U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-QSB

(Mark One)

[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended June 30, 2004.

[ ]  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           (I.R.S. Employer Identification No.)
incorporation or organization)

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

                      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: 120,509,917
                              AS OF AUGUST 10, 2004

Transitional Small Business Disclosure Format
(Check One):               [  ] Yes ;       [x] No



                               Page 1 of 29 pages
                           Exhibit Index is on Page 25

                                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  15


         Item 3    Controls and Procedures                                    20

PART II: OTHER INFORMATION                                                    21

         Item 1    Legal Proceedings                                          22

         Item 2    Changes in Securities and Small Issuer Purchases
                    of Equity  Securities                                     22

         Item 6    Exhibits and Reports on Form 8-K                           22


SIGNATURES                                                                    24

EXHIBIT INDEX                                                                 25
CERTIFICATIONS                                                                26

<PAGE>

                          PART I FINANCIAL INFORMATION
<PAGE>
Item 1.     FINANCIAL STATEMENTS

                          Avitar, Inc and Subsidiaries
                           Consolidated Balance Sheet
                                      June 30
                                   (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                     ASSETS
CURRENT ASSETS:
<S>                                                                                <C>
Cash and cash equivalents                                                        $  396,489
Accounts receivable, net                                                            455,804
  Inventories                                                                       387,786
Prepaid expenses and other current assets                                           114,149
                                                                                  ----------
Total current assets                                                             $1,354,228

PROPERTY AND EQUIPMENT, net                                                         297,856
GOODWILL, net                                                                       238,120
 OTHER ASSETS                                                                       213,381
                                                                                  ----------
 Total Assets                                                                    $2,103,585
                                                                                  ==========

                      LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
 Notes payable                                                                     $161,439
 Accounts payable                                                                   720,287
 Accrued expenses                                                                   930,469
 Deferred income                                                                    209,150
 Current portion of long-term debt                                                    2,897
                                                                                  ----------
   Total current liabilities                                                      2,024,242
LONG TERM LIABILITIES                                                                     -
                                                                                  ----------
   Total liabilities                                                              2,024,242
                                                                                  ----------
REDEEMABLE CONVERTIBLE PREFERRED STOCK                                            1,316,000


  COMMITMENTS

STOCKHOLDERS' DEFICIT:
Series B, C and D convertible preferred stock, $.01 par value; authorized
5,000,000 shares; 45,630 shares issued and outstanding                                  457
Common Stock, $.01 par value; authorized 200,000,000 shares;
109,404,794 shares issued and outstanding                                         1,094,048
Additional paid-in capital                                                       48,365,815
Accumulated deficit                                                             (50,696,977)
                                                                                ------------
Total stockholders' deficit                                                      (1,236,657)
                                                                                ------------
Total Liabilities and Stockholders' Deficit                                      $2,103,585
                                                                                ============
</TABLE>


See accompanying notes to consolidated financial statements.
<PAGE>
                          Avitar, Inc. and Subsidiaries
                      Consolidated Statements of Operations
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                      THREE MONTHS ENDED JUNE 30,           NINE MONTHS ENDED JUNE 30,
                                                   ---------------------------------      ----------------------------
                                                        2004                 2003             2004           2003
                                                   ---------------------------------      ---------------------------
<S>                                                    <C>                <C>              <C>            <C>
SALES                                                  $967,292           $995,511         $2,804,682     $3,508,186
                                                   -------------       ------------       ------------   ------------

OPERATING EXPENSES
Cost of sales                                           630,152            961,042          1,848,311      2,681,828
Selling, general and administrative expenses            864,027            787,628          2,359,382      2,951,916
Research and development expenses                       157,971            154,088            385,638        663,899
                                                   -------------                          ------------   ------------
                                                                       ------------
Total operating expenses                              1,652,150          1,902,758          4,593,331      6,297,643
                                                   -------------       ------------       ------------   ------------

LOSS FROM OPERATIONS                                   (684,858)          (907,247)        (1,788,649)    (2,789,457)
                                                   -------------       ------------       ------------   ------------

OTHER INCOME (EXPENSE)
Interest expense and financing costs                   (182,619)          (193,155)          (324,301)      (397,146)
Other income (expense), net                                 649             14,225              9,756         14,554
                                                   -------------                          ------------   ------------
                                                                       ------------
Total other expense, net                               (181,970)          (178,930)          (314,545)      (382,592)
                                                   -------------       ------------       ------------   ------------

LOSS FROM CONTINUING OPERATIONS BEFORE
DISCONTINUED OPERATIONS AND CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE                    (866,828)        (1,086,177)        (2,103,194)    (3,172,049)
                                                   -------------       ------------       ------------   ------------

DISCONTINUED OPERATIONS
Income from operations of USDTL                               -             25,648              4,447         18,916
Loss from the disposal of USDTL                               -                  -            (17,235)             -
                                                   -------------       ------------       ------------   ------------
 Income (loss) from discontinued operations                   -             25,648            (12,788)        18,916
                                                   -------------       ------------       ------------   ------------

LOSS BEFORE CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE                                (866,828)        (1,060,529)        (2,115,982)    (3,153,133)

CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
    PRINCIPLE                                                 -                  -                  -       (650,000)

                                                   -------------       ------------       ------------   ------------
NET LOSS                                            $  (866,828)       $(1,060,529)       $(2,115,982)   $(3,803,133)
                                                   =============       ============       ============   ============

BASIC AND DILUTED LOSS PER SHARE FROM CONTINUING
OPERATIONS BEFORE DISCONTINUED OPERATIONS (Note 7)       $(0.01)            $(0.02)            $(0.04)        $(0.05)
                                                   =============       ============       ============   ============

BASIC AND DILUTED LOSS PER SHARE                         $(0.01)            $(0.02)            $(0.04)        $(0.06)
                                                   =============       ============       ============   ============

WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING                 108,821,108         73,130,567        102,419,332     63,228,778
                                                   =============       ============       ============   ============
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>
                          Avitar, Inc. and Subsidiaries
                 Consolidated Statement of Stockholders' Deficit
                         Nine Months Ended June 30, 2004
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                  Preferred Stock                 Common Stock
                                                                                                         Additional      Accumulated
                                                Shares      Amount             Shares         Amount    paid-in capital    deficit
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>            <C>              <C>          <C>            <C>
Balance at September 30, 2003                137,202       $1,372         88,868,196       $888,682     $46,093,947    ($48,564,885)

Sale of common stock                               -            -             14,307            143           2,167               -

Sale of preferred stock and warrants           2,000           20                  -              -       1,733,980               -

Issuance of common stock for exercise
  of warrants                                      -            -         11,903,844        119,038        (119,038)              -

Issuance of common stock for interest on
long-term debt                                     -            -          1,149,400         11,494         147,515               -

Conversion of 8% redeemable convertible
preferred stock into common stock                  -            -          4,666,667         46,667         534,333               -

Conversion of Series B redeemable
convertible preferred stock into
 common stock                                   (239)          (2)             2,390             24             (22)              -

Conversion of Series D redeemable
convertible preferred stock into
 common stock                                (93,333)        (933)         2,799,990         28,000         (27,067)

Payment of preferred stock dividend for 8%
redemmable convertible preferred stock             -            -                  -              -               -         (16,110)

     Net loss                                      -            -                  -              -               -      (2,115,982)
-----------------------------------------------------   ----------  -----------------  -------------  --------------   -------------

Balance at June 30, 2004                      45,630         $457        109,404,794     $1,094,048     $48,365,815    ($50,966,519)
-----------------------------------------------------   ----------  -----------------  -------------  --------------   -------------
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>
                          Avitar, Inc. and Subsidiaries
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                        NINE MONTHS ENDED JUNE 30,
                                                                                  ------------------------------------
                                                                                       2004                   2003
                                                                                  ------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                <C>                    <C>
Net loss                                                                           $(2,115,982)           $(3,803,133)
Adjustments to reconcile net loss to
net cash used in operating activities:
  Loss from disposal of discontinued operation                                          17,235                      -
  Cumulative effect of a change in accounting principle                                      -                650,000
  Depreciation and amortization                                                         86,810                143,432
  Amortization of debt discount and deferred financing                                 101,084                124,822
  Amortization of deferred rent expense                                                 72,780                      -
  Common stock for services                                                                  -                 60,000
  Common stock for interest on long-term debt                                          114,236                131,250
  Loss on extinguishment of long-term debt                                             66,000                       -
  Changes in operating assets and liabilities:
             Accounts receivable                                                        61,757                690,249
             Inventories                                                              (137,858)               184,474
             Prepaid expenses and other current assets                                  14,132                 47,515
             Other assets                                                               36,007               (160,003)
             Accounts payable and accrued expenses                                    (945,534)                13,827
             Deferred revenue                                                           (3,600)               187,400
                                                                                  -------------     ------------------
             Net cash used in operating activities                                  (2,632,933)            (1,730,167)
                                                                                  -------------     ------------------

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment                                                   (136,901)                (8,559)
Proceeds from sale of USDTL                                                            500,000                      -
                                                                                  -------------     ------------------
             Net cash provided by (used in) investing activities                       363,099                 (8,559)
                                                                                  -------------     ------------------

CASH FLOWS FROM FINANCING ACTIVITIES:

Sales of common stock, preferred stock and warrants                                  1,736,310                340,180
Exercise of warrants                                                                         -                128,813
Proceeds from (repayment of) notes payable and long-term debt                         (184,796)               947,623
Payment of cash dividend on 8% redeemable convertible preferred stock                  (16,110)                     -
                                                                                  -------------     ------------------
             Net cash provided by financing activities                               1,535,404              1,416,616
                                                                                  -------------     ------------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                             (734,430)              (322,110)

CASH AND CASH EQUIVALENTS, beginning of the period                                   1,130,919                503,204
                                                                                  -------------     ------------------

CASH AND CASH EQUIVALENTS, end of the period                                          $396,489               $181,094
                                                                                  =============     ==================


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during period:
 Income taxes                                                                               $-                     $-
     Interest                                                                           $9,347                $33,786

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:

During the nine months ended June 30, 2004, 1,149,400 shares of common stock
were issued for interest on long-term debt.

During the nine months ended June 30, 2004, 700 shares of 8% redeemable
convertible preferred stock were converted into 4,666,667 shares of common
stock.

During the nine months ended June 30, 2004, 11,903,844 shares of common stock
were issued for the exercise of warrants.

During the nine months ended June 30, 2004, 239 shares of Series B convertible
preferred stock were converted into 2,390 shares of common stock.

During the nine months ended June 30, 2004, 93,333 shares of Series D
convertible preferred stock were converted into 2,799,990 shares of common
stock.

During the nine months ended June 30, 2003, 833,246 shares of common stock were
issued for services.

During the nine months ended June 30, 2003, 751,049 shares of common stock were
issued for interest on long-term debt.

During the nine months ended June 30, 2003, 1,639,133 shares of Series A, B and
C convertible preferred stock were converted into 17,701,101 shares of common
stock.

During the nine months ended June 30, 2003, 5 shares of Series B preferred stock
were issued as payment of a preferred stock dividend
      of $14.

Fair value of equity instrument recorded in connection with financial
advisors Settlement Agreement                                                                                $520,000
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>





<PAGE>

                          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 nine  months of FY2004,  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  provides  specialized  contraband
     detection and education services.

          On December  16,  2003,  the Company sold the business and net assets,
     excluding cash, of its wholly owned subsidiary,  United States Drug Testing
     Laboratories,  Inc.  ("USDTL"),  which operated a certified  laboratory and
     provided  specialized  drug testing services  primarily  utilizing hair and
     meconium as the samples.  Therefore,  USDTL is  considered  a  discontinued
     operation and this report reflects the continued operations of the Company.

          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 nine month periods ended June
     30, 2004 are not necessarily indicative of the results that may be expected
     for the full  fiscal year  ending  September  30,  2004.  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, 2003.

          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 as of June 30,  2004 of  $670,014.  The Company
     raised net proceeds aggregating  approximately $2,283,000 during the fiscal
     year  ended  September  30,  2003 from the sale of stock and  warrants.  In
     addition,  the Company received net proceeds of approximately $955,000 from
     the issuance and  conversion  of long-term  convertible  notes payable into
     common  stock and net  proceeds  of  $581,000  from the sale of  redeemable
     convertible  preferred  stock. For the nine months ended June 30, 2004, the
     Company raised net proceeds aggregating  approximately  $1,736,000 from the
     sale of stock and warrants and converted  $1,250,000 of long term debt into
     preferred  stock (see Notes 5 and 6). The Company is working with placement
     agents and investment fund mangers to obtain  additional  equity 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 June 30, 2004, inventories consisted of the following:

              Raw Materials                                          $218,710
              Work-in-Process                                          57,254
              Finished Goods                                          111,822
                                                                     --------
                       Total                                         $387,786
                                                                     ========

3.   DISCONTINUED OPERATIONS

          On  December  16,  2003,  the  Company  consummated  a sale of USDTL's
     business and net assets,  excluding cash. The Company received  $500,000 in
     cash upon the closing of the sale and is entitled to receive an  additional
     $500,000 as the buyer of USDTL achieves  specified  revenue targets.  Under
     the terms of the sale, the buyer must pay the Company 10% of certain annual
     revenues in excess of $1,500,000, less any amounts due from the Company for
     the purchase of services from the buyer.  The Company recorded the $500,000
     received in the first quarter of FY2004.  Due to the  contingent  nature of
     the  additional  $500,000,  the  payments  will be  recorded  as  they  are
     received.   The  accompanying  financial  statements  reflect  USDTL  as  a
     discontinued  operation.  The  following  is a summary  of the  results  of
     operations  of USDTL for the three and nine months  ended June 30, 2004 and
     2003.
<TABLE>
<CAPTION>

                                                   Three Months                   Nine Months
                                                   Ended June 30,                 Ended June 30,

                                                2004            2003            2004           2003
                                              --------     ------------   --------------  -------------
<S>                                        <C>             <C>              <C>             <C>
      Sales                                $        -      $  429,023       $  289,501      $1,205,620
      Operating expenses                            -         399,586          284,223       1,182,405
      Other income (expense)                        -          (3,789)         (18,066)         (4,299)
      -------------------------------------------------------------------------------------------------
      Income (loss) from discontinued
         operations                        $       -       $   25,648       $  (12,788)     $   18,916
         ----------------------------------------------------------------------------------------------
</TABLE>

          Other  income  (expense)  for the nine  months  ended  June  30,  2004
     includes the loss from the disposal of USDTL of $17,235.

4.   MAJOR CUSTOMERS

         Customers in excess of 10% of total sales are:
<TABLE>
<CAPTION>

                        Three Months Ended June 30,         Nine Months Ended June 30,
                          2004              2003               2004           2003
                       -------------     ------------      ----------    ---------------
<S>                    <C>                <C>              <C>           <C>
         Customer A    $226,050           $  221,226       $628,273      $  734,923
         Customer B       *                       *              *            418,790
</TABLE>

         *Customer was not in excess of 10% of total sales.

          At June 30, 2004,  accounts  receivable  from major Customer A totaled
     approximately $151,430.

5.  LONG-TERM DEBT AND REDEEMABLE CONVERTIBLE PREFERRED STOCK

     In May 2004, the Company  converted a long-term  note of $1,250,000  with a
     maturity  date of August  2005 into  1,316  shares of Series A  Convertible
     Redeemable  Preferred Stock. The Series A Convertible  Redeemable Preferred
     Stock, with a face value of $1,316,000, is convertible into common stock at
     the  lesser of $.12 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 conversion feature of these preferred shares resulted in
     a deemed  dividend of $329,000  being recorded and included in the earnings
     per share calculation for the three and nine months ended June 30, 2004. In
     addition,  $66,000  of  interest  and  financing  charges  for the  loss on
     extinguishment  of long term debt were  recorded  during the three and nine
     months ended June 30, 2004.


6.   COMMON STOCK AND PREFERRED STOCK

          During  the nine  months  ended  June 30,  2004,  the  Company  issued
     11,903,844  shares of common stock to holders who exercised  their warrants
     on a cashless  exercise basis. In addition,  the Company sold 14,307 shares
     of the  Company's  common  stock.  As  payment of the  interest  due on the
     long-term  notes to Global Capital Funding Group, LP and various other note
     holders, the Company issued 1,149,400 shares of the Company's common stock.

          During May 2004, the Company sold 1,000 shares of Series A Convertible
     Preferred Stock and Warrants to purchase 100,000 shares of common stock for
     which it received  net  proceeds of  approximately  $815,000.  The Series A
     Convertible   Preferred  Stock,  with  a  face  value  of  $1,000,000,   is
     convertible into common stock at the lesser of $.12 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
     $.126 per  share.  The  warrants  issued in  connection  with sale of 1,000
     shares of preferred stock and the conversion  feature  resulted in a deemed
     dividend of $257,000  being recorded and included in the earnings per share
     calculation  for the three and nine months  ended June 30,  2004.  In March
     2004, the Company sold 1,000 shares of 6% Convertible  Preferred  Stock and
     Warrants to purchase 4,629,630 shares of common stock for which it received
     net proceeds of approximately $920,000. The 6% Convertible Preferred Stock,
     with a face value of $1,000,000, is convertible into common stock at $0.216
     per share,  subject to  adjustments,  and the Warrants are  exercisable  at
     $0.135 per share.  The warrants  issued in connection  with this  preferred
     stock  and  the  conversion  feature  resulted  in  a  deemed  dividend  of
     $1,000,000   being   recorded  and  included  in  the  earnings  per  share
     calculation for the nine months ended June 30, 2004. During the nine months
     ended  June 30,  2004,  holders  converted  700  shares  of 8%  Convertible
     Preferred  Stock  converted  into  4,666,667  shares of  common  stock at a
     conversion  price of $0.15 per share.  In addition,  239 shares of Series B
     Convertible  Preferred  Stock were  converted  into 2,390  shares of common
     stock and  93,999  shares  of Series C  Convertible  Preferred  Stock  were
     converted into 2,799,990 shares of common stock.

          Preferred stock dividends related to the Series A, Series B, 8% and 6%
     Convertible  Preferred  Stock amounted to $81,980 for the nine months ended
     June 30,  2004.  As of June 30,  2004,  the  total  amount  of  unpaid  and
     undeclared dividends was $76,416.

7.  GOODWILL

          Effective  October 1, 2002, the Company adopted SFAS No. 142, Goodwill
     and  Other  Intangible  Assets.  Prior to the  adoption  of SFAS  No.  142,
     goodwill  resulting  from the  excess of cost over fair value of net assets
     acquired was amortized on a straight-line basis over 10 years. SFAS No. 142
     requires among other things,  that companies no longer  amortize  goodwill,
     but test goodwill for impairment at least annually.  In addition,  SFAS 142
     requires  that the  Company  identify  reporting  units for the  purpose of
     assessing  potential  future  impairments of goodwill,  reassess the useful
     lives  of  other  existing   recognized   intangible   assets,   and  cease
     amortization  of  intangible  assets with an  indefinite  useful  life.  An
     intangible  asset  with an  indefinite  useful  life  should be tested  for
     impairment in accordance  with guidelines in SFAS 142. SFAS 142 is required
     to be applied to all goodwill and other  intangible  assets  regardless  of
     when those assets were initially recognized.  The Company will recognize an
     impairment of goodwill if  undiscounted  estimated  future  operating  cash
     flows of the acquired  business are determined to be less than the carrying
     amount of the  goodwill.  If the Company  determines  that the goodwill has
     been  impaired,  the  measurement  of the  impairment  will be equal to the
     excess of the carrying  amount of the goodwill  over the amount of the fair
     value of the asset. If an impairment of goodwill were to occur, the Company
     would reflect the  impairment  through a reduction in the carrying value of
     goodwill.

          As of  October 1, 2002,  the  Company's  goodwill  of  $2,139,555  was
     composed of $1,901,435 associated with the acquisition of USDTL in 1999 and
     $238,120 associated with the acquisition of BJR in 2001. As a result of the
     transitional  impairment  tests for the adoption of SFAS No. 142, the USDTL
     acquisition  was  determined  to be impaired by an  independent  evaluation
     which relied on present value of future cash flows contained in an offer to
     purchase  USDTL  and  market  price  comparisons  of  sales  multiples  for
     companies  engaged in a similar  business to USDTL. The difference in value
     of $650,000 was reported as the  cumulative  effect of change in accounting
     principle  for the year ended  September  30, 2003 during the quarter ended
     March  31,  2003.  No  adjustment  to  the  $238,120  balance  of  goodwill
     associated with the BJR  acquisition was deemed  necessary as of October 1,
     2002 or September  30, 2003.  During Fiscal 2003,  the Company  pursued the
     sale of its USDTL  subsidiary and this sale was consummated on December 16,
     2003.  Based  on the sale  price,  considering  only  the cash  paid at the
     closing of $500,000,  an additional impairment of goodwill was recorded for
     $895,000 as of September 30, 2003.

          Since  September 30, 2003,  no  adjustment to the $238,120  balance of
     goodwill  associated  with the BJR acquisition  was deemed  necessary.  The
     effect on reported  net loss  available to common  shareholders  due to the
     cumulative effect of change in accounting  principle and  discontinuance of
     goodwill amortization is as follows:
<TABLE>
<CAPTION>

        Nine months ended June 30,                                  2004                2003
        ------------------------------------------------------------------------------------------
<S>                                                             <C>                  <C>
         Loss available to common shareholders
           used in basic and diluted EPS (Note 8)               $(3,796,750)         $(3,804,463)
         Cumulative effect of change in accounting
           principle                                                      -              650,000
                                                                 -----------          -----------
         Adjusted net loss before cumulative effect
           of change in accounting principle                    $(3,796,750)         $(3,154,463)
                                                                 ===========          ===========
         Basic and diluted earnings per share as reported             $(.04)               $(.06)
         Cumulative effect of change in accounting
           principle                                                      -                  .01
                                                                 -----------          -----------
         Basic and diluted earnings per share before
           cumulative effect of change in accounting
           principle                                                  $(.04)               $(.05)
                                                                     ========             ========
</TABLE>



8.   LOSS PER SHARE

          The  following  data show the amounts used in  computing  earnings per
     share:
<TABLE>
<CAPTION>

                                                                    Three Months                     Nine Months
                                                                  Ended June  30,                 Ended June 30,
                                                          ----------------------------     ---------------------------
                                                                2004          2003           2004             2003
                                                          -----------      -----------     -----------     -----------
<S>                                                      <C>              <C>             <C>             <C>
         Loss from continuing operations
              before discontinued operations
                and cumulative effect of a
                change in accounting principle            $  (866,828)    $(1,086,177)    $(2,115,982)    $(3,172,049)
         Less:
                Preferred Stock Dividends                     (38,470)           (476)        (81,980)         (1,330)
              Deemed dividends in connection
                 with preferred stock sales                  (586,000)              -      (1,586,000)             -
                                                          ------------    ------------     -----------     ----------
          Loss available to common stockholders
                 from continuing operations before
              discontinued operations and
                 cumulative effect of a change
                 in accounting principle                   (1,491,298)     (1,086,653)     (3,783,962)     (3,173,379)
             Add:
             Income (loss) from discontinued
                  operation                                         -          25,648         (12,788)         18,916
             Cumulative effect of a change in
                  accounting principle                              -               -               -        (650,000)
                                                          ------------    ------------   -------------     -----------

          Net loss available to common
              stockholders used in basic and
                diluted EPS                               $(1,491,298)    $(1,061,005)    $(3,796,750)    $(3,804,463)
                                                          ============    ============    ============    ============

          Weighted average number of
              common shares outstanding                   108,821,108      73,130,567     102,419,332      63,228,778
                                                          ===========     ============    ============    ============

          Loss  per share applicable to common
              stockholders before discontinued
              operations and cumulative effect of a
              change in accounting principle              $     (0.01)    $     (0.02)    $     (0.04)    $     (0.05)
          Impact of discontinued operations                         -               -               -               -
          Impact of cumulative effect                               -               -               -           (0.01)
                                                          ------------    ------------    ------------    ------------

              Basic and diluted loss per share
                  applicable to common
                  stockholders                            $     (0.01)    $     (0.02)    $     (0.04)    $     (0.06)
                                                          ============    ============    ============    ============
</TABLE>



9.  STOCK OPTIONS

          The Company accounts for its stock-based  compensation plans using the
     intrinsic value method in accordance with the provisions of APB Opinion No.
     25,  Accounting  for  Stock  Issued to  Employees,  and  complies  with the
     disclosure  provisions  of  SFAS  No.  123,  Accounting  for  Stock-  Based
     Compensation,  and SFAS No. 148,  Accounting for Stock-Based  Compensation-
     Transition and Disclosure.  No stock-based  employee  compensation cost was
     reflected  in net loss,  as all  options  granted  under those plans had an
     exercise  price equal to the fair  market  value of the  underlying  common
     stock on the date of grant.

     The following table illustrates,  in accordance with the provisions of SFAS
     No.  148,   Accounting  for  Stock-Based   Compensation  -  Transition  and
     Disclosure,  the effect on net loss and loss per share if the  Company  had
     applied the fair value recognition  provisions of SFAS No. 123,  Accounting
     for Stock-Based Compensation, to stock-based employee compensation.
<TABLE>
<CAPTION>

                                                          Three Months Ended June 30,      Nine Months Ended June 30,
                                                           2004             2003             2004              2003
                                                        -----------      -----------     ------------      ------------
<S>                                                    <C>              <C>             <C>               <C>
Loss available to common shareholders                  $(1,491,298)     $(1,061,005)    $ (3,796,750)     $ (3,804,463)
Add: stock based employee compensation
     expense included in reported net loss,
     net of tax                                                  -                -                -                 -
Deduct: total stock based employee
     compensation expense determined
     under the fair value based method for
     all awards, net of tax                                (67,005)        (295,957)        (188,000)         (887,871)
                                                        -----------       ----------      -----------      ------------
Pro forma net loss                                     $(1,558,303)     $(1,356,962)    $ (3,984,750)     $ (4,692,334)
                                                        ===========      ===========     ============      ============
Loss per share:
Basic - as reported                                    $      (.01)     $     (.02)     $       (.04)     $       (.06)
Basic - pro forma                                             (.01)           (.02)             (.04)             (.07)
Diluted - as reported                                         (.01)           (.02)             (.04)             (.06)
Diluted - pro forma                                           (.01)           (.02)             (.04)             (.07)
</TABLE>

     The fair value of the Company's  stock-based option awards to employees was
     estimated assuming no expected dividends and the following weighted-average
     assumptions:

                                         June 30,                   June 30,
                                           2004                       2003
                                      ------------------        --------------
Risk free interest rate                     2.5 %                     2.5%
Expected dividend yield                       -                         -
Expected lives                              5-9 years                 5-9 years
Expected volatility                         80%                        80%

     The weighted  average fair value of options  granted for the three and nine
     months ended June 30, 2004 was $.11 and $0.15,  respectively.  The weighted
     average  fair value of options  granted for the nine months  ended June 30,
     2003 was $0.19.

10.    ACCRUED EXPENSES

          The amount for accrued  expenses  for the nine month period ended June
     30, 2004 reflects a reduction to accrued royalty  expense of  approximately
     $242,000  due to  management's  revision of  estimates  of amounts due to a
     former supplier under a development agreement.

11. SUBSEQUENT EVENTS

          Since June 30, 2004,  holders of Series A Convertible  Preferred stock
     converted  925 shares of  preferred  stock and accrued  dividends  for such
     shares  into  11,087,274  shares of common  stock.  On August 5, 2004,  the
     Company  sold  1,250  shares of Series A  Convertible  Preferred  Stock and
     Warrants to purchase  125,000  shares of common stock for which it received
     net  proceeds  of  approximately  $1,061,000.  These  shares  of  Series  A
     Convertible Preferred Stock, with face value of $1,250,000, are convertible
     into common  stock at the lesser of $.09 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 $.095 per
     share.
<PAGE>



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

Revenues

     Sales for the  three  months  ended  June 30,  2004  decreased  $28,219  to
$967,292 from $995,511 for the  corresponding  period of the prior year. For the
nine months ended June 30, 2004,  sales  decreased  $701,504 to $2,804,682  from
$3,508,186.  The  change  for the  three and nine  months  ended  June 30,  2004
primarily reflects the decrease in the volume of sales of its OralScreen(TM) and
foam products.  The reduction for the ORALscreen  products resulted from the low
level of employee  hiring in the United States and the impact of the decrease in
sales  staff that  occurred as part of the expense  reductions  described  below
under operating expenses.

Operating Expenses

     Cost of sales for the three months  ended June 30, 2004 were  approximately
65% of sales compared to the cost of sales of approximately 96% of sales for the
three months ended June 30, 2003.  For the nine months ended June 30, 2004,  the
cost of sales were 66%  compared  to 76% of sales for the same  period of Fiscal
2003.  The  amount for the  quarter  ended  June 30,  2003  included a charge of
approximately $125,000 for expired inventory.  The change for the three and nine
months ended June 30, 2004 reflects  labor and facility rent  reductions  put in
place during the second half of FY2003 and no charges for expired inventory.

     Selling,  general and  administrative  expenses  for the three months ended
June 30,  2004  increased $ 76,399,  or  approximately  10%,  to  $864,027  from
$787,628  for the  corresponding  period of the prior year.  For the nine months
ended June 30, 2004,  selling,  general and  administrative  expenses  decreased
$592,524 or approximately 20%, to $2,359,382 from $2,951,916 for the nine months
ended June 30,  2003.  The change for the quarter  ended June 30, 2004  resulted
mainly  from  increased  sales,  marketing,  legal and  accounting  expenses  of
totaling approximately $80,000; offset in part by a reduction of $10,000 in rent
expense. The decrease for the nine months ended June 30, 2004 primarily reflects
the impact of labor,  facility  rent and other  expense  reductions  implemented
during the last six months of FY2003 of approximately $606,000 and reductions in
accrued royalty expenses of approximately  $242,000 due to management's revision
of estimates  of amounts due to a former  supplier  under a product  development
agreement;  offset in part by increases in accrued  legal,  warranty and special
shareholder  meeting expenses totaling  approximately  $213,000 and increases in
sales and  marketing  expenses  of  approximately  $36,000.  In order to achieve
revenue growth,  the Company will continue to incur  increased  expenses to hire
additional direct sales staff and expand marketing programs during the remainder
of FY2004 and beyond.

     Expenses for research and  development  for the three months ended June 30,
2004 amounted to $157,971 compared to $154,048 for the  corresponding  period of
the prior year.  For the nine months ended June 30, 2004,  expenses for research
and development were $385,638 versus $663,899 for the nine months ended June 30,
2003, a reduction  of $278,261.  The decrease for the nine months ended June 30,
2004 was primarily  attributable  to the lower staffing  levels that were put in
place as part of the expense  reductions  implemented  during the second half of
FY2003.  The Company must  continue  developing  and  enhancing  its  ORALscreen
products and therefore,  will most likely incur increased  expenses for research
and development during the remainder of FY2004 and beyond.

     Other Income and Expense

     Interest  expense and  financing  costs were  $182,619 for the three months
ended June 30, 2004 compared to $193,155  incurred during the three months ended
June 30, 2003.  For the nine months ended June 30,  2004,  interest  expense and
financing  costs  amounted to $324,301  versus  $397,146  for the  corresponding
period of Fiscal  2003.  The change for both the three and nine  months  periods
resulted  primarily  from non-cash  interest  expense of  approximately  $66,000
associated  with the loss on the  extinguishment  of debt related to issuance of
preferred  stock in May 2004 in  connection  with the  conversion of a long-term
note of $1,250,000  with a maturity date of August 2005 and the write-off of the
remaining  deferred  financing costs and original issue discount related to this
long-term  note of  approximately  $71,000;  offset by the  decrease in interest
expense and financing  costs  associated with long-term notes issued in February
2003 and subsequently converted to common stock in August 2003.

     For the three  months ended June 30,  2004,  other income  amounted to $649
compared to other  income of $14,225 for the three  months  ended June 30, 2003.
Other  income for the nine  months  ended June 30,  2004 was $9,756  compared to
$14,554 for the nine months ended June 30, 2003.

     Discontinued Operations

     On December 16, 2003, the Company  consummated the sale of the business and
net assets, excluding cash, of its USDTL subsidiary.  For the three months ended
June 30, 2004,  no income was  recorded for USDTL  compared to income of $25,648
for the  corresponding  period of the prior year. For the nine months ended June
30, 2004, the loss was $12,788 compared to income of $18,916 for the nine months
ended June 30, 2003.  The change for the nine months ended June 30, 2004,  which
included  only two months of  operations  in the Fiscal  2004  period due to the
sale, resulted primarily from the loss on the disposal of USDTL of $17,235 which
was  offset  in part by income  from  operations  of  $4,447  (see Note 3 of the
consolidated financial statements).

     Cumulative Effect of a Change in Accounting Principle

     For the nine months ended June 30, 2003,  the Company,  in accordance  with
its adoption of SFAS 142 on October 1, 2002,  recorded a $650,000  impairment of
goodwill  associated with the  acquisition of USDTL in 1999.  Refer to Note 6 of
the  financial  statements  for a complete  description  of this  adjustment  to
goodwill.

     Net Loss

     Primarily as a result of the factors described above, the Company had a net
loss of $866,828 for the three  months  ended June 30, 2004,  as compared to net
loss of $1,060,529 for the three months ended June 30, 2003. For the nine months
ended June 30, 2004, the Company had a net loss of $2,115,982  versus $3,803,133
for the  corresponding  period of Fiscal  2003.  The loss per share was $.01 per
basic and diluted  share for the three months ended June 30, 2004  compared to a
loss per share of $.02 per basic and diluted  share for the three  months  ended
June 30, 2003.  For the nine months ended June 30, 2004,  the loss per share was
$.03 per basic and diluted  share  versus a loss per share of $.06 per basic and
diluted share for the nine months ended June 30, 2003.

FINANCIAL CONDITION AND LIQUIDITY

     At June 30, 2004, the Company had a working capital deficit of $670,014 and
cash and cash  equivalents  of $396,489.  Net cash used in operating  activities
during the nine months  ended June 30, 2004  amounted  to  $2,632,933  resulting
primarily from a net loss of $2,115,982, an increase in inventories of $137,858,
a decrease in accounts  payable and accrued  expenses of $945,534 and a decrease
in deferred  revenue of $3,600;  partially  offset by the loss from  disposal of
discontinued  operation of $17,235,  depreciation  and  amortization of $86,810,
amortization of debt discount and deferred  financing of $101,084,  amortization
of deferred  rent  expense of $72,780,  common  stock for  interest of $114,236,
interest  expense  associated  with  the  extinguishment  of  long-term  debt of
$66,000,  a decrease in accounts  receivable  of $61,757,  a decrease in prepaid
expenses and other  current  assets of $14,132 and a decrease in other assets of
$36,007. Net cash provided by financing and investing activities during the nine
months ended June 30, 2004 amounted to $1,898,503  resulting  from proceeds from
the sale of USDTL of $500,000 and the sale of stock and warrants of  $1,736,310;
offset in part by the repayment of notes payable and long-term debt of $184,796,
payment of cash dividend on preferred stock of $16,110 and purchases of property
and equipment of $136,901.

     As indicated in the Results of Operations  above,  the Company sold the net
assets,  excluding  cash,  and the business of its USDTL  subsidiary in December
2003.  From this sale,  the  Company  received  net  proceeds  of  approximately
$500,000.  In  addition,  under the terms of the sale,  the  Company  expects to
receive an additional  $500,000 in the future,  less amounts for the purchase of
services  by  Avitar  under  a  services  and  consulting  agreement,  based  on
obligations of the purchaser of USDTL to pay the Company 10% of certain revenues
in excess of $1,500,000 annually.  The Company recorded the $500,000 received in
the first  quarter  of FY2004 and will  recognize  proceeds  for the  additional
$500,000 when they are received.

     During FY 2004,  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. On
August 5, 2004, the Company sold 1,250 shares of Series A Convertible  Preferred
Stock and  Warrants  to  purchase  125,000  shares of common  stock for which it
received  net  proceeds of  approximately  $1,061,000.  These shares of Series A
Convertible Preferred Stock, with face value of $1,250,000, are convertible into
common  stock at the lesser of $.09 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 $.095 per share.  During May 2004, the
Company sold 1,000 shares of Series A Convertible  Preferred  Stock and Warrants
to purchase 100,000 shares of common stock for which it received net proceeds of
approximately  $815,000.  The Series A Convertible  Preferred Stock, with a face
value of $1,000,000,  is convertible into common stock at the lesser of $.12 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 $.126 per share.  The warrants issued in connection with sale of 1,000 shares
of preferred stock and the conversion  feature  resulted in a deemed dividend of
$257,000 being recorded and included in the earnings per share  calculation  for
the three  and nine  months  ended  June 30,  2004.  In May  2004,  the  Company
converted a long-term  note of  $1,250,000  with a maturity  date of August 2005
into 1,316 shares of Series A Convertible Redeemable Preferred Stock. The Series
A Convertible  Redeemable  Preferred Stock, with a face value of $1,316,000,  is
convertible  into  common  stock at the  lesser  of $.12 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 conversion  feature of these preferred shares
resulted in a deemed  dividend of $329,000  being  recorded  and included in the
earnings  per share  calculation  for the three and nine  months  ended June 30,
2004.  In addition,  $66,000 of interest and  financing  charges for the loss on
extinguishment  of long term debt were recorded during the three and nine months
ended June 30,  2004.  In March  2004,  the  Company,  as part of the  agreement
covering the  preferred  stock sold in September  2003,  sold 1,000 shares of 6%
Convertible  Preferred Stock and Warrants to purchase 4,629,630 shares of Common
Stock for which it received  net  proceeds  of  approximately  $920,000.  The 6%
Convertible  Preferred  Stock,  with a face value of $1,000,000,  is convertible
into Common Stock at $0.216 per share, subject to adjustments,  and the Warrants
are exercisable at $0.135 per share. The warrants issued in connection with this
preferred  stock and the  conversion  feature  resulted in a deemed  dividend of
$1,000,000 being recorded and included in the earnings per share calculation for
the nine months ended June 30, 2004.  The cash  available at June 30, 2004,  the
net proceeds  from the  financing  completed  on August 5, 2004 and  anticipated
customer  receipts are expected to be sufficient  to fund the  operations of the
Company  through  November  2004.  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 approximately $8 million during the remainder of
calendar year 2004 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.


     The Company has accumulated losses that have reduced  shareholders'  equity
to a deficit. As a result, as previously reported, the Company received a letter
dated  January  30,  2004  from  The  American  Stock  Exchange  ("AMEX"  or the
"Exchange")  noting  that  the  Company's  2003  Annual  Report  on Form  10-KSB
indicates that the Company is not in compliance  with all the continued  listing
standards of AMEX.  In its letter,  the  Exchange  indicated  that,  in order to
maintain  its AMEX  listing,  the  Company  must  submit a plan by March 3, 2004
advising  the  Exchange of the action that it takes or will take that will bring
it into compliance with the continued  listing  standards within 18 months.  The
Company submitted its plan. On March 17, 2004, the Exchange notified the Company
that it had accepted  Avitar's  plan,  which will enable the Company to maintain
its listing on the American  Stock  Exchange.  More  specifically,  the Exchange
granted the Company an extension  through July 2005 subject to periodic  reviews
by the  Exchange to assure that Avitar is making  progress  consistent  with the
plan.

     Operating  revenues are expected to grow during the last quarter of FY 2004
as  employment  begins to rise in the United  States and the  Company is able to
convert  employers  to  using  ORALscreen,  Avitar's  oral  fluid  drug  testing
products.  In order to achieve the  revenue  growth,  the  Company  will need to
significantly  increase  its  direct  sales  force and  implement  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 and the  arrangements  with its
current  contract  manufacturing  sources,   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  financing  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  financing,  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
growth in revenue while  maintaining the cost  reductions  implemented in Fiscal
2003. 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 attempt to
control  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  certified  public  accountants
relating to the financial  statements  for Fiscal 2003  contains an  explanatory
paragraph stating 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 the date of such report  (December 5, 2003 except for Note
17 which is as of  December  16,  2003).  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 March 2004, the Financial  Accounting  Standards Board ("FASB") issued a
proposed  Statement,  "Share-Based  Payment",  that addresses the accounting for
share-based  payment  transactions  in which  an  enterprise  receives  employee
services  in  exchange  for (a)  equity  instruments  of the  enterprise  or (b)
liabilities  that  are  based  on the  fair  value  of the  enterprise's  equity
instruments  or that may be settled by the issuance of such equity  instruments.
The proposed  statement  would  eliminate the ability to account for share-based
compensation transactions using APB Opinion No. 25, "Accounting for Stock Issued
to Employees",  and would generally  require that such transactions be accounted
for  using a fair  value-based  method.  As  discussed  in Note 4,  the  Company
currently accounts for share-based  compensation  transactions using APB Opinion
No. 25. If this statement is issued,  the adoption of this  interpretation  will
have an impact on the Company's  consolidated  financial position and results of
operations, the level of which the Company is currently assessing.


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.

     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 June 30,  2004,  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 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

     During the period covered by this report, there have been no changes in our
internal control over financial  reporting that have materially  affected or are
reasonably  likely to  materially  affect our internal  control  over  financial
reporting.

<PAGE>


                            PART II OTHER INFORMATION


ITEM 1 LEGAL PROCEEDINGS

     In June  2004,  the  Circuit  Court of the 19th  Judicial  Circuit  in Lake
County,  Illinois  dismissed with  prejudice the complaint  filed by Virotek LLC
("Virotek") against Avitar on November 6, 2003, seeking approximately $4 million
in damages for  repudiation of an alleged  agreement.  The dismissal  followed a
settlement reached by the parties under which Virotek  permanently  discontinued
its  lawsuit in return for  Avitar's  payment of $47,500  for the  purchase of a
production tool valued at $50,000 in an earlier Avitar-Virotek agreement.


ITEM 2. CHANGE IN  SECURITIES  AND SMALL  BUSINESS  ISSUER  PURCHASES  OF EQUITY
SECURITIES

     During  the  quarter  ended  June 30,  2004 the  Company  issued to warrant
holders  1,504,630  shares  of the  Company's  common  stock  upon the  cashless
exercise of their warrants.  In addition,  the Company issued to a holder of the
Series  D  redeemable  convertible  preferred  stock  2,799,990  shares  of  the
Company's  common stock upon the  conversion  of 93,333  shares of its preferred
stock.  Also during the quarter ended June 30, 2004,  the Company issued 222,801
shares of the Company's  common stock as payment for interest on long-term debt.
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 AND REPORTS ON FORM 8-K

(a) Exhibits:

       Exhibit No.                            Document
       31.1         Certification Pursuant to 18 U.S.C. Section 1350, as
                    Adopted Pursuant to Section 302 of the Sarbanes-Oxley
                    Act of 2002

       31.2         Certification Pursuant to 18 U.S.C. Section 1350, as
                    Adopted Pursuant to Section 302 of the Sarbanes-Oxley
                    Act of 2002

       32.1         Certification Pursuant to 18 U.S.C. Section 1350, as
                    Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                    Act of 2002

       32.2         Certification Pursuant to 18 U.S.C. Section 1350, as
                    Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                    Act of 2002


(b) Reports on Form 8-K:


     Form 8-K, Items 5 and 7, dated May 25, 2004  regarding a private  placement
to GCA Strategic  Investment Fund Limited and Global Capital Funding Group, L.P.
for the sale of convertible  preferred  stock and warrants and the conversion of
long-term debt into convertible preferred stock.
<PAGE>

                                   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:  August 18, 2004                 /S/ Peter P. Phildius
                                        -----------------------------------
                                        Peter P. Phildius
                                        Chairman and Chief
                                        Executive Officer
                                        (Principal Executive Officer)




Dated:  August 18, 2004                 /S/ J.C. Leatherman, Jr.
                                        ---------------------------
                                        J.C. Leatherman, Jr.
                                        Chief Financial Officer
                                        (Principal Accounting and
                                        Financial Officer)
<PAGE>

                                  EXHIBIT INDEX


       Exhibit No.                               Document
       31.1            Certification Pursuant to 18 U.S.C. Section 1350, as
                       Adopted Pursuant to Section 302 of the Sarbanes-Oxley
                       Act of 2002

       31.2            Certification Pursuant to 18 U.S.C. Section 1350, as
                       Adopted Pursuant to Section 302 of the Sarbanes-Oxley
                       Act of 2002

       32.1            Certification Pursuant to 18 U.S.C. Section 1350, as
                       Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                       Act of 2002

       32.2            Certification Pursuant to 18 U.S.C. Section 1350, as
                       Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                       Act of 2002