests, which use the
      Company’s foam as the means for collecting the oral fluid sample. Through its
      wholly owned subsidiary, BJR Security, Inc. (‘BJR”), the Company provided
      specialized contraband detection and education services. Avitar sells its
      products and services to employers, diagnostic test distributors, large medical
      supply companies, governmental agencies, schools and corporations. The Company
      operates in one reportable segment since revenues of its contraband detection
      business represent an immaterial portion of its total revenues.





The
      Company’s one for fifty (1 for 50) reverse split of its common stock that was
      authorized by the Company’s shareholders at their annual meeting held on January
      18, 2006 became effective on February 17, 2006. Accordingly, the numbers of
      common stock shares and related data presented herein reflect the results of
      the
      reverse split for current and prior reporting periods.





In
      December 2003, Avitar consummated the sale of the business and net assets,
      excluding cash, of its wholly-owned subsidiary, United States Drug Testing
      Laboratories, Inc. (“USDTL”). The Company received $500,000 in cash upon the
      closing of the sale and was entitled to receive an additional $500,000 if the
      buyer of USDTL achieved certain revenue targets. In November 2005, the Company
      negotiated an agreement with the new owners of USDTL to settle all outstanding
      matters related to the sale of USDTL (see Note 3).





Due
      to
      the current financial condition at Avitar, the Company has been considering
      selling assets and/or operations. On May 1, 2007, Avitar consummated a sale
      of
      the business of its BJR subsidiary for $40,000, payable no later than April
      30,
      2012. Due to the length of the payment period, payments will be recorded as
      income when they are received (see Note 3). The USDTL and BJR business have
      been
      treated as discontinued operations.





The
      accompanying consolidated financial statements of the Company have been prepared
      in accordance with generally accepted accounting principles for interim
      financial information, the instructions to Form 10-QSB and Regulation S-B
      (including Item 310(b) thereof). Accordingly, they do not include all of the
      information and footnotes required by generally accepted accounting principles
      for complete financial statements. In the opinion of the Company's management,
      all adjustments (consisting only of normal recurring accruals) considered
      necessary for a fair presentation have been included. Operating results for
      the
      three and six month periods ended March 31, 2007 are not necessarily indicative
      of the results that may be expected for the full fiscal year ending September
      30, 2007. The accompanying consolidated financial statements should be read
      in
      conjunction with the audited financial statements of the Company for the fiscal
      year ended September 30, 2006. The Company’s consolidated financial statements
      have been presented on the basis that it is a going concern, which contemplates
      the realization of assets and the satisfaction of liabilities in the normal
      course of business. The Company has suffered recurring losses from operations
      and has a working capital deficit of $3,969,056 and a stockholders’ deficit of
      $9,718,680 as of March 31, 2007. In fiscal 2006, the Company raised gross
      proceeds of $3,270,000 from long-term convertible notes. During December 2006
      and March 2007, the Company raised gross proceeds of $745,000 from long-term
      convertible notes (see Note 5). The Company is working with placement agents
      and
      investment fund managers to obtain additional equity or debt financing. Based
      upon cash flow projections, the Company believes the anticipated cash flow
      from
      operations and most importantly, the expected net proceeds from future equity
      financings will be sufficient to finance the Company's operating needs until
      the
      operations achieve profitability. There can be no assurances that forecasted
      results will be achieved or that additional financing will be obtained. The
      financial statements do not include any adjustments relating to the
      recoverability and classification of asset amounts or the amounts and
      classification of liabilities that might be necessary should the Company be
      unable to continue as a going concern.





2.  Inventories





At
      March
      31, 2007, inventories consist of the following:





Raw
      Materials $149,153


Work-in-Process 86,721


Finished
      Goods      78,681


Total $314,555





3. Discontinued
      Operations





On
      December 16, 2003, the Company consummated a sale of USDTL’s business and net
      assets, excluding cash. Under the terms of that sale, the Company received
      $500,000 in cash upon the closing of the sale and was entitled to receive an
      additional $500,000 if the buyer of USDTL achieved certain revenue targets.
      In
      November 2005, the Company negotiated an agreement with the new owners of USDTL
      to settle all outstanding matters related to the sale of USDTL. Under the terms
      of this settlement, the Company received an immediate lump sum payment of
      $120,000 rather than waiting for the 10 to 14 years that the Company believed
      it
      would take to collect the entire $500,000 from uncertain future revenues of
      USDTL. The accompanying financial statements reflect USDTL as a discontinued
      operation.





During
      April 2007, the Company decided to sell BJR’s business. On May 1, 2007, the
      Company consummated the sale. Under the terms of the sale, the Company will
      be
      paid $40,000 no later than April 30, 2012. Due to the length of the payment
      period, payments will be recorded as income when they are received. The
      accompanying financial statements reflect BJR as a discontinued operation.
      Following is a summary of the net assets of BJR.





*March
      31*          *2007*





Accounts
      receivable $54,800


Property
      and
      equipment 5,413


Total
      assets 60,213


Accounts payable and
      accruals 41,181


Net
      assets $
      19,032








The
      following is a summary of the results of discontinued operations for the three
      and six months ended March 31, 2007 and 2006:





Three
                  Months
              
              Six
                  MonthsEnded
                  March 31,
              
              Ended
                  March 31,Sales-BJR
              
              2007
              
              2006
              
              2007
              
              2006Operating
                  expenses-BJR
              
              $
              102,375
              
              $
              121,508
              
              $
              198,588
              
              $
              244,171Other
                  income-USDTL
              
              
              115,665
              
              
              141,921
              
              
              235,096
              
              
              298,145Income
                  (loss) from
                discontinued
                  operations
              
              
              -
              
              
              -
              
              
              -
              
              
              120,000$
              (
                  13,290
              )
              $
              (20,413
              )
              $
              (
                  36,508
              )
              $
              66,026








4.  Major
      Customers





Customers
      in excess of 10% of total sales are:





Three
      Months Ended March 31,  Six
      Months Ended March 31,


2007   2006  2007  2006


Customer
      A $
      *                        
$
      310,756                                
$
      *                             
$ 532,586




* Not in excess of 10%





At
      March
      31, 2007, accounts receivable from two customers totaled approximately 30%
      of
      accounts receivable..








5. Notes
      Payable and Short and Long-term Convertible Notes Payable





From
      September 2005 through March 2007, the Company executed notes payable with
      AJW
      Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC and New
      Millennium Capital Partners II, LLC in the total principal amount of $5,015,000
      which are payable at maturities from September 2008 through March 2010. Interest
      on these notes is at 8% per annum and is payable quarterly in cash or the
      Company’s common stock at the option of the Company. The Company originally
      issued warrants to purchase 100,000 shares of common stock at $12.50 per share
      for five years in connection with certain of these notes executed from September
      2005 to April 2006. In conjunction with the notes executed in May 2006, the
      outstanding warrants were cancelled and replaced with warrants to purchase
      3,000,000 shares of common stock at $1.25 per share for seven years. For the
      notes executed in July 2006, September 2006, December 2006 and March 2007,
      the
      Company issued warrants to purchase a total of 5,500,000 shares of common stock
      at $.10 to $.22 per share for seven years. Non-cash interest expense of $605,000
      representing the fair value of the warrants issued as replacement for the
      outstanding warrants in May 2006 was recorded in fiscal 2006. Fees of
      approximately $879,000 incurred in connection with securing these loans were
      recorded as a deferred financing charge. In addition, the entire principal
      plus
      any accrued and unpaid interest associated with these notes is convertible,
      at
      the holder’s option, into the Company’s common stock at a
      conversion price of 65% (subsequently adjusted to 55% for notes executed after
      February 2006, see Note 11 below) of the average of the three lowest intraday
      trading prices of the common stock for the twenty trading days preceding the
      date that the holders elect to convert. A discount to debt totaling $1,782,259
      ($1,421,653 for the fair value of the conversion feature of these notes and
      $360,606 for the incremental fair value of the warrants issued in connection
      with these notes) was recorded during fiscal 2005, 2006 and 2007 and is being
      amortized over the terms of the notes. The unamortized discount was $1,157,903
      as of March 31, 2007. The collateral pledged by the Company to secure these
      notes includes all assets of the Company. A liability of approximately
      $2,387,000 was recorded for the fair value of the warrants issued in connection
      with the $5,015,000 of notes and the conversion feature, which was reduced
      to
      its market value of approximately $1,434,000 at March 31, 2007. Through March
      31, 2007, notes totaling $309,771 were converted into 13,395,000 shares of
      common stock.





From
      April to August 2005, the Company executed convertible notes with an individual
      in the total principal amount of $650,000 with interest at 10%. Each note has
      a
      maturity date of six months from the date of the note and is payable in ten
      monthly installments plus accrued interest commencing on the maturity date
      of
      the note. The notes, that were due in variable monthly installments plus accrued
      interest from October 1, 2005 and June 30, 2006, were outstanding at March
      31,
      2007. Under the terms of the notes, the entire unpaid principal balance and
      accrued interest shall become due and payable upon the occurrence of any default
      by the Company in the payment of interest and principal on the due date thereof
      and any such default that remains unremedied for twenty business day following
      written notice to the Company by the holders. No written notice of default
      from
      the holders of these notes has been received by the Company. The Company issued
      warrants to purchase 650,000 shares of common stock at $1.65 to $4.95 per share
      for three years in connection with these notes. In addition, the entire
      principal plus accrued interest associated with these notes is convertible
      into
      the Company’s common stock at a
      conversion price of the lesser of the closing price of the common stock on
      the
      date of the loan or 85% of the average closing price of the common stock for
      the
      five trading days preceding the notice of conversion. In no event shall the
      conversion price be lower than 50% of the closing price of the common stock
      on
      the date of the loan. A discount to debt totaling $172,930 ($156,800 for the
      value of the conversion feature of these notes and $16,130 for the value of
      the
      warrants issued in connection with these notes) was recorded during fiscal
      year
      2005 and was fully amortized over the term of the notes. A liability of
      approximately $173,000 was recorded for the fair value of the warrants issued
      in
      connection with the $650,000 of notes and the conversion feature, which was
      reduced to its market value of $0 at March 31, 2007.








6.  Convertible
      and Redeemable Convertible Preferred Stock





Number
                  of
              
              Face
              
              Less
                  Costs
                and
                Proceeds
                Allocated
                to
                  Warrants
                and
                  Conversion
              
              Accretion
                  To Redemption
              
              Accretion
                  of
              
              CarryingInstrument
              
              Shares
              
              Value
              
              Features
              
              Value
              
              Dividends
              
              ValueSeries
                  E Redeemable Convertible Preferred Stock
              
              
              593,560
              
              $
              593,560
              
              $
              430,133
              
              $
              430,133
              
              $
              64,323
              
              $
              657,883Series
                  C Convertible Preferred Stock
              
              
              28,608
              
              
              145,000
              
              
              -
              
              
              -
              
              
              -
              
              
              145,0006%
                  Convertible PreferredStock
              
              
              2,000
              
              
              2,000,000
              
              
              -
              
              
              -
              
              
              394,182
              
              
              2,394,182Total
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              458,505
              
              $
              3,197,065


The
      Series C and 6% Convertible Preferred Stock is carried on the balance sheet
      outside permanent equity as the Company cannot be sure it has adequate
      authorized shares for their conversion as of March 31, 2007. Upon the occurrence
      of specific events, the holders of the Series E Redeemable Convertible Preferred
      Stock are entitled to redeem these shares under certain provisions of the
      agreement covering the purchase of the preferred stock. Accordingly, these
      securities were not classified as permanent equity.





In
      April
      and June 2005, the Company raised net proceeds of approximately $1,335,000
      from
      the sale of 1,500,000 shares of Series E Redeemable Convertible Preferred Stock
      with a face value of $1,500,000 and warrants to purchase 3,000 shares of the
      Company’s common stock. The 1,500,000 shares of Series E Preferred Stock are
      convertible into Common Stock at the lesser of $4.00 per share or 80% of the
      average of the three lowest closing bid prices for the ten trading days
      immediately prior to the notice of conversion, subject to adjustments and
      limitations, and the warrants are exercisable at $4.20 per share for a period
      of
      three years. The warrants and the conversion feature resulted in a deemed
      dividend of $1,087,000 being recorded and included in the earnings per share
      calculation for the year ended September 30, 2005. A liability of approximately
      $1,087,000 was recorded for the original fair value of the warrants and the
      conversion feature, which was reduced to its market value of approximately
      $132,000 at March 31, 2007. As of March 31, 2007, 906,440 shares of this
      preferred stock had been converted into 6,422,193 shares of common stock and
      593,560 were outstanding.





In
      December 2004, the Company sold 1,285 shares of Series A Redeemable Convertible
      Preferred Stock and warrants to purchase 12,000 shares of common stock for
      which
      it received net proceeds of approximately $1,160,000. The Series A Redeemable
      Convertible Preferred Stock, with a face value of $1,285,000, was convertible
      into common stock at the lesser of $6.00 per share or 85% of the average of
      the
      three lowest closing bid prices, as reported by Bloomberg, for the ten trading
      days immediately prior to the notice of conversion subject to adjustments and
      floor prices. The warrants are exercisable at $6.30 per share. The warrants
      and
      the conversion feature resulted in a deemed dividend of $1,058,260 being
      recorded and included in the earnings per share calculation for the year ended
      September 30, 2005. A liability of approximately $1,058,260 was recorded for
      the
      original fair value of the warrants and the conversion feature, which was
      reduced to its market value of $24 at March 31, 2007. As of March 31, 2007,
      1,135 shares of this preferred stock had been converted into 452,156 shares
      of
      common stock and the remaining 150 shares of Series A redeemable convertible
      preferred stock, with a face value of $150,000, were redeemed by the Company
      in
      October 2005 for $155,417 which included accrued dividends of $5,417.





The
      28,608 shares of Series C convertible Preferred Stock entitle the holder of
      each
      share, on each anniversary date of the investment, to convert into the number
      of
      shares of common stock derived by dividing the purchase price paid for each
      share of the preferred stock by the average price of the Company’s common stock
      for the five trading days prior to conversion subject to anti-dilution
      provisions and receive royalties of 5% of revenues related to disease diagnostic
      testing from the preceding fiscal year. There were no royalties earned for
      the
      six months ended March 31, 2007 or 2006. After one year from the date of
      issuance, the Company may redeem all or any portion of this preferred stock
      by
      the issuance of the Company’s common stock, the number of shares of which shall
      be derived by dividing the redemption price, as defined, by the average closing
      price of the Company’s common stock for the five trading days prior to the
      redemption date, and liquidating distributions of an amount per share equal
      to
      the amount of unpaid royalties due to the holder in the event of liquidation.
      None of these shares was converted into common stock during the six months
      ended
      March 31, 2007 or 2006.





7.  Common
      and Series B Convertible Preferred Stock





During
      the six months ended March 31, 2007, the Company issued a total of 14,975,945
      shares of common stock to holders who converted 94,301 shares of Series E
      redeemable convertible preferred stock and $160,109 of long-term convertible
      notes. In addition, the Company issued 300,000 shares of common stock as payment
      for consulting services. Dividends for Series B convertible preferred stock
      amounted to $887 for the six months ended March 31, 2007 and the total amount
      of
      unpaid and undeclared dividends was $9,089.










8. Loss
      Per Share




T he
      following data show the amounts used in computing earnings per
      share:


Three
                  Months
              
              Six
                  MonthsEnded
                  March 31,
              
              Ended
                  March 31,2007
              
              
              2006
              
              
              2007
              
              
              2006Loss
                  from continuing operations
              
              $
              (
                  885,807
              )
              $
              (1,014,573
              )
              $
              (1,805,977
              )
              $
              (1,992,941
              )Less:
                  Preferred Stock Dividends
              
              
              (
                  37,401
              )
              
              (
                  39,718
              )
              
              (
                  76,509
              )
              
              (
                  82,153
              )Loss
                  attributable to common stockholders from continuing
                  operations
              
              
              (
                  923,208
              )
              
              (
                  1,054,291
              )
              
              (1,882,486
              )
              
              (
                  2,075,094
              )Add:
                Income
                  (loss) from discontinued operations
              
              
              (
                  13,290
              )
              
              (
                  20,413
              )
              
              (
                  36,508
              )
              
              66,026Net
                  loss attributable to commonstockholders used in basic and diluted EPS
              
              $
              (
                  936,498
              )
              $
              (
                  1,074,704
              )
              $
              (1,918,994
              )
              $
              (2,009,068
              )Weighted
                  average number of
                common
                  shares
                  outstanding
              
              
              19,796,871
              
              
              4,381,414
              
              
              15,800,253
              
              
              4,211,563Loss
                  per share applicable to common stockholders before
                  discontinued
                operations
              
              $
              (
                  0.05
              )
              $
              (
                  0.24
              )
              $
              (
                  0.12
              )
              $
              (
                  .49
              )Impact
                  of discontinued operations
              
              
              -
              
              
              (
                  0.01
              )
              
              -
              
              
              .01Basic
                  and diluted loss per share applicable to common
                  stockholders
              
              $
              (
                  0.05
              )
              $
              (
                  0.25
              )
              $
              (
                  0.12
              )
              $
              (
                  .48
              )


9. Stock
      Based Compensation





The
      Company adopted SFAS No. 123 (Revised 2004), “Share-Based Payment” (‘SFAS
      123R”), effective October 1, 2006. SFAS 123R requires the recognition of fair
      value of stock-based compensation as an expense in the calculation of net
      income. The Company recognizes stock-based compensation ratably over the vesting
      period of the individual equity instruments. All stock awards outstanding on
      March 31, 2007 have been accounted for as equity instruments based on the
      provisions of SFAS 123R. Prior to October 1, 2006, the Company followed the
      Accounting Principles Board (“APB”) Opinion 25, “Accounting for Stock Issued to
      Employees”, and the related interpretations in accounting for stock-based
      compensation.





The
      Company elected the modified prospective transition method for adopting SFAS
      123R. Under this method, the provisions of SFAS 123R apply to all stock-based
      awards granted or other awards granted that are subsequently reclassified into
      equity. The unrecognized expense of awards not yet vested as of September 30,
      2006, the date of adoption of SFAS 123R by the Company, is now being recognized
      as expense in the calculation of net income using the same valuation method
      (Black-Scholes) and assumptions used prior to the adoption of SFAS
      123R.





Under
      the
      provisions of SFAS 123R, the Company recorded $33,371 and $76,103 of stock
      based
      compensation expense on its unaudited consolidated statement of operations
      for
      the three and six months ended March 31, 2007, respectively.





During
      the quarter and six months ended March 31, 2007, no options were granted under
      stock option plans and no shares subject to purchase under the employee stock
      purchase plan were issued.





The
      Company has assumed an annualized forfeiture rate of 0.0% for its options.
      Under
      the true-up provisions of SFAS 123R, the Company will record a recovery of
      prior
      expense if the actual forfeiture is higher than estimated. The unamortized
      fair
      value of stock options as of March 31, 2007 was $241,000 which is expected
      to be
      recognized over the weighted average remaining period of 2.5 years.





The
      following table summarizes activity under all stock option plans for the six
      months ended March 31, 2007:


Shares
              
              
              
              Exercise
              
              Remaining
              
              AggregateAvailable
              
              Number
              
              Price
                  Per
              
              Contractual
              
              Intrinsicfor
                  Grant
              
              Outstanding
              
              Share
              
              Term(years)
              
              ValueBalance
                  at September 30, 2006
              
              1,042,000
              
              179,079
              
              $                      
                  9.77
              
              4.6
              
              $                      
                  0.00Options
                  authorized
              
              -
              
              -
              
              -Options
                  granted
              
              -
              
              -
              
              -Options
                  exercised
              
              -
              
              -
              
              -Options
                  cancelled
              
              -
              
              -
              
              -Balance
                  at December 31, 2006
              
              
              1,042,000
              
              
              179,079
              
              $
              19.77
              
              
              4.4
              
              $
              0.00Options
                  authorized
              
              
              -
              
              
              -
              
              
              -Options
                  granted
              
              
              -
              
              
              -
              
              
              -Options
                  exercised
              
              
              -
              
              
              -
              
              
              -Options
                  cancelled
              
              
              -
              
              
              -
              
              
              -Balance
                  at March 31, 2007
              
              
              1,042,000
              
              
              179,079
              
              $
              19.77
              
              
              4.0
              
              $
              0.00Exercisable
                  at March 31, 2007
              
              
              
              
              
              105,188
              
              $
              25.19
              
              
              3.8







SFAS
      123R
      requires the presentation of pro forma information for the comparative period
      prior to the adoption as if we had accounted for all our employee stock options
      under the fair value method of the original SFAS 123. The following table
      illustrates the effect on net loss and loss per share if the Company had applied
      the fair value recognition provisions of SFAS 123R for stock-based employee
      compensation to the prior-year periods.


For
                  the three Months Ended
              
              For
                  the six Months EndedMarch
                  31,
              
              March
                  31,2006
              
              2006Net
                  loss
                Add:
                  stock based employee compensation expense included in reported
                  net loss,
                net
                  of tax
              
              $
              (1,034,986
              )
              $
              (1,926,915
              )Deduct:
                  total stock based employee
                compensation
                  expense determined
                under the fair value based method for
                all awards, net of tax
              
              
              -
              
              
              -Pro
                  forma net loss
              
              
              (
                  30,742
              )
              
              (
                  61,337
              )Loss
                  per share:
                Basic and diluted - as reported
              
              $
              (1,065,728
              )
              $
              (
                  1,988,252
              )Basic and diluted - pro forma
              
              $
              (.24
              )
              $
              (.47
              )(.24
              )
              
              (.47
              )


In
      determining the pro forma amounts above, the Company estimated the fair value
      of
      each option granted using the Black-Scholes option pricing model with the
      following assumptions:







March
      31  2006


Risk
      free
      interest
      rate 4.3%


Expected
      dividend
      yield                                                                         
-


Expected
      lives 5-9
      years


Expected
      volatility                                                                                  
8 0%





Options
      granted during the quarter and six months ended March 31, 2006 totaled 7,000.
      The weighted average fair value of options granted during the six months ended
      March 31, 2006 was $.42.





10. Derivatives





The
      Company has issued and outstanding convertible debt and certain convertible
      equity instruments with embedded derivative features. The Company analyzes
      these
      financial instruments in accordance with SFAS No. 133 and EITF Issue Nos. 00-19
      and 05-02 to determine if these hybrid contracts have embedded derivatives
      which
      must be bifurcated. In addition, free-standing warrants are accounted for as
      equity or liabilities in accordance with the provisions of EITF Issue No. 00-19.
      As
      of March 31, 2007, the Company could not be sure it had adequate authorized
      shares for the conversion of all outstanding instruments due to certain
      conversion rates which vary with the fair value of the Company’s common stock
      and therefore all embedded derivatives and freestanding warrants are recorded
      at
      fair value, marked-to-market at each reporting period, and are carried on
      separate lines of the accompanying balance sheet. If there is more than one
      embedded derivative, their value is considered in the aggregate. As of March
      31,
      2007, the fair value was $1,419,866 for the embedded derivatives and $292,313
      for the warrants.





11. Subsequent
      Events





Subsequent
      to March 31, 2007, the Company executed additional notes payable with AJW
      Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC and New
      Millennium Capital Partners II, LLC in the total principal amount of $250,000.
      Interest on these notes is at 8% per annum and is payable quarterly in cash
      or
      the Company’s common stock at the option of the Company. The Company issued
      warrants to purchase 10,000,000 shares of common stock at $.01 per share for
      seven years in connection with these notes. The entire principal plus any
      accrued and unpaid interest associated with these notes is convertible, at
      the
      holder’s option, into the Company’s common stock at a
      conversion price of 55% of the average of the three lowest intraday trading
      prices of the common stock for the twenty trading days preceding the date that
      the holders elect to convert. In addition, the conversion prices of outstanding
      notes payable to the same holders in the aggregate principal amount of
      $2,515,000 issued from April 2006 through March 2007 were adjusted from 65%
      to
      55% of the average of the three lowest intraday trading prices of the common
      stock for the twenty trading days preceding the date that the holders elect
      to
      convert.





From
      April 1, 2007 to May 10, 2007, the Company issued to holders of convertible
      notes 3,500,000 shares of common stock upon conversion of long-term notes
      totaling $45,255.





12.
      Recent Accounting Pronouncements





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”
(“SFAS 154”) which replaces APB Opinions No. 20 “Accounting Changes” and SFAS
      No. 3, “Reporting Accounting Changes in Interim Financial Statements” An
      Amendment of APB Opinion No. 28.  SFAS 154 provides guidance on the
      accounting for and reporting of accounting changes and error corrections. 
It establishes retrospective application, or the latest practicable date, as
      the
      required method for reporting a change in accounting principle and the reporting
      of a correction of an error.  SFAS 154 is effective for accounting changes
      and corrections of errors made in fiscal years beginning after December 15,
      2005
      and therefore was effective for the Company beginning October 1, 2006.  The
      adoption of SFAS 154 by the Company has not had a material impact on its
      consolidated results of operations or financial condition.





In
      July
      2006, the FASB issued
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
      Interpretation of FASB Statement No. 109”.  FIN 48 clarifies the accounting
      for uncertainty in income taxes recognized in a company’s financial statements
      in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48
      prescribes the recognition and measurement of a tax position taken or expected
      to be taken in a tax return.  It also provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. FIN 48 is effective for fiscal years beginning after
      December 15, 2006. The Company is currently evaluating the effect that the
      adoption of FIN 48 will have on its consolidated financial statements but does
      not expect that it will have a material impact.




In
      February 2006, the FASB issued SFAS 155, “Accounting for Certain Hybrid
      Financial Instruments” which amends SFAS 133, “Accounting for Derivative
      Instruments and Hedging Activities” and SFAS 140, “Accounting for Transfers
      and Servicing of Financial Assets and Extinguishments of Liabilities.”
SFAS 155 simplifies the accounting for certain derivatives embedded in
      other financial instruments by allowing them to be accounted for as a whole
      if
      the holder elects to account for the whole instrument on a fair value basis.
      SFAS 155 also clarifies and amends certain other provisions of
      SFAS 133 and SFAS 140. SFAS 155 is effective for all financial
      instruments acquired, issued or subject to a remeasurement event occurring
      in
      fiscal years beginning after September 15, 2006 and therefore, was
      effective for the Company beginning October 1, 2006. The adoption of
      SFAS 155 by the Company has not had a material impact on its consolidated
      financial statements.





In
      March
      2006, the FASB issued EITF 06−03, “How Taxes Collected from Customers and
      Remitted to Governmental Authorities Should Be Presented in the Income Statement
      (That is, Gross versus Net Presentation)”that clarifies how a company discloses
      its recording of taxes collected that are imposed on revenue-producing
      activities. EITF 06−03 was effective for the Company beginning January 1, 2007.
      The adoption of ETIF 06-03 has not had a material impact on its consolidated
      financial statements.





In
      September 2006, the SEC issued SAB No. 108, “Considering the Effects of Prior
      Year Misstatements when Quantifying Misstatements in Current Year Financial
      Statements” to provide guidance on the consideration of the effects of prior
      year misstatements in quantifying current year misstatements for the purpose
      of
      a materiality assessment. Under SAB No.108, companies should evaluate a
      misstatement based on its impact on the current year income statement, as well
      as the cumulative effect of correcting such misstatements that existed in prior
      years existing in the current year’s ending balance sheet. SAB No. 108 was
      effective for the Company beginning October 1, 2006. The adoption of SAB No.
      108
      Company has not had an effect on its consolidated financial
      statements.





In
      December 2006, the FASB issued FASB Staff Position Number 00-19-2, “Accounting
      for Registration Payment Arrangements” ("FSP EITF 00-19-2").  FSP EITF
      00-19-2 addresses an issuer’s accounting for registration payment arrangements.
      FSP EITF 00-19-2 specifies that the contingent obligation to make future
      payments or otherwise transfer consideration under a registration payment
      arrangement, whether issued as a separate agreement or included as a provision
      of a financial instrument or other agreement, should be separately recognized
      and measured in accordance with FASB Statement No. 5, Accounting for
      Contingencies. FSP
      EITF
      00-19-2 is effective immediately for registration payment arrangements and
      the
      financial instruments subject to those arrangements that are entered into or
      modified subsequent to the date of issuance of FSP EITF 00-19-2 (December 21,
      2006). For
      registration payment arrangements and financial instruments subject to those
      arrangements that were entered into prior to the issuance of FSP EITF 00-19-2,
      this guidance shall be effective for financial statements issued for fiscal
      years beginning after December 15, 2006, and interim periods within those fiscal
      years. The
      Company is evaluating what effect, if any, FSP EITF 00-19-2 may have on its
      consolidated financial statements.








13.  Legal
      Proceedings





As
      previously reported, on August 16, 2006, a Complaint was filed in United States
      District Court, District of New Jersey, by Sun Biomedical Laboratories, Inc.,
      Plaintiff, against Avitar Technologies, Inc., Defendant, a wholly-owned
      subsidiary of Avitar. In the Complaint, Plaintiff alleged among other things
      breaches of contract, patent infringement and unfair competition and it seeks
      damages and injunctions. A Summons in this case was not issued until September
      22, 2006 and the Summons was not delivered to Avitar until October 13, 2006.





The
      alleged breach of contract is based upon an agreement made in 1999 related
      to
      the development of products and sales of goods. The last invoice issued to
      the
      Defendant was sent by Plaintiff in August 2002. In September 2002, Avitar
      advised the Plaintiff that the Defendant owes nothing to the Plaintiff and
      that
      the Plaintiff would owe substantial amounts for its failures to perform in
      accordance with their agreement.





In
      its
      answer to this Complaint filed with the court on December 4, 2006, the Company
      denied substantially all allegations of the Plaintiff and made a significant
      counter claim against the Plaintiff for damages suffered by the Company as
      a
      result of the Plaintiff’s failure to perform in accordance with the 1999 Product
      Development Agreement. In January 2007, the Plaintiff denied substantially
      all
      of the allegations included in the Company’s counterclaim against the Plaintiff.
      In April 2007, a conference was held with the Judge assigned to this case and
      a
      schedule was established for the discovery process and the trial.








Item
      2.   Management's
      Discussion and Analysis or Plan of Operation .





The
      following discussion and analysis should be read in conjunction with the
      Company's consolidated financial statements and the notes thereto appearing
      elsewhere in this report.








**Results
      of Operations**





*Revenue* ***s***


Sales
      for
      the three months ended March 31, 2007 decreased $462,964, or approximately
      39%,
      to $712,794 from $1,175,758 for the corresponding period of the prior year.
      For
      the six months ended March 31, 2007, sales decreased $298,757, or approximately
      15%, to $1,661,608 from $1,960,365. The change for the three and six months
      ended March 31, 2007 primarily reflects a decrease in the volume of sales for
      its Foam Products resulting from the transition to a new US distributor on
      January 1, 2007 for Hydrasorb® wound dressings. The Company expects sales volume
      of the Hydrasorb wound dressings to improve as the distributor completes the
      introduction of these dressings to its product line.





*Operating
      Expenses*





Cost
      of
      sales for the three months ended March 31, 2007 were approximately 80% of sales
      compared to the cost of sales of approximately 68% of sales for the three months
      ended March 31, 2006. For the six months ended March 31, 2007, the cost of
      sales
      was 75% compared to 70% of sales for the same period of Fiscal 2006. The change
      for Fiscal 2007 resulted primarily from the decrease in sales described above.





Selling,
      general and administrative expenses for the three months ended
      March


31,
      2007
      decreased $84,095, or approximately 9%, to $888,255 from $972,350 for the
      corresponding period of the prior year. For the six months ended March 31,
      2007,
      selling, general and administrative expenses decreased $161,705 or approximately
      8%, to $1,786,534 from $1,948,239 for the six months ended March 31, 2006.
      The
      change for the three-month period ended March 31, 2007 primarily resulted from
      expense reductions of approximately $27,000 for consulting fees, $59,000 for
      salary and payroll related costs for various sales and marketing positions,
      $28,000 for insurance premiums and $45,000 for various other administrative
      items; offset in part by an increase of approximately $13,000 for legal fees,
      $35,000 for investor relations and $27,000 for stock-based compensation. The
      change for the six-months ended March 31, 2007 primarily resulted from expense
      reductions of approximately $76,000 for consulting fees, $89,000 for salary
      and
      payroll related costs for various sales and marketing positions, $42,000 for
      insurance premiums and $118,000 for various other administrative items; offset
      in part by an increase of approximately $27,000 for legal fees, $73,000 for
      investor relations and $63,000 for stock-based compensation. In order to achieve
      revenue growth, the Company will most likely need to incur increased expenses
      to
      hire additional direct sales staff and expand marketing programs as sufficient
      additional funding becomes available.





Expenses
      for research and development for the three months ended March 31, 2007 amounted
      to $81,341 compared to $109,248 for the corresponding period of the prior year,
      a decrease of $27,907. For the six months ended March 31, 2007, expenses for
      research and development were $173,265 versus $238,954 for the six months ended
      March 31, 2006, a decrease of $65,689. The decrease for the quarter ended March
      31, 2007 was primarily attributable to reductions of $36,000 for salary expense
      and $9,000 for various other development related expenses; offset in part by
      an
      increase of approximately $14,000 for consulting fees and trial studies and
      $3,000 for stock based compensation. The change for the six months ended March
      31, 2007 resulted primarily from reduced salary and fringe benefit expenses
      of
      $62,000 and various development related expenses of $20,000; offset in part
      by
      increases of $10,000 for consulting fees and $6,000 for stock based
      compensation. Although research and development expenses were lower for the
      first half of Fiscal 2007, the Company must continue developing and enhancing
      its ORALscreen products and therefore, will most likely incur increased expenses
      for research and development as sufficient additional funding becomes
      available.





*Other
      Income and Expense*





Interest
      expense and financing costs were $336,371 for the three months ended March
      31,
      2007 compared to $175,851 incurred during the three months ended March 31,
      2006.
      For the six months ended March 31, 2006, interest expense and financing costs
      amounted to $646,546 versus $389,086 for the corresponding period of Fiscal
      2006. The increase for the three and six month periods ended March 31, 2007
      resulted primarily from the interest, amortization of deferred financing costs
      and amortization of debt discount associated with the additional long-term
      note
      borrowings totaling approximately $2,515,000 that were completed by the Company
      from April 2006 through March 2007.





For
      the
      three months ended March 31, 2007, other income amounted to
      $280,930


compared
      to other expense of $128,640 for the three months ended March 31, 2006. Other
      income for the six months ended March 31, 2007 was $379,977 compared to other
      expense of $7,298 for the six months ended March 31, 2006. The changes for
      the
      quarter and six months ended March 31, 2007 from the corresponding periods
      of
      Fiscal 2006 occurred primarily from the changes in the fair market value of
      derivative securities and warrants.





*Discontinued
      Operations*





On
      December 16, 2003, the Company consummated the sale of the business and net
      assets, excluding cash, of its USDTL subsidiary. On May 1, 2007, Avitar
      consummated a sale of the business of its BJR subsidiary. For the three months
      ended March 31, 2007, the loss from operations of BJR was $13,290 compared
      to
      $20,413 for the corresponding period of the prior year. The loss from the
      operations of BJR amounted to $36,508 for the six months ended March 31, 2007
      versus income from discontinued operations of $66,026 for the six months ended
      March 31, 2006 that was composed of income of $120,000 from the disposal of
      USDTL, offset in part by a loss from operations of BJR of $53,974. See Note
      3 of
      the Consolidated Financial Statements.





*Net
      Loss*





Primarily
      as a result of the factors described above, the Company had a net loss of
      $899,097 for the three months ended March 31, 2007, as compared to net loss
      of
      $1,034,986 for the three months ended March 31, 2006. For the six months ended
      March 31, 2007, the Company had a net loss of $1,842,485 versus $1,926,915
      for
      the corresponding period of Fiscal 2006. The loss per share was $.05 per basic
      and diluted share for the three months ended March 31, 2007 compared to a loss
      per share of $.25 per basic and diluted share for the three months ended March
      31, 2006. For the six months ended March 31, 2007, the loss per share was $.12
      per basic and diluted share versus a loss per share of $.48 per basic and
      diluted share for the six months ended March 31, 2006.





**Financial
      Condition and Liquidity**








At
      March
      31, 2007, the Company had a stockholders’ deficit of $9,718,680 and cash and
      cash equivalents of $23,333. Cash flows from financing activities provided
      the
      primary source of funding during the six months ended March 31, 2007 and the
      Company will continue to rely on this type of funding until profitability is
      reached. The following is a summary of cash flows for the six month period
      ended
      March 31, 2007:


March
                  31,Sources
                  (use) of cash flows
              
              2007Operating
                  activities
              
              $
              (
                  847,866
              )Investing
                  activities
              
              
              (
                  8,011
              )Financing
                  activities
              
              
              598,667Net
                  decrease in cash and equivalents
              
              $
              (
                  257,210
              )


Operating
      Activities. The net
      loss of $1,842,485 (composed of expenses totaling $3,884,090 less revenues
      and
      other income of $2,041,605) was the major use of cash by operations. When the
      net loss is adjusted for non-cash expenses such as depreciation and
      amortization, amortization of debt discounts, deferred financing costs, deferred
      rent, income from the changes in the fair market value of derivative securities
      and warrants and stock-based compensation, the cash needed to finance the net
      loss was $1,642,177. Working capital changes lowered operating cash requirements
      as a result of a reduction in accounts receivable of $371,801, a decrease in
      prepaid expenses and other current assets of $31,403 and an increase in accounts
      payable and accrued expenses of $446,190, primarily from the deferral of
      payments to vendors and interest payments on long-term convertible debt. In
      addition, operating cash was needed to finance an increase of $42,757 in
      inventory levels to meet anticipated demand for our products during the next
      six
      months and there was a decrease in deferred revenue that became recognized
      revenue in Fiscal 2007 of $4,400.





Investing
      and Financing Activities .
      Cash of
      $8,011 was used for additions to property, plant and equipment. To fulfill
      the
      major financing requirements of the business, the Company generated $640,400
      through the issuance of long-term convertible notes (as described below); of
      which $41,733 was used to repay various short-term notes payable and capital
      lease obligations.




During
      FY
      2007, the Company's cash requirements are expected to include primarily the
      funding of operating losses, the payment of outstanding accounts payable, the
      repayment of certain notes payable, the funding of operating capital to grow
      the
      Company’s drugs of abuse testing products and services, and the continued
      funding for the development of its ORALscreen product line.




In
      May
      2007, the Company executed additional notes payable with AJW Partners, LLC,
      AJW
      Offshore, Ltd., AJW Qualified Partners, LLC and New Millennium Capital Partners
      II, LLC in the total principal amount of $250,000. Interest on these notes
      is at
      8% per annum and is payable quarterly in cash or the Company’s common stock at
      the option of the Company. The Company issued warrants to purchase 10,000,000
      shares of common stock at $.01 per share for seven years in connection with
      these notes. The entire principal plus any accrued and unpaid interest
      associated with these notes is convertible, at the holder’s option, into the
      Company’s common stock at a
      conversion price of 55% of the average of the three lowest intraday trading
      prices of the common stock for the twenty trading days preceding the date that
      the holders elect to convert. In addition, the conversion prices of outstanding
      notes payable to the same holders in the aggregate principal amount of
      $2,515,000 issued from April 2006 through March 2007 were adjusted from 65%
      to
      55% of the average of the three lowest intraday trading prices of the common
      stock for the twenty trading days preceding the date that the holders elect
      to
      convert.





The
      cash
      available at March 31, 2007, the anticipated customer receipts and the funds
      received from the financing in May 2007 are expected to be sufficient to fund
      the operations of the Company through May 2007. Beyond that time, the Company
      will require significant additional financing from outside sources to fund
      its
      operations. The Company plans to continue working with placement agents and/or
      investment fund managers in order to raise additional capital during Fiscal
      2007
      from the sales of equity and/or debt securities. The Company plans to use the
      proceeds from these financings to provide working capital and capital equipment
      funding to operate the Company, to expand the Company’s business, to further
      develop and enhance the ORALscreen drug screening systems and to pursue the
      development of in-vitro oral fluid diagnostic testing products. However, there
      can be no assurance that these financings will be achieved.





Management
      continues to expect that operating revenues will grow during the last half
      of
      Fiscal 2007 and beyond as employment continues to rise in the United States
      as
      employers expand their use of random drug testing, and the Company is able
      to
      convert employers to using ORALscreen, Avitar’s oral fluid drug testing
      products. However, due to the funding constraints described above, the Company
      had to initiate an expense reduction program which resulted in a decrease in
      its
      direct sales force and delayed the implementation of an expanded, targeted
      marketing program. ORALscreen, as an instant on-site diagnostic test, is part
      of
      the fastest growing segment of the diagnostic test market. Inventories are
      currently at appropriate levels for anticipated sales volumes and the Company,
      with its production capacity, expects to be able to maintain inventories at
      optimal levels. Based on current sales, expense and cash flow projections,
      the
      Company believes that the current level of cash and cash equivalents on hand
      and, most importantly, a portion of the anticipated net proceeds from the future
      financings mentioned above would be sufficient to fund operations until the
      Company achieves profitability. There can be no assurance that the Company
      will
      consummate the above-mentioned future financings, or that any or all of the
      net
      proceeds sought thereby will be obtained. Furthermore, there can be no assurance
      that the Company will have sufficient resources to achieve the anticipated
      growth. Once the Company achieves profitability, the longer-term cash
      requirements of the Company to fund operating activities, purchase capital
      equipment, expand the existing business and develop new products are expected
      to
      be met by the anticipated cash flow from operations and proceeds from the
      financings described above. However, because there can be no assurances that
      sales will materialize as forecasted, management will continue to closely
      monitor and control discretionary costs at the Company and will continue to
      actively seek the needed additional capital.





As
      a
      result of the Company’s recurring losses from operations and working capital
      deficit, the report of its independent registered public accounting firm
      relating to the financial statements for Fiscal 2006 contains an explanatory
      paragraph expressing substantial doubt about the Company’s ability to continue
      as a going concern. Such report states that the ultimate outcome of this matter
      could not be determined as of the date of such report (December 11, 2006).
      The
      Company’s plans to address the situation are presented above. However, there are
      no assurances that these endeavors will be successful or
      sufficient.








**Recent
      Accounting Pronouncements**





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”
(“SFAS 154”) which replaces APB Opinions No. 20 “Accounting Changes” and SFAS
      No. 3, “Reporting Accounting Changes in Interim Financial Statements” An
      Amendment of APB Opinion No. 28.  SFAS 154 provides guidance on the
      accounting for and reporting of accounting changes and error corrections. 
It establishes retrospective application, or the latest practicable date, as
      the
      required method for reporting a change in accounting principle and the reporting
      of a correction of an error.  SFAS 154 is effective for accounting changes
      and corrections of errors made in fiscal years beginning after December 15,
      2005
      and therefore was effective for the Company beginning October 1, 2006.  The
      adoption of SFAS 154 by the Company has not had a material impact on its
      consolidated results of operations or financial condition.





In
      July
      2006, the FASB issued
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
      Interpretation of FASB Statement No. 109”.  FIN 48 clarifies the accounting
      for uncertainty in income taxes recognized in a company’s financial statements
      in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48
      prescribes the recognition and measurement of a tax position taken or expected
      to be taken in a tax return.  It also provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. FIN 48 is effective for fiscal years beginning after
      December 15, 2006. The Company is currently evaluating the effect that the
      adoption of FIN 48 will have on its consolidated financial statements but does
      not expect that it will have a material impact.




In
      February 2006, the FASB issued SFAS 155, “Accounting for Certain Hybrid
      Financial Instruments” which amends SFAS 133, “Accounting for Derivative
      Instruments and Hedging Activities” and SFAS 140, “Accounting for Transfers
      and Servicing of Financial Assets and Extinguishments of Liabilities.”
SFAS 155 simplifies the accounting for certain derivatives embedded in
      other financial instruments by allowing them to be accounted for as a whole
      if
      the holder elects to account for the whole instrument on a fair value basis.
      SFAS 155 also clarifies and amends certain other provisions of
      SFAS 133 and SFAS 140. SFAS 155 is effective for all financial
      instruments acquired, issued or subject to a remeasurement event occurring
      in
      fiscal years beginning after September 15, 2006 and therefore, was
      effective for the Company beginning October 1, 2006. The adoption of
      SFAS 155 by the Company has not had a material impact on its consolidated
      financial statements.





In
      March
      2006, the FASB issued EITF 06−03, “How Taxes Collected from Customers and
      Remitted to Governmental Authorities Should Be Presented in the Income Statement
      (That is, Gross versus Net Presentation)”that clarifies how a company discloses
      its recording of taxes collected that are imposed on revenue-producing
      activities. EITF 06−03 was effective for the Company beginning January 1, 2007.
      The adoption of ETIF 06-03 has not had a material impact on its consolidated
      financial statements.





In
      September 2006, the SEC issued SAB No. 108, “Considering the Effects of Prior
      Year Misstatements when Quantifying Misstatements in Current Year Financial
      Statements” to provide guidance on the consideration of the effects of prior
      year misstatements in quantifying current year misstatements for the purpose
      of
      a materiality assessment. Under SAB No.108, companies should evaluate a
      misstatement based on its impact on the current year income statement, as well
      as the cumulative effect of correcting such misstatements that existed in prior
      years existing in the current year’s ending balance sheet. SAB No. 108 was
      effective for the Company beginning October 1, 2006. The adoption of SAB No.
      108
      Company has not had an effect on its consolidated financial
      statements.





In
      December 2006, the FASB issued FASB Staff Position Number 00-19-2, “Accounting
      for Registration Payment Arrangements” ("FSP EITF 00-19-2").  FSP EITF
      00-19-2 addresses an issuer’s accounting for registration payment arrangements.
      FSP EITF 00-19-2 specifies that the contingent obligation to make future
      payments or otherwise transfer consideration under a registration payment
      arrangement, whether issued as a separate agreement or included as a provision
      of a financial instrument or other agreement, should be separately recognized
      and measured in accordance with FASB Statement No. 5, Accounting for
      Contingencies.  FSP EITF 00-19-2 is effective immediately for registration
      payment arrangements and the financial instruments subject to those arrangements
      that are entered into or modified subsequent to the date of issuance of FSP
      EITF
      00-19-2 (December 21, 2006). For registration payment arrangements and financial
      instruments subject to those arrangements that were entered into prior to the
      issuance of FSP EITF 00-19-2, this guidance shall be effective for financial
      statements issued for fiscal years beginning after December 15, 2006, and
      interim periods within those fiscal years. The Company is evaluating what
      effect, if any, FSP EITF 00-19-2 may have on its consolidated financial
      statements.





**Forward-Looking
      Statements and Associated Risks**





Except
      for the historical information contained herein, the matters set forth herein
      are "forward-looking statements" within the meaning of Section 27A of the
      Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934
      and
      the Private Securities Litigation Reform Act of 1995. We intend that such
      forward-looking statements be subject to the safe harbors created thereby when
      and if applicable




Such
      forward-looking statements involve known and unknown risks, uncertainties and
      other factors which may cause our actual results, performance or achievements
      to
      be materially different from any future results, performance or achievement
      expressed or implied by such forward-looking statements. Such factors include,
      but are not limited to the following: product demand and market acceptance
      risks, the effect of economic conditions, results of pending or future
      litigation, the impact of competitive products and pricing, product development
      and commercialization, technological difficulties, government regulatory
      environment and actions, trade environment, capacity and supply constraints
      or
      difficulties, the result of financing efforts, actual purchases under agreements
      and the effect of the Company’s accounting policies.





Item
      3.   Controls
      and Procedures







(a)
      Evaluation of Disclosure Controls and Procedures






Our
      management, including our chief executive officer and chief financial officer,
      have carried out an evaluation of the effectiveness of our disclosure controls
      and procedures as of March 31, 2007, pursuant to Exchange Act Rules 13a-15(e)
      and 15(d)-15(e). Based upon that evaluation, our chief executive officer and
      chief financial officer have concluded that as of such date, our disclosure
      controls and procedures in place are adequate and effective to ensure material
      information and other information requiring disclosure is identified and
      communicated on a timely basis.






(b)
      Changes in Internal Control Over Financial Reporting




There
      was
      no change in our internal control over financial reporting (as defined in Rule
      13a-15(f) of the Exchange Act) that occurred during the fiscal quarter covered
      by this Quarterly Report on Form 10-QSB that has materially affected, or is
      reasonably likely to materially affect, our internal control over financial
      reporting.













Part
      II  Other
      Information














I tem
      1.
      Legal Proceedings





As
      previously reported, on August 16, 2006, a Complaint was filed in United States
      District Court, District of New Jersey, by Sun Biomedical Laboratories, Inc.,
      Plaintiff, against Avitar Technologies, Inc., Defendant, a wholly-owned
      subsidiary of Avitar. In the Complaint, Plaintiff alleged among other things
      breaches of contract, patent infringement and unfair competition and it seeks
      damages and injunctions. A Summons in this case was not issued until September
      22, 2006 and the Summons was not delivered to Avitar until October 13, 2006.





The
      alleged breach of contract is based upon an agreement made in 1999 related
      to
      the development of products and sales of goods. The last invoice issued to
      the
      Defendant was sent by Plaintiff in August 2002. In September 2002, Avitar
      advised the Plaintiff that the Defendant owes nothing to the Plaintiff and
      that
      the Plaintiff would owe substantial amounts for its failures to perform in
      accordance with their agreement.





In
      its
      answer to this Complaint filed with the court on December 4, 2006, the Company
      denied substantially all allegations of the Plaintiff and made a significant
      counter claim against the Plaintiff for damages suffered by the Company as
      a
      result of the Plaintiff’s failure to perform in accordance with the 1999 Product
      Development Agreement. In January 2007, the Plaintiff denied substantially
      all
      of the allegations included in the Company’s counterclaim against the Plaintiff.
      In April 2007, a conference was held with the Judge assigned to this case and
      a
      schedule was established for the discovery process and the trial.





Item
      2.   Unregistered
      Sales of Equity Securities and Use of Proceeds





During
      the quarter ended March 31, 2007, the Company issued to holders of the Series
      E
      preferred stock 1,156,622 shares of the Company’s common stock upon the
      conversion of 24,779 shares of their preferred stock. In addition, the Company
      issued 6,300,000 shares of common stock to note holders upon conversion of
      long-term debt of $98,879 and 300,000 shares of common stock for consulting
      services. The exemption for registration of these securities is based upon
      Section 4(2) of the Securities Act because the issuances were made to accredited
      investors in private placements.








Item
      6.   Exhibits





(a)  Exhibits:




Exhibit
                No.
            Document31.1
              
              
              
              31.2
              
              
              
              32.1
              
              
              
              32.2
            Rule
                13a-14(a)/15d-14(a) Certification , as
              Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley
              Act
                of 2002
              
              Rule
                13a-14(a)/15d-14(a) Certification , as
              Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley
              Act
                of 2002
              
              Certification
                Pursuant to 18 U.S.C. Section 1350, as
              Adopted
                Pursuant to Section 906 of the Sarbanes-Oxley
              Act
                of 2002
              
              Certification
                Pursuant to 18 U.S.C. Section 1350, as
              Adopted
                Pursuant to Section 906 of the Sarbanes-Oxley
              Act
                of 2002













Signatures





In
      accordance with the requirements of the Exchange Act, the Registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.








Avitar, Inc.


(Registrant)














Dated:
      May 15,
      2007 /S/
      Peter P. Phildius


Peter
      P.
      Phildius


Chairman
      and Chief


Executive
      Officer


(Principal
      Executive Officer)














Dated:
      May 15,
      2007 /S/
      J.C. Leatherman, Jr.


J.C.
      Leatherman, Jr.


Chief
      Financial Officer


(Principal
      Accounting and


Financial
      Officer)



















EXHIBIT
      INDEX








Exhibit
                No.
            Document31.1
              
              
              
              31.2
              
              
              
              32.1
              
              
              
              32.2
            Rule
                13a-14(a)/15d-14(a) Certification, as
              Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley
              Act
                of 2002
              
              Rule
                13a-14(a)/15d-14(a) Certification, as
              Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley
              Act
                of 2002
              
              Certification
                Pursuant to 18 U.S.C. Section 1350, as
              Adopted
                Pursuant to Section 906 of the Sarbanes-Oxley
              Act
                of 2002
              
              Certification
                Pursuant to 18 U.S.C. Section 1350, as
              Adopted
                Pursuant to Section 906 of the Sarbanes-Oxley
              Act
                of 2002