UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2004
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No Fee Required)
For the transition period from ______ to ________
Commission File Number: 0-22413
UNIVEC, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3163455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) (Identification No.)
4810 Seton Drive, Baltimore, MD 21215
(Address of principal executive offices)
(410) 347-9959
(Issuers telephone number)
(Former name, former address, and former fiscal year,
if changed since last report)
As of May 18, 2004, the Issuer had 37,871,795 shares of Common Stock, $0.001 par
value, outstanding.
Transitional Small Business Disclosure Format:
Yes No X
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UNIVEC, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
PART 1 FINANCIAL INFORMATION
ITEM 1 CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEET - March 31, 2004 3
CONSOLIDATED STATEMENT OF OPERATIONS - Three
months ended March 31, 2004 and 2003 4
CONSOLIDATED STATEMENT OF CASH FLOWS - Three
months ended March 31, 2004 and 2003 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS 8
ITEM 3 CONTROLS AND PROCEDURES 11
PART II OTHER INFORMATION 12
ITEM 2 CHANGES IN SECURITIES 12
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES
PART I
FINANCIAL INFORMATION
Item 1: Consolidated Financial Information
UNIVEC, Inc. and Subsidiaries
Consolidated Balance Sheet (Unaudited)
March 31, 2004
ASSETS
Current assets
Cash $ 852
Accounts receivable 1,472,635
Inventories 295,248
Other current assets 124,888
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Total current assets 1,893,623
Fixed assets, net 587,598
Goodwill 2,328,662
Other assets 6,000
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Total assets $ 4,815,883
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued expenses $ 2,762,038
Deferred payroll - officers 1,064,292
Loans payable - officers/directors 270,493
Notes and loans payable - current 166,376
Due to affiliated companies 328,017
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Total current liabilities 4,591,216
Notes and loans payable 497,033
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Total liabilities 5,088,249
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STOCKHOLDERS' DEFICIT
Preferred stock $.001 per value; 3,743,500 shares
authorized; none issued and outstanding
Series D 5% cumulative convertible preferred stock,
$.001 par value; authorized: 1,250,000; issued and
outstanding: 104,167 shares (aggregate liquidation
value: $277,361) 104
Series E 5% cumulative convertible preferred stock,
$.001 par value; authorized: 2,000 shares; issued
and outstanding: 442 shares (aggregate liquidation
value: $507,802) 1
Common stock $.001 par value; authorized: 75,000,000
shares; issued and outstanding: 37,871,795 37,872
Additional paid-in capital 10,661,408
Accumulated deficit (10,971,751)
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Total stockholders' deficit (272,366)
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Total liabilities and stockholders' deficit $ 4,815,883
============
See notes to the consolidated financial statements.
3
UNIVEC, Inc. and Subsidiaries
Consolidated Statement of Operations (Unaudited)
Three months ended March 31,
----------------------------
2004 2003
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Revenues $ 4,226,857 $ 2,251,616
Expenses
Cost of revenues 4,186,571 2,067,738
Marketing and selling 124,138 136,866
Product development 846 4,693
General and administrative 434,071 231,812
Interest expense, net 14,377 23,816
Gain on extinguishment of debt (40,040)
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Total expenses 4,719,963 2,464,925
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Net loss (493,106) (213,309)
============ =============
Dividends attributable to preferred stock (9,275) (10,255)
Loss attributable to common stockholders $ (502,381) $ (223,564)
============ =============
Share information:
Basic net loss per share $ (.01) $ (.01)
============ =============
Basic weighted-average number of
shares outstanding: 35,331,157 32,847,588
=========== =============
See notes to the consolidated financial statements.
4
UNIVEC, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
Three months ended March 31,
----------------------------
2004 2003
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Cash flows from operating activities
Net loss $(493,106) $(213,309)
Adjustments to reconcile net loss to net cash
used in operating activities
Stock based compensation 108,104
Depreciation 45,938 51,402
Gain on extinguishment of debt (40,040)
Changes in assets and liabilities, net of
effects from acquisition
Accounts receivable (199,313) 171,462
Due from factor (48,125)
Inventories (3,533) 5,648
Other current assets and other assets 28,332 24,605
Accounts payable and accrued expenses 228,872 (50,359)
Deferred payroll - officers 191,393 116,296
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Net cash (used in) provided by
operating activities (133,353) 57,620
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Cash flows from financing activities
Increase in due to affiliated companies 92,283
Proceeds from loans payable -
officers/directors 54,000 5,019
Payments of notes and loans payable (23,899) (77,026)
Payments of capitalized lease obligations (36,250)
Proceeds from notes and loans payable 18,200
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Net cash provided by (used in) financing
activities 122,384 (90,057)
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Net decrease in cash (10,969) (32,437)
Cash, beginning of period 11,821 87,260
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Cash, end of period $ 852 $ 54,823
========== ==========
See notes to the consolidated financial statements.
5
UNIVEC, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
1. Nature of Operations
Univec, Inc. (Company) produces and markets medical products,
primarily syringes, on a global basis. Physician and Pharmaceutical Services,
Inc. (PPSI), a subsidiary, provides group purchasing services of
pharmaceutical products. Thermal Waste Technologies, Inc. (TWT), a subsidiary,
markets a medical waste disposal unit.
2. Summary of Significant Accounting Policies
Financial Statements
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial statements and with the rules and
regulations of the Securities and Exchange Commission for Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
of the consolidated financial position, results of operations and cash flows for
the interim periods presented have been included. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements of Univec, Inc. together with the Company's Management's Discussion
and Analysis included in the Company's Form 10-KSB for the year ended December
31, 2003. Interim results are not necessarily indicative of the results for a
full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Net Loss Per Share
Basic net loss per share was computed based on the weighted-average number
of common shares outstanding during the three months ended March 31, 2004 and
2003. Dilutive net loss per share has not been presented because it was
anti-dilutive.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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.
6
3. 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 deferred 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.
4. Related Party Transactions
For the three months ended March 31, 2004, sales to a company owned by the
president of the Company was approximately 99% of total sales, and as March 31,
2004, accounts receivable from this customer was approximately 97% of total
accounts receivable.
5. 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 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 to the loans
from the development agencies loans.
7
Item 2. Management's Discussion and Analysis
Results of Operations
Condensed Consolidated Results of Operations
Three months ended
March 31,
-----------------------
2004 2003 Change
----------- ----------- -------
Revenues $4,226,857 $ 2,251,616 88%
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Expenses
Cost of Revenues 4,186,571 2,067,738 102%
Marketing and Selling 124,138 136,866 (9%)
Product Development 846 4,693 (82%)
General and
Administrative 434,071 231,812 87%
Interest Expense, Net 14,377 23,816 (40%)
Gain on Extinguishment
of Debt (40,040)
----------- ----------
Net Loss $ (493,106) $(213,309) (131%)
=========== ==========
As illustrated in the table above, overall revenues for the three
months ended March 31, 2004 increased by $1,975,241 (88%) as compared to the
comparable period ended March 31, 2003. Product sales alone for the three months
ended March 31, 2004 showed an increase of $1,983,321 (88%) as compared to the
three months ended March 31, 2003. The commencement of group purchasing of
pharmaceutical drugs (GPO),
which commenced during the three months ended March 31, 2003 was responsible for
substantially all of the increase in sales during the first quarter of 2004.
Sales of new products, including the sliding sheath syringe, medical
disposal units (Demolizer) and PPSI's GPO, comprised 99% of the total sales for
the three month period ending March 31, 2004.
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.
8
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 blood borne 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 three months ended March 31, 2004 decreased to 1%
from 8% realized during the three months ended March 31, 2003. The reduced gross
profit is primarily due to 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 reported relocation from New York to Maryland, gross profit on the
Univec syringe sales decreased $98,060 (110%) from $89,547 (20%) to a gross loss
of $(8,513). The lack of syringe gross profit is primarily the result of
non-variable overhead costs of $7,763. 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.
As a result of the acquisitions of PPSI and Thermal Waste Technologies,
Inc. ("TWT"), we have broadened our product bases and we anticipate increases in
sales on a period by period basis if we can increase our market penetration.
Marketing and selling costs for 2004 decreased $12,728 (9%) over the
comparable three month period ended March 31, 2003 as a result of limited funds
available to carry out marketing activities.
Product development expense decreased as the Company continues to focus
on marketing and sales of existing products rather than product development.
Product development expense will continue to remain relatively low.
General and administrative costs for the three month period ended March
31, 2004 increased $202,259 (87%) resulting primarily from the Company's charge
to operations for the cost of certain employee benefits which were waived in a
prior year by an officer and paid in the current period by the Company.
Interest expense, net, decreased by $9,439 (40%) during the three
months ended March 31, 2004 from the comparable period in 2003, primarily due to
no factoring in 2004.
Net loss for the three month period ended March 31, 2004 increased by
$279,797 (131%) as compared to the three month period ended March 31, 2003.
Without considering the gain on extinguishment of debt, the net loss increased
by $319,837 (150%). The increase in net loss was primarily related to the
reduction in gross profit of $143,592 and the additional payment of benefits of
$119,568.
9
Liquidity and Capital Resources
The working capital deficit of $2,399,823 at December 31, 2003, increased to
a deficit of $2,697,593 (12%) at March 31, 2004, primarily from net increases in
accounts payable and accrued expenses, additional borrowings and increased
deferred compensation, partially offset by an increase in accounts receivable.
The introduction of the GPO program was responsible for these increases in
accounts payable and accrued expenses and accounts receivable.
Net cash used in operating activities increased by $190,973 (331%) to
$133,353 for the three months ended March 31, 2004 from the comparable period in
2003 primarily due to the increased net loss and an increase in accounts
receivable, offset in part by the increases in accounts payable and accrued
expenses and deferred payroll.
Net cash provided by financing activities increased by $212,441 (236%) to
$122,384 for the three months ended March 31, 2004 from ($90,057) used during
the three months ended March 31, 2003. This increase resulted from new
borrowings of $123,000 and decreases in payments of borrowings of approximately
$89,000.
Although revenue increased as a result of the 2004 PPSI GPO operations for
the entire quarter and with our continued marketing and sales of existing safety
syringes
and the Demolizer, we still continue 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 very 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. The relatively low trading price and volume
of the common shares hampers our ability to raise equity capital. 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 April 1, 2005.
10
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 3. Controls and Procedures.
Based on their evaluation required by Rule 13a-15(b) or 15d-15(b) under the
Securities and Exchange Act of 1934 (the "Exchange Act"), management, including
the Chief Executive Officer and Chief Financial Officer, concluded that our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act) were effective as of the end of the period covered by
this report.
11
PART II
OTHER INFORMATION
Item 2. Changes in Securities
In February 2004, the Company issued 799,371 shares of common stock
upon the conversion of 50 shares of Series E and accrued dividends thereon of
$1,160 at $.06, per share.
In February 2004, the Company issued 250,000 shares of common stock to
each of Mr. Michael Lesisko and Mr. Raphael Langford, both officers of the
Company, in exchange for deferred compensation of $25,000, each.
In April 2004, the Company issued 1,403,948 shares of common stock to
Dr. David Dalton, president and chief executive officer of the Company, in
exchange for benefits not taken of $108,104.
These shares were issued in reliance on the exemption from registration
afforded by Section 4(2) of the Securities Act of 1933.
No commissions or fees were incurred or discounts given in connection
with these sales of securities.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbannes-Oxley Act of 2002 .
31.2 Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbannes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer pursuant U.S.C.
Section 1350 as adopted pursuant Section 906 of the
Sarbannes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer pursuant U.S.C.
Section 1350 as adopted pursuant Section 906 of the
Sarbannes-Oxley Act of 2002.
(b) Form 8-K
None
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNIVEC, INC.
Dated: May 20, 2004 /s/ Dr. David Dalton
----------------------------
Dr. David Dalton
Chief Executive Officer
(Principal Executive Officer)
Dated: May 20, 2004 /s/ Michael A. Lesisko
-----------------------------
Mr. Michael A. Lesisko
Chief Financial Officer
(Principal Financial and
Accounting Officer)