UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
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/X/ Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended
December 31, 2003
/ / Transition report under Section 13 or 15(d) of the Securities Act of 1934
for the transition period from ------------ to------------
Commission file number 0-22413
UNIVEC, INC.
(Name of Small Business Issuer in its Charter)
Delaware 11-3163455
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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4810 Seton Drive
Baltimore, MD 21215
(410) 347-9959
(Address and telephone number of principal executive office)
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Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Act:
Title of Class
Common Stock, $.001 par value
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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.
Yes /X/ No / /
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. /X/
Revenues for the issuer's most recent fiscal year were $16,133,652.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the closing price at which the stock was sold on May 6,
2004 was $3,109,744.
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ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes / / No / /
APPLICABLE ONLY TO CORPORATE REGISTRANTS
As of May 6, 2004 the issuer had 37,871,795 shares of common stock, $.001
par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
Part I
Item 1. Description of Business.
UNIVEC, Inc. ("UNIVEC" or "the Company") is an integrated licensing,
manufacturing, and marketing company dedicated to providing safer health
products to patients and caregivers worldwide. Univec produces auto-disable and
safety syringes and portable units for onsite disposal of medical and sharps
waste. Univec also assists pharmaceutical companies in marketing, fulfillment,
and tracking drug samples. The Company is a Delaware corporation incorporated on
October 7, 1996, and the successor by merger to UNIVEC, Inc., a New York
corporation, incorporated on August 18, 1992.
On December 31, 2001 Univec, Inc., acquired Physician and
Pharmaceutical Services, Inc., (PPSI) a company primarily engaged in promoting
pharmaceutical company prescription samples to physicians. PPSI reduces the cost
in the prescription-sampling channel by providing efficient fulfillment and
tracking of prescription usage. PPSI's national network of pharmacies fills the
sample prescription on a discounted fee and the Company's mail service
fulfillment complements additional needs. PPSI's approach conforms to
regulations requiring increased accountability and elimination of diversion of
prescription samples, consequently reducing the exposure of physicians and
pharmaceutical companies to potential liabilities and non-compliance penalties.
On February 28, 2002 Univec acquired Thermal Waste Technologies, Inc.,
("TWT"), a manufacturer of the "Demolizer," a patented medical waste disposal
unit designed to eliminate carting of red bag and sharps waste in medical
offices. The Demolizer, about the size of a small microwave oven, automatically
converts red bag and sharps waste inside a sealed container into sterilized
waste that can be discarded as ordinary solid waste. All waste is placed in a
disposable one-gallon container that sits inside the unit, which contains the
sterilizer and the anti-viral, anti-bacterial and anti-odor filtration system.
The unit meets OSHA regulations and has passed efficacy testing performed by
Stanford University, Leberco Testing Inc., and Valley Medical Laboratories under
a protocol approved by the New York State Department of Health. The unit has
also passed the "Microbial Survivability Test for Medical Waste Incinerator
Emissions." The Demolizer is approved by state boards of health and departments
of environment in 43 states, and is pending approval in two states.
The Company is in a dispute with Jonathan Bricken, the current president
of Thermal Waste Technology, Inc. due to former principal actions which have
hampered the ability of the Company to fulfill its strategy. See "Item 3 - Legal
Proceedings".
In 1997, Univec commenced production and sales of its 1cc Auto-Disable
Syringes (AD-syringes), which are designed to make accidental or deliberate
reuse difficult. The accidental or deliberate reuse of syringes is a frequent
cause of the spread of the human immunodeficiency ("HIV") and hepatitis viruses,
as well as other blood-borne pathogens. Univec has received 510(k) clearance
from the U.S. Food and Drug Administration (the "FDA") to market it's
AD-Syringes in the United States.
Univec believes that its 1cc difficult-to-reuse syringes are more effective
than competitive syringes and that they are competitively priced. Univec also
believes that it is the only company that markets an AD-Syringe with a 1cc
barrel, which is ideal for dispensing accurate dosages of medicine (e.g.,
allergy, immunization and insulin medicines). It is more difficult to deliver up
to a .95cc dosage accurately with a syringe barrel that is greater than 1cc.
Univec does not know of any other company that offers a lcc aspirating syringe
that can be locked. Healthcare workers need aspirating syringes to mix
medications in the syringe barrel and inject medications intravenously.
Furthermore, Univec believes that aspirating syringes are preferred by diabetes
patients and needle-exchange programs. Pursuant to programs of international
relief agencies, Univec has shipped its lcc AD-Syringes to over 80 countries.
Univec also manufactures and markets patented Sliding Sheath Syringes
designed to protect patients and healthcare workers from needle stick injuries,
in compliance with the Federal Needlestick Safety and Prevention Act of the
United States government, and requirements of the Occupational Safety and Health
Administration (OSHA). Univec has FDA approval for an extendible barrel sleeve
syringe used in the sliding sheath syringes based on technology licensed by
Univec.
In addition, Univec has developed a Bifurcated Needle Safety Syringe
specifically designed to comply with the Federal Needlestick Safety and
Prevention Act of the United States government. Univec has been granted 510(k)
clearance by the FDA. The device is intended for use in administering smallpox
vaccines in response to potential bio-terrorist threats. The Needlestick Safety
mandate requires all U.S. healthcare providers to evaluate and implement safer
medical devices under their OSHA "Exposure Control Plans". All healthcare
providers must now adopt safer devices to protect workers and others from
needles potentially contaminated with blood borne pathogens such as hepatitis B,
hepatitis C, and HIV.
In general, this "safer device" rule applies in the normal course of
operations, as well as in connection with any mass immunization program
authorized by the federal government.
Univec markets its AD-Syringes and Sliding Sheath Safety Syringes to
governments of developing countries, provided that such syringes are
manufactured in the United States, private hospitals and health facilities in
the United States, and distributors in the United States.
Problems Associated With Traditional Disposable Syringes
In developing countries, accidental or deliberate reuse of disposable
syringes poses a serious risk of transmitting HIV-AIDS, hepatitis and other
blood-borne pathogens. Relief agencies, including UNICEF and WHO, administered
almost a billion immunizations to women and children through immunization
programs in developing countries in 1998 and anticipate administering 3.5
billion immunizations by 2005. WHO reported that surveys carried out in four of
its six regions indicated that up to a third of immunization injections were
unsterile. Immunization injections account for less than 10% of injections
administered within the health sector. The United Nations estimates that more
than half of all non-immunization injections in developing countries are unsafe.
According to WHO, an estimated 40.0 million adults and children worldwide are
infected with HIV, 90% of who live in developing countries.
Intravenous drug users, who share syringes or use syringes discarded by
hospitals, medical clinics and laboratories, doctors or diabetic patients, are
extremely susceptible to HIV, hepatitis and other blood-borne pathogens. An
article in the May 1996 American Journal of Public Health for Disease Control
written by an epidemiologist for the Center for Disease Control and Prevention
(the "CDC") estimates that nearly half of all new HIV infections are occurring
in intravenous drug users. In the United States, up to 30% of pregnant mothers
infected with HIV transmit the virus to their babies, according to the CDC.
Based on a study of children with HIV, who received care at Children's Hospital
of Wisconsin, researchers estimated that the mean total lifetime costs of caring
for a child with HIV was close to $1 million.
As a result of findings in the United States and developing countries,
public health officials have encouraged the medical industry to develop safer
syringes to prevent the spread of blood-borne pathogens, such as HIV and
hepatitis. In 1995, the House of Delegates -- American Medical Association
requested "manufacturers of disposable hypodermic needles and syringes to adopt
designs to prevent reuse and to include in the packaging clear directions for
their correct disposal." In late 1995, UNICEF and WHO recommended "the use of
auto-disable syringes instead of disposable, single use syringes in order to
avoid the hazards of unsafe injection practices."
Needlestick Prevention
Needlestick prevention devices are designed to prevent accidental puncture
injuries to health care workers and patients before, during, and after the use
of hypodermic syringes and needles. Statistics indicate that less than 1% of all
reported HIV infections in the United States are attributed to needlestick
injuries. The most prevalent needle stick prevention device, the extendible
barrel sleeve, is not a substitute for features that render a syringe
difficult-to-reuse; however, it can be combined with devices that make a syringe
difficult-to-reuse. Needlestick prevention methods include:
Retracting Needles retract the needle into the barrel after use. These
devices are effective needlestick prevention devices; however, operators must
manually trigger the retraction of needles. Retracting needle devices that
automatically trigger with a single use of the syringe can render the syringe
design difficult to reuse. However, such devices are costly to manufacture due
to the complexity of the mechanics required to retract the needle.
Self-Destruct Needles permit the needle to be collapsed or deformed into a
shape which cannot result in a needlestick injury. Although self-destruct needle
devices are mechanically simpler than retracting needle devices, less prone to
malfunction and less costly to manufacture, such devices are effective only if
the operator triggers the self-destruct feature.
Extendible Barrel Sleeves enclose the barrel of the syringe in a second
cylinder. The operator extends the sleeve before and after use to cover the tip
of the needle. The extendible barrel sleeves often lock in the extended position
after use. In virtually all designs, the operator of the syringe must manually
extend the barrel sleeve after use. The sleeve does not prevent multiple use of
the syringe before the operator encloses the barrel. However, extendible barrel
sleeves are more cost-effective than the other alternatives and can be combined
with a device that makes the syringe difficult to reuse.
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UNIVEC Syringes
Univec has developed a 1cc AD-Syringe for aspirating and non-aspirating
applications, which are ideally suited for dispensing accurate dosages of
allergy, immunization and insulin medicines. The Company's 1cc AD-Syringe can
deliver dosages of up to .95cc. With the aspirating syringe, the UNIVEC locking
clip does not limit the user's ability to withdraw and depress ("to aspirate")
the plunger until the user locks the syringe voluntarily. With the
non-aspirating syringe, the UNIVEC locking clip limits the user's ability to
aspirate the plunger and locks the syringe passively.
When the non-aspirating syringes are assembled, the syringe clip is placed
on the ratcheted plunger in the position needed to limit dosage as desired. When
the operator depresses the plunger, the clip travels down the barrel by an equal
distance. Withdrawal of the plunger by any amount embeds the prongs into the
barrel and the user cannot retract the plunger.
Univec's 1cc non-aspirating syringe was developed for the needs of
immunization programs. Using existing components, the Company can limit its
non-aspirating syringe to any dosage between .05cc and .95cc.
Univec's 1cc aspirating syringe works similarly to the non-aspirating
model, except that the clip prongs do not engage the barrel until the operator
withdraws the plunger completely. Once the operator does so, the clip catches a
single ratchet and travels down the barrel as the plunger is depressed and the
operator cannot withdraw the plunger.
Univec's 1cc aspirating syringe was developed for healthcare workers, who
need to mix medications in the syringe barrel and inject medicines
intravenously. Furthermore, the Company believes that aspirating syringes are
preferred by diabetes patients and needle-exchange programs. The Company does
not know of any other company that offers an aspirating syringe that can be
locked.
Univec has licensed rights to a United States patent for a sliding sheath
to function on all standard syringes. The Company believes that its licensed
design for a safety syringe will compete successfully with the other safety
syringes on the market. This design can be used on barrels of various sizes.
Marketing of Pharmaceutical Company Drug Samples to Physicians
The PPSI online network provides better marketing and clinical integration
information than traditional systems, and enables pharmaceutical companies to
maintain market share when competing with generic drugs. The PPSI information
system includes detailed information such as the individual sales
representative, zip codes, DEA number, pharmacy and prescribing physician. The
PPSI system provides pharmaceutical companies with an easy, safe way to offer
free samples through physicians and increase their value to patients who benefit
through savings on prescriptions. In addition, the PPSI system provides
incentives for chain drug stores to stock the pharmaceutical products and for
pharmaceutical companies to keep their products on managed care formularies
within hospitals, correctional institutions, and nursing homes. The PPSI
information system and clinical integration capability also provides a necessary
service aiding government oversight. Pharmaceutical manufacturers spend over $16
billion a year for the marketing of products. PPSI's strategy is to provide
flexible sample programs supported by technology to assist with distribution,
dispensing, reporting, and clinical integration that maximizes the intent of
appropriate sample model for marketing. PPSI out-sources its computer system
applications to an industry leading provider.
Disposal of Medical and Sharps Waste
TWT's Demolizer(R) System consists of a computerized sterilization unit (19
1/4" D x 13" W x 12 1/4" H) and disposable one gallon metal waste collection
containers. One container is used to collect sharps waste (i.e. syringes,
needles, scalpels); the other is used to collect red bag (soft) waste. The
containers meet all Occupational Safety and Health Administration ("OSHA")
regulations governing the collection and storage of hazardous medical waste. The
processing unit incorporates state-of the art electronic controls which assure
operation within the approved parameters. If there is any malfunction, the
system shuts down and prevents removal of any unprocessed waste. At the
completion of a successful cycle, the processing unit issues a print-out label
verifying that the correct operating parameters have been met. The print-out is
used for the facilities in-house log book which records all cycles run by the
Demolizer(R) System and verifies that the processed waste has been properly
sterilized. The pressure sensitive label replaces the cumbersome medical waste
tracking forms which are currently used by every state. In order to prevent
odors and contaminants, such as dioxins, from being released into the
environment, the Demolizer(R) System incorporates a sophisticated anti-viral,
anti-bacterial and anti-odor filtration system in conjunction with a
sophisticated air flow pattern which assures that all emissions are captured and
processed. During processing, infectious medical waste is sterilized and sealed
in the collection container using a thermal process. The sharps waste is
rendered unrecognizable and non reusable. Medical waste processed by the
Demolizer(R) System meets these criteria and may be discarded as ordinary solid
waste.
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Sales, Marketing and Distribution
Univec has entered into several agreements with large United States based
wholesalers for the support and expansion of distribution channels for
nationwide delivery of the Univec product line.
Univec has shipped its lcc AD-Syringes to over 80 countries. Univec intends
to market its Safety-Shield syringes, as well as the Demolizer medical waste
disposal system to governments of developing countries, private hospitals and
health facilities in the United States, and distributors in the United States.
Univec is a licensee of products and proprietary manufacturing processes
relating To 1cc AD-Syringes. For manufacturing in our facilities. The Company
markets such syringes to governments of developing countries, private hospitals
and medical facilities. To stimulate demand for its safety syringes, Univec
plans to initiate promotional and educational campaigns directed at (i) public
health officers and other government officials responsible for public health
policies, (ii) doctors and administrators of healthcare facilities responsible
for treatment of HIV-AIDS and hepatitis patients, and (iii) liability insurance
companies.
Univec also markets its drug sampling services to pharmaceutical companies
desiring to maintain or expand market position.
Univec markets the Demolizer medical waste disposal unit to healthcare
practitioners that desire to reduce the liability for storing medical wastes on
premises and that desire to reduce the costs associated with the carting of
medical waste to central facilities for disposal. Such practitioners include
Allergists, Pediatricians, Dermatologists, Dentists, Veterinarians, Corporate
medical departments, Community Health Centers, City Health Departments,
Correctional Institutions, Nursing Homes, Assisted Living Facilities, the U.S.
Military, and U.S. and foreign Health Organization
Production
Univec's lcc locking syringes are being assembled by contract manufacturers
in the United States, China and Portugal. (See Item 1, "Description of Business"
and Item 3 "Legal Proceedings" for the current status of the Compnay's business
including the demolizer and its relationship to its former owner, Jonathan
Bricken). The Portuguese and United States manufacturers also mold the Company's
proprietary syringe plungers. Univec owns stamping, assembly, and molding
equipment at its U.S. contract manufacturer. Univec relocated its clip plunger
assembly production facility designed to produce 1cc AD-Syringes from
Farmingdale, New York to Baltimore, Maryland during July 2003. These assemblies
are shipped to our contract manufacturers to produce Auto-Disable Syringes.
Univec's syringes consist of a standard needle, barrel, rubber stopper, a
ratcheted plunger designed by the Company, and a pronged stainless steel locking
clip designed by Univec. The locking clip and plunger can be assembled, with
minor modifications, into barrels manufactured by Becton-Dickinson, Tyco, and
other syringe manufacturers. Univec has obtained a patent on its stainless steel
locking clip, and has been granted a patent for the design of a plunger which,
when combined with the locking clip, results in a narrow-barreled,
difficult-to-reuse, locking syringe. The stainless steel for the locking clip
and the plastic for the syringe barrels and plungers is readily available from
several sources. The syringe barrels for some of the syringes sold by Univec
have been manufactured by a Portuguese contract manufacturer. Univec has been
successful through other sources worldwide in purchasing barrels to increase the
overall production capacity. In addition, Univec continues to send clip plunger
assemblies produced in the U.S. to syringe manufacturers to also increase
overall production. Univec continues to pursue alternate sources of supply for
components. Should there be a need for a certain component from an alternate
supplier, there can be no assurance that the Company will be able to obtain it
on acceptable terms, and there can be no assurance that production of certain
configurations of its lcc locking syringes will not be delayed. Delays resulting
from the selection of an alternate supplier to produce certain components could
have a materially adverse effect on Univec's business.
The Demolizer is produced by a contract manufacturing facility in
Connecticut.
Competition
Univec's principal competition for syringes is from traditional disposable
syringes. Becton-Dickinson, Tyco and Terumo control approximately 90% of the
worldwide syringe market, and are substantially larger, more established and
have significantly greater financial, sales and marketing, distribution,
engineering, research and development and other resources than the Company. To
Univec's knowledge, only Becton-Dickinson and Bader, a German machine tool
manufacturer, distribute commercially a line of difficult-to-reuse syringes,
none of which allow for aspiration. The Bader DestroJect syringe and the
Becton-Dickinson SOLOSHOT syringe were designed to dispense a dosage of .5cc
only, whereas the UNIVEC 1cc locking clip syringe was designed to dispense
dosages up to .95cc. Univec believes that UNIVEC syringes are more effective
than competitors' difficult-to-reuse syringes and that the UNIVEC syringes are
4
competitively priced. There can be no assurance that the major syringe
manufacturers or others will not commence production of 1cc difficult
to-reuse-syringes, or locking syringes which aspirate, or that Univec will be
able to successfully compete in this market.
PPSI's competition comes from traditional sampling providers that include
the actual drug samples and other pharmaceutical benefit management companies
that offer similar services such as Caremark and Medco Health.
TWT's competition comes from traditional large-scale medical waste
management systems that depend on collection of waste from a variety of sources
for disposal at a large centralized facility.
Patents, Licenses and Proprietary Rights
In 1995, Univec was granted a United States patent for a locking clip
device not biased against the plunger. The patent is broad enough to include
several applications of the design covering the first series of products to be
marketed by Univec. Univec was granted a United States patent for a plunger
design which, in conjunction with its patented locking clip, results in a narrow
barrel, difficult-to-reuse syringe that allows for aspiration during use.
In the past, Univec has filed patent applications for its locking clip and
aspirating plunger in certain foreign countries participating in the Patent
Cooperation Treaty (Canada, Brazil, Mexico, certain European countries, Japan,
South Korea, China, Russia and Australia). However, patent applications filed in
foreign countries and patents granted in such countries are subject to laws,
rules and procedures that differ from those in the United States, and
accordingly, patent protection in such countries may be different from patent
protection provided by United States laws. In December 2003, to settle an
outstanding note with Syrinter, Ltd. (Switzerland), the Company assigned certain
patents for the 1cc auto-disabled syringe as in full payment of the note and
interest thereon. The Company in turn received relief from restrictive patent
payments and a perpetual license to exploit these patents provided manufacturing
occurs in the United States. In addition, the Company will continue to receive
15% of future royalties being earned from the licensing of these items.
Univec has registered trademarks UNIVEC(R), and Rx Ultra(R), Rx Plus, The
Univec Crest and the symbol representing no second use, (i.e., the number 2
crossed out inside of a circle), with the United States Patent and Trademark
Office.
In March 2001, Univec exercised an option to acquire a license of a
component for a period of the later of ten years or the expiration of the last
patent relating to the component and its improvements, with the right to
terminate the agreement if the Company fails to produce and ship at least ten
million of this component within three years. Univec is committed to pay a
royalty of $.001, per component sold, with an advance royalty fee of $15,000
previously paid. As of December 31, 2003, Univec has sold only an insignificant
amount subject to royalties under this agreement.
In July 2000, Univec received FDA approval of the sliding sheath syringe
and began to manufacture and market this product in 2001.
In August 2000, Univec entered into a licensing agreement providing for the
non-exclusive, worldwide use of Univec patents for the manufacturing, use and
marketing of its auto-disable syringes through the period any patents are still
in effect, providing for royalties on sales and for the sale of equipment
necessary to manufacture the product. In accordance with this agreement, Univec
has earned royalties of $109,690 and $128,677 for the years ended December 31,
2003 and 2002, respectively.
In 2003 the Company assigned certain patents to a creditor in payment of an
amount due and also assigned the future royalties under the auto-disable syringe
licensing agreement. The Company has licensed back the rights under these
patents to market and manufacture in North America.
Government Regulation
The manufacture and distribution of medical devices are subject to
extensive regulation by the FDA in the United States, and in some instances, by
foreign and state regulatory authorities. Pursuant to the Federal Food, Drug,
and Cosmetic Act, as amended, and the regulations promulgated there under
(collectively, the "FDC Act"), the FDA regulates the clinical testing,
manufacture, labeling, sale, distribution and promotion of medical devices.
Before a new device can be introduced into the market, a manufacturer must
obtain FDA permission to market through either the 510(k) pre-market
notification process or the costlier, lengthier and less certain pre-market
approval ("PMA") application process. With the 510(k) notification, the Company
may sell its 1cc locking clip syringe in the United States, subject to
compliance with other applicable FDA regulatory requirements. As a Class II
device, performance standards may be developed for the 1cc locking clip syringe
which the product would then be required to meet. Failure to meet standards for
effectiveness and safety could require the Company to discontinue the
manufacturing and/or marketing of the product in the United States. Furthermore,
5
manufacturers of medical devices are subject to record-keeping requirements and
required to report adverse experiences relating to the use of the device. Device
manufacturers are also required to register their establishments and list their
devices with the FDA and with certain state agencies and are subject to periodic
inspections by the FDA and certain state agencies.
Medical devices are subject to strict federal regulations regarding the
quality of manufacturing ("Good Manufacturing Practices" or "GMP"). GMP
regulations impose certain procedural and documentation requirements upon the
Company with respect to manufacturing and quality assurance activities. The FDA
conducts periodic audits and surveillance of the manufacturing, sterilizing and
packaging facilities of medical device manufacturers to determine compliance
with GMP requirements. These procedures may include a product recall or a "cease
distribution" order which would require the manufacturer to direct its
distributors and sales agents to stop selling products, as well as other
enforcement sanctions. Univec's manufacturing facilities have not been certified
as satisfying GMP requirements. Univec's facilities will be subject to extensive
audits in the future, pursuant to standard FDA procedure. No assurance can be
given that when the Company is audited that it will be found to be in compliance
with GMP requirements, or that if it is not found in compliance, what penalties,
enforcement procedures or compliance effort will be levied on or required of the
Company. To date, Univec has not been audited by the FDA. The FDA also has the
authority to request repair, replacement or refund of the cost of any device
manufactured or distributed by the Company, and the failure to meet standards
for safety and effectiveness could require the Company to discontinue marketing
and/or manufacturing its product in the United States.
The introduction of Univec's products in foreign markets will also subject
Univec to foreign regulatory clearances which may impose additional substantive
costs and burdens. International sales of medical devices are subject to the
regulatory requirements of each country. The regulatory review process varies
from country to country. Many countries also impose product standards, packaging
requirements, labeling requirements and import restrictions on devices. In
addition, each country has its own tariff regulations, duties and tax
requirements. Univec's products are required to satisfy international
manufacturing standards for sale in certain foreign countries. Univec's
Portuguese contract manufacturer received final ISO 9002 Certification in March,
1999.
Obtaining the ISO 9002 facilitates sales to certain export accounts,
particularly in Europe. Currently, sales to international relief agencies,
Univec's primary market, are not affected by ISO certification or other foreign
regulations other than those regulations which have been imposed by the
international relief agencies, with which Univec has been in compliance.
The approval by the FDA and foreign government authorities is unpredictable
and uncertain, and no assurance can be given that the necessary approvals or
clearances for the Company's products will be granted on a timely basis or at
all. Delays in receipt of, or a failure to receive, such approvals or
clearances, or the loss of any previously received approvals or clearances,
could have a materially adverse effect on the business, financial condition and
results of operations of the Company. Furthermore, approvals that have been or
may be granted are subject to continual review, and later discovery of
previously unknown problems may result in product labeling restrictions or
withdrawal of the product from the market. Moreover, changes in existing
requirements or adoption of new requirements or policies could adversely affect
the ability of Univec to comply with regulatory requirements. There can be no
assurance that Univec will not be required to incur significant costs to comply
with applicable laws and regulations in the future. Failure to comply with
applicable laws or regulatory requirements could have a materially adverse
effect on Univec's business, financial position and results of operations.
Research and Development
For the years ended December 31, 2003 and 2002, Univec expended $28,617 and
$45,873, respectively, on product development expenses.
Employees
As of May 4, 2004, Univec employed five persons, including three full time
in sales and marketing, one full time in financial administration, and one part
time in production. None of Univec's employees is covered by a collective
bargaining agreement.
As of May 4, 2004, PPSI had no employees, but utilizes outside marketing
representatives and consultants for marketing and employees of affiliated
companies, owned by a stockholder/officer of the Company, to provide certain
administrative services. These expenses, together with other expenses, have not
been allocated between these companies.
6
As of May 4, 2004 TWT utilizes the employees of Univec for sales and
marketing.
Item 2. Description of Property.
Univec occupies a production facility, warehouse, administrative, and
executive offices in Baltimore, MD (comprised of approximately 22,000 square
feet of space) pursuant to a lease that expires in July 15, 2004 with ten (10)
renewable one (1) year option terms which are automatically renewable by Univec.
Rental expense for the space is $72,000 per annum plus certain common charges
maintenance costs and real estate tax, subject to a maximum increase of 3% for
each three year term.
PPSI shares office space with affiliated companies, owned by the Chief
Executive Officer of Univec. The expenses of the space, together with other
expenses, that would be allocated to PPSI are insignificant.
Item 3. Legal Proceedings.
On July 17, 2003, the Company was advised that an employee who joined the
Company through the acquisition of Thermal Waste Technology, Jonathan Bricken
("Bricken"), had filed a claim for unpaid wages with the Connecticut Department
of Labor, Wage and Workplace Standards Division. The claim is in the amount of
approximately $200,000 for wages, plus approximately $12,000 related to health
and dental insurance premiums, plus interest. On March 29, 2004, case was
entered in the U. S. Dstrict Court for the District of Connecticut. The Company
has asserted defenses, as well as claims against Bricken, including a claim that
Bricken entered into one or more agreements with third parties on behalf of the
Company without notifying or obtaining the approval of either the Company's
President or Board of Directors, resulting in damages to the Company in excess
of the alleged liability to Bricken. The President of the Company and Bricken
met with the Connecticut Department of Labor in an effort to resolve the matter
without immediate success. Although negotiations are continuing, there is no
assurance that the matter will be resolved in the Company's favor. Litigation,
if necessary, would be adverse to the Company in light of our need for
short-term capital.
On March 10, 2004, Allegent Growth Strategies, L.L.C. ("Allegent") and the
Company entered a settlement agreement, related to (a) compensation for
acquisitions of PPSI and TWT and consulting services in the amount of $165,000
without interest payable in monthly installments until March 2007 plus (b)
718,750 warrants to purchase shares of the Company's common stock at $0.25 to
$0.29 per share through December 31, 2006.
In February 2000, a former consultant commenced an action against the
Company and its directors, Alleging breach of contract and fiduciary duty, and
is seeking consulting fees in the amount of: (1) 250,000 shares of common stock,
(2) $192,000 and (3) costs of this action. The Company and counsel do not
believe the consulting fees are due and will continue to vigorously defend this
action.
Item 4 Submission of Matters to Vote of Security Holders.
The Annual Meeting of Stockholders of Univec, Inc. for the year ended
December 31, 2002, was held on August 5, 2003, to consider and vote upon:
(i) a proposal to elect S. Robert Grass, Dr. David
Dalton, Joel Schoenfeld, Dr. Alan Gold, John Frank,
Richard Mintz, Dr. Andrew Rosenberg and William Wooldridge
as directors,
The number of votes cast for and against each of the foregoing proposals
and the number of abstentions are set forth below.
(i) Proposals to Elect Directors:
For Withhold Authority
S. Robert Grass 27,115,269 15,373
David Dalton 27,115,269 15,373
Joel Schoenfeld 27,115,269 15,373
Alan H. Gold, M.D. 27,115,269 15,373
John Frank 27,115,269 15,373
Richard Mintz 27,115,269 15,373
Andrew Rosenberg, M.D. 27,115,269 15,373
William Wooldridge 27,047,269 83,373
Item 5. Market for Common Equity and Related Stockholder Matters.
(a)(1) Prior to July 2, 1999, the Company's Common Stock and redeemable
Common Stock Purchase Warrants ("Warrants") traded on the Nasdaq SmallCap
Market. Following that date, the common stock and warrants have been quoted on
the OTC Bulletin Board under the symbols "UNVC" and "UNVCW", respectively.
Set forth below are the high and low closing sale prices for the Common Stock
and Warrants on the over-the-counter bulletin board from January 1, 2002 through
December 31, 2003 and the first quarter of 2004.
7
Common Stock Warrants
("UNVC") ("UNVCW")
-------------------------- -------------------------
Quarter Ended High Low High Low
-------------------------------------------------- ------------ ----------- ----------- -----------
March 31, 2002 $ 0.360 $ 0.190 None None
June 30, 2002 (a) $ 0.280 $ 0.120 None None
September 30, 2002 $ 0.150 $ 0.050
December 31, 2002 $ 0.080 $ 0.010
March 31, 2003 $ 0.070 $ 0.040
June 30, 2003 $ 0.010 $ 0.110
September 30, 2003 $ 0.260 $ 0.050
December 31, 2003 $ 0.140 $ 0.070
March 31, 2004 $ 0.090 $ 0.150
(a) Through April 2002, the expiration date of the warrants.
(2) As of December 31, 2003, there were 120 holders of record of the Common
Stock.
(3) During the fiscal year ended December 31, 2003, Univec sold
unregistered securities to a limited number of persons in transactions exempt
from the registration requirements of the Securities Act, as described below.
Except as indicated, there were no underwriters involved in the transactions,
and there were no underwriting discounts or commissions paid in connection
therewith. The purchasers of securities in each such transaction represented
their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the certificates for the securities issued in such
transactions. All purchasers of securities in each such transaction had adequate
access to information about Univec, and in the case of transactions exempt from
registration under Section 4(2) of the Securities Act, were sophisticated
investors.
1. During 2003, Univec converted 45 shares of Series B Preferred Stock to
1,843,322 common shares at $.10 per common share.
2. On August 30 2003, an independent investor bought 500,000 common shares
directly from Univec at $.04 per share.
3. On September 30, 2003, Univec issued 250,000 shares of common stock at $.02,
per share, the agreed value of the shares to an officer/director of Univec as
payment of $5,000 of notes payable.
3. On October 9, 2003, Univec converted 30 shares of Series E Preferred Stock to
340,909 common shares at $.09 per common share.
4. On December 11, 2003, a Company officer excercised 166,667 common stock
options at $.04 per share.
5. On December 11, 2003, Univec issued 194,805 shares of common stock to an
officer as payment of $15,000 of accrued salaries and notes payable.
6. On December 17, 2003, Univec issued 100,000 shares of common stock to a
vendor in exchange for consulting services rendered.
Item 6. Management's Discussion and Analysis
The following discussion and analysis should be read in conjunction with
Univec, Inc's ("Univec", "we" or "our"), consolidated financial statements,
including the notes thereto, appearing elsewhere in this report.
Results of Operations
Condensed Consolidated Results of Operations
2003 2002 Change
----------- ----------- ----------
Revenues $16,133,652 $2,887,510 (459)%
---------- ----------
Expenses:
Cost of Revenues 15,722,885 2,407,976 553%
Marketing and Selling
Expense 387,765 511,969 (24%)
Product Development 28,617 45,873 (38%)
General and
Administrative 1,478,913 973,826 52%
Interest Expense, Net 85,941 84,483 2%
Gain on Extinguishment
of Debt (24,872)
8
Forgiveness of
Deferred Payroll (429,150)
Litigation Settlement (202,385)
---------- ----------
Total Expenses (17,679,253) (3,392,592) 421%
---------- ----------
Net Loss $(1,545,601) $ (505,082) (206%)
========== ==========
As illustrated in the table above, overall revenues for the year ended
December 31, 2003 increased by $13,246,142 459% as compared to the previous
year. Product sales alone for the year ended December 31, 2003 showed an
increase of $13,256,101 (481%) as compared to the year ended December 31, 2002.
The commencement of group purchasing of pharmaceutical drugs (GPO) was
responsible for $14,743,440 of the increased sales during 2003.
The increase in demand for improved syringe technology may be the result
of the creation of the Immunization Safety Priority Project by the World Health
Organization. The program targets countries with the goal of establishing a
comprehensive system to insure the safety of all immunizations given in national
immunization programs. The Priority Project includes UNICEF, UNAIDS, the World
Bank, PATH, and the Bill and Melinda Gates Children's Vaccine Program and has
had a significant impact on the industry, professional organizations, and
procurement requirements of development agencies.
The Company is concentrating on sales of product and on licensing of the
technology of its sliding sheath syringe designed to protect health care workers
from accidental needle-stick injury. As a result of the Federal Needlestick
Safety and Prevention Law signed into law in November 2000, the Company
anticipates an increasing domestic market for the sliding sheath syringe. The
law revises the Bloodborne Pathogens Standard under the Occupational Safety and
Health Act of 1970 to include safer medical devices, such as syringes or sharps
with engineered sharps injury protections designed to eliminate or minimize
occupational exposure to bloodborne pathogens through needlestick injuries. It
requires certain parties to adopt plans and changes in technology that eliminate
or reduce exposure to needlestick injury. The effective compliance date for the
law was April 18, 2001, and the Company is expending additional sales resources
on this product.
Gross profit for the year ended December 31, 2003 decreased to 3% from 17% in
2002. Gross profit based on product sales for the year ended December 31, 2003
decreased to 2% from 5% as compared to 2002. Considered separately, gross profit
for each of the first three quarters of 2003 evidenced an unfavorable decrease,
resulting from the lower sales of our 1cc clip syringe and the lower gross
profit contribution from PPSI's GPO revenue. Further, as a result of the
previously mentioned relocation, gross profit on the Univec syringe sales
decreased approximately $445,606 (137%) from $324,748 (13%) to a gross loss of
$(145,857). The negative syringe gross profit is primarily the result of
continuing depreciation of $176,892 and non-variable overhead costs of $69,778.
We anticipate gross profit levels to remain at current levels unless we increase
our market penetration, increase our prices, product mix and/or realize
anticipated production or economic benefits as a result of our relocation.
Marketing and selling costs in 2003 decreased $124,200 (24%) from 2002. This
decrease is due to decreases in shipping costs, rent, and travel expenses,
marketing consulting costs offset primarily by increases in marketing
compensation costs. These compensation costs were incurred to generate new sales
contracts and to expand existing product markets.
Product development expense for the year ended December 31, 2003 decreased by
$17,256 (38%) as compared to 2002. This decrease was the result of decreased
expenditures for patent legal costs and product testing expense.
General and administrative expenses for the year ended December 31, 2003
increased $505,087 (52%) as compared to 2002. This increase is due primarily to
increases in GPO rebate costs, insurance, relocation costs expenses and
securities maintenance expenses offset in part by decreases in compensation.
Interest expense for the year ended December 31, 2003 increased by $1,458
(2%) as compared to 2002 primarily as a result of continuing reduced commercial
loan interest rates over the period.
The net loss for 2003 increased $1,040,519 (206%) as compared to 2002. This
increase was due in part to the nonrecurring benefit of 2002 forgiveness of
$429,150 deferred payroll and a litigation settlement amounting to $202,385.
Liquidity and Capital Resources
Univec's working capital deficit increased from $1,070,807 at December 31,
2002 to $2,399,823 at December 31, 2003, primarily resulting from increases in
accounts payable and accrued expenses of $1,204,702 and deferred payroll of
$536,933 offset in part by a $938,009 increase in accounts receivable. The
introduction of the GPO program was responsible for increases in accounts
payable and accrued expenses of $1,158,480 and also a $1,182,308 increase in
accounts receivable. As a result of the operating losses for the year 2003,
Univec is seeking additional debt financing.
9
Net cash used in operating activities increased by $29,545 to $326,146 from
$296,601 for the years ended December 31, 2003 and 2002, respectively, primarily
due to increases in the net loss and accounts receivable offset in part by an
increase in accounts payable and accrued expenses.
Net cash provided by investing activities increased by $103,975, primarily as
a result of the use of $80,226 for the nonrecurring investment in Thermal Waste
Technologies, Inc. in 2002.
Net cash provided by financing activities decreased by $214,926 to $250,708
from $465,634 for the years ended December 31, 2003 and 2002, respectively,
resulting from a reduction of proceeds from sales of securities of $230,000 and
loans payable of $67,998 and the payoff of the capitalized lease, offset in part
by an increase in borrowing from affiliated companies of $179,731.
The Company has continued to suffer from a serious shortage of working
capital, which has resulted in the Company's limited ability to market and sell
its products. The Company has recently received commitments to borrow an
aggregate of $1,000,000 from a city development agency, a state development
agency and a stockholder, which Univec believes will close in the near future,
although there is no assurance that the borrowings will occur.
With the proceeds from the above loans or other sources and our designation
as a minority business enterprise, we will be able to increase marketing of
safety syringes, the Demolizer and marketing services for pharmaceutical
companies. As a result of these actions, Univec's management anticipates that
operations will generate a positive cash flow in the year 2004, but there can be
no assurance this will occur.
Should the above financings not occur, we will continue to seek working
capital to finance our financial needs from either debt or equity financing to
enable us to implement our strategy. There is no assurance that any such
financings will be available to the Company or on terms we deem favorable. In
the event that the Company is unable to obtain any financing it may be forced to
initiate curtailment of portions of its business program. This could result in
material adverse effects on the future of the Company. The Chief Executive
Officer of the Company has committed to us that he will keep Univec operating
through January 1, 2005.
Significant Estimates
Univec's business plan upon acquiring PPSI and TWT was to fully utilize each
others capabilities to increase their sales and profitability. Although a
shortage of cash flow has slowed the plan, management has reviewed the carrying
amount of their goodwill and fixed assets. We have considered all the
circumstances, specifically the fair value based on current and anticipated
future undiscounted cash flows. In addition, as part of our relocation strategy,
various production equipment is being reevaluated. Management has estimated no
impairment loss is required at this time.
New Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying financial statements.
Major Customer
For the year ended December 31, 2003, our largest customer was a
company owned by our chief executive officer. We intend to reduce our reliance
on this customer through expanding sales to others.
Forward Looking Statements
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 Univec's 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 Univec's SEC reports and its Prospectus
dated April 24, 1997 (as supplemented by the Prospectus Supplement dated April
29, 1997) forming a part of its Registration Statement on Form SB-2 (File No.
333-20187), as amended, which was declared effective by the Commission on April
24, 1997.
Item 7. Financial Statements.
The financial statements follow Item 13 of this report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On November 1, 2002, the accounting firm of Most Horowitz & Company, LLP,
(Former Accountants) resigned as our principal accountants. For the year ended
December 31, 2001 and the interim period through the date the relationship
ended, there were no disagreements with Most Horowitz & Company, LLP on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedures.
10
Most Horowitz & Company, LLP 's report for the year ended December 31, 2001
contained no adverse opinion or disclaimer of opinion, nor was it qualified or
modified as to scope or accounting principles.
On November 1, 2002, we engaged the accounting firm of Most & Company, LLP as
our principal accountants to audit the financial statements for the year ended
December 31, 2002. The individual principal accountant who provided our
accounting services has left the former accountant and is with the successor
principal accountant.
The decision to engage Most & Company, LLP was approved by Univec's Board of
Directors.
A letter from the former principal accountant addressed to the Securities and
Exchange Commission stating that the former accountant agrees with the
statements made by Univec in this report is attached as an exhibit to Form
8-K/A.
Item 8A CONTROLS AND PROCEDURES
(a) Explanation of disclosure controls and procedures. The Company's chief
executive officer and its chief financial officer after evaluating the
effectiveness of the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14(c) and 15-d-14(c) as of a date within 90 days of the
filing date of the quarterly report (the "Evaluation Date") have concluded that
as of the Evaluation Date, the Company's disclosure controls and procedures were
adequate and effective to ensure that material information relating to the
Company and its consolidated subsidiaries would be made known to them by others
within those entities, particularly during the period in which this quarterly
report was being prepared.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
the Company's disclosure controls and procedures subsequent to the Evaluation
Date, nor any significant deficiencies or material weaknesses in such disclosure
controls and procedures requiring corrective actions. As a result, no corrective
actions were taken.
Item III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
Directors, Executive Officers and Key Employees
The directors, executive officers and key employees of Univec are as
follows:
Name Age Position
---------------- ----- ---------------------------------------
Dr. David Dalton 55 Chief Executive Officer, President and a Director
S. Robert Grass 70 Chairman of the Board of Directors
Alan Gold 55 Director
John Frank 64 Director
Richard Mintz 58 Director
Joel Schoenfeld 59 Director
William Wooldridge 59 Director
Raphael Langford 60 Chief Operating Officer and Vice President
Jon Bricken 49 Vice President
Michael Lesisko 54 Treasurer, Secretary and Chief Financial Officer
Dr. David Dalton assumed the position of President and Chief Executive
Officer of the Company on January 1, 2002, concurrent with the acquisition by
Univec, Inc. of Physician and Pharmaceutical Services, Inc. (PPSI), a Baltimore
based company founded by Dr. Dalton. Dr. Dalton has over 35 years experience in
the healthcare industry, including 18 years with Rite-Aid where he served as
Corporate Vice President.
Dr. Dalton founded Health Resources, Inc., in 1983, a pharmacy service
provider having contracts with over 50,000 retail pharmacies for billing and
payment of prescription orders through plan providers. HRI is recognized as one
of the leading Black Enterprises in the United States. Dr. Dalton also founded
Pharmacy Services, Inc., a pharmacy fulfillment center for correctional and
other institutions, with facilities in Maryland, Tennessee and Pennsylvania.
On March 15, 2002 S. Robert Grass was elected a director of Univec. He was
elected Chairman of the Board of Directors in May, 2002. Mr. Grass has been
associated with the pharmaceutical and medical device industry for over
thirty-two years. Mr. Grass developed a chain of pharmacies known as White
Shield Drugstores in Pennsylvania, serving as President, Chief Executive Officer
and Chairman of the Board from 1970 to 1996. Mr. Grass also served as Chief
Executive Officer and Chairman of the Board of Managed Care RX, a drug
fulfillment and mail order business from 1994 to 1999.
Joel Schoenfeld, the founder of Univec, had been Chief Executive Officer
of the Company from its inception in August 1992 until November 30, 1999, and
also served as Chairman of the Board of Directors until Dr. Alan Gold's election
to the position on March 18, 1999. Since November, 1999, Mr. Schoenfeld again
served as Chairman of the Board of Directors from November 1999 until May 2002.
Mr. Schoenfeld was the founder and President of J&B Schoenfeld, a global trading
company whose main focus was on the import, export and processing of pelts and
hides, specializing in trade with the USSR and Europe.
11
In 1988, Mr. Schoenfeld formed the American-Russian International Trading
Company ("AMRU"), which advised on trade agreements between the USSR and United
States. AMRU's broad base of interest and expertise enabled it to take on such
diverse projects as a joint venture with the Soviet government and military
known as AMRU-STAR, the representation of the Soviet Space Agency to Washington,
D.C., the introduction of western advertising to the USSR in conjunction with
another American company, Transportation Displays, Inc. ("TDI"), and the
construction of a studio producing children's films for international
distribution.
As a result of the political changes in the former USSR, Mr. Schoenfeld
sought to further his business strategies. In 1990, he founded Joel Schoenfeld &
Associates in Garden City, New York. With affiliate offices in Moscow, San Jose,
London, and Boston, to originate, structure, capitalize, negotiate and advise on
the implementation of import and export trade transactions, projects and
programs.
Mr. Schoenfeld has been a commercial attache and a consultant to a
number of foreign and multinational governments. Recently, Mr. Schoenfeld was an
advisor to United Nations Development Programs ("UNDP"). Previously, he served
as:
o Senior Advisor to the Costa Rican Ambassador to the United Nations
o Senior Advisor and Coordinator, Chief of Staff to the Chairman of the
Committee of States Parties to the International Covenant on Civil and
Political Rights to the United Nations
o Senior Economic and Trade Advisor to the United Nations Commission on
Transnational Corporations
Mr. Schoenfeld was named in February, 1999 in an indictment filed in
the United States District Court for the Southern District of Ohio, Western
Division. The indictment alleges that Mr. Schoenfeld engaged in certain improper
activities in connection with a commercial transaction in 1991. In February
2001, a motion to dismiss was filed and Mr. Schoenfeld believes the court will
dismiss the indictment.
Alan H. Gold, M.D., served as Chief Executive Officer of Univec from
November 30, 1999 until December 31, 2001, and a Director of the Company since
inception in August 1992. Prior to November, 1999, Dr. Gold served as President
of the Company since July 1996, and as Chairman of the Board of Directors since
March 18, 1999 to November 1999. On March 15, 2002 Dr. Gold was elected
Secretary of Univec. Dr. Gold has been a plastic surgeon since 1972, and is
currently
in private practice.
John Frank has been a consultant to Univec in the areas of corporate
development and strategic planning since its inception in August 1992 until
November 1, 2001. Mr. Frank served as Chief Information Officer of The Hartford
Steam Boiler Inspection and Insurance Co. from August, 1996 through February,
2000, and as Vice President, Strategy and Corporate Development from February,
2000 until his retirement in November 2001. Mr. Frank is currently
self-employed as a consultant.
From October 1994 to August 1996, he was Special Projects Manager for
Electronic Data Systems Corporation. From August 1993 to September 1994, he was
the chief auditor of Travelers Insurance Companies. From September 1991 to July
1993, he was a principal of Lipera Frank Inc., of which he was a co-founder.
From January 1982 to September 1991, Mr. Frank was a partner of Coopers &
Lybrand, where he managed strategic planning and financial management
engagements for Fortune 500 clients. Mr. Frank is a CPA.
Richard Mintz has been a director of Univec since March 18, 1999.
Mr. Mintz is also President of Peristaltic Technologies, Inc., a manufacturer
of medical infusion pumps and plastic disposable catheters, and formerly Vice
President and General Manager of A.K. Allen & Co., Inc./Allen Avionics, Inc., a
manufacturer of electronic components and fluid power products, positions he
held for more than the past five years.
William Wooldridge has been a director since August 5, 2003. Mr.
Wooldridge is a recognized and respected entrepreneur. He is the founder of
MedEcon, Inc. one of the largest group purchasing organizations in the United
States. Over a twenty-eight year period he has developed a corporation with
medical portfolio sales in excess of $3.5 billion. In 1999, Mr.Wooldridge formed
OrderButton.Net, a new web-based transaction processing service that facilitates
the establishment of merchant sites on the internet. Since 2002, Mr. Wooldridge
has been developing a franchised, non-traditional based photography company.
Dr. Andrew Rosenberg voluntarily resigned as a director of Univec on
February 9, 2004.
12
Raphael Langford became Chief Operating Officer and a Vice President on
April 22, 2003. Prior to joining Univec, Mr. Langford was the Executive Director
of the National Foundation for Women Legislators. He was also formerly
co-founder and president Of Olympic International Trading Corporation, an
exporter of raw materials to third world countries. Mr. Langford has held upper
level management positions in distribution production and operations for fortune
500 corporations.
Jon Bricken became a Vice President of Univec on February 28, 2002. Mr
Bricken previously served as president and chief operating officer of Thermal
Waste Technology, Inc. since its inception in 1997. From 1992 to 1997, Mr.
Bricken expanded the technology used in the demolizer waste disposal process.
Michael Lesisko, a certified public accountant, was named as Chief
Financial Officer of Univec on September 9, 2002. Mr. Lesisko was named
Treasurer and Secretary of Univec on February 11, 2003. From June 1996 to
September 2002 Mr. Lesisko was a CPA in public practice. He served as Vice
President of Finance of CarrerCom Corporation and Subsidiaries from November
1988 to May 1996. Prior thereto, he served as a partner with KPMG Peat Marwick
from July 1982 to August 1988, where he managed financial audits and a diverse
tax practice.
All directors hold office until the annual meeting of stockholders of
the Company following their election or until their successors are duly elected
and qualified. Officers are appointed by the Board of Directors and serve at its
discretion.
Meetings of the Board of Directors and Information Regarding Committees
The Board of Directors has two standing committees, an Audit Committee and
a Compensation Committee. On August 5, 2003, Mr. John Frank, William Wooldridge
and Dr. Andrew Rosenberg were elected to the Audit Committee. The duties of the
Audit Committee include recommending the engagement of independent auditors,
reviewing and considering actions of management in matters relating to audit
functions, reviewing with independent auditors the scope and results of its
audit engagement, reviewing reports from various regulatory authorities,
reviewing the system of internal controls and procedures of Univec, and
reviewing the effectiveness of procedures intended to prevent violations of law
and regulations. The Audit Committee held two meetings in 2003. On August 5,
2003, Mr. S. Robert Grass, Dr. Alan Gold and Dr. Andrew Rosenberg were elected
to the Compensation Committee. There was one meeting of the Compensation
Committee in 2003.
The Board of Directors held five meetings in 2003, which included special
telephonic meetings in addition to one Unanimous Written Consent. All Directors
attended at least 75% of the total number of Board meetings and meetings of
committees on which they served during the period they served thereon during
2002.
Section 16(a) Beneficial Ownership Reporting
Section 16(a) of the Securities Exchange Act of 1934 requires Univec's Officers,
Directors and persons who own more than ten percent of a registered class of
Univec's equity securities within specified time periods to file certain reports
of ownership and changes in ownership with the Securities and Exchange
Commission (the "Commission"). Officers, Directors and ten percent stockholders
are required by regulation to furnish Univec with copies of all Section 16(a)
forms they file. Based solely on a review of Copies of such reports received by
Univec and written representations from such persons concerning the necessity to
file such reports, Univec is not aware of any failures to file reports or report
transactions in a timely manner during the fiscal year ended December 31, 2003.
Item 10. Executive Compensation.
The following table sets forth the compensation awarded to, earned by or
paid to Univec's Chief Executive Officer and each other executive officers of
the Company whose salary and bonus for the two years ended December 31, 2003
exceeded $100,000.
Annual Compensation Long-Term Compensation
------------------------ -----------------------
Other Annual Securities
Name and Principal Position Year Salary Compensation Underlying Options
-------------------------------------------------------------------------------------------------
Dr. David Dalton 2002 $ 150,000(1) -
2,000,000(1)
Chief Executive Officer and
President
2003 $ 360,000(2) - 1,000,000(2)
Jonathan Bricken 2002 $ 121,156 - None
Vice President
2003 $ 129,969 - None
13
(1) Dr. David Dalton became Univec's Chief Executive Officer and President
on January 1, 2002. During 2002, he earned a salary of $150,000, plus
life, health and disability insurance, as well as an automobile lease
and insurance allowance equal to $12,000 per year. Dr. Dalton forgave
compensation of $50,000 and all of his benefits during 2002. His
employment agreement granted an option to purchase 2,000,000 shares of
common stock.
(2) During 2003, Dr. David Dalton earned a salary of $360,000, plus life,
health and disability insurance, as well as an automobile lease and
insurance allowance equal to $24,000 per year. He was granted an option
to purchase 1,000,000 shares of common stock on April 21, 2003.
Employment Agreements
Dr. David Dalton provides the amount of time necessary to perform his
corporate duties. Dr Dalton's salary was $360,000 for 2003, plus a bonus
determined by the agreement of Dr. Dalton and the Compensation Committee. On
each January 1, the base salary will be increased by an amount agreed upon by
Dr. Dalton and the Compensation Committee. The agreement also provides Dr.
Dalton with an option to purchase 2,000,000 shares of Common Stock at an
exercise price of $.24 per share, vesting 500,000 shares on the first
anniversary of the agreement, and an additional 41,667 shares vesting each month
following the initial vesting date. The unexpired term of the agreement will be
extended automatically by one year on each January 1 following the date of the
agreement, such that the unexpired term of the agreement will at all times not
be less than two years following each extension. The agreement provides for
payment by Univec of annual premiums on a term life insurance policy with a face
amount of $2 million. The agreement also provides for health and disability
benefits, as well as an automobile lease and insurance allowance equal to
$24,000 per year. Under the terms of the agreement, Dr. Dalton is entitled to a
severance payment equal to his highest annual base salary during the term for
the remainder of the term if the agreement is terminated by Dr. Dalton for good
reason, or in the event of a change in control of Univec.
Stock Options
The following table contains information concerning the grant of stock
options to Dr. David Dalton ( the "Named Executive Officer") during the fiscal
year ended December 31, 2003.
Number of Shares Percent of Total Options
Underlying Options Granted to Employees in Exercise Price Expiration
Name Granted Fiscal Year Per Share Date
---- ------- ----------- --------- ----
Dr. David Dalton 1,000,000 48% $0.04 April 21, 2008
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
The following table summarizes for Dr. Dalton the total number of
shares acquired upon exercise of options during the year ended December 31,
2003, and the value realized (fair market value at the time of exercise less
exercise price), the total number of unexercised options, if any, held at
December 31, 2003, and the aggregate dollar value of in-the-money, unexercised
options, held at December 31, 2003. The value of the unexercised, in-the-money
options at December 31, 2003, is the difference between their exercise or base
price, and the fair market value of the underlying Common Stock on December 31,
2003. The closing bid price of the Common Stock on December 31, 2003 was $0.12.
Value of Unexercised
Shares Acquired Upon Number of Securities In-The-Money
Exercise of Options Underlying Unexercised Options at
During Fiscal 2003 Options at December 31, 2003 December 31, 2003
------------------ ---------------------------- -----------------
Name Number Value Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------ -------------- ----------- ------------- ----------- -------------
Dr. David Dalton None None 2,000,000 1,000,000 None $40,000
Certain Transactions
In June, 2002, Joel Schoenfeld, the former Chief Executive Officer of
the Company and former Chairman of the Board of Directors, forgave deferred
compensation of $379,150.
In June, 2002, Dr. David Dalton, President and Chief Executive Officer
and Director forgave deferred compensation of $50,000.
On October 7, 2002 the Board of Directors authorized the issuance of
500,000 shares of common stock of the Company to S. Robert Grass, Chairman of
the Board of Directors in discharge of a note payable of $10,000.
14
At December 31, 2003, the following Deferred Payroll was payable to
executive officers and other employees:
David Dalton, Chief Executive Officer and President $480,000
Jonathan Bricken, Vice President 177,573
Raphael Langford, Chief Operating Officar 54,441
Michael Lesisko, Secretary - Treasurer 46,462
-------
758,476
Other employees 164,423
-------
$922,899
=======
On October 7, 2002, the Board of the Company of Directors authorized
the issuance of 5000,000 shares of common stock to S. Robert Grass, Chairman of
the Board of Directors in discharge of a note payable of $10,000.
On August 5, 2003, the Board of the Company of Directors authorized the
issuance of 250,000 shares of common stock to Richard Mintz, a Director of the
Company, at $0.02 per share in discharge of a note payable of $5,000. A loan
balance of $10,000 remains utstanding.
At December 31, 2003, notes payable to companies owned by David Dalton,
President, amounted to $235,734. These loans are the result of providing working
capital
to the Company.
At December 31, 2003, notes payable to David Dalton, President amounted
to $98,000 and notes payable to S. Robert Grass, Chairman of the Board of
Directors amounted to $101,300. These amounts were advanced to the Company at
terms and rates similar to commercial bank provisions. The funds were provided
to the Company for working capital operating needs.
On February 5, 2004, the Series E preferred stockholder exchanged 50
preferred shares plus $1,170 accrued dividends for 799,371 shares of Common
Stock at $0.064 per share
On February 15, 2004, two executive officers exchanged a combined
$50,000 of accrued Payroll for 500,000 common shares at $0.10 per share. These
exchanges were authorized by the Company's Board of Directors on August 5, 2003.
On April 16, 2004, the Company's Chief Executive Officer exchanged
$108,104 of employment Contract benefits for 1,403,948 common shares at $0.077
per share. This exchange was authorized by the Company's Board of Directors on
August 5, 2003.
Change in Control
As a result of the acquisition by the Company of Physician and
Pharmaceutical Services, Inc. ("PPSI") on December 31, 2001, Dr. David Dalton
became President, Chief Executive Officer and a Director of the Company and
received 2,567,000 shares of common stock and an option to purchase an
additional 3,955,000 shares at a purchase price of $0.01 per share, which option
he exercised on January 8, 2002. Following the exercise of the option, Dr.
Dalton owned 6,522,000 shares, over 43% of the outstanding common stock, and
became the Company's largest stockholder.
On October 7, 2002, Dr. David Dalton acquired an additional
10,672,500 shares of common stock in exchange for $213,450 of indebtedness
relating to advances made by Dr. Dalton during the first five months of 2002 to
fund the Company's working capital needs. As a result of these transactions, Dr.
Dalton beneficially owns a total of 17,694,500 shares, representing over 51% of
the outstanding common stock.
Under a voting agreement entered into with certain stockholders of
the Company (the "Univec Stockholders"), including the then officers and
directors of the Company, in connection with the acquisition of PPSI, the Univec
Stockholders agreed to vote their shares in favor of the election to the Board
of Dr. Dalton and a designee of Dr. Dalton, and in the event the Company
receives a cumulative investment of at least $1,500,000 through Dr. Dalton's
relationships and contacts, as such consideration is determined in the good
faith discretion of the Board, Dr. Dalton shall have the right to designate two
additional members of the Board, one of which would replace an existing
Director. Dr. Dalton has not exercised this right to designate Directors for
this proxy. Dr. Dalton and the Univec Stockholders also agreed to vote their
shares on all other matters in accordance with the recommendation of a majority
of the Board. The voting agreement terminates on December 31, 2011, or earlier
upon the termination of Dr. Dalton's employment by the Company without due cause
or by Dr. Dalton for good reason.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information concerning the
beneficial ownership of the Common Stock as of April 30, 2004 by (i) each
stockholder known by the Company to be a beneficial owner of more than five
percent of the outstanding Common Stock, (ii) each director of the Company and
each Named Executive Officer and (iii) all directors and officers as a group.
15
Amount and Percentage of Common
Nature of Beneficial Stock Beneficially
Name Ownership(1) Owned (2)
------------------------------------------------ ---------------------------- -----------------------
David Dalton (4)............................... 20,848,450 (5) 50.70% (6)
Joel Schoenfeld(4) ............................ 4,639,869 (7) 11.94% (8)
Jon Bricken (4)................................ 2,585,460 (13) 6.24% (14)
Alan H. Gold, M.D.(4) ......................... 1,292,889 (7)(9) 3.30% (10)
John Frank(4) ................................. 905,139 (11) 2.31% (12)
S. Robert Grass(4)............................ 851,951 (18) 2.08% (19)
Richard Mintz(4).............................. 318,000 .82% (15)
Raphael Langford(4).............................. 894,446 (16) 2.27% (17)
Michael Lesisko(4).............................. 889,251 (20) 2.26% (21)
All directors and executive officers as a group
(11 persons) .................................. 33,189,455(3)(22) 73.10% (23)
* Less than 1%
(1) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated, subject to community property
laws, where applicable. For purposes of computing the percentage of
outstanding shares held by each person or group of persons named above as
of April 30, 2004, any security which such person or group of persons has
the right to acquire within 60 days after such date is deemed to be
outstanding for the purpose of computing the percentage ownership for such
person or persons, but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person.
(2) Except as otherwise stated, calculated on the basis of 38,871,795 shares of
Common Stock issued and outstanding on April 30, 2004.
(3) For purposes of this calculation, shares of Common Stock beneficially owned
by more than one person have only been included once.
(4) Address is c/o the Company, 4810 Seton Drive , Baltimore, Maryland 21215.
(5) Includes 2,250,002 shares issuable upon exercise of presently exercisable
options.
(6) Calculated on the basis of 41,121,797 shares of Common Stock issued and
outstanding.
(7) All of the shares owned by Dr. Gold have been pledged to secure certain
indebtedness to Joel Schoenfeld. Dr. Gold retains voting and dispositive
power with respect to the pledged shares until the occurrence of a default
in the payment of the indebtedness secured by the pledged shares.
Accordingly, the pledged shares have been included in the number of shares
beneficially owned by Dr. Gold and excluded from the number of shares
beneficially owned by Mr. Schoenfeld.
(8) Calculated on the basis of 38,871,795 of Common Stock issued and
outstanding.
(9) Includes 330,000 shares issuable upon exercise of presently exercisable
options.
(10) Calculated on the basis of 39,201,795 shares of Common Stock issued and
outstanding.
(11) Includes 300,000 shares issuable upon exercise of presently exercisable
options.
(12) Calculated on the basis of 39,171,795 shares of Common Stock issued and
outstanding.
(13) Includes 2,585,460 shares issuable upon exercise of presently exercisable
options.
(14) Calculated on the basis of 41,457,255 shares of Common Stock issued and
outstanding.
(15) Calculated on the basis of 38,871,795 shares of Common Stock issued and
outstanding.
(16) Includes 477,779 shares issuable upon exercise of presently exercisable
options.
(17) Calculated on the basis of 39,349,574 shares of Common Stock issued and
outstanding.
(18) Includes 312,501 shares issuable upon conversion of Series D Preferred
Stock.
17
(19) Calculated on the basis of 39,184,296 shares of Common Stock issued and
outstanding.
(20) Includes 444,446 shares issuable upon exercise of presently exercisable
options.
(21) Calculated on the basis of 39,316,241 shares of Common Stock issued and
outstanding.
(22) Includes 6,700,188 shares issuable upon exercise of presently exercisable
options. See footnotes (8)(9) and (13).
(23) Calculated on the basis of 45,571,983 shares of Common Stock issued and
outstanding.
Item 12. Certain Relationships and Related Transactions
During 2003, Univec received a line of credit from Dr. David Dalton,
President and Chief Executive Officer, and S. Robert Grass, Chairman of the
Board of 2%, per annum. This line of credit was issued under the same terms as
an underlying line of credit which Dr, Dalton and Mr. Grass received from a
commercial bank. As of December 31, 2003, the outstanding balance of this loan
was $196,000.
During February 2004, Univec borrowed $50,000 from Mr. S. Robert Grass,
Chairman of the Board of Directors, repayable on demand at prime plus 2%, per
annum.
During the years ended December 31, 2003 and 2002, Univec has borrowed an
aggregate of $233,839 from Pharmacy Services, Inc., Health Resources, Inc. and
other companies all owned by Dr. David Dalton, President and Chief Executive
Officer. These loans are repayable on demand at 6%, per annum. At December 31,
2003 and 2002, the aggregate balance outstanding was $233,839 and $35,645,
respectively.
During 2003, Pharmacy Services, Inc., a company owned by Dr. David Dalton,
President and Chief Executive Officer, purchased $14,743,440 from PPSI's GPO.
PPSI shares office space and other administrative expenses with affiliated
companies owned by Dr. David Dalton, the Chief Executive Officer of Univec.
These expenses have not been allocated between the companies, but PPSI's portion
would be insignificant.
Item l3. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Description
----------- ------------
2.1(1) Stock Purchase Agreement and Plan of Reorganization made and entered
into as of December 31, 2001, by and among Physician and Pharmaceutical
Services, Inc. ("PPSI"), the stockholder of PPSI and the Registrant.
2.2(2) Stock Purchase Agreement made and entered into as of February 28, 2002,
by and among Thermal Waste Technologies, Inc. ("TWT"), the stockholders of TWT
and the Registrant.
3.1(4) Restated Certificate of Incorporation of the Registrant, as amended.
3.2(3) By-laws of the Registrant, as amended. 4.1(3) Agreement and Plan of
Merger dated as of October 7, 1996 between the Registrant and UNIVEC,
Inc., a New York corporation.
4.3(3) Form of warrant between the Registrant and the underwriters of the
Registrant's initial public offering.
4.4(3) Specimen Common Stock Certificate.
4.5(3) Specimen Warrant Certificate (included as Exhibit A to Exhibit 4.3
herein).
4.6(3) Registration Rights Agreement among Registrant and the holders
of bridge warrants.
4.7(5) Certificate of Designation of Series B Preferred Stock. 4.8(6)
Certificate of Amendment of Certificate of Designation of Series B
Preferred Stock.
4.9(5) Form of Warrant Agreement dated July 27, 1998, between Company and
selling securityholder.
4.10(6) Form of Amended and Restated Warrant Agreement, amending and restating
the Warrant Agreement dated July 27, 1998, between the Company and the
selling securityholder.
4.11(5) Registration Rights Agreement dated July 27, 1998, between the
Company' and selling securityholder.
4.12(6) Registration Rights Agreement, dated February 8, 1999, between the
Company and the selling securityholder.
4.13(6) Certificate of Designation of Series C Preferred Stock. 4.14(6) Form
of Warrant Agreement dated February 8, 1999. between the Company
and selling securityholder.
10.1(3) Amended 1996 Stock Option Plan of the Registrant.
10.2(7) 1998 Stock Option Plan of the Registrant.
10.3(8) 2000 Stock Option Plan of the Registrant.
18
10.4(7) Employment Agreement dated as of September 4, 1998 between the
Registrant and Joel Schoenfeld.
10.5(9) Patent License Agreement dated August 16, 2000 by and between the
Company and Terumo Europe, NV.
10.6(9) Manufacturing Agreement dated August 16, 2000, by and between the
Company and Terumo, N.V.
10.7(9) Equipment Purchase Agreement dated August 16, 2000, by and between
the Company and Terumo Europe, N.V.
10.10(9) Employment Agreement dated as of January 1, 2002, between the
Registrant and David L. Dalton.
10.11(10)Employment Agreement dated as of December 31, 2001, between the
Registrant and Joel Schoenfeld.
21.1(3) List of Subsidiaries.
23.1(10) Consent of Most Horowitz & Company, LLP as Independent Accountants.
99.1(10) Statement of the Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
99.2(10) Statement of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(1) Incorporated by reference to the Registrant's Form 8K filed January
4, 2002.
(2) Incorporated by reference to the Registrant's Form 8K filed March 11,
2002.
(3) Incorporated by reference from the Registrant's Registration
Statement on Form SB-2 (File No. 333-20187) declared effective on
April 24, 1997.
(4) Incorporated by reference from the Registrant's Periodic Quarterly
Report on Form 10-QSB for the fiscal quarter ended September 30,
2000.
(5) Incorporated by reference from the Registrant's Registration
Statement on Form S-3 (File No. 333-62261) declared effective
December 11, 1999.
(6) Incorporated by reference from Amendment No. 2 to the Registrant's
Registration Statement Form 10-S-3 (File 333-74199).
(7) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the year ended December 31, 1998 (File No. 0-22413).
(8) Incorporated by reference from the Registrant's Post-Effective
Amendment No 1 on Form S-2 to Form S-3 (File No. 333-74199) declared
effective on January 26, 2001.
(9) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the year ended December 31, 2000 (File No. 0-22413).
(10) Filed herewith.
(b) Reports on Form 8-K filed during the fourth quarter 2003.
No Forms 8-K were filed during the fourth quarter 2003.
Item 14. Principal Accountant Fees and Services.
The following table presents the cost of Univec's principal accountants'
fees and services for the years ended December 31, 2003 and 2002, respectively:
2003 2002
-------- --------
Audit fees $98,794 $ 99,559
Audit related fees - -
Tax fees 14,199 14,179
All other fees - -
-------- --------
Total $112,993 $113,738
======== ========
Univec's Audit Committee pre-approves the engagement of the principal
accountant and the estimated audit fee, by each catagory.
19
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 12, 2004
UNIVEC, INC.
By: s/ Dr. David Dalton
--------------------------------
Dr. David Dalton
Chief Executive Officer
(Principal Executive Officer)
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant on May
12, 2004 in the capacities indicated.
Signatures Title
--------- -------
/s/ Dr. David Dalton Chief Executive Officer and a Director
------------------------ (Principal Executive Officer)
Dr. David Dalton
/s/ Michael Lesisko Chief Financial Officer, Treasurer, Secretary
------------------------
Michael Lesisko
/s/ S. Robert Grass Chairman and a Director
------------------------
S. Robert Grass
/s/ John Frank Director
------------------------
John Frank
/s/ Richard Mintz Director
------------------------
Richard Mintz
/s/ Dr. Alan Gold Director
-----------------------
Dr. Alan Gold
/s/ Joel Schoenfeld Director
----------------------
Joel Schoenfeld
/s/ William Wooldridge Director
------------------------
William Wooldridge
20
UNIVEC, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND FOR THE TWO YEARS THEN ENDED
Index to Consolidated Financial Statements
Page
----------
Report of Independent Accountants ....................... F--2
Consolidated Balance Sheet - December 31, 2003 F--3
Consolidated Statements of Operations - years ended
December 31, 2003 and 2002 ................................. F--4
Consolidated Statements of Stockholders' Equity - years
ended December 31, 2003 and 2002 ........................... F--5 to F--6
Consolidated Statements of Cash Flows - years ended
December 31, 2003 and 2002 ................................. F--7
Notes to Consolidated Financial Statements .................. F--8 to F--15
F-1
Report of Independent Accountants
To the Board of Directors and Stockholders of Univec, Inc.:
We have audited the accompanying consolidated balance sheet of Univec, Inc. and
Subsidiaries as of December 31, 2003 and the related consolidated statements of
operations, stockholders' equity and cash flows for the two years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Univec,
Inc. and Subsidiaries as of December 31, 2003 and the consolidated results of
their operations and their consolidated cash flows for the two years then ended
in conformity with accounting principles generally accepted in the United
States.
New York, New York /s/ Most & Company, LLP
April 23, 2004 -------------------------------
Most & Company, LLP
F-2
Univec, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, 2003
ASSETS
Cash .............................................................$ 11,821
Accounts receivable................................................1,273,322
Inventories .........................................................291,715
Other current assets .............................................. 147,635
------------
Total current assets .............................................1,724,493
Fixed assets, net ...................................................633,536
Goodwill...........................................................2,328,662
Other assets..................................................... .....6,000
------------
Total assets.....................................................$4,692,691
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses ............................$2,571,527
Due to affiliated companies......................................... 235,734
Deferred payroll - officers..........................................922,899
Notes and loans payable - current....................................177,663
Loans payable - officers/directors...................................216,493
---------
Total current liabilities ........................................4,124,316
Notes and loans payable............................................ 505,739
----------
Total Liabilities.................................................4,630,055
-----------
Commitments and contingencies (Notes 2,7 and 10)
Stockholders' equity
Preferred stock $.001 par value; 3,743,500 shares authorized;
none issued and outstanding ...............................
Series D 5% cumulative convertible preferred stock $.001 par
value; authorized: 1,250,000 shares; issued and outstanding:
104,167 shares (aggregate liquidation value: $274,236)................104
Series E 5% cumulative convertible preferred stock $.001 par
value; authorized: 2,000 shares; issued and outstanding: 492
shares (aggregate liquidation value: $501,652)..........................1
Common stock $.001 par value; authorized: 75,000,000 shares;
issued and outstanding: 35,168,476 shares .........................35,169
Additional paid-in capital.......................................10,506,007
Accumulated deficit ............................................(10,478,645)
------------
Total stockholders' equity ......................................... 62,636
------------
Total liabilities and stockholders' equity .....................$ 4,692,691
============
See notes to consolidated financial statements.
F-3
Univec, Inc. and Subsidiaries
Consolidated Statements of Operations
Years ended December 31, 2003 and 2002
2003 2002
---------- --------
Revenues $ 16,133,652 $ 2,887,510
------------ -----------
Expenses
Cost of revenues 15,722,885 2,407,976
Marketing and selling 387,769 511,969
Product development 28,617 45,873
General and administrative 1,478,913 973,826
Interest expense, net 85,941 84,483
Gain on extinguishment of debt (24,872)
Settlement of litigation (202,385)
Forgiveness of deferred payroll (429,150)
----------- ----------
Total expenses 17,679,253 3,392,592
----------- ----------
Net loss (1,545,601) (505,082)
Dividends attributable to preferred stock (39,025) (153,262)
................... ----------- ----------
Loss attributable to common stockholders $(1,584,626) $ (658,344)
................... =========== ===========
Share information
Basic loss per common share $ (.05) $ (.03)
................... =========== ===========
Basic weighted average number of
common shares outstanding 33,751,508 19,420,961
=========== ===========
See notes to consolidated financial statements.
F-4
Univec, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Years ended December 31, 2003 and 2002
Series A Preferred Series B Preferred Series C Preferred Series D Preferred
------------------ ------------------ ------------------ ---------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------- ------ ------- ------ -----
Balance, January 1, 2002 2,072 $ 2 198.5 $ 1 250 $ 1
Common stock issued for
Notes and accounts payable
Loans payable - officers/directors
Conversion of Series A
and options (1,948) (1)
Conversion of Series B (31.5)
Acquisition of subsidiary
Exercise of options by officer
Exercise of options
Issuance of Series D 104,167 $104
Net loss
------- ------ ------ ------ ------ ------ -------- ----
Balance, December 31, 2002 124 1 167 1 250 1 104,167 104
Exchange of Series B
and C for Series E (122) (1) (250)
(1)
Common stock issued for
Cash
Consulting fees
Loans payable - officers/directors
Adjustment to conversion of Series
A and options (124) (1)
Conversion of Series B (45)
Conversion of Series E
Exercise of options by officer
Options issued
Net loss
------- ------ ------ ------ ------ ------ -------- ----
Balance, December 31, 2003 - $ - - $ - - $ - 104,167 $104
======= ====== ====== ======= ====== ====== ======== ====
F-5
Series E Preferred Common Stock Additional Total
------------------ --------------- Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
-------- -------- -------- -------- ----------- ------------ ------------
Balance, January 1, 2002 10,524,573 $ 10,525 $ 9,246,152 $(8,338,255) $ 918,426
Common stock issued for
Notes and accounts payable 512,236 511 71,576 72,087
Loans payable - officers/directors 11,172,500 11,173 212,277 223,450
Conversion of Series A
and options 4,009,000 4,009 (4,008)
Conversion of Series B 949,464 950 (950)
Acquisition of subsidiary 620,000 620 481,620 482,240
Exercise of options by officer 3,955,000 3,955 35,594 39,549
Exercise of options 30,000 30 4,470 4,500
Issuance of Series D 249,896
250,000
Net loss ( 505,082) (505,082)
------------- -------- ------------ ------------- ------------
Balance, December 31, 2002 31,772,773 31,773 10,296,627 (8,843,337) 1,485,170
Exchange of Series B
and C for Series E
522 1 89,708 (89,707)
Common stock issued for
Cash 500,000 500 19,500 20,000
Consulting fees 100,000 100 9,900 10,000
Loans payable - officers/directors 444,805 444 49,556
50,000
Adjustment to conversion of Series
A and options 1
Conversion of Series B 1,843,322 1,843 (1,843)
Conversion of Series E
(30) 340,909 341 (341)
Exercise of options by officer 166,667 167 6,500 6,667
Options issued 36,400 36,400
Net loss (1,545,601) (1,545,601)
------- ------ ------------- -------- ---------- ------------- ----------
Balance, December 31, 2003
492 $ 1 35,168,476 $ 35,169 $ 10,506,007 $ (10,478,645) $ 62,636
======= ====== ============= ======== =========== ============== ===========
See notes to consolidated financial statements.
F-6
Univec, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
Years ended December 31, 2003 and 2002
2003 2002
---------- --------
Cash flows from operating activities
Net loss $ (1,545,601) $ (505,082)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 193,161 230,684
Write-down of inventories 45,000
Stock based compensation 76,400
Forgiveness of deferred payroll (429,150)
Gain on extinguishment of debt (24,872)
Write off of accounts payable (111,339)
Changes in assets and liabilities, net of effects from
acquisition
Accounts receivable (938,009) 329,555
Inventories 128,413 29,722
Other current assets and other assets 7,727 36,108
Accounts payable and accrued expenses 1,204,702
(173,194)
Deferred payroll - officers 536,933 296,095
Escrow deposits (10,000)
------- --------
Net cash used in operating activities (326,146) (296,601)
------------ ------------
Cash flows from investing activities
Investment in TWT (net of cash acquired of $31
and notes payable of $37,888 and $60,000) (80,226)
Purchase of fixed assets (1)
(23,750)
------------ -----------
Net cash used in investing activities (1) (103,976)
------------ -----------
Cash flows from financing activities
Proceeds from sale of securities 20,000 250,000
Proceeds from loans payable - officers/directors 228,160 247,450
Proceeds from loans payable 178,452 246,450
Proceeds from exercise of options 39,549
Increase in due from affiliated companies 200,089 20,358
Proceeds from notes and loans payable (226,954) (214,486)
Payments of capitalized lease obligations (149,039) (99,687)
Payments of loans payable - officers/directors (24,000)
---------- ----------
Net cash provided by financing activities 250,708 465,634
---------- ----------
Net (decrease) increase in cash (75,439) 65,057
Cash, beginning of period 87,260 22,203
__________ __________
Cash, end of period $ 11,821 $ 87,260
========= ==========
Supplemental disclosure of cash flow information
Cash paid for interest $ 97,338 $ 77,877
Supplemental disclosures of noncash activity
Common stock issued for acquisition $ 482,241
Common stock issued in payment of
loans payable - officers/directors $ 20,000 $ 223,450
Common stock and options issued in payment of debts $ 72,087
Options issued in payment of loan payable $ 4,500
Exchange of Series B and C to Series E, including
dividends (Note 8) $ 89,807
Conversion of Series A and options to common (Note 8) Conversions of Series
B, C, and E to common (Note 8)
See notes to the consolidated financial statements.
F-7
Univec, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Operations
Univec, Inc. (Company) produces, licenses and markets medical products,
primarily syringes, on a global basis. Physician and Pharmaceutical Services,
Inc. (PPSI), a subsidiary, provides pharmaceutical sample and group purchasing
services of pharmaceutical products. Thermal Waste Technologies, Inc. (TWT), a
subsidiary, markets a medical waste disposal unit.
2. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Physician and Pharmaceutical Services, Inc.
(PPSI), Thermal Waste Technologies, Inc. (TWT) and Rx Ultra, Inc. (inactive).
All material intercompany balances and transactions have been eliminated.
Accounts Receivable
Accounts receivable consisted of receivables from customers. The Company
records a provision for doubtful receivables, if necessary, to allow for any
amounts which may be unrecoverable and is based upon an analysis of the
Company's prior collection experience, customer creditworthiness, and current
economic trends. As of December 31, 2003, no allowance was necessary.
Inventories
Inventories are valued at the lower of cost, determined by the first-in,
first-out method, or market.
Fixed Assets
Fixed assets are stated at cost, less accumulated depreciation, and are
depreciated on a straight-line basis over the estimated useful lives of the
asset. Maintenance and repairs are charged to expense as incurred; renewals and
improvements which extend the life of assets are capitalized. Upon retirement or
disposal, the asset cost and related accumulated depreciation and amortization
are eliminated from the respective accounts and the resulting gain or loss, if
any, is included in the results of operations.
The carrying value of fixed assets is evaluated whenever changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. If necessary, the Company recognizes an impairment loss for the
difference between the carrying amount of the assets and their estimated fair
value. Fair value is based on current and anticipated future undiscounted cash
flows.
Goodwill
Goodwill represents the excess purchase prices paid by the Company over the
fair value of the tangible and other intangible assets and liabilities at the
dates of acquisitions. Goodwill is not being amortized, but instead will be
subject to an annual assessment of impairment by applying a fair-value based
test. The Company evaluates the carrying value of goodwill as of December 31 of
each fiscal year. As part of the evaluation, the Company compares the carrying
value of each goodwill with its fair value to determine whether there has been
impairment. If projected future cash flows indicate that goodwill will not be
recovered, an adjustment is made to reduce the goodwill to an amount consistent
with projected future cash flows discounted at the Company's incremental
borrowing rate. Cash flow projections, although subject to a degree of
uncertainty, are based on trends of historical performance and management's
estimate of future performance, considering existing and anticipated competitive
and economic conditions. As of December 31, 2003, the Company does not believe
any impairment of goodwill has occurred.
Shipping Income and Expense
Shipping income is included in product sales. Shipping expenses are included
in marketing and selling.
F-8
Product Development
Research and development costs have been expensed as incurred.
Income Taxes
Deferred income taxes have been provided for temporary differences between
consolidated financial statements and income tax reporting on the liability
method.
Basic Loss per Share
Basic net loss per common share was computed based on the weighted average
number of common shares outstanding during the year. Dilutive net loss per share
has not been presented as they are antidilutive.
Revenue Recognition
Product sales are recognized when products are shipped. Although the Company
and TWT warrant their products, they are unable to estimate the future costs
relating to warranty expense and, as such, recognize warranty expenses as
incurred. Revenues for PPSI's group purchasing service are recognized when the
products are shipped.
Stock Based Compensation
Compensation cost for stock, stock options, warrants, etc., issued to
employees and non-employees is based on the fair value method.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Values
The carrying amounts of cash, accounts receivable, accounts payable and
accrued expenses, notes and loans payable and deferred payroll approximate their
fair values.
New Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying financial statements.
F-9
3. Inventories
Inventories consisted of the following:
Raw materials $ 103,009
Work-in-process 106,474
Finished goods 82,232
---------
$ 291,715
=========
4. Fixed Assets
Fixed assets consisted of the following:
Estimated
useful lives
in years
-------------
Equipment ............................. 7 $1,567,407
Office equipment and furniture................. 7 56,660
Furniture and fixtures 5 14,101
---------
1,638,168
Less accumulated depreciation ................. 1,004,632
---------
$ 633,536
===========
During the year ended December 31, 2003, the Company made the final
payment of their previously capitalized lease of equipment and then purchased
the equipment for $1.
Depreciation expense was $193,161 and $230,684 in 2003 and 2002,
respectively.
As of December 31, 2003, the Company has evaluated the carrying value
of the equipment of $630,229 and, based on management's review of the
circumstances, has determined that no impairment has incurred.
5. Notes and Loans Payable
As of December 31, 2003, notes and loans payable consisted of:
Loan payable to a vendor without specific
payment terms or interest (1)..............................$ 211,852
Loan payable to a vendor without specific
payment terms or interest................................... 151,164
Notes payable on August 14, 2005, with interest
at 8%, per annum ............... .... ....... .............. 85,000
Loan payable to a former officer on demand, with
interest at 6%, per annum .................................. 12,248
Notes payable to a shareholder's trusts on
April 2004, with interest at 12%, per annum ................ 27,000
Note payable to a vendor .......................... 104,395
Notes payable on June 2004, with interest at 10%,
per annum ....................................... 60,000
Notes payable to finance insurance March to May 2004,
with interest at 7.16% to 8.74% per annum ................ 31,743
--------
683,402
Less: Current portion of notes and loans payable.............. 177,663
--------
$505,739
=========
(1) Subject to forgiveness upon the vendor's sale of shares of the
Company's common stock.
F-10
6. Income Taxes
The Company files consolidated income tax returns with its subsidiaries.
Prior to their acquisitions, PPSI and TWT were S Corporations.
For the years ended December 31, 2003 and 2002, the Company's deferred tax
benefits (expenses) were as follows:
2003 2002
----------- -----------
Net operating loss carryforwards $200,000 $ 200,000
Depreciation 140,000 92,000
Goodwill (59,000) ( 41,000)
Compensation 200,000 50,000
Valuation allowance (481,000) (301,000)
---------- ------------
None None
========== ============
As of December 31, 2003, the tax effects of the components of deferred tax
assets and liabilities were as follows:
Deferred tax assets
Net operating loss carryforwards $4,085,000
Compensation 350,000
-------
Total deferred tax asset 4,435,000
Deferred tax liabilities
Goodwill (100,000)
Depreciation (53,000)
-------
Net deferred tax asset 4,282,000
Valuation allowance (4,282,000)
---------
None
============
As of December 31, 2003, realization of the Company's net deferred tax asset
of approximately $4,282,000 was not considered more likely than not and,
accordingly, a valuation allowance of $4,282,000 was provided.
The following is a reconciliation of expected income tax benefit utilizing
the Federal statutory tax rate to income tax benefit reported on the statement
of operations.
2003 2002
----------- ----------
Expected income tax benefit .............................................. $ (280,000) $(167,000)
Change in valuation allowance arising in current year .................... 481,000 283,000
State income tax benefit, net of federal income tax effect ............... ( 75,000) (40,000)
Other .............................................. ..................... (126,000)
(76,000)
----------- ----------
None None
=========== ===========
As of December 31, 2003, the Company had net operating loss carryforwards
of approximately $11,4000,000 available to reduce future taxable income expiring
through 2023, which may be limited due to ownership changes.
F-11
7. Commitments and Contingencies
Lease
The Company is committed under a noncancelable lease for production,
storage and office space through June 2005. The lease provides for minimum
annual rent of $72,000, additional rents for the Company's share of normal
maintenance plus its pro-rata share of real estate taxes and nine one year
renewals at the Company's option.
Total rent expense for 2003 and 2002 was $77,439 and $75,854, respectively.
Employment Agreements
On January 1, 2002, the Company entered into an employment agreement with
the chief executive officer, through January 2005, requiring annual compensation
to be determined annually by the officer and Company. Annually, the agreement
shall automatically renew for one year, resulting in a new three year term each
January 1. For the year ended December 31, 2003, the compensation was $360,000.
The agreement also provides for bonuses, as determined by the officer and
Company, an automobile allowance (of $24,000, per annum, for 2004) and life,
disability and health insurance. For the years ended December 31, 2003 and 2002,
the officer has deferred his salary. In addition, the officer was granted
options to purchase 2,000,000 shares of common stock exercisable at $.24, per
share, through 2012. The options vest 25% on January 1, 2003 and 41,667 during
each subsequent month.
On February 28, 2002, the Company entered into an employment agreement with
another officer through February 2005, requiring annual compensation of
$125,000, with annual increases of no less than 10%, per annum. The agreement
also provides for an automobile allowance of $12,000, per annum, and life,
disability and health insurance. In addition, the officer was granted options to
purchase 1,400,000 shares of common stock exercisable at $.27, per share,
through 2012. The options vest 25% on February 28, 2003 and 29,167 during each
subsequent month.
Financial Consulting Agreement
In December 2003, the Company entered into an agreement for financial advice
and support, in exchange for 100,000 common shares of the Company, $7,500 in
cash and $5,000, per month, through the expiration of the agreement in December
2004. The shares were valued at $10,000. The agreement also provides for
additional contingent compensation of up to 350,000 shares of common stock of
the Company and cash of $20,000 upon achieving certain financial related
objectives and 8% and 3% of equity or debt financings, respectively.
F-12
8. Stockholders' Equity
Common Stock
In October 2002, the Company issued 11,172,500 shares of common stock
to two officers/directors of the Company in exchange for $223,450 of notes
payable.
During the year ended December 31, 2003, the Company issued an
aggregate of 444,805 shares of common stock to a stockholder and an officer in
payment of notes and loans and deferred payroll of $20,000 and compensation of
$30,000.
In August 2003, the Company sold 500,000 shares of common stock for
$20,000.
In December 2003, an officer exercised options to purchase 166,667
shares of common stock for $6,667.
Preferred Stock
During the years ended December 31, 2002 and 2003, a director of the
Company exchanged 1,948 and 124 shares, respectively, of Series A preferred
stock, cumulative dividends thereon and the cancellation of options to purchase
5,858,858 shares of common stock for 4,009,000 shares of common stock.
During the year ended December 31, 2002, 31.5 shares of Series B were
converted into 949,464 shares of common stock at prices of $.0525 to $.15, per
share. During the year ended December 31, 2003, 45 shares of Series B were
converted into 1,843,322 shares of common stock at prices of $.0163 to $.0325,
per share.
In February 2002, the Company designated 1,250,000 shares of Series D 5%
Cumulative Convertible Preferred Shares (Series D), which are entitled to
receive, prior to the payment of dividends to the common stock, cumulative
dividends of 5%, per share, per annum. The Series D stock may be redeemed at the
option of the Company, at $2.40, per share. In addition, Series D stockholders
are entitled to a liquidation preference of the redemption price of $2.40, per
share, plus accrued and unpaid dividends. Each share of Series D is initially
convertible into 3 shares of common stock.
In March 2002, the Company issued 104,167 shares of Series D Preferred in
exchange for $250,000.
In August 2003, the Company designated 2000 shares of Series E 5%
Cumulative Convertible Preferred Shares (Series E), which are entitled to
receive, prior to the payment of dividends to the Series D and common stock,
cumulative dividends of 5%, per share, per annum. The Series E stock may be
redeemed at the option of the Company, in cash, at 135% of the stated value, per
share, plus all unpaid and accrued dividends. In addition, Series E stockholders
are entitled to a liquidation preference of $1,000, per share, plus all unpaid
and accrued dividends. Each share of Series E is convertible into shares of
common stock at the lesser of $1.10 or 80% of market value, as defined. In
August 2006, the Company is required to convert all the Series E into common
stock at the conversion price, unless the holder becomes a 5% or greater
stockholder. The Company may redeem the Series E in cash at $1,350, per share,
plus all accrued and unpaid dividends, as defined.
On August 5, 2003, the Company exchanged 122 shares of Series B and 250
shares of Series C, all the outstanding shares, for 522 shares of Series E.
In October 2003, 30 shares of Series E were converted into 340,909
shares of common stock at $.09, per share.
Holders of preferred shares have no voting rights.
As of December 31, 2003, cumulative dividends in arrears on preferred stock
were:
Series D $ 24,236
Series E 9,652
--------
$ 33,888
========
Warrants
The Company's redeemable warrants and underwriters warrants expired in
April 2002 and April 2003, respectively, without being exercised.
Non Plan Options
Through June 30 2002, the Company granted options to purchase 790,625 shares
of common stock exercisable at $.24, per share, through January 2012 to a
financial consultant.
During the year ended December 31, 2002, a vendor exercised options to
purchase an aggregate of 30,000 shares of common stock at $.15, per share, as
payment of a loan payable to the vendor.
F-13
During the year ended December 31, 2003, the Company issued options to
purchase an aggregate of 6,200,000 shares of common stock of the Company to
officers, directors and others. The options are exercisable at $.04 to $.25, per
share, through various dates until November 2008 and were valued at $36,000.
Certain of these options to officers vest over three years.
During 2003, options to purchase 1,763,941 shares of common stock expired
without being exercised.
Reserved Shares
As of December 31, 2003, the Company has reserved shares of common stock as
follows:
Non-plan options and warrants 11,238,728
Options under the Plans 1,335,000
Series D conversions 312,501
Series E conversions(a) 4,180,433
Litigation reserve 250,000
----------
17,316,662
==========
(a) assumes conversions as of December 31, 2003 at $.12, per share.
9. Stock Option Plans
The 1996 Stock Option Plan (Plan) is administered by the Board of Directors
or a committee thereof and options to purchase 4,709,219 shares of common stock
may be granted under the Plan to directors, employees (including officers) and
consultants to the Company. The Plan authorizes the issuance of incentive stock
options (ISO's), as defined in Section 422A of the Internal Revenue Code of
1986, as amended, and non-qualified stock options (NQSO's). Consultants and
directors who are not also employees of the Company are eligible for grants of
only NQSOs. The exercise price of each ISO may not be less than 100% of the fair
market value of the common stock at the time of grant, except that in the case
of a grant to an employee who owns 10% or more of the outstanding stock of the
Company or a subsidiary or parent of the Company, the exercise price may not be
less than 110% of the fair market value on the date of grant. The aggregate fair
market value of the shares covered by ISO's granted under the Plan that become
exercisable by a Plan participant for the first time in any calendar year is
subject to a $100,000 limitation. The exercise price of each NQSO is determined
by the Board, or committee thereof, in its discretion; provided that NQSO's
granted a 10% Stockholder be no less than 110% of the fair market value on the
date of grant.
Under the 1998 Stock Option Plan (98 Plan), the Company may grant options to
purchase 300,000 shares of common stock to employees, directors, independent
contractors and consultants of the Company. The 98 Plan is similar to the Plan
and authorizes the issuance of ISO's, NQSO's and Stock Appreciation Rights.
Under the 2000 Stock Option Plan (2000 Plan), the Company may grant options
to purchase 2,000,000 shares of common stock to employees, directors,
independent contractors and consultants of the Company. The Plan includes
options to purchase an addition 250,000 shares of common stock, reserved for an
Industrial and Scientific Advisory Committee to be formed as necessitated by the
Company.
F-15
The following table summarizes the activity of the Plans for 2003 and 2002.
2003 2002
------------------------------- ------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ----------- --------- ------------
Options outstanding, beginning of year ........... 2,569,000 $1.20 5,414,000 $1.35
Granted .......................................... None None
Canceled, exercised, expired or exchanged ........ (1,234,000) $1.74 (2,845,000) $1.41
---------- -------------- ----------- ------------
Options outstanding, end of year ................. 1,335,000 $0.70 2,569,000 $1.20
========== ============== =========== ============
Options exercisable, end of year ................. 1,335,000 $0.70 2,504,000 $1.24
========== ============== ========== ============
Options available for grant, end of year ......... 1,050,000 1,845,219
========== ==========
Weighted-average fair value of options granted
during the year ................................. $.00 $.00
========== ==========
The following table summarizes information about stock options outstanding
under the Plan at December 31, 2003:
Weighted
Average Weighted
Remaining Average
Range of Outstanding Contractual Exercisable Exercisable
Exercise Prices Options Life (Years) Options Price
--------- ---------- ---------- ---------- ----------
$3.50 65,000 3.50 65,000 $3.50
$2.00 70,000 4.00 70,000 $2.00
$0.675 650,000 1.50 650,000 $0.675
$0.50 100,000 7.25 100,000 $0.50
$0.24 35,000 9.00 35,000 $0.24
$0.20 60,000 2.75 60,000 $0.20
$0.15 355,000 6.34 355,000 $0.15
----------- ---------- ------------ ----------
$0.15 to $3.50 1,335,000 3.70 1,335,000 $0.70
=========== ========== ============ ==========
10. Litigation
In December 2003, the Company assigned certain of their patents, earned
royalties of $72,125 and 85% of all future royalties being earned from these
patents in payment of a note payable and interest thereon for an aggregate of
$99,434, in settlement to a collection matter. The Company recognized a $24,872
gain upon extinguishment of the debt. The Company in turn received relief from
the restrictive patent payments and a perpetual license to exploit, market and
manufacture these patents in North America. As the value of the license received
could be determined, no value was assigned to them.
In April 2003 and March 2004, an officer of the Company commenced actions
against the Company for unpaid compensation of $220,000. The Company has
asserted defenses and counterclaims against the officer. All amounts claimed
were accrued as incurred. If there is a judgment against the Company, it would
not be in be excess of amounts accrued.
In March 2004, the Company settled a collection matter with a former
consultant in the amount of $165,000, payable in varying amounts through March
2007 and options to purchase 359,375 shares of common stock of the Company, all
of which have been accrued as of December 31, 2003.
In February 2000, a former consultant commenced an action against the
Company and its directors, Alleging breach of contract and fiduciary duty, and
is seeking consulting fees in the amount of: (1) 250,000 shares of common stock,
(2) $192,000 and (3) costs of this action. The Company and counsel do not
believe the consulting fees are due and will continue to vigorously defend this
action.
F-16
11. Revenues
Sales of Technology
Through September 1, 2003, the Company licensed the non-exclusive, worldwide
use of the Company's patents for the manufacture, use and marketing of its
auto-disable syringes providing for royalties on sales.
Foreign Sales
During the years ended December 31, 2003 and 2002, foreign revenues were
$484,950 and $2,246,262, respectively.
F-14
12. Concentrations
From time to time, the Company maintains cash in financial institutions in
excess of insured limits. In assessing its risk, the Company's policy is to
maintain funds only with reputable financial institutions.
During 2003 revenues from one customer, a company owned by the president of
the Company, was approximately 91% of total product sales. As of December 31,
2003, this customer accounted for 91% of total accounts receivable.
During 2003 and 2002, purchases from one supplier and three suppliers were
approximately 93% and 76% of total purchases, respectively. As of December 31,
2003, accounts payable to three vendors were 52% of total accounts payable.
13. Due to Affiliated Companies
Due to affiliated companies, owned by the chief executive officer of
the Company, on demand, with interest at 6%, per annum.
14. Loans Payable - Officer/Directors
As of December 31, 2003, loans payable - officer/ directors consisted
of:
Note payable to the chief executive officer and the chairman of the
board of the Company, due on demand, with interest at prime, plus 2%,
per annum. (1) $196,000
Note payable to a director 10,000
Others 10,493
------
$216,493
(1) The same terms as an underlying borrowing from a bank and collateralized by
certain equipment
15. Acquisition of Thermal Waste Technologies, Inc.
On February 28, 2002 the Company acquired all of the outstanding shares of
Thermal Waste Technologies, Inc. (TWT). As a result of the acquisition, the
Company has an additional product line and increased sales.
The aggregate purchase price was $660,386, consisting of 620,000 shares of
common stock, warrants to purchase 1,080,145 shares of common stock of the
Company, the assumption of notes payable of $60,000 and expenses of $118,145.
The warrants are exercisable at $.01, per share, through February 2012. The
notes are payable in June 2004 and interest is payable quarterly at 10%, per
annum. Included in expenses were $37,888 to a company owned by two former
officers of the Company. The value of the common shares and warrants issued were
determined based on the market price of the Company's common shares on the date
of the acquisition, less the exercise price of the warrants.
The acquisition was accounted for under the purchase method of accounting as
required under the recently issued Statement of Financial Accounting Standards
No. 141, Business Combinations. Under purchase accounting, the total purchase
price was allocated to the tangible and intangible assets and liabilities of TWT
at their respective fair values as of the closing date, based on preliminary
valuations. The estimated fair values of the assets acquired and liabilities
assumed were as follows:
Cash $ 31
Accounts receivable 2,424
Inventory 52,068
Other current asset 89,582
Fixed Assets 39,944
Goodwill 554,543
Accounts payable and accrued expenses (73,841)
Other current liabilities (4,365)
-----------
$ 660,386
F-15
The operations of TWT after February 28, 2002 have been included in the
statement of operations.
16. Subsequent Events
Common Stock
In February 2004, 50 shares of Series E and accrued dividends
thereon of $1,160 were converted into 799,371 shares of common stock at $.06,
per share.
In February 2004, the Company issued 500,000 shares of common stock
to two officers of the Company in exchange for $50,000 of compensation.
In April 2004, the Company issued 1,403,948 shares of common stock
to an officer/director of the Company in exchange for benefits not taken of
$108,104.
Due to Affiliated Companies and Officers
Subsequent to December 31, 2003, the Company borrowed an addition
$70,000 from the affiliated companies.
In February 2004, the Company borrowed $50,000 from an officer of the
Company, payable on demand, with interest at prime, plus 2%,per annum.
Financing
The Company has obtained a commitment from a city development agency
and a state development agency to borrow an aggregate of $500,000, payable in
equal monthly installments over five years, with interest at 4%, per annum. The
proceeds shall be used to purchase equipment of at least $400,000, which shall
be collateral under the loans. The Company shall also provide a $200,000 standby
letter of credit as additional collateral.
As required under the loans, the Company has obtained a line of credit
from a stockholder of the Company in the amount of $500,000. Loans under the
line bear interest at 12%, per annum, and may be converted to a term loan or
into common stock at $.11, per share, as defined. Also, all loans from
stockholders shall be subordinated.
F-16