UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-QSB/A
[x] Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2003
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from ______ to ________
Commission File Number: 0-22413
UNIVEC, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 11-3163455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) (Identification No.)
10 E. Baltimore Street, Suite 1404, Baltimore, MD 21202
(Address of principal executive offices)
(410) 347-9959
(Issuers telephone number)
22 Dubon Court, Farmingdale, New York, 11735
(Former name, former address, and former fiscal year,
if changed since last report)
As of July 14, 2003, the Issuer had 33,616,095 shares of Common Stock,
$0.001 par value, outstanding.
Transitional Small Business Disclosure Format:
Yes No X
----- -----
UNIVEC, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
PART 1 FINANCIAL INFORMATION
ITEM 1 CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEET - June 30, 2003 3
CONSOLIDATED STATEMENT OF OPERATIONS - Three and
six months ended June 30, 2003 and 2002 4
CONSOLIDATED STATEMENT OF CASH FLOWS - Three and
six months ended June 30, 2003 and 2002 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS 8
ITEM 3 CONTROLS AND PROCEDURES 10
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 11
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
2
PART I
FINANCIAL INFORMATION
Item 1: Consolidated Financial Information
UNIVEC, Inc. and Subsidiaries
Consolidated Balance Sheet (Unaudited)
June 30, 2003
ASSETS
Current assets
Cash $ 7,738
Accounts receivable 72,820
Inventories 407,021
Equipment for sale 251,717
Other current assets 137,832
-----------
Total current assets 877,128
Fixed assets, net 478,405
Goodwill 2,328,662
Other assets 55,581
-----------
Total assets $ 3,739,776
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 1,372,534
Capitalized lease obligation 112,789
Deferred payroll-officers 582,167
Loans payable-stockholders/officers 112,419
Notes and loans payable-current 305,756
Due to affiliated companies 54,037
Escrow deposit 10,000
-----------
Total current liabilities 2,549,702
Notes and loans payable 403,246
-----------
Total liabilities 2,952,948
-----------
STOCKHOLDERS' EQUITY
Preferred stock $.001 par value; 3,748,000 authorized;
issued and outstanding: none
Series A 8% cumulative convertible preferred stock,
$.001 par value; authorized: 2,500 shares; issued
and outstanding: none
Series B 5% cumulative convertible preferred stock,
$.001 par value; authorized: 1,000 shares; issued and
outstanding: 122 shares (aggregate liquidation value:
$154,450) 1
Series C 5% cumulative convertible preferred stock,
$.001 par value; authorized: 1,000 shares; issued and
outstanding: 250 shares (aggregate liquidation
value:$304,931) 1
Series D 5% cumulative convertible preferred stock,
$.001 par value; authorized: 1,250,000; issued and
outstanding: 104,167 shares (aggregate liquidation value:
value: $267,986) 104
Common stock $.001 par value; authorized: 75,000,000
shares; issued and outstanding: 33,616,095 33,616
Additional paid-in capital 10,294,788
Accumulated deficit (9,541,682)
------------
Total stockholders' equity 786,828
------------
Total liabilities and stockholders' equity $ 3,739,776
============
See notes to the consolidated financial statements.
3
UNIVEC, Inc. and Subsidiaries
Consolidated Statement of Operations (Unaudited)
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2003 2002 2003 2002
---------- --------- ---------- ---------
Revenues $4,327,899 $ 863,027 $6,579,515 $1,514,015
--------- --------- --------- ---------
Expenses:
Cost of sales 4,021,459 601,719 6,089,197 1,174,670
Marketing and selling 121,398 135,385 258,264 368,189
Product development 15,530 22,623 20,223 24,515
General and administrative 634,440 257,575 866,252 543,722
Interest expense, net 20,108 30,894 43,924 47,949
Settlement of litigation (202,385)
Loss on sale of equipment 100,414 100,414
Forgiveness of deferred
payroll (429,150) (429,150)
--------- --------- ---------- ----------
Total expenses 4,812,935 719,460 7,277,860 1,627,924
--------- --------- ---------- ----------
Net (loss) income (485,036) 143,567 (698,345) (113,909)
Dividends attributable to
preferred stockholders (10,255) (49,878) (20,510) (99,060)
--------- --------- ---------- ----------
(Loss) income attributable
to common stock $(495,291) $ 93,689 $ (718,855) $ (212,969)
======== ========= ========== ==========
Share information:
Basic net (loss) income
per share $ (.01) $ .01 $ (.02) $ (.01)
======== ========= ========== ==========
Diluted net income
per share $ .01
=========
Weighted average number of
shares outstanding:
Basic 33,616,095 15,883,308 32,307,211 15,393,200
=========== ========== ========== ==========
Diluted 22,529,137
==========
See notes to the consolidated financial statements.
4
UNIVEC, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
Six months ended
June 30,
-----------------------------
2003 2002
------------ ----------
Cash flows from operating activities:
Net loss $ (698,345) $ (113,909)
Adjustments to reconcile net loss to net cash
used in operating activities:
Issuance of shares and options for
services 72,088
Depreciation 96,575 131,798
Write-off of inventories 50,000
Write-off of deferred compensation (18,016)
Write-off of accounts payable (111,339)
Loss on sale of equipment 100,414
Forgiveness of deferred payroll (429,150)
Changes in assets and liabilities,
net of effects from acquisition:
Accounts receivable 262,493 239,226
Due from factor (14,250)
Inventories 8,107 29,305
Other current assets and other assets (17,051) 1,318
Accounts payable and accrued expenses (9,288) (506,423)
Other current liabilities 6,358
Deferred payroll-officers 214,217 140,865
--------- ---------
Net cash used in operating activities (111,308) (453,699)
--------- ---------
Cash flows from investing activities:
Proceeds from sale of equipment 130,706
Investment in TWT (net of cash acquired
of $31 and notes payable of $37,888 and
$60,000) (80,226)
Purchase of fixed assets (22,424)
---------
Net cash provided by investing activities 28,056
---------
Cash flows from financing activities:
Proceeds from sale of securities 250,000
Gross proceeds from loans
payable-stockholders/officers 112,419 237,450
Proceeds from exercise of options 39,550
Payments of notes and loans payable (114,150) (58,103)
Payments of capitalized lease obligations (36,250) (54,375)
Proceeds from notes and loans payable 51,375 22,586
Increase in due to affiliated companies 18,392
--------- ---------
Net cash provided by financing activities 31,786 437,108
--------- ---------
Net (decrease) increase in cash (79,522) 11,465
Cash, beginning of period 87,260 22,203
--------- ---------
Cash, end of period $ 7,738 $ 33,668
========= =========
See notes to the consolidated financial statements.
5
UNIVEC, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
1. Nature of Operations
Univec, Inc. (Company) produces, licenses and markets safer medical
products, primarily syringes, on a global basis. Physician and Pharmaceutical
Services, Inc. (PPSI), a subsidiary of the Company, provides fulfillment
services of samples, group purchasing arrangement (GPO) distribution and
marketing for the pharmaceutical industry. Thermal Waste Technologies, Inc.
(TWT), a subsidiary of the Company, markets a medical waste disposal unit.
2. Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
of the consolidated financial position, results of operations and cash flows for
the interim periods presented have been included. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements of Univec, Inc. together with Management's Discussion and Analysis
included in the Company's Form 10-KSB for the year ended December 31, 2002.
Interim results are not necessarily indicative of the results for a full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Net (Loss) Income Per Share
Basic net (loss) income per share was computed based on the weighted-average
number of common shares outstanding. Diluted net income per share was computed
using the weighted-average number of common and dilutive common equivalent
shares outstanding during the three months ended June 30, 2002. Dilutive common
equivalent shares consisted of common shares issuable upon the assumed exercises
of certain stock options using the treasury stock method and the assumed
conversions of all the preferred stock. For 2002, an adjustment was made for
purposes of per share diluted computations to increase net income available to
common shareholders for the dividends attributable to preferred stock of
$49,878. Certain other options were not assumed exercised because inclusion
would be anti-dilutive due to the exercise price being higher than the stock
price used in the computation. Dilutive net loss per share for the six month
periods ended June 30, 2003 and 2002, and for the three month period ended June
30, 2003 have not been presented because they were anti-dilutive.
For the three months ended June 30, 2002, a reconciliation of the shares
used in the computation of diluted net income per share is as follows:
Basic weighted-average number
of common shares outstanding 15,883,308
Effects of dilutive common equivalents
Conversions of preferred shares 5,495,163
Exercises of stock options outstanding 1,150,666
----------
Diluted weighted-average number of common
shares and common equivalent shares outstanding 22,529,137
==========
6
4. Loans Payable-Stockholders/Officers
As of June 30, 2003, included in loans payable-stockholders/officers
were $108,000 of loans from two stockholders/officers payable on demand with
interest at 5.5% per annum. These terms are equivalent to the borrowing obtained
by the stockholders/officers who provided the loans to the Company.
Subsequent to June 30, 2003, the Company borrowed an additional $66,249
from these two stockholders/officers under the same terms.
5. Preferred stock
During the quarter ended June 30, 2003, the Company adjusted the
September 2002 exchange of Series A preferred stock by canceling an additional
124 shares, the remaining outstanding shares, without issuing any additional
shares of common stock, resulting in the transfer of $1.00 to additional paid-in
capital.
6. Subsequent Events
Office Lease
In connection with the Company's move of its principal office to
Baltimore, Maryland, the Company has entered into a lease for approximately
23,000 square feet of office, production and warehouse space, effective July 15,
2003, for a term of one year, plus ten one year renewals. The Company is
committed for an initial rent of $72,000, per year, increasing no more than 3%
every three years. The Company shall pay as additional rent all operating costs,
including labor, maintenance, taxes, licenses, insurance, utilities, etc.
Equipment Lease
A company owned by the majority stockholder of the Company is currently
negotiating to acquire the equipment presently being leased to the Company, with
a remaining balance of $112,789, and will continue to lease the equipment to the
Company.
7. Sales
For the three and six months ended June 30, 2003, sales included
approximately $1,700,000 and $5,800,000, respectively, to affiliated companies
owned by a stockholder/officer of the Company.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Condensed Consolidated Results of Operations
Three months ended Six months ended
June 30, June 30,
----------------------- ----------------------
2003 2002 change 2003 2002 change
-------- --------- ------- -------- -------- ------
Revenues $ 4,327,899 $ 863,027 401 % $6,579,515 $1,514,015 335%
---------- --------- --------- ---------
Expenses:
Cost of Sales 4,021,459 601,719 568% 6,089,197 1,174,670 418%
Marketing and Selling 121,398 135,385 (10%) 258,264 368,189 (30%)
Product Development 15,530 22,623 (31%) 20,223 24,515 (18%)
General and
Administrative 634,440 257,575 146% 866,252 543,722 59%
Interest Expense, Net 20,108 30,894 (35%) 43,924 47,949 (8%)
Settlement of Litigation (202,385)
Loss on Sale of Equipment 100,414 100,414
Forgiveness of Deferred
Payroll (429,150) (429,150)
---------- --------- --------- --------
Net (Loss) Income $ (485,036) $ 143,567 (438%) $ (698,345) $ (113,909) (513%)
========== ========= ========= =========
Revenues for Univec, Inc. ("Univec", "we" or "our") for the three month
period ended June 30, 2003 increased by $ 3,464,872 (401%) as compared to the
comparable period ended June 30, 2002, primarily as a result of the first full
quarter of revenue of Physician and Pharmaceutical Services, Inc. ("PPSI") from
its group purchasing arrangement (GPO) for the distribution of pharmaceuticals,
which contributed revenues of $3,846,269. During the quarter ended June 30,
2003, PPSI revenue from its GPO has continued from the first quarter and will be
a continuing source of revenues for us, while we continue to manufacture, sell
and license syringe and medical waste products.
Our international syringe product sales decreased $610,507 during the quarter
due to our restructuring to enable us to increase internal production capability
enabling us to build the necessary inventory levels. In the past, insufficient
inventory levels resulted in lost revenues. Product sales consisted primarily of
the 1cc locking clip syringe, a difficult-to-reuse syringe. These syringes are
produced by our contract manufacturers. We are continuing to concentrate on both
the sales of products and licensing of the technology of our proprietary locking
clip syringe, in addition to focusing on the marketing of our new products,
including the sliding sheath syringe designed to protect health care workers
from accidental needle-stick injury and our medical waste product.
8
Gross profit for the quarter ended June 30, 2003 increased by $45,132,
(17%) to $306,440 from $261,308. The gross profit percentage decreased from 30%
to 7%. The lower gross profit percentage results from the lower gross profit
contribution from PPSI's GPO revenue. Gross profit on the Univec syringe sales
decreased approximately $164,000 (56%) to 18% from 20%. We anticipate gross
profit levels to remain at the reduced levels until our market-share provides
increased gross profits, resulting from price increases.
Sales for the six months ended June 30, 2003 increased by $5,065,500 (335%)
as compared to the six months ended June 30, 2002, primarily as a result of
PPSI's GPO revenue, which commenced in 2003.
Sales of new products, including the sliding sheath syringe, medical disposal
products, and PPSI's GPO, comprised 94% of the total sales for the three month
period ending June 30, 2003 and 88% of the total sales for the six month period
ended June 30, 2002, without consideration of sales of technology.
As a result of the acquisitions of PPSI and Thermal Waste Technologies, Inc.
("TWT"), we have substantially broadened our product base and anticipate even
greater increases in sales.
Marketing and selling costs decreased $13,987 (10%) and $109,925 (30%) over
the comparable three and six month periods, respectively, ended June 30, 2002.
These decreases were primarily the result of decreases in licensing fees,
freight expense and travel offset in part by wage increase in marketing.
Product development expense for the three and six month periods ended June
30, 2003 decreased by $7,093 (31%) and $4,292 (18%), respectively, over the
comparable periods during 2002. These decreases were the result of decreased
expenditures for patent legal fees. As the Company continues to focus on
marketing and sales of existing and already developed new products, product
development expense will continue to remain relatively low.
General and administrative costs for the three and six month periods ended
June 30, 2003 increased $376,865 (146%) and $322,530 (59%), respectively,
primarily resulting from developing the PPSI GPO.
Interest expense, net decreased by $10,786 (35%) and $4,025 (8%) during the
three and six months ended June 30, 2003, respectively, from the comparative
periods in 2002, as a result of a decrease in factoring expense and a decrease
of approximately $11,000 in letter of credit fees.
Non-recurring forgiveness of deferred payroll of $429,150 by two
officer/directors of the Company during the three months ended June 30, 2002 net
of the loss on sale of equipment reduced expenditures during the six months
ended June 30, 2002.
Net loss for the three and six month periods ended June 30, 2003 increased by
$628,603 (438%) and $584,436 (513%), respectively, as compared to the three and
six month periods ended June 30, 2002. Without considering the nonrecurring
items, the net loss increased by $299,867 (162%) and $53,315 (8%). The increases
in the loss were primarily related to the cost of developing PPSI's GPO.
During July 2003, we moved our principal office to Baltimore, Maryland. We
entered into a lease for approximately 23,000 square feet for office, production
and warehouse space for a term of one year, plus ten one year renewals, with an
initial rent of $72,000, per year. Additionally, we are required to pay all
operating costs, including labor, maintenance, taxes, licenses, insurance,
utilities, etc. This lease increases our usable space at a cost lower than its
previous facility. The new location also provides enhanced domestic sales
opportunities and the capacity to realize its stated goal of increased internal
production capabilities.
Liquidity and Capital Resources
Our working capital deficit of $1,070,807 at December 31, 2002, increased to
a deficit of $1,672,574 (56%) at June 30, 2003, primarily resulting from
increases in deferred compensation and decreases in accounts receivable.
Net cash used in operating activities decreased by $342,391 (75%) to $111,308
for the six months ended June 30, 2003 from $453,699 for the six months ended
June 30, 2002, primarily due to the costs of developing the PPSI GPO and the
reduction in the increase in accounts payable and accrued expenses, offset in
part by an increase in deferred payroll.
9
There was no cash provided by investing activities for the six months ended
June 30, 2003.
Net cash provided by financing activities decreased by $405,322 (93%) to
$31,786 for the six months ended June 30, 2003 from $437,108 for the six months
ended June 30, 2002. This decrease resulted from no sales of equity and reduced
borrowings.
Although revenue increased with the addition of PPSI's GPO operations and the
continued marketing, sales and licensing of existing safety syringes, and the
Demolizer, we still do not anticipate positive net cash flow from operating
activities in 2003. We are actively seeking bank and private financing that, if
received, will be utilized to expand production, which is needed to increase
revenue. The relatively low trading price and volume of the common shares
together with our "Bulletin Board" listing hampered our ability to raise equity
capital.
Except for the historical information contained herein, the matters discussed
in this report are forward-looking statements that involve risks and
uncertainties, including market acceptance of our products, timely
development and acceptance of new products, impact of competitive products,
development of an effective organization, interruptions to production, and other
risks detailed from time to time in our SEC reports and our Registration
Statements.
Item 3. Controls and Procedures.
Within 90 days prior to the filing of this report, the Company's management,
including the Company's Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design of the Company's disclosure controls
and procedures, as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures were effective, in all material respects, to ensure that the
information required to be disclosed in the reports the Company files and
submits under the Exchange Act is recorded, processed, summarized and reported
as and when required.
There have been no significant changes (including corrective actions with
regards to significant deficiencies and material weaknesses) in the Company's
internal controls or in other factors subsequent to the date the Company carried
out its evaluation that could significantly affect these controls.
10
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
There has been no material developemnts on the litigation matter as
previously disclosed in Form 10-KSB for the year ended December 31, 2002.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of the Chief Executive Officer required by Rule
13a-14(a) or Rule 15d-14(a).*
31.2 Certification of the Chief Financial Officer required by Rule
13a-14(a) or Rule 15d-14(a).*
32.1 Certification of the Chief Executive Officer required by Rule
13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.*
32.2 Certification of the Chief Financial Officer required by Rule
13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.*
* Filed herewith.
(b) Form 8-K
None
11
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.
UNIVEC, INC.
Dated: August 13, 2003 By: /s/ David Dalton
------------------------
David Dalton
Chief Executive Officer
(Principal Executive Officer)
Dated: August 13, 2003 By: /s/ Michael A. Lesisko
-------------------------
Michael A. Lesisko
Chief Financial Officer
(Principal Financial
and Accounting Officer)
12