U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-QSB/A-1


(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, 2005.

[ ]  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                (I.R.S. Employer Identification No.)
of 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: 179,110,838
                              AS OF AUGUST 5, 2005

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



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

                               Page 1 of 29 pages
                           Exhibit Index is on Page 25
<PAGE>

                                                           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                                         23

PART II: OTHER INFORMATION                                                   24

    Item 2   Unregistered Sales of Equity Securities and Use of Proceeds     25


    Item 6   Exhibits and Reports on Form 8-K                                25


SIGNATURES                                                                   27

EXHIBIT INDEX                                                                28
CERTIFICATIONS                                                               29

<PAGE>
Item 1.     FINANCIAL STATEMENTS


                          Avitar, Inc. and Subsidiaries
                           Consolidated Balance Sheet
                                 June 30, 2005
                                   (Unaudited)
                                 (As restated)
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------
                                     ASSETS
CURRENT ASSETS:
<S>                                                                               <C>
     Cash and cash equivalents                                                      $ 514,844
     Accounts receivable, net                                                         458,931
     Inventories                                                                      376,171
     Prepaid expenses and other current assets                                        130,197
                                                                                  ------------
          Total current assets                                                      1,480,143

PROPERTY AND EQUIPMENT, net                                                           215,998
GOODWILL, net                                                                         238,120
OTHER ASSETS                                                                          294,058
                                                                                  ------------
          Total Assets                                                            $ 2,228,319
                                                                                  ============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
     Notes payable                                                                  $ 339,441
     Convertible notes payable                                                        372,171
     Accounts payable                                                                 523,633
     Accrued expenses                                                                 805,168
     Deferred income                                                                  116,050
     Fair value of warrants (Note 12)                                                 229,797
     Fair value of embedded derivatives (Note 12)                                     941,900
                                                                                  ------------
          Total current liabilities                                                 3,328,160
                                                                                  ------------

REDEEMABLE CONVERTIBLE AND CONVERTIBLE PREFERRED
   STOCK (Note 6)                                                                   3,895,000
                                                                                  ------------

COMMITMENTS

STOCKHOLDERS' DEFICIT:
     Series B convertible preferred stock, $.01 par value; authorized
          5,000,000 shares; 5,689 shares issued and outstanding                            58
     Common Stock, $.01 par value; authorized 300,000,000 shares;
          173,277,505 shares issued and outstanding                                 1,732,773
     Additional paid-in capital                                                    46,425,265
     Accumulated deficit                                                          (53,152,937)
                                                                                  ------------
         Total stockholders' deficit                                               (4,994,841)
                                                                                  ------------
         Total Liabilities and Stockholders' Deficit                              $ 2,228,319
                                                                                  ============

</TABLE>


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


-------------------------------------------------------------------------------------------------------------------
                                                         THREE MONTHS ENDED JUNE 30,   NINE MONTHS ENDED JUNE 30,
                                                         ----------------------------------------------------------
                                                            2005           2004           2005            2004
                                                         ------------   ------------   ------------   -------------
<S>                                                      <C>              <C>          <C>             <C>
SALES                                                    $ 1,233,087      $ 967,292    $ 3,224,350     $ 2,804,682
                                                         ------------   ------------   ------------   -------------

OPERATING EXPENSES
     Cost of sales                                           911,377        658,307      2,341,320      1,980,009
     Selling, general and administrative expenses          1,208,606        835,872      3,173,564      2,227,684
     Research and development expenses                       181,008        157,971        560,757        385,638
                                                         ------------   ------------   ------------   ------------

          Total operating expenses                         2,300,991      1,652,150      6,075,641      4,593,331
                                                         ------------   ------------   ------------   ------------

LOSS FROM OPERATIONS                                      (1,067,904)      (684,858)    (2,851,291)    (1,788,649)
                                                         ------------   ------------   ------------   ------------

OTHER INCOME (EXPENSE)
     Interest expense and financing costs                    (77,451)      (182,619)      (113,820)      (324,301)
     Other income, net                                       686,739        333,837        877,430        226,235
                                                         ------------   ------------   ------------   ------------

          Total other income (expense), net                  609,288        151,218        763,610        (98,066)
                                                         ------------   ------------   ------------   ------------

LOSS FROM CONTINUING OPERATIONS                             (458,616)      (533,640)    (2,087,681)    (1,886,715)
                                                         ------------   ------------   ------------   ------------

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

                                                         ------------   ------------   ------------   ------------
NET LOSS                                                  $ (458,616)    $ (533,640)   $(2,087,681)   $(1,899,503)
                                                         ============   ============   ============   ============

BASIC AND DILUTED LOSS PER SHARE FROM CONTINUING
   OPERATIONS (Note 9)                                           $ -        $ (0.01)       $ (0.03)       $ (0.03)
                                                         ============   ============   ============   ============

BASIC AND DILUTED LOSS PER SHARE (Note 9)                        $ -        $ (0.01)       $ (0.03)       $ (0.03)
                                                         ============   ============   ============   ============

WEIGHTED AVERAGE NUMBER OF COMMON
     SHARES OUTSTANDING-BASIC AND DILUTED                160,598,894    108,821,108    146,206,417    102,419,332
                                                         ============   ============   ============   ============


</TABLE>

     See accompanying notes to consolidated financial statements.

<PAGE>
                          Avitar, Inc. and Subsidiaries
                 Consolidated Statement of Stockholders' Deficit
                         Nine Months Ended June 30, 2005
                                   (Unaudited)
                                 (As restated)
<TABLE>
<CAPTION>

                                               Preferred Stock        Common Stock                                       Total
                                               ................. .......................
                                                                                           Additional    Accumulated  Stockholders'
                                               Shares    Amount    Shares      Amount     paid-in capital  deficit      Deficit
-------------------------------------------------------  ------- ------------ ----------  -------------- ------------ ------------
<S>                                             <C>       <C>    <C>          <C>           <C>          <C>           <C>
Balance at September 30, 2004                   46,130    $ 462  123,118,165  $ 1,231,18    $49,657,819  $(51,556,85)  $  (667,387)
Adjustment                                     (38,941)    (389)           -           -     (3,231,322)     556,862    (2,674,849)
                                               --------- -------- ----------  ---------  ---------- ----------  ----------
Balance at September 30, 2004
(As Restated                                     7,189       73 123,118,165 1,231,182  46,426,497 (50,999,988)(3,342,236)
                                               --------- -------- ----------  ---------  ---------- ----------  ----------


Sale of common stock                                                  23,479        235           2,565                     2,800

Conversion of Series A convertible
    preferred stock into common stock           (1,500)     (15)  17,173,239    171,732        (171,717)           -            -

Conversion of Series A redeemable
    convertible preferred stock into                                                                                            -
    common stock                                     -        -   27,102,900    271,027       1,384,984            -    1,656,011

Conversion of Series E preferred stock               -        -    3,909,027     39,090         160,910                   200,000

Payment of convertible preferred stock
    dividend for Series A preferred stock            -        -      874,963      8,750          56,518      (65,268)           -

Accretion of mandatorily redeemable
    preferred stock                                                                          (1,548,735)               (1,548,735)

Common stock issued in connection
    with establishing equity credit line                           1,075,732     10,757         114,243                   125,000

Net loss                                             -        -            -          -               -   (2,087,681)  (2,087,681)
-------------------------------------------------------  ------- ------------ ----------  -------------- ------------ ------------

Balance at June 30, 2005                         5,689     $ 58  173,277,505  $1,732,773    $46,425,265  ($53,152,937)($4,994,841)
-------------------------------------------------------  ------- ------------ ----------  -------------- ------------------------

</TABLE>

     See accompanying notes to consolidated financial statements.

<PAGE>
                          Avitar, Inc. and Subsidiaries
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)
                                 (As restated)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                                       NINE MONTHS ENDED JUNE 30,
                                                                                     ------------------------------
                                                                                        2005                 2004
                                                                                     ------------       -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                  <C>               <C>
     Net loss                                                                        $(2,087,681)      $(1,899,503)
     Adjustments to reconcile net loss to
          net cash used in operating activities:
               Loss from disposal of discontinued operation                                    -            17,235
               Depreciation and amortization                                             116,307            86,810
               Amortization of debt discount and deferred financing                       62,733           101,084
               Amortization of deferred rent expense                                      93,575            72,780
               Common stock for interest on long-term debt                                     -           114,236
               Loss on extinguishment of long-term debt                                        -            66,000
               Income from changes in value of embedded derivatives and warrants        (876,277)         (216,479)
               Changes in operating assets and liabilities:
                   Accounts receivable                                                   176,806            61,757
                   Inventories                                                           (27,318)         (137,858)
                   Prepaid expenses and other current assets                              44,283            14,132
                   Other assets                                                         (161,385)           36,007
                   Accounts payable and accrued expenses                                (337,997)         (945,534)
                   Deferred revenue                                                      (76,450)           (3,600)
                                                                                     ------------      ------------
                        Net cash used in operating activities                         (3,073,404)       (2,632,933)
                                                                                     ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES:

     Purchases of property and equipment                                                 (28,967)         (136,901)
     Proceeds from sale of USDTL                                                               -           500,000
                                                                                     ------------      ------------
                        Net cash provided by (used in) investing activities              (28,967)          363,099
                                                                                     ------------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES:

     Sales of common stock, preferred stock and warrants                               2,497,575         1,736,310
     Proceeds from (repayment of) notes payable and long-term debt                       160,764          (184,796)
     Proceeds from convertible notes payable                                             450,000                 -
     Payment of cash dividend on 8% redeemable convertible preferred stock                     -           (16,110)
                                                                                     ------------      ------------
                                    Net cash provided by financing activities          3,108,339         1,535,404
                                                                                     ------------     -------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                       5,968          (734,430)

CASH AND CASH EQUIVALENTS, beginning of the period                                       508,876         1,130,919
                                                                                     ------------      ------------

CASH AND CASH EQUIVALENTS, end of the period                                        $    514,844      $    396,489
                                                                                     ============      ============


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during period:
          Income taxes                                                              $          -      $          -
          Interest                                                                  $     16,986      $      9,347

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
    FINANCING ACTIVITIES:

           During the nine months ended June 30, 2005, 958 shares of Series A
              redeemable convertible preferred stock were converted into
              27,102,900 shares of common stock.

           During the nine months ended June 30, 2005, 1500 shares of Series A
              convertible preferred stock were converted into 17,173,239 shares
              of common stock.

           During the nine months ended June 30, 2005, 874,963 shares of common
              were issued as payment of dividends for Series A convertible and
              redeemable convertible preferred stock.

           During the nine months ended June 30, 2005, warrants to purchase         $     32,802                 -
              700,000 shares of common stock were issued in connection with
              the issuance of notes payable.

           During the nine months ended June 30, 2005, 1,075,732 shares             $    125,000                 -
              of common stock were issued as payment of investor and placement
              agent fees in connection with SEDA financing.

           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.
</TABLE>

     See accompanying notes to consolidated financial statements.



<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 three  quarters of FY2005,  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.


          During the audit for  Fiscal  2005,  the  Company  was  advised by its
     independent  registered  public  accounting  firm that the  method  used to
     account for sales of certain  convertible  preferred  stock and convertible
     notes was not in accordance  with the  requirements of Emerging Issues Task
     Force  ("EITF")  Issue  No.  00-19  "Accounting  for  Derivative  Financial
     Instruments  Indexed To and Potentially  Settled In a Company's Own Stock".
     The  statements of  stockholders'  deficit as of September 30, 2004 and for
     the nine months ended June 30, 2005, the balance sheet as of June 30, 2005,
     the statements of operations for the quarter and nine months ended June 30,
     2005 and 2004 and the  statements  of cash flow for the nine  months  ended
     June 30, 2005 and 2004  included  herein have been  restated to correct the
     error  in  accounting  for  the  issuance  of  various  securities  and the
     derivative  features embedded  therein.  These  restatements  resulted in a
     stockholders'  deficit of  $3,342,236 at September 30, 2004 (an increase of
     $2,674,849),  a  stockholders'  deficit of  $5,659,829 at June 30, 2005 (an
     increase of  $4,031,685),  net loss of $458,616 for the quarter  ended June
     30, 2005 (a decrease of $690,568 or $.00 per share), a net loss of $533,640
     for the  quarter  ended June 30,  2004(a  decrease  of $333,188 or $.00 per
     share),  a net loss of $2,087,681 for the nine months ended June 30, 2005 (
     a decrease of $880,114 or $.00 per share) and a net loss of $1,899,503  for
     the nine  months  ended June 30,  2004 (a  decrease of $216,479 or $.01 per
     share).


          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 months  ended June 30,
     2005 are not necessarily indicative of the results that may be expected for
     the  full  fiscal  year  ending   September  30,  2005.  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, 2004. 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 had a  working  capital  deficit  as of June  30,  2005 and
     September 30, 2004 of $1,848,017 and $1,136,512,  respectively. The Company
     raised net proceeds aggregating  approximately $2,800,000 during the fiscal
     year  ended  September  30,  2004 from the sale of stock and  warrants.  In
     addition, the Company converted $1,250,000 of long-term debt into preferred
     stock.  During the nine months ended June 30, 2005,  the Company raised net
     proceeds  of  approximately  $2,498,000  from  the  sale of  common  stock,
     preferred  stock and warrants  and  $700,000  from  short-term  notes.  The
     Company is working with  placement  agents and  investment  fund mangers to
     obtain additional equity financing.





2.   INVENTORIES

         At June 30, 2005, inventories consist of the following:

                Raw Materials                                          $247,812
                Work-in-Process                                          77,858
                Finished Goods                                           50,501
                                                                     ----------
                         Total                                         $376,171
                                                                       ========

3.   DISCONTINUED OPERATIONS

          On December  16,  2003,  the Company  consummated  the 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  for USDTL for the three and nine months ended June 30, 2005 and
     2004:
<TABLE>
<CAPTION>

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

                                                  2005             2004             2005             2004
                                              ------------     ------------    --------------    -----------
<S>                                           <C>              <C>             <C>                 <C>
         Sales                                $         -      $          -    $            -      $289,501
         Operating expenses                             -                 -                 -       284,223
         Other income (expense)                         -                 -                 -       (18,066)
                                              ------------      ------------   ---------------    ----------
         Loss from discontinued operations    $         -      $          -    $            -     $(12,788)
                                              ============      ============   ===============    ==========
</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,
                              -------------------------------                   -----------------------------
                                  2005                 2004                      2005                   2004
                            -------------         ------------               -------------         ----------------
<S>                         <C>                   <C>                         <C>                    <C>
          Customer A        $  348,839            $  226,050                  $ 911,000              $  628,273

</TABLE>


          At June 30, 2005, accounts receivable from this major customer totaled
     approximately $200,562 from sales in the quarter ended June 30, 2005.

5.   NOTES AND CONVERTIBLE NOTES PAYABLE


          Since March 1, 2005,  the Company issued  short-term  notes payable of
     $250,000 and convertible  notes payable totaling  $450,000 to an accredited
     investor.  These  notes have a term of six  months  with  $250,000  bearing
     interest at 1% per month and $650,000  bearing interest at 10% per year. In
     connection  with the notes payable,  for each dollar loaned to the Company,
     the holder received  warrants to purchase one share of the Company's common
     stock for a period of three years at exercise  prices  ranging from $.08 to
     $.11  per  share.   During  the  quarter  ended  June  30,  2005,   $12,673
     representing the value of the warrants issued to purchase 250,000 shares of
     common stock  associated with the $250,000 of short-term notes payable debt
     and is being amortized over the term of the notes. In addition,  the entire
     principal plus accrued interest  associated with the $450,000 of short-term
     convertible  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 (5) 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
     $104,540  ($92,700  for the fair value of the  conversion  feature of these
     notes and $11,840 for the value of the warrants  issued in connection  with
     these  notes) was  recorded  during the quarter  ended June 30, 2005 and is
     being  amortized over the term of the notes.  A liability of  approximately
     $105,000  was  recorded  for the  fair  value  of the  warrants  issued  in
     connection with the $450,000 of notes and the conversion  feature which was
     $93,735 at June 30, 2005.


6.   REDEEMABLE CONVERTIBLE PREFERRED STOCK


          In the 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  150,000  shares of the Company's  common  stock.  The
     $1,500,000 of Series E Preferred Stock are convertible into Common Stock at
     the  lesser of $.08 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 $.084 per share for a period of three  years.  The warrants
     issued in connection  with the sale of 1,500,000  shares of preferred stock
     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
     quarter and nine months ended June 30,  2005. A liability of  approximately
     $1,087,000 was recorded for the original fair value of the warrants  issued
     in connection with the sale of the 1,500,000  shares of preferred stock and
     the  conversion  feature  which was  $706,901  at June 30,  2005.  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,  this security was not classified as permanent equity.
     Prior to entering into the  Securities  Purchase  Agreement for the sale of
     the Series E  Preferred  Stock,  the  Company  entered  into a  Termination
     Agreement  terminating the Standby Equity  Distribution  Agreement (`SEDA")
     made as of February 1, 2005 with Cornell Capital Partners,  L.P.  ("Cornell
     Capital").  The terms of this SEDA were  discussed in detail in Notes 1 and
     10 to the Financial Statements and in the Financial Condition and Liquidity
     Section of Management's  Discussion and Analysis of the Company's Report on
     Form  10-QSB/A  filed for the quarter  ended  December 31, 2004. If Cornell
     Capital  does not enter into a SEDA on identical  terms within  ninety (90)
     days after all amounts payable under the Securities  Purchase Agreement are
     satisfied,  Cornell  Capital  has agreed to return to the  Company all fees
     pursuant to the February 2005 SEDA. The fees of 1,075,732  shares of common
     stock with a value of  $125,000  that were paid to Cornell  Capital and its
     placement  agent in  connection  with the SEDA were  recorded  as  deferred
     financing  costs in the quarter  ended March 31, 2005 and will be amortized
     over the 24 month term of the SEDA. As of June 30, 2005,  200,000 shares of
     this  preferred  stock had been  converted  into common stock and 1,300,000
     were outstanding.


          In December 2004, the Company sold 1,285 shares of Series A Redeemable
     Convertible  Preferred  Stock and  Warrants to purchase  600,000  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, 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 the sale of 1,285  shares of  preferred  stock and the put
     right  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 nine  months  ended  June 30,  2005.  A  liability  of
     approximately  $1,058,260  was recorded for the original  fair value of the
     warrants  issued  in  connection  with  the  sale of the  1,285  shares  of
     preferred  stock and the conversion  feature which was $194,720 at June 30,
     2005. Upon the occurrence of specific  events,  the holders of the Series A
     Redeemable  Convertible Preferred Stock are entitled to redeem these shares
     under  certain  provisions  of the  agreement  covering the purchase of the
     preferred stock. Accordingly, this security was not classified as permanent
     equity.  As of June 30, 2005, 885 shares of this  preferred  stock had been
     converted into common stock and 400 shares were outstanding.

          36,941 shares of the Series C convertible  preferred stock with a face
     value of $195,000 and 2,000 shares of the 6%  Convertible  preferred  stock
     with a face value of  $2,000,000  are  carried at face value on the balance
     sheet  outside  permanent  equity  as the  Company  cannot  be  sure it has
     adequate authorized shares for their conversion as of June 30, 2005.


7.   COMMON AND PREFERRED STOCK

          During  the nine  months  ended  June 30,  2005,  the  Company  issued
     44,276,139  shares of common stock to holders who converted  1500 shares of
     Series  A  Convertible  Preferred  Stock  and  1,843  shares  of  Series  A
     Redeemable  Convertible Preferred Stock. As payment of $65,267 of dividends
     on these  converted  shares,  the  Company  issued  874,963  shares  of the
     Company's  common  stock.  Dividends for all  preferred  stock  amounted to
     $152,685  for the nine months  ended June 30, 2005 and the total  amount of
     unpaid and undeclared dividends was $210,242.

8.   GOODWILL

          As of  September  30,  2004,  the  Company's  goodwill was composed of
     $238,120 associated with the acquisition of BJR in 2001. In accordance with
     SFAS No.  142,  the  Company  evaluated  the  goodwill  related  to the BJR
     acquisition  and determined  that no adjustment to the goodwill  balance of
     $238,120 was deemed necessary at June 30, 2005.

9.   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,
                                                      --------------------------        -----------------------------
                                                         2005             2004             2005             2004
                                                      ------------   ------------       ------------     ------------
<S>                                                   <C>            <C>                <C>              <C>
         Loss from continuing operations              $  (458,616)   $  (533,640)       $(2,087,681)     $(1,899,50)
         Less:
              Preferred Stock Dividends                   (71,006)       (38,470)          (152,685)         (81,980)
              Deemed dividends in connection
                 with Series A, E and 6% preferred
                 stock sales                           (1,087,000)      (586,000)        (2,145,260)      (1,586,000)
                                                       -----------   ------------        -----------      -----------
          Loss attributable to common
                 stockholders from
                 continuing operations                 (1,616,622)    (1,158,110)        (4,385,626)      (3,567,483)
             Add:
             Income (loss) from discontinued
                  operation                                     -              -                  -          (12,788)
                                                      ------------   ------------        -----------      -----------


          Net loss attributable to common
              stockholders used in basic and
                diluted EPS                           $(1,616,622)   $(1,158,110)       $(4,385,626)     $(3,580,271)
                                                      ============   ============       ============     ============

          Weighted average number of
                 common shares outstanding            160,598,894    108,821,108        146,206,417      102,419,332
                                                      ============   ============       ============     ============

           Loss per share applicable to common
                 stockholders before discontinued
                 operations                                $(0.01)        $(0.01)            $(0.03)          $(0.03)
           Impact of discontinued operations                    -              -                  -                -
                                                      ------------   ------------       ------------     ------------
              Basic and diluted loss per share
                  applicable to common
                  stockholders                             $(0.01)        $(0.01)            $(0.03)          $(0.03)
                                                      ============   ============       =============    =============

</TABLE>

10.  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 for the quarter and nine months
     ended June 30, 2005 or 2004,  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,
                                                      2005             2004               2005                2004
                                                  ------------    -------------       -------------      -------------
<S>                                               <C>             <C>                 <C>                <C>
Net loss                                          $  (458,616)    $  (533,640)        $ (2,087,681)      $ (1,899,503)
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                           (41,930)        (67,005)            (109,075)          (188,000)
                                                  ------------    ------------         ------------       ------------
Pro forma net loss                                $  (500,546)    $  (600,645)         $(2,196,756)       $(2,087,503)
                                                 =============    ============         ============       ============
Loss per share:
Basic and diluted - as reported                   $      (.00)    $      (.01)         $      (.02)       $      (.02)
Basic and diluted - pro forma                            (.00)           (.01)                (.02)              (.02)
</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,
                                      2005                        2004
                                  ----------------            ------------
Risk free interest rate                3.8 %                      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, 2005 was $0.07. The weighted average fair value of options
granted for the three and nine months ended June 30, 2004 was $.11 and $0.15,
respectively.



11.  SUBSEQUENT EVENTS

          Since June 30, 2005, holders of convertible  preferred stock converted
     250,000  shares of Series E  Convertible  preferred  stock  into  5,833,333
     shares of common stock.


12.  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 June 30,  2005,  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.


<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.


RESTATEMENT

     As  indicated  in  Note 1 of the  Consolidated  Financial  Statements,  the
statements  of  stockholders'  deficit as of September 30, 2004 and for the nine
months  ended  June  30,  2005,  the  balance  sheet as of June  30,  2005,  the
statements of operations for the quarter and nine months ended June 30, 2005 and
2004 and the statements of cash flow for the nine months ended June 30, 2005 and
2004 included  herein have been restated to correct the error in accounting  for
the issuance of various securities and the derivative features embedded therein.
The effects of these  restatements  are described in Note 1 of the  Consolidated
Financial   Statements  and  the   discussions   below  are  based  on  restated
information.



RESULTS OF OPERATIONS

Revenues

     Sales for the three  months  ended June 30,  2005  increased  $265,795,  or
approximately  27%, to $1,233,087 from $967,292 for the corresponding  period of
the prior  year.  For the nine  months  ended  June 30,  2005,  sales  increased
$419,668, or approximately 15% to $3,224,350 from $2,804,682. The change for the
three months ended June 30, 2005 primarily reflects increases in volume of sales
of $102,000 for its  ORALscreen(R)  products and $178,000 for its foam products;
offset in part by a decrease  of $14,000 in revenue  from  contraband  detection
services.  The change for the nine months ended June 30, 2005 primarily reflects
increases  in volume of sales of $196,000  for its  ORALscreen(R)  products  and
$279,000  for its foam  products;  offset in part by a  decrease  of  $54,000 in
revenue from contraband detection services.

Operating Expenses

     Cost of sales for the three  months  ended June 30, 2005 was  approximately
74% of sales compared to the cost of sales of approximately 68% of sales for the
three months ended June 30, 2004.  For the nine months ended June 30, 2005,  the
cost of sales was 73%  compared  to 71% of sales  for the same  period of Fiscal
2004. The change for Fiscal 2005 resulted  primarily from a shift in the product
mix (48% in Fiscal  2005  versus 44% in Fiscal  2004) to the lower  margin  foam
products,  a change in customer mix for the ORALscreen  products and an increase
of $79,000 for a defective  lot of raw  materials  for the  ORALscreen  products
during the three months  ended June 30,  2005;  offset in part by a reduction in
warranty  expense of  approximately  $29,000 for the quarter ended June 30, 2005
and $132,000 for the nine months ended June 30, 2005.

     Selling,  general and  administrative  expenses  for the three months ended
June 30, 2005  increased  $372,734,  or  approximately  45%, to $1,208,606  from
$835,872  for the  corresponding  period of the prior year.  For the nine months
ended June 30, 2005,  selling,  general and  administrative  expenses  increased
$945,880 or approximately 42%, to $3,173,564 from $2,227,684 for the nine months
ended June 30, 2004. The change for the  three-month  period ended June 30, 2005
primarily reflects the cost of approximately  $302,000 for the addition of sales
and marketing resources, approximately %51,000 of increased public relations and
investor   relations   consulting   expenses  and  increases  in  various  other
administrative  expenses of  approximately  $19,000.  The  increase for the nine
months ended June 30, 2005, included approximately $701,000 for additional sales
and  marketing  resources  and  approximately  $125,000  for public and investor
relations  consulting  expense  increases;  offset  in  part by a  reduction  of
approximately $122,000 in various other administrative  expenses. The nine month
period ended June 30, 2004 included a reduction for accrued  royalty  expense of
approximately  $242,000 as a result of  management's  revision of  estimates  of
amounts due to a former  supplier under a product  development  agreement.  With
respect to the revision in accrued royalty expenses in Fiscal 2004, the Company,
during  the term of a  product  development  agreement  with the  supplier,  had
accrued  the  royalties  due under  this  agreement  with  expectation  that the
supplier would fulfill the terms of the agreement. However, in 2002, the Company
notified  the  supplier  that the  supplier  had failed to meet the terms of the
product development agreement and therefore,  under the terms of this agreement,
no  royalties  would be payable.  Since being  notified,  the  supplier had done
nothing  to cure  this  default.  In view of this  lapse in time and that  other
product undertakings by the supplier would prevent the supplier from ever curing
any of its  defaults  under  the  agreement,  there  was no  longer  any need to
maintain  the royalty  reserve for this  supplier.  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 FY2005
and beyond.

     Expenses for research and  development  for the three months ended June 30,
2005 amounted to $181,008 compared to $157,971 for the  corresponding  period of
the prior year, an increase of $23,037. For the nine months ended June 30, 2005,
expenses for research and development were $560,757 versus $385,638 for the nine
months ended June 30, 2004, an increase of $175,119.  The change for the quarter
ended June 30, 2005 was  primarily  attributable  to  additional  personnel  and
related  expenses.  For the nine months  ended June 30,  2005,  the increase was
mainly the result of additional  personnel and related expenses of approximately
$111,000,  contracted development and material expenses of approximately $34,000
for ORALscreen product  enhancements that included the Drugometer(TM),  a single
step drug test device introduced in November 2004, and various other development
related  expenses  of  approximately  $22,000.  The  Company  plans to  continue
improving and enhancing its ORALscreen products,  and therefore will most likely
incur increased  expenses for research and  development  during the remainder of
FY2005 and beyond.

     Other Income and Expense


     Interest  expense and  financing  costs were  $77,451 for the three  months
ended June 30, 2005 compared to $182,619  incurred during the three months ended
June 30, 2004.  For the nine months ended June 30,  2005,  interest  expense and
financing  costs  amounted to $113,820  versus  $324,301  for the  corresponding
period of Fiscal  2004.  The  decrease  for the three months ended June 30, 2005
resulted  primarily from interest expense and amortization of deferred financing
costs of approximately $104,000 associated with the long-term debt of $1,250,000
that was converted into  preferred  stock in May 2004. For the nine months ended
June 30, 2005,  the change  primarily  reflected the reduction of  approximately
$210,000 in interest  expense and financing costs  associated with the long-term
debt of $1,250,000 that was converted into preferred stock in May 2004.



     For the three months ended June 30, 2005, other income amounted to $686,739
compared to $333,837 for the three months ended June 30, 2004.  Other income for
the nine months  ended June 30, 2005 was  $877,430  compared to other  income of
$226,235  for the nine months  ended June 30,  2004.  The amount for the quarter
ended June 30, 2005  reflected an increase in income of  approximately  $354,000
from changes in the fair market value of derivative securities and warrants. The
amount for the nine months ended June 30, 2005,  reflected an increase in income
of  approximately  $660,000  from changes in the fair market value of derivative
securities and warrants.


<PAGE>

     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 and nine
months  ended June 30, 2005,  no activity  was recorded for USDTL  compared to a
loss of $12,788 for the nine months ended June 30,  2004.  The loss for the nine
months  ended June 30,  2004  resulted  from a 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).

         Net Loss

     Primarily as a result of the factors described above, the Company had a net
loss of $458,616 for the three  months  ended June 30, 2005,  as compared to net
loss of $533,640 for the three  months ended June 30, 2004.  For the nine months
ended June 30, 2005, the Company had a net loss of $2,087,681  versus $1,899,503
for the  corresponding  period of Fiscal  2004.  The loss per share was $.01 per
basic and diluted  share for the three months ended June 30, 2005  compared to a
loss per share of $.01 per basic and diluted  share for the three  months  ended
June 30, 2004.  For the nine months ended June 30, 2005,  the loss per share was
$.03 per basic and diluted  share  versus a loss per share of $.03 per basic and
diluted share for the nine months ended June 30, 2004.


FINANCIAL CONDITION AND LIQUIDITY


     At June 30, 2005, the Company had a working  capital  deficit of $1,848,017
and cash and cash equivalents of $514,844.  Cash flows from financing activities
of  approximately  $3,100,000  provided the primary source of funding during the
nine months  ended June 30, 2005 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 nine month period ended June 30, 2005:


                                                        Nine Months Ended
                                                              June 30,
         Sources (uses) of cash flows                           2005
         ----------------------------                     -------------
         Operating activities                             $(3,073,404)
         Investing activities                                 (28,967)
         Financing activities                               3,108,339
                                                          ------------
         Net decrease in cash and equivalents             $     5,968
                                                          ============

          Operating Activities. The net loss of $2,087,681 (composed of expenses
          totaling  $6,189,461 less revenues and other income of $4,101,780) 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 and income
          from the changes in the fair market value of derivative securities and
          warrants,  the cash  needed to  finance  the net loss was  $2,691,343.
          Working capital  requirements  necessitated the use of $337,997 to pay
          aging accounts payable and reduce accrued  expenses,  $161,385 to fund
          other  assets  such as a  security  deposit  on the new  lease for the
          facility,  and $27,318 to maintain sufficient inventory levels to meet
          anticipated demand for products during the next quarter.  In addition,
          changes  netting  $32,167 in  various  other  assets  and  liabilities
          further  increased  the operating  cash needs.  A decrease in accounts
          receivable  due to cash  receipts  exceeding  billings for  ORALscreen
          products during the second quarter  lessened  working capital needs by
          $176,806.


         Investing and Financing Activities. Cash used in investing consisted of
         cash paid of $28,967 for additions to property, plant and equipment. To
         finance the business, preferred stock and warrants (as described below)
         were sold and raised approximately $2,498,000. In addition, short term
         borrowings generated approximately $611,000 after repayment of certain
         short-term notes payable.

     During the last quarter FY 2005 and FY2006, 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  the  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  150,000  shares  of  the  Company's  common  stock.  The
$1,500,000 of Series E Preferred Stock are convertible  into Common Stock at the
lesser of $.08 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
$.084 per share for a period of three years.  The warrants  issued in connection
with the sale of 1,500,000 shares of preferred stock 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 quarter and nine months ended June 30,
2005. A liability of approximately $1,087,000 was recorded for the original fair
value of the warrants issued in connection with the sale of the 1,500,000 shares
of preferred  stock and the  conversion  feature  which was $706,901 at June 30,
2005.  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,  this security was not classified as permanent equity. Prior
to entering into the Securities  Purchase Agreement for the sale of the Series E
Preferred  Stock, the Company entered into a Termination  Agreement  terminating
the Standby Equity  Distribution  Agreement (`SEDA") made as of February 1, 2005
with Cornell Capital Partners, L.P. ("Cornell Capital").  The terms of this SEDA
were  discussed in detail in Notes 1 and 10 to the Financial  Statements  and in
the Financial  Condition and Liquidity  Section of  Management's  Discussion and
Analysis of the Company's  Report on Form  10-QSB/A  filed for the quarter ended
December  31, 2004.  If Cornell  Capital does not enter into a SEDA on identical
terms within  ninety (90) days after all amounts  payable  under the  Securities
Purchase  Agreement are satisfied,  Cornell  Capital has agreed to return to the
Company  all fees  pursuant to the  February  2005 SEDA.  The fees of  1,075,732
shares of  common  stock  with a value of  $125,000  that  were paid to  Cornell
Capital and its  placement  agent in  connection  with the SEDA were recorded as
deferred  financing  costs  in the  quarter  ended  March  31,  2005 and will be
amortized  over the 24 month  term of the  SEDA.  As of June 30,  2005,  200,000
shares  of this  preferred  stock  had been  converted  into  common  stock  and
1,300,000 were outstanding.

     Since  March 1,  2005,  the  Company  issued  short-term  notes  payable of
$250,000  and  convertible  notes  payable  totaling  $450,000 to an  accredited
investor.  These notes have a term of six months with $250,000  bearing interest
at 1% per month and $650,000  bearing  interest at 10% per year.  In  connection
with the notes  payable,  for each  dollar  loaned to the  Company,  the  holder
received  warrants to purchase  one share of the  Company's  common  stock for a
period of three years at exercise  prices  ranging  from $.08 to $.11 per share.
During the quarter and nine months ended June 30, 2005, $12,673 representing the
value of the  warrants  issued  to  purchase  250,000  shares  of  common  stock
associated  with the  $250,000 of  short-term  notes  payable was  recorded as a
discount to debt and is being amortized over the term of the notes. In addition,
the entire  principal  plus  accrued  interest  associated  with the $450,000 of
short-term convertible 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 (5) 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 $104,540 ($92,700 for the fair
value of the conversion  feature of these notes and $11,840 for the value of the
warrants  issued in connection with these notes) was recorded during the quarter
and nine months ended June 30, 2005 and is being  amortized over the term of the
notes. A liability of approximately  $105,000 was recorded for the fair value of
the warrants  issued in connection with the $450,000 of notes and the conversion
feature which was $93,735 at June 30, 2005.


     In December  2004,  the Company  sold 1,285  shares of Series A  Redeemable
Convertible  Preferred  Stock and Warrants to purchase  600,000 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,  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 the sale of 1,285 shares of preferred
stock and the put right 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 nine months ended June 30, 2005. A liability of approximately $1,058,260
was recorded for the original  fair value of the warrants  issued in  connection
with the sale of the 1,285 shares of preferred stock and the conversion  feature
which was $194,720 at June 30, 2005. Upon the occurrence of specific events, the
holders of the Series A Redeemable  Convertible  Preferred Stock are entitled to
redeem these shares  under  certain  provisions  of the  agreement  covering the
purchase of the preferred stock.  Accordingly,  this security was not classified
as equity.  As of June 30,  2005,  885 shares of this  preferred  stock had been
converted into common stock and 400 shares were outstanding.


     The cash available at June 30, 2005 and anticipated  customer  receipts are
expected to be sufficient to fund the  operations of the Company  through August
2005.  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 the remainder of calendar year 2005 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 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 permitted the Company to maintain its
listing on the AMEX . More  specifically,  the  Exchange  granted the Company an
extension  through  July 2005  subject  to  periodic  reviews  by the  Exchange.
However, to date, the Company has failed to regain compliance with the continued
listing standards.


     On  August  10,  2005,  Avitar,  received  notice  from  the  Staff of AMEX
indicating  that  the  Staff  determined  to  proceed  with  the  filing  of  an
application  with the  Securities  and Exchange  Commission to strike the common
stock  of  Avitar  from  listing  and   registration   on  the  Exchange.   This
determination  by the Staff was based upon the failure of the Company to achieve
compliance with the continued listing standards of AMEX.


     As indicated in the Staff notice,  the Company failed to achieve compliance
with  several  continued  listing  standards  of AMEX as set  forth  in the AMEX
Company Guide, specifically, having a deficit of shareholders' equity and losses
from  continuing  operations  and/or net losses in its five most  recent  fiscal
years resulting in non-compliance with Sections 1003(a)(i-iii); losses that were
so substantial in relation to its overall  operations or its existing  financial
resources  resulting in the opinion of the Exchange to be in non-compliance with
Section  1003(a)(iv);  and finally its low selling price per share  resulting in
non-compliance with Section 1003(f)(v).


     Management  continues to expect that  operating  revenues  will continue to
grow during the remainder of Fiscal 2005 and beyond 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 has begun 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 future  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
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  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 registered public accounting firm
relating to the financial  statements  for Fiscal 2004  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 8, 2004 except
for Note 17 which is as of December 17, 2004).  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 December  2004,  the FASB issued SFAS No.  123R,  "Share-Based  Payment"
("SFAS  123R"),   which   replaces  SFAS  123,   "Accounting   for   Stock-Based
Compensation,"  and supersedes APB Opinion no. 25,  "Accounting for Stock Issued
to  Employees."  SFAS 123R  requires  all  share-based  payments  to  employees,
including  grants of employee stock  options,  to be recognized in the financial
statements based on their fair values beginning with the first interim or annual
period  after  June 15,  2005.  In  April  2005,  the  Securities  and  Exchange
Commission  (the  "SEC")  postponed  the  effective  date of SFAS 123R until the
issuer's  first fiscal year  beginning  after June 15,  2005.  Under the current
rules,  the Company will be required to adopt SFAS 123R in the first  quarter of
fiscal 2006.

     Under SFAS 123R, pro forma disclosures  previously permitted will no longer
be an alternative to financial statement recognition. The Company must determine
the appropriate fair value model to be used for valuing share-based  payments to
employees,  the  amortization  method for  compensation  cost and the transition
method  to be used at the  date of  adoption.  The  transition  methods  include
modified prospective and retrospective adoption options. Additionally, SFAS 123R
clarifies the timing for recognizing  compensation expense for awards subject to
acceleration of vesting on retirement and also specifies the treatment of excess
tax benefits associated with stock compensation.

     In March 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB 107")
regarding the SEC's interpretation of SFAS 123R and the valuation of share-based
payments for public  companies.  Avitar is evaluating the  requirements  of SFAS
123R and SAB 107 and expects that the adoption of SFAS 123R will have a material
impact on Avitar's  consolidated  results of operations  and earnings per share.
The  Company  has not yet  determined  the method of  adoption  or the effect of
adopting SFAS 123R, and it has not  determined  whether the adoption will result
in amounts that are similar to the current pro forma disclosures under SFAS 123.

     In November  2004, the FASB issued SFAS No. 151,  "Inventory  Costs" ("SFAS
151"), an amendment of Accounting  Research  Bulletin ("ARB") No. 43, Chapter 4,
"Inventory  Pricing".  SFAS 151 amends previous guidance regarding  treatment of
abnormal  amounts  of  idle  facility  expense,  freight,  handling  costs,  and
spoilage.  This  statement  requires  that those items be  recognized as current
period  charges  regardless  of whether they meet the criterion of "so abnormal"
which was the  criterion  specified in ARB No. 43. In addition,  this  Statement
requires  that  allocation  of  fixed  production  overheads  to the cost of the
production  be based on  normal  capacity  of the  production  facilities.  This
pronouncement  is effective for the Company for fiscal periods  beginning  after
October 1,  2005.  The  Company  is  currently  evaluating  the effect  that the
adoption of SFAS 151 will have on its  consolidated  results of  operations  and
financial condition, but it is expected to have a material impact.

     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
is required  to be adopted by Avitar in the first  quarter of fiscal  2007.  The
Company is  currently  evaluating  the effect that the adoption of SFAS 154 will
have on its consolidated results of operations and financial condition, but does
not expect it will have a material impact.



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


     As discussed in of our consolidated financial statements,  we have restated
our  statements  of  stockholders'  deficit as of September 30, 2004 and for the
nine months ended June 30,  2005,  the balance  sheet as of June 30,  2005,  the
statements of operations for the quarter and nine months ended June 30, 2005 and
2004 and the statements of cash flow for the nine months ended June 30, 2005 and
2004 to correctly apply GAAP related to our issuance of certain securities.

     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,  2005,  pursuant to Exchange Act Rules
13a-15(e) and 15(d)-15(e). As part of its evaluation,  management considered the
facts and circumstances  relating to the restatement described above. 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
were not operating effectively.


     (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


<PAGE>

ITEM 2.           UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     During the quarter  ended June 30,  2005 the  Company  issued to holders of
convertible preferred stock 17,806,045 shares of the Company's common stock upon
the conversion of their preferred stock.  Also during the quarter ended June 30,
2005, the Company issued 264,018 shares of the Company's common stock as payment
for dividends on the Series A Preferred Stock. 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

     (A)  4.1 Securities Purchase Agreement dated as of June 3, 2005 between the
          Company and Cornell Capital Partners, LP

     (A)  4.2 Registration Rights Agreement dated as of June 3, 2005 between the
          Company and Cornell Capital Partners, LP

     (A)  4.3 Certificate of Designations of the Series E Convertible  Preferred
          Stock

     (A)  4.4 Warrant


          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

(A)  Previously filed with the Securities and Exchange  Commission as an Exhibit
     to the Report on 8-K  (Commission  File No.  1-51695),  as filed on June 3,
     2005, and incorporated herein by reference.

(b) Reports on Form 8-K:


         Form 8-K, Items 1.01, 1.02, 3.02 and 9.01, dated April 19, 2005
regarding a private placement to Cornell Capital Partners, LP Distribution
Agreement with Cornell Capital Partners, LP for the sale of preferred stock and
warrants.

         Form 8-K, Items 1.01 and 9.01, dated June 3, 2005 regarding a private
placement to Cornell Capital Partners, LP Distribution Agreement with Cornell
Capital Partners, LP for the sale of preferred stock and warrants.

<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:  February 10, 2006                      /S/ Peter P. Phildius
                                               ---------------------
                                               Peter P. Phildius
                                               Chairman and Chief
                                               Executive Officer
                                               (Principal Executive Officer)




Dated:  February 10, 2006                      /S/ J.C. Leatherman, Jr.
                                               ---------------------------
                                               J.C. Leatherman, Jr.
                                               Chief Financial Officer
                                               (Principal Accounting and
                                               Financial Officer)


<PAGE>

                                  EXHIBIT INDEX



       Exhibit No.              Document

     (A)  4.1 Securities Purchase Agreement dated as of June 3, 2005 between the
          Company and Cornell Capital Partners, LP

     (A)  4.2 Registration Rights Agreement dated as of June 3, 2005 between the
          Company and Cornell Capital Partners, LP

     (A)  4.3 Certificate of Designations of the Series E Convertible  Preferred
          Stock

     (A)  4.4 Warrant


          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

(A)  Previously filed with the Securities and Exchange  Commission as an Exhibit
     to the Report on 8-K  (Commission  File No.  1-51695),  as filed on June 3,
     2005, and incorporated herein by reference.