Amendment No. 4 to 2004 Anuual Year End Report
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-KSB/A
Amendment No. 4
 
x    Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2004
 
o Transition report under Section 13 or 15(d) of the Securities Act of 1934
For the transition period from _______ to _______
 
UNIVEC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
Delaware
0-22413
11-3163455
(State or other jurisdiction
(Commission File Number)
(IRS Employer
of incorporation)
 
Identification Number)
 


822 Guilford Avenue, Suite 208, Baltimore, MD 21202
(Address of principal executive offices)
 
(410) 347-9959
(Registrant’s telephone number, including area code)
 

4810 Seton Drive, Baltimore, MD 21215
(Former Name or Former Address, if Changed Since Last Report).
 
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x  No o
 
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 $327,827.
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x 
 
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 August 31, 2005 was $1,693,933.
 
-1-
 
    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 o No o
 
    APPLICABLE ONLY TO CORPORATE REGISTRANTS
 
As of August 31, 2005 the issuer had 56,464,432 shares of common stock, $.001 par value, outstanding.
 
    DOCUMENTS INCORPORATED BY REFERENCE
None
 
-2-
 
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 also assists  pharmaceutical companies in marketing, fulfillment, and tracking drug samples. Univec produces auto-disable and safety syringes. 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 engaged in group purchasing (GPO) and promoting  Pharmaceutical company prescription samples to physicians for their patients. 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. PPSI’s group purchasing programs provide for reduces prices on prescription drugs and other products through leveraged purchasing and closed system market share. Univec also is a distributor of a highly regulated pharmaceutical drug, methadone and other prescription drug products.
 
Univec during late 2004 established the company as a distributor of specialty and highly regulated pharmaceutical products. The company intends to expand the product line to take further advantage of its group purchasing and closed systems purchasing.
 
Univec extended its product line to include a highly regulated pharmaceutical (methadone) and other pharmaceutical products. The company will continue to sell it products through large United States based wholesalers as well as direct in large bulk to the larger customers of the company. The company’s group purchase programs and closed market purchasing positions the company’s product line well.
 
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.
 
-3-
 
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.
-4-
 
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
 
PPSI patient StarterScript prescription drug program allows the physician to provide  to the patient a cost effective means to support medication management from both a clinical and economic perspective. The patient sees if they may tolerate the medication under both the physician and pharmacist oversight.
 
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. 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.
 
-5-
 
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 also markets its StarterScript patient prescription sampling services to  pharmaceutical companies desiring to maintain or expand market position. The company management believes that with the growth of third party payments of prescription drug such as Medicare and managed care companies the direct to consumer programs will grow. Univec also believes that with more branded pharmaceutical products coming off patent will  further enhance direct patient sampling or StarterScript programs as an offense to  generic drug substitution.
 
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.
 
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 Company's business. The 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.
-6-
 
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 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.
 
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, 2004, 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 $30,284 and $109,690 for the years ended December 31, 2004 and 2003, respectively.
 
-7-
 
 
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.
 
In 2004 the Company applied for and received a Provisional Patent from the U.S.  Patent and Trademark Office on September 21, 2004, the Patent #60/611,670 and Foreign Filing  License Granted October 15,2004, code US60/611,670. 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 brief description, a medical device with  a sliding sheath to protect caregivers in the dental and the cosmetic market.

Revenue Recognition

As a result of the differing circumstances related to the Company’s manufacture, procurement, distribution and physician sampling programs diverse financial accounting methods are utilized to recognize revenue from its various revenue sources. The Company’s manufacturing and specialty pharmaceutical drug distribution programs employ the “gross” method of recognizing revenue. However, because of the distinctive type of services provided to customers, the GPO and physician sampling programs utilize the “net” method of revenue recognition.

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, 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.
 
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.
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Research and Development
 
For the years ended December 31, 2004 and 2003, Univec expended $28,871 and $28,547, respectively, on product development expenses.
 
Employees
 
As of July 31, 2005, Univec employed four persons, including two full time in sales and marketing, one full time in financial administration, and one full time in production. None of Univec's employees is covered by a collective bargaining agreement.
 
As of July 31, 2005, PPSI had no employees, but utilizes outside marketing representatives and consultants for marketing and administrative services. 
 
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 expired on 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 taxes, subject to a maximum increase of 3% for each three year term.
 
PPSI shares office space with a related company, 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.
 
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, 2003, was held on August 12, 2004, to consider and vote upon a proposal to elect S. Robert Grass, Dr. David Dalton, John Frank 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.
 
Proposals to Elect Directors:
 
 
  
For
  
Withheld
S. Robert Grass 
  
19,641,801
  
0
David Dalton
  
19,620,601
  
21,200
John Frank
  
19,620,601
  
21,200
William Wooldridge
  
19,641,801
  
0
 
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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 (expired April 2002) 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 on the over-the-counter bulletin board from January 1, 2003 through December 31, 2004 and the first quarter of 2005.
 
 
Common Stock
 
 
("UNVC")
 
Quarter Ended
High
 
Low
 
 
 
 
 
 
March 31, 2003
$
0.070
 
$
0.040
 
June 30, 2003
$
0.110
 
$
0.100
 
September 30, 2003
$
0.260
 
$
0.050
 
December 31, 2003
$
0.140
 
$
0.070
 
March 31, 2004
$
0.150
 
$
0.090
 
June 30, 2004
$
0.120
 
$
0.070
 
September 30, 2004
$
0.090
 
$
0.060
 
December 31, 2004
$
0.110
 
$
0.040
 
March 31, 2005
$
0.110
 
$
0.100
 
 
(1) As of December 31, 2004, there were 120 holders of record of the Common Stock.
 
(2) During the fiscal year ended December 31, 2004, 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 2004, a Univec officer converted $125,262 of contractual benefits to 1,660,035 common shares.
 
2. On February 5, 2004, Univec converted 50 shares of Series E Preferred Stock to 799,371 common shares at $.064 per common share.
 
3. On February 15, 2004, two Company officers exchanged 500,000 common shares in payment of a total of $50,000 compensation options at $.05 per share.
 
4. On July 3, 2004, Univec issued 500,000 shares at $.02 per common share of common stock to a former director as payment of $10,000 of notes payable.
 
5. On November 12, 2004 Univec issued 6,000,000 shares of common stock to a vendor in exchange for $240,000 financial consulting services at $.04 per share.
 
6. On December 8, 2004, Univec converted 30 shares of Series E Preferred Stock to 990,970 common shares at $.0323 per common share.
 
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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.
 
Condensed Consolidated Results of Operations

 
 
2004
 
2003
 
Change
 
 
 
(Restated) 
 
(Restated)
 
 
 
Revenues
 
$
327,827
 
$
939,747
 
 
(65
%)
 
Cost of Revenues
 
$
128,933
 
 
948,490
 
 
(86
%)
 
Gross Margin
 
 
198,894
 
 
(8,743
)
 
(2,375
%)
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marketing and Selling
 
 
 
 
 
 
 
 
 
 
   Expense
 
 
123,400
 
 
379,738
 
 
(68
%)
Product Development
 
 
28,871
 
 
28,547
 
 
1
%
General and
 
 
 
 
 
 
 
 
 
 
   Administrative
 
 
1,772,246
 
 
847,013
 
 
109
%
Interest Expense, Net
 
 
108,092
 
 
91,564
 
 
18
%
Gain on Extinguishment
 
 
 
 
 
 
 
 
 
 
   of Debt
 
 
(144,819
)
 
(24,872
)
 
482
%
Loss on write-off of
 
 
 
 
 
 
 
 
 
 
   Goodwill
 
 
1,774,119
 
 
-
 
 
-
 
Other Income
 
 
(47,795
)
 
-
 
 
-
 
Loss on capitalized lease
 
 
-0-
 
 
121,366
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
Total Continuous Expenses
 
 
3,614,114
 
 
1,443,356
 
 
150
%
 
 
 
 
 
 
 
 
 
 
 
Discontinued Operations
 
 
(8,260
)
 
(93,502
)
 
(91
%)
Loss on sale of Subsidiary
 
 
(597,056
)
 
 
 
 
 
 
Net Loss
 
$
(4,020,536
)
$
(1,545,601
)
 
(160
)%
 







Sales within PPSI’s GPO program utilizing the “net” revenue recognition method comprised more than 82% of the total sales for 2004. A breakdown of revenues and cost of revenues for 2004 between the Company and its wholly-owned subsidiary, PPSI, are as follows:

Revenues, cost of revenues and gross margin for the year ended December 31, 2004 (as restated) are as follows:
 
  
Univec
  
PPSI
  
Total
  
Revenue 
  
$
59,819
  
$
268,008
  
$
327,827
  
Cost of Revenues 
    
128,933
    
-
    
128,933
  
 
                    
Gross Margin
  
$
(69,114
)
$
268,008
  
$
198,894
  
 
                  
 
Revenues, cost of revenues and gross margin for the year ended December 31, 2003 are as follows:
 
  
Univec
  
PPSI
  
Total
  
Revenue 
  
$
910,323
  
$
29,424
  
$
939,747
  
Cost of Revenues 
    
948,490
          
948,490
  
 
                    
Gross Margin
  
$
(38,167
)
$
29,424
  
$
(8,743
)
 
                  

The Company has corrected an error which occurred during the year ended December 31, 2003 in connection with the capitalized lease of equipment. The underlying fixed assets were purchased by an affiliated company owned by an officer of the company and leased to the Company. In 2003, the Company originally reported the payoff of the lease from proceeds of loans.
 
The Company determined that the goodwill with a carrying value of $1,774,119 had been fully impaired and has written-off the entire balance.
 
The Company has its focus on the marketing, production, development and distribution of its pharmaceutical and proprietary products and licensing of the technology of its insulin and tuberculin sliding sheath safety syringes.

Gross profit for the year ended December 31, 2004 increased to 61% from (1)% in 2003. Gross profit based on product sales for 2004 decreased increased to $198,894 as compared to $(8,743) in 2003. The increased gross profit is primarily due to the increased gross profit from PPSI’s GPO revenue and which was offset in part by lower sales volume of our 1cc clip syringe. During 2003 the Company encountered a non-recurring $381,949 cost adjustment adjustment being paid to a significant GPO customer. The reduction of syringe gross profit is largely the result of decreased sales volume and fixed overhead costs of $7,290. We anticipate gross profit levels to remain at current levels, unless we increase our market penetration, our prices, product mix and/or realize anticipated production or economic benefits that we anticipate as a result of our relocation to Maryland from New York during 2003 and recent financings.

As a result of the acquisitions of PPSI, we have broadened our pharmaceutical product distribution base. We anticipate increases in sales on a period by period basis from  PPSI if we can increase our market penetration in these areas.
 






Marketing and selling costs in 2004 decreased $256,338 (68%) from 2003. This decrease is due to decreases in shipping costs, rent and compensation costs, as a result of limited funds available to conduct marketing activities. As a result of our 2004 financing, we anticipate increasing our marketing activities.

Product development expense for 2004 increased by $324 (1.1%) as compared to 2003. This increase was the result of increased expenditures for patent legal costs and product testing expense.

General and administrative expenses for the year ended December 31, 2004 increased $925,233 (109%) as compared to 2003. This increase is due primarily to increases in professional fees, insurance and relocation costs offset in part by decreases in compensation, GPO cost adjustments, and securities maintenance expenses. There was also an $85,088 provision for equipment located at former suppliers, which is no longer being used in production activities of the Company.
 
Interest expense for the year ended December 31, 2004 increased by $16,528 (18%) as compared to 2003 primarily as a result of increased debt during 2004.
 
Other income for the year ended December 31, 2004 includes $36,349 gain on the sale of marketable securities plus $11,446 gain on the sale of equipment.
 
Net loss for 2004 increased by $(2,474,935) (160%) primarily due to the $1,774,119 write-off of goodwill and a loss of $597,056 on the sale of a subsidiary. The subsidiary was sold during August 2004 in order to reduce fixed costs associated with its operation. Without considering the loss on the sale of the subsidiary and gain on extinguishment of debt ($144,819), the gain on the sale of equipment and marketable securities of $47,795, the increase in the net loss before non-recurring items of $(2,044,620) was primarily related to the $925,233 increase in general and administrative expenses .
 
The Company restated its year-ended December 31, 2003 financial statements to properly reflect certain financial transactions which were previously not reported in accordance with generally accepted accounting principles (GAAP). Although the year-ended December 31, 2003 net loss of $(1,545,601) was not changed, several incorrect practices were corrected. These restatements are described in the following paragraphs and related table.
 
The Company restated its year ended December 31, 2003 gross profit margin by an aggregate $419,510. This restatement includes three distinct reporting factors. The Company restated its 2003 sales and related cost of revenues by a net $12,439 increase in gross margin to reflect the overall effect of an incorrect 2003 year-end sales cutoff. The Company incurred $50,000 for the year 2003 as a result of inventory write-downs, which have been reclassified to be reported as components of cost of revenues..  Finally, 2003 GPO cost adjustments of $381,949.00 have been reclassified to be reported as a reduction of revenue. For the year-end December 31, 2003, the Company recognized $381,949 of cost adjustments provided to the Company’s group purchasing customer as general and administrative expenses. However, EITF 01-9 requires that such cost adjustments be reported as a reduction of revenues. This reclassification is reported on the enclosed Statement of Operations for year-end December 31, 2003. No such cost adjustment payments have been made to any customer after that time.





 
The Company has corrected a $121,366 error on the loss on write-off of a capital lease less $11,958 related depreciation expense and $5,623 increased related interest expense restatement which occurred during the year ended December 31, 2003 in connection with the correction of a prior error in reporting capitalized lease of equipment. The underlying fixed assets were purchased by a related company owned by an officer of the Company and leased to the Company. In 2003, the Company originally incorrectly reported the payoff of the lease from proceeds of loans. This restatement recorded the reinstatement and subsequent write-off of the old capitalized lease and the capitalization of the new lease, which resulted in a prior period net loss of $115,031, less than $0.01, per share. The new lease was for a term of three years and provided for monthly rent of $3,944 and a purchase option of $100,000 at the end of the lease term.

The Company has corrected the previous reporting of this capitalized the lease. The capitalized lease obligation and related assets have been recorded at the lower of the present value of the minimum lease obligations or the fair value of the minimum lease obligations or the fair value of the related assets of $250,000. In July 2004, the Company purchased the equipment under the lease for $250,000, effectively canceling the lease.
 
The general and administrative expenses for 2003 have been reduced by $101,388 to correct certain previously reported costs actually incurred as 2003 GAAP expenditures. Certain previously reported fee expenses were established to be subsequent period costs.
 
The restated Consolidated Statement of Operations for the year-ended December 31, 2003 is composed of the following accounting corrections to these items. Various reclassifications have also been included therein. 
 
 
 
 
 
Year-end December 31, 2003 (net loss) as originally reported
 
 
($1,545,601
)
 
 
 
  
 
Increase in gross margin - year-end cutoff
 
 
12,439
 
Decrease in gross margin - inventory write-down
 
 
(50,000
)
Decrease in gross margin - reduction of revenue
 
 
(381,949
)
Net Decrease in gross margin
 
 
(419,510
)
 
 
 
  
 
Increase in net interest expense
 
 
(5,623
)
Decrease in depreciation expense
 
 
11,958
 
Loss on write-off of capital lease
 
 
(121,366
)
Reclassification of General and Administrative expenses
 
 
431,949
 
General and Administrative expense adjustment
 
 
101,388
 
Miscellaneous adjustments
 
 
1,204
 
Year-end December 31, 2003 (net loss) as restated
 
 
($1,545,601
)
 
 
 
 
 
 
Liquidity and Capital Resources
 
Liquidity and Capital Resources, Page 11 - “Viable Plan” to generate positive cash .
 
The Form 10-KSB states that the Registrant’s management is currently seeking additional investment capital to support its entrance into new business ventures and provide the capital needed to operate. Further, in Part I, Item 1 the Registrant states that during late 2004 the company was established as a distributor of specialty and highly regulated pharmaceutical products. The company intends to expand the product line to take further advantage of its group purchasing and closed systems purchasing. Additionally, In 2004 the Company applied for and received a Provisional Patent from the U.S. Patent and Trademark Office on September 21, 2004, the Patent #60/611,670 and Foreign Filing License Granted October 15, 2004, code US60/611,6700 .… in brief description, a medical device with a sliding sheath to protect caregivers in the dental and cosmetic markets.
 
These significant new products are anticipated to provide the company with revenue sources and gross profits which will adequately support its continued operations. Because of their prior discussion in the Description of the Business segment of the Form 10-KSB, any revisions to Note 3 of the financial statements would be repetitious in these circumstances.
 
The working capital deficit of $2,542,657 at December 31, 2003, increased to a deficit of 4,207,570 at December 31, 2004. A significant reason for this increase is the classification of $457,377 of formerly long-term debt as current debt due which resulted from $79,651 in late payments and $377,726 for non-compliance with contractual covenants. Further, net increases in accounts payable and accrued expenses, total loans payable and deferred compensation, partially offset by an increase in accounts receivable also accounted for the decrease in working capital. 
 
he accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of December 31, 2004, the Company had negative working capital of $4,207,570 and stockholders' deficit of $3,717,269  which includes net losses of $(4,020,536) and $(1,646,989) for the years ended December 31, 2004 and 2003. The Company is also in default of approximately $1,200,000 of loan and notes payable all of which are payable on demand as a result of such defaults. These factors, among others, indicate that the Company's continuation as a going concern is dependent upon its ability to obtain  adequate  financing and/or achieve profitable operations. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
 
Management is currently seeking additional investment capital to support its entrance into new business ventures and provide the capital needed to operate.
 
Net cash used in operating activities increased by $463,293 (163%) to $747,984 for the year ended December 31, 2004 from 2003, primarily due to the increased net loss.
 
Net cash used in investing activities of $743,145 resulted from the purchases of restricted cash deposits, fixed assets and cash used in the sale of the subsidiary during 2004.
 
Net cash provided by financing activities increased by $1,299,498 (620%) to $1,508.751 for 2004 from $209,253 provided during 2003. This increase resulted from an increase in aggregate borrowings of $1,244,795 and decrease in aggregate repayments of borrowings of approximately $27,870. There was also a $50,000 non-recurring sale of securities during 2004.
 
Although revenue increased as a result of the 2004 PPSI GPO operations for the entire year as we continued to market our safety syringes, we suffered from a serious shortage of working capital, which resulted in the Company’s limited ability to market and sell its products.
-12-
 
 
In July 2004, the Company borrowed an aggregate of $1,000,000 from a city development agency, a state development agency and a stockholder. These proceeds provided us with resources to acquire equipment, refinance an equipment capital lease and for working capital to enable us to continue implement our business strategy. The proceeds from the above loans and our designation as a minority business enterprise (MBE) should increase our marketing services to pharmaceutical companies, to increase our sales of safety syringes and develop new products.
 
As a result of these actions, Univec’s management anticipates that operations will generate a positive cash flow during our next fiscal year, but there can be no assurance this will occur.
 
The relatively low trading price and volume of our common shares hampers our ability to raise equity capital. There is no assurance that any such equity financing will be available to the Company or on terms we deem favorable. Management will continue its efforts to obtain debt and/or equity financing.
 
Significant Estimates
 
In conformity with interpretive MD&A guidance provided in Release 33-8350, we herein provide details of significant estimates and assumptions involved in the Company’s application of GAAP.


In accordance with SFAS 142 - Goodwill and Other Intangible Assets the Company wrote-off of the entire $1,774,119 balance of impaired goodwill. This judgment was provided in accordance with the GAAP provisions used to evaluate the future value of intangible assets such as estimated future discounted cash flow which could be reasonably anticipated from the Company’s carrying value of such goodwill. The Company’s determination is based primarily on limited gross profits which are presently generated by the subsidiary’s primary business activity. The Company determined that the excess value of goodwill paid in the course of the acquisition of its wholly owned subsidiary, Physicians and Pharmacy Services, Inc. could no longer be supported by the evaluation of potential future profitability of the subsidiary. Management’s appraisal of future discounted cash flows and other factors resulted in the complete write-off of the wholly impaired asset. Further, the Company applied SFAS 5 to determine its provision for losses on litigation. Finally, the Company, which was listed as a public company during 2004 on the OTC Bulletin Board during 2004, applied SFAS 123 and EITF 96-18 to value equity securities which were issued in payment of various corporate obligations. The Company’s previous significant financial estimates have resulted in fair presentations of its financial statements. Therefore, the Company believes that these goodwill and litigation provisions will result in additional future fair presentation of its financial statements.
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. Financial Accounting Standards Board Statement # 123R Stock Based Compensation is not expected to have a material effect on the Company’s financial statements.
 
Major Customer
 
For the year ended December 31, 2004, 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.
 
A Form 8-K was filed on June 13, 2005 and amended by a Form 8-K/A filed on August 1, 2005, reporting the resignation of the Company’s principal registered independent public accounting firm. Further, the Registrant reported that the auditor’s report for the previously issued Form 10-KSB for the year ended December 31, 2003 could no longer be relied upon. Also, the former principal registered independent public accounting  firm has informed the Registrant that it may no longer rely upon review reports issued for all Form 10-QSB for all quarters starting with the quarter-ended March 31, 2003 through the quarter-ended September 30, 2004.
-13-
 
Item 8A CONTROLS AND PROCEDURES

 
(a) 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. Although the Company did change from the “gross” to the “net” revenue method of accounting for the GPO (Group Purchasing) and physician sampling programs use the “net” method of revenue recognition, this change to a more appropriate accounting method does not reflect on the effectiveness of the controls applied in the circumstances.
 
(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
56
Chief Executive Officer, President and a Director
S. Robert Grass
71
Chairman of the Board of Directors
William Wooldridge
60
Director
Raphael Langford
60
Chief Operating Officer and Executive Vice President
Michael Lesisko
55
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.
 
-14-
 
 
 
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.
 
Raphael Langford has been Chief Operating Officer and Executive Vice-President  of Univec Corporation since April 2003. Prior to April 2003, Raphael Langford was  Vice-President of Physician Pharmaceutical Services, Inc. (PPSI) A nationwide PBM with  Over 50,000 pharmacies in its network. Mr. Langford managed the design and creation of products/services that serve the PBM market for PPSI, he was responsible for operations planning and control; material management; total quality management; benchmarking; and performance measurement. Mr. Langford career highlights also include as Executive Director of the National Foundation of Women Legislators. Mr. Langford served as liaison to Federal and State elected officials. He was responsible for implementing National Policy Committees for Women Legislators to set guidelines for Alternative, Holistic & Complementary Health. Mr. Langford co-chaired committees on Alcohol and Substance Abuse and served as chairman for Health, Longevity & Long-Term Care Pain Management. He has work on special projects with HHS and DEA in Washington, DC. Mr. Langford is a past President & CEO of Olympic
International, Inc. The company specialized in international brokering, manufacturing and the network of raw materials to more than 17 countries. Mr. Langford has over thirty-five years experience in senior management positions with AT&T, Inc., Norton Simon, Inc. and other telecommunications and pharmaceuticals entities. He has received credits in business management studies and Industrial psychology at Case Western Reserve University.
 
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 12, 2004, Mr. John Frank and William Wooldridge 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 2004. On August 12, 2004, Mr. S. Robert Grass was elected to the Compensation Committee. There was one meeting of the Compensation Committee in 2004.
 
The Board of Directors held four meetings in 2004, which included special telephonic meetings. 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 2004.
 
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, 2004.
-15-
 
 
 
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, 2004 exceeded $100,000.
 
 
 
Annual Compensation
Long-Term Compensation
 
 
 
Other Annual
Securities
Name and Principal Position
Year
Salary
Compensation
Underlying Options
 
 
 
 
 
Dr. David Dalton
2003
$ 360,000(1)
-
1,000,000(1)
Chief Executive Officer and
 
 
 
 
President
 
 
 
 
 
2004
$ 396,000(2)
-
-
 
 
 
 
 
Jonathan Bricken
2003
$ 129,969
-
None
Vice President
 
 
 
 
 
(1) 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.
 
(2) During 2004, Dr. David Dalton earned a salary of $396,000, plus life, health and disability insurance, as well as an automobile lease and insurance allowance equal to $24,000 per year.
 
Employment Agreements
Dr. David Dalton provides the amount of time necessary to perform his corporate duties. Dr Dalton's salary was $396,000 for 2004, 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, 2004.
 
 
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
-
0%
$0.00
N/A
 
 
-16-
 
 
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, 2004, 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, 2004, and the aggregate dollar value of in-the-money, unexercised options, held at December 31, 2004. The value of the unexercised, in-the-money
options at December 31, 2004, is the difference between their exercise or base price, and the fair market value of the underlying Common Stock on December 31, 2004. The closing bid price of the Common Stock on December 31, 2004 was $0.11.
 
 
Shares Acquired Upon
Number of Securities
In-The-Money
 
Exercise of Options
Underlying Unexercised
Options at
 
During Fiscal 2004
Options at December 31, 2004
December 31, 2004
Name
Number
Value Realized
Exercisable
Unexercisable
Exercisable
Unexercisable
 
 
 
 
 
 
 
Dr. David Dalton
None
None
2,500,000
500,000
$40,000
$ -
 
Certain Transactions
 
At December 31, 2004, the following Deferred Payroll was payable to executive officers and other employees:

David Dalton, Chief Executive Officer and President
 
$
856,000
 
Raphael Langford, Chief Operating Officer
 
 
127,585
 
Michael Lesisko, Secretary - Treasurer
 
 
97,300
 
 
 
 
1,080,885
 
Other employees
 
 
190,603
 
 
 
$
1,271,488
 
 
On July 3, 2003, the Company authorized the issuance of 500,000 shares of common stock to Richard Mintz, a Director of the Company, at $0.02 per share in full discharge of a $10,000 note payable.
 
At December 31, 2004, notes payable to companies owned by David Dalton, President, amounted to $578,800. These loans are the result of providing working capital to the Company.
 
At December 31, 2004, notes payable to David Dalton, President amounted to $100,000 and notes payable to S. Robert Grass, Chairman of the Board of Directors amounted to $153,300. 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 December 8, 2004 this the Series E preferred stockholder exchanged 30 preferred shares plus $2,008 accrued dividends for 990,970 shares of Common Stock at $0.0323 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. On August 31, 2004, the Chief Executive Officer exchanged an additional $17,158 of
employment contract benefits for 256,087 common shares. These exchanges were authorized by the Company's Board of Directors on August 5, 2003
-17-
 
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 August 31, 2005 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.
 
 
Amount and Nature of Beneficial
Percentage of common Stock Beneficially
Name
Ownership (1)
Owned (2)
 
 
 
David Dalton (4)
23,396,378 (5)
39.40% (6)
S. Robert Grass (4)
1,065,951 (9)
1.87% (10)
William Wooldridge (4)
250,000 (13)
0.44% (14)
Raphael Langford (4)
3,366,667 (7)
5.85% (8)
Michael Lesisko (4)
2,474,001 (11)
4.31% (12)
All directors and executive
 
 
officers as a group (5 persons)
30,552,997 (3)(16)
49.02% (17)
 
 
 
Emerald Capital Partners LP
6,000,000
10.63% (15)
 
(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 August 31, 2005 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 56,464,432 shares of Common Stock issued and outstanding on August 31, 2005.
 
(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, 822 Guilford Avenue, Suite 208, Baltimore, Maryland 21202.
 
(5) Includes 2,916,674 shares issuable upon exercise of presently exercisable options.
 
(6) Calculated on the basis of 59,381,106 shares of Common Stock issued and outstanding.
 
(7) Includes 1,133,333 shares issuable upon exercise of presently exercisable options.
 
(8) Calculated on the basis of 57,597,765 shares of Common Stock issued and outstanding.
 
(9) Includes 312,501 shares issuable upon conversion of Series D Preferred Stock and 250,000 issuable upon exercise of presently exercisable options.
 
(10) Calculated on the basis of 57,026,933 shares of Common Stock issued and outstanding.
 
(11) Includes 1,000,000 shares issuable upon exercise of presently exercisable options.
 
(12) Calculated on the basis of 57,464,432 shares of Common Stock issued and outstanding.
 
(13) Includes 250,000 shares issuable upon exercise of presently exercisable options.
 
(14) Calculated on the basis of 56,714,432 shares of Common Stock issued and outstanding.
 
(15) Calculated on the basis of 56,714,432 shares of Common Stock issued and outstanding.
 
-18-
 
(16) Includes 5,862,508 shares issuable upon exercise of presently exercisable options.
 
(17) Calculated on the basis of 56,464,432 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 prime plus 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, 2004, the outstanding balance of this loan was $200,000.
 
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, 2004 and 2003, Univec has borrowed an aggregate of $388,305 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 10%, per annum. At December 31, 2004 and 2003, the aggregate balance outstanding was $578,800 and $378,569, respectively.
 
During 2004, Pharmacy Services, Inc., a company owned by Dr. David Dalton, President and Chief Executive Officer, purchased goods totaling $200,897 (such goods had a cost of $17,679,609) in “net” revenue from PPSI's GPO. This transaction represented 61% of total revenue.
 
PPSI shares minimal 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 security-holder.
 
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 security-holder.
-19-
 
 
4.11(5) Registration Rights Agreement dated July 27, 1998, between the Company' and selling security-holder.
 
4.12(6) Registration Rights Agreement, dated February 8, 1999, between the Company and the selling security-holder.
 
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 security-holder.
 
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.
 
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 Employment Agreement dated as of December 31, 2001, between the Registrant and Joel Schoenfeld.
 
21.1(3) List of Subsidiaries.

31.1(10) Statement of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
31.2(10) Statement of the Chief Financial Officer pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002. 
 
32.1(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.
 
32.2(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.
 
-20-


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, 2004 and 2003, respectively:

  
  
2004
  
2003
  
Audit fees
  
$
110,261
  
$$
98,794
  
Audit related fees
  
  
- -
  
  
-
  
Tax fees
  
  
18,750
  
  
14,199
  
All other fees
  
  
 -
  
  
--
  
Total
  
$
129,011
  
$
112,993
  

Univec's Audit Committee pre-approves the engagement of the principal accountant and the estimated audit fee, by each category.
 
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.
 
 
 
 
 
UNIVEC, INC.
 
 
 
 
 
 
Date: January 3, 2007
By:  
/s/ Dr. David Dalton
 
Dr. David Dalton
 
Chief Executive Officer
(Principal Executive Officer)

 
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Signatures                
Title
   
/s/ Dr. David Dalton 
Dr. David Dalton       
Chief Executive Officer and a Director Principal Executive Officer)
 
  
/s/ Michael Lesisko 
Michael Lesisko               
Chief Financial Officer, Treasurer, Secretary
 
  
/s/ S. Robert Grass
S. Robert Grass                  
Chairman and a Director
   
/s/ William Wooldridge
William Wooldridge         
Director
 


 
-21-
 


UNIVEC, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND FOR THE TWO YEARS THEN ENDED

Index to Consolidated Financial Statements

 
Page
 
 
Report of Independent Registered Public Accounting Firm
F--3
Consolidated Balance Sheet - December 31, 2004
F--4
Consolidated Statements of Operations - years ended
 
    December 31, 2004 and 2003
F--5
Consolidated Statements of Stockholders' Equity - years
 
    ended December 31, 2004 and 2003
F--6
Consolidated Statements of Cash Flows - years ended
 
    December 31, 2004 and 2003
F--7
Notes to Consolidated Financial Statements
F--8




 
F-1

 
 


The Registrant’s auditor has amended their opinion of the 2003 financial statements as being “restated”.

Report of Independent Registered Public Accounting Firm
 
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, 2004 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the two-year periods ended December 31, 2004 and 2003. 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 the standards of the Public Company Accounting Oversight Board (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. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, 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 audits provide 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, 2004 and the consolidated results of their operations and their consolidated cash flows for each of the years in the two-year period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. 

As discussed in Note 2 to the financial statements, certain errors related to accounting for capital leases and year-end cutoffs for the year ended December 31, 2003 were discovered by management of the Company during the current year. In addition, the Company has restated its year ended December 31, 2004 and 2003 revenue to reflect the Company’s change to the “net” revenue method for its GPO product sales. Accordingly, the 2004 and 2003 financial statements have been restated to reflect these changes and corrections.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered from recurring losses from operations, has negative working capital, has a total stockholders’ deficit and is in default on certain debt, all of which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 3.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Abrams, Foster, Nole & Williams, P.A 
Abrams, Foster, Nole & Williams, P.A.

Baltimore, Maryland           
September 9,  2005, except for note 2, as to which the date is November 08, 2006



 
 
F-2


 

The Company has labeled the appropriate 2003 financial statements as being “restated”. Also, the Company has referred to the footnote which describes the restatement.
Univec, Inc. and Subsidiaries
 
Consolidated Balance Sheet
 
December 31, 2004
 
 
 
  
 
ASSETS
 
 
 
Cash
 
$
29,443
 
Marketable securities
 
 
36,349
 
Accounts receivable
 
 
3,123,493
 
Inventories
 
 
179,878
 
Certificates of deposit - restricted
 
 
340,407
 
Other current assets
 
 
46,630
 
Total current assets
 
 
3,756,200
 
 
 
 
  
 
Fixed assets, net
 
 
622,685
 
Other assets
 
 
79,468
 
Total assets
 
$
4,458,353
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
 
 
  
 
Accounts payable and accrued expenses
 
$
4,380,826
 
Deferred payroll
 
 
1,271,488
 
Notes and loans payable - current
 
 
1,472,163
 
Loans payable - officers/directors
 
 
260,493
 
Due to affiliated companies
 
 
578,800
 
 
 
 
  
 
Total current liabilities
 
 
7,963,770
 
 
 
 
  
 
Notes and loans payable - long-term
 
 
211,852
 
Total liabilities
 
 
8,175,622
 
Commitments and contingencies (Notes 3, 4, 12 and 13)
 
 
  
 
 
 
 
  
 
STOCKHOLDERS' DEFICIT
 
 
  
 
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; issued and
 
 
  
 
outstanding: 125,000 shares (aggregate liquidation
 
 
  
 
value: $336,808)
 
 
125
 
Series E cumulative convertible preferred stock,
 
 
  
 
$.001 par value; authorized: 2,000 shares; issued and
 
 
  
 
outstanding: 412 shares (aggregate liquidation
 
 
  
 
value: $441,397)
 
 
1
 
Common stock $.001 par value; authorized: 75,000,000 shares;
 
 
45,619
 
issued: 45,618,852 and outstanding: 45,214,698 shares
 
 
  
 
Additional paid-in capital
 
 
10,977,627
 
Treasury stock, 404,154 shares - at cost
 
 
(28,291
)
Stock Subscription Receivable
 
 
(210,000
)
Accumulated deficit
 
 
(14,502,350
)
Total stockholders' deficit
 
 
(3,717,269
)
Total liabilities and stockholders' deficit
 
$
4,458,353
 

F-3

 

 
Univec, Inc. and Subsidiaries
 
Consolidated Statement of Operations
 
Years ended December 31, 2004 and 2003 (Restated)
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year-Ended
 
Year-Ended
 
 
 
Dec. 31, 2004
 
Dec. 31, 2003
 
 
 
(Restated) 
 
(Restated)
 
 
 
 
 
 
 
Revenues (Note 5)
 
$
327,827
 
$
939,747
 
Cost of revenues
 
 
128,933
 
 
948,490
 
 
 
 
  
 
 
  
 
Gross Margin
 
 
198,894
 
 
(8,743
)
 
 
 
  
 
 
  
 
Operating Expenses
 
 
  
 
 
  
 
Marketing and selling
 
 
123,400
 
 
379,738
 
Product development
 
 
28,871
 
 
28,547
 
General and administrative 
 
 
1,772,246
 
 
847,013
 
Loss on write-off of goodwill
 
 
1,774,119
 
 
-
 
Loss on write-off of capitalized lease
 
 
-
 
 
121,366
 
 
 
 
3,698,636
 
 
1,376,664
 
 
 
 
  
 
 
  
 
Loss from Operations
 
 
(3,499,742
)
 
(1,385,407
)
 
 
 
  
 
 
  
 
Other Income (Expense)
 
 
  
 
 
  
 
Interest expense, net
 
 
(108,092
)
 
(91,564
)
Gain on extinguishments of debt
 
 
144,819
 
 
24,872
 
Other income (expense)
 
 
47,795
 
 
-
 
Total other expenses
 
 
84,522
 
 
(66,692
)
 
 
 
  
 
 
  
 
Loss from continuing operations
 
 
(3,415,220
)
 
(1,452,099
)
 
 
 
  
 
 
  
 
Loss from discontinued operations:
 
 
 
 
 
 
 
Discontinued operating losses
 
 
(8,260
)
 
(93,502
)
 Loss on sale of subsidiary
 
 
(597,056
)
 
-
 
 
 
 
 
 
 
 
 
Net loss
 
 
(4,020,536
)
 
(1,545,601
)
 
 
 
  
 
 
  
 
Dividends attributable to preferred stock
 
 
(35,921
)
 
(39,025
)
 
 
 
  
 
 
  
 
Loss attributable to common stockholders
 
$
(4,056,457
)
$
(1,584,626
)
 
 
 
  
 
 
  
 
Share information
 
 
  
 
 
  
 
Basic net loss per common share
 
$
(0.11
)
$
(0.05
)
 
 
 
  
 
 
  
 
 
 
 
  
 
 
  
 
Basic weighted average number
 
 
  
 
 
  
 
of common shares outstanding
 
 
38,510,467
 
 
33,751,508
 
 
 
 
  
 
 
  
 

F-4
 
 
 
Univec, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Years ended December 31, 2004 and 2003 (Restated) 

 
 
 
Series A Preferred
 
 
Series B Preferred
 
 
Series C Preferred
 
 
Series D Preferred
 
 
Series E Preferrred
 
 
Common Stock
 
 
Additional Paid-in
 
 
Treasury Stock
 
 
Prepaid Consulting
 
 
Accumulated
 
 
Total Stockholders'
 
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount 
 
 
Shares
 
 
Amount 
 
 
Capital
 
 
Shares
 
 
Amount
 
 
Services
 
 
Deficit
 
 
Equity
 
Balance, January 1, 2003
 
 
124
 
$
1
 
 
167
 
$
1
 
 
250
 
$
1
 
 
104,167
 
$
104
 
 
  
 
 
  
 
 
31,772,773
 
$
31,773
 
$
10,296,627
 
 
  
 
 
  
 
 
  
 
 
($8,843,338
)
$
1,485,169
 
Exchange of Series B and C
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 for Series E
 
 
  
 
 
  
 
 
(122
)
 
(1
)
 
(250
)
 
(1
)
 
  
 
 
  
 
 
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
 
 
(124
)
 
(1
)
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
Convert Series B
 
 
  
 
 
  
 
 
(45
)
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
1,843,322
 
 
1,841
 
 
(1,843
)
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
Convert 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
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
104,167
 
 
104
 
 
492
 
 
1
 
 
35,168,476
 
 
35,169
 
 
10,506,007
 
 
  
 
 
  
 
 
  
 
 
(10,478,646
)
 
62,635
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
Sale of Series D
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
20,833
 
 
21
 
 
  
 
 
  
 
 
  
 
 
  
 
 
49,979
 
 
  
 
 
  
 
 
  
 
 
  
 
 
50,000
 
Common stock issued for
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
Cash
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
Consulting fees
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
6,000,000
 
 
6,000
 
 
234,000
 
 
  
 
 
  
 
 
($240,000
)
 
  
 
 
  
 
Deferred payroll and accrued
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
expenses - officers
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
2,160,035
 
 
2,160
 
 
173,102
 
 
  
 
 
  
 
 
  
 
 
  
 
 
175,262
 
Loans payable - officers/directors
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
500,000
 
 
500
 
 
9,500
 
 
  
 
 
  
 
 
  
 
 
  
 
 
10,000
 
Sale of subsidiary
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
2,829
 
 
404,154
 
 
($28,291
)
 
  
 
 
  
 
 
(25,462
)
Convert Series E and dividends
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
(80
)
 
  
 
 
1,790,341
 
 
1,790
 
 
(1,790
)
 
  
 
 
  
 
 
  
 
 
(3,168
)
 
(3,168
)
Amortization
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
30,000
 
 
  
 
 
30,000
 
Options issued
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
4,000
 
 
  
 
 
  
 
 
  
 
 
  
 
 
4,000
 
Net loss
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
(4,020,536
)
 
(4,020,536
)
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
Balance, December 31, 2004
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
125,000
 
$
125
 
 
412
 
$
1
 
 
45,618,852
 
$
45,619
 
$
10,977,627
 
 
404,154
 
 
($28,291
)
 
($210,000
)
 
($14,502,350
)
 
($3,717,269
)
 
See notes to consolidated financial statements.

F-5
 
 
 
Univec, Inc. and Subsidiaries
 
Consolidated Statement of Cash Flows
 
Years ended December 31, 2004 and 2003 (Restated)
 
 
 
 
2004
 
2003
 
 
 
 
 
(Restated)
 
Cash flows from operating activities
 
 
  
 
 
  
 
Net loss
 
$
(4,020,536
)
$
(1,545,601)
)
Adjustments to reconcile net loss to net cash
 
 
  
 
 
  
 
   used in operating activities
 
 
  
 
 
  
 
   Loss on write-off of goodwill
 
 
1,774,119
 
 
  
 
   Loss on sale of subsidiary
 
 
481,719
 
 
  
 
   Depreciation and amortization
 
 
189,008
 
 
165,511
 
   Write-off of equipment
 
 
57,295
 
 
  
 
   Valuation allowance for inventories
 
 
75,000
 
 
45,000
 
   Stock based compensation
 
 
4,000
 
 
36,400
 
   Loss (gain) on cancellation of capital lease
 
 
(2,894
)
 
121,366
 
   Gain on extinguishment of debt
 
 
(98,547
)
 
(24,872
)
   Gain on receipt of marketable securities
 
 
(36,349
)
 
  
 
   Other
 
 
(11,435
)
 
  
 
Changes in assets and liabilities, net of
 
 
  
 
 
  
 
   effects from sale of TWT
 
 
  
 
 
  
 
   Accounts receivable
 
 
(506,983
)
 
(2,293,183
)
   Inventories
 
 
17,698
 
 
128,413
 
   Other current assets and other assets
 
 
(3,320
)
 
7,727
 
   Accounts payable and accrued expenses
 
 
713,610
 
 
2,547,614
 
   Deferred payroll
 
 
619,631
 
 
536,934
 
   Escrow deposits
 
 
 
 
 
(10,000
)
 
 
 
  
 
 
  
 
   Net cash used in operating activities
 
 
(747,984
)
 
(284,691
)
 
 
 
  
 
 
  
 
Cash flows from investing activities
 
 
  
 
 
  
 
   Purchases of fixed assets (net of capitalized
 
 
  
 
 
  
 
      lease obligation of $250,000 in 2003)
 
 
(397,068
)
 
(1
)
   Increase in restricted cash
 
 
(340,407
)
 
  
 
   Cash used in sale of subsidiary (net of notes and
 
 
  
 
 
  
 
      other payables of $103,600)
 
 
(5,670
)
 
  
 
   Net cash used in investing activities
 
 
(743,145
)
 
(1
)
 
 
 
  
 
 
  
 
Cash flows from financing activities
 
 
  
 
 
  
 
   Proceeds from notes and loans payable,
 
 
  
 
 
  
 
      net of expenses of $80,146 in 2004
 
 
1,104,343
 
 
178,453
 
   Increase in due from affiliated companies
 
 
567,194
 
 
71,870
 
   Increase in loans payable - officers/directors
 
 
54,000
 
 
230,419
 
   Proceeds from sale of stock
 
 
50,000
 
 
20,000
 
   Payments on notes and loans payable
 
 
(242,386
)
 
(229,363
)
   Payments of capitalized lease obligations
 
 
(21,232
)
 
(62,126
)
   Dividends converted to preferred stock
 
 
(3,168
)
 
 
 
 
 
 
  
 
 
  
 
   Net cash provided by financing activities
 
 
1,508,751
 
 
209,253
 
 
 
 
  
 
 
  
 
   Net increase (decrease) in cash
 
 
17,622
 
 
(75,439
)
Cash, beginning of period
 
 
11,821
 
 
87,260
 
 
 
 
  
 
 
  
 
Cash, end of period
 
$
29,443
 
$
11,821
 
 
 
 
  
 
 
  
 
Supplemental disclosure of cash flow information
 
 
  
 
 
  
 
   Cash paid for interest
 
$
48,709
 
$
102,961
 
Supplemental disclosures of non-cash activity
 
 
  
 
 
  
 
   Common stock issued in payment of
 
 
  
 
 
  
 
      loans payable - officers/directors
 
$
10,000
 
$
20,000
 
   Common stock and options issued in payment
 
$
179,262
 
 
  
 
      of deferred payroll and accrued expenses
 
 
  
 
 
  
 
   Conversions of Series E to common stock,
 
 
  
 
 
  
 
      including dividends
 
$
3,168
 
$
89,807
 
   Treasury stock received, net of options issued,
 
 
  
 
 
  
 
      on sale of subsidiary
 
$
(125,462
)
 
  
 
 
 
F-6
 
 
 
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 until its sale, marketed a medical waste disposal unit.

2. Restatement

The Company has restated (see Note # 5) its year ended December 31, 2004 and 2003 revenue by $19,120,561 and $16,038,075, respectively and the related Cost of Revenues by $19,120,561 and $16,038,075, respectively to reflect the Company’s change to the “net” revenue method for its GPO product sales. The Company determined that there was not a satisfactory extent of risk transferred in the transaction and therefore the provisions of the “net” method of revenue recognition are more appropriate in the circumstances. The Company restated its year ended December 31, 2003 gross profit margin by an aggregate $419,510. This restatement includes three distinct factors. The Company restated its 2003 sales and related cost of revenues by a net $12,439 increase in gross margin to reflect the overall effect of an incorrect 2003 year-end sales cutoff. The Company incurred $50,000 for the year 2003 as a result of inventory write-downs, which have been reclassified to be reported as components of cost of revenues..  Finally, 2003 GPO cost adjustments of  $381,949.00 have been reclassified to be reported as a reduction of revenue. For the year-end December 31, 2003, the Company recognized $381,949 of cost adjustments provided to the Company’s group purchasing customer as general and administrative expenses. However, EITF 01-9 requires that such cost adjustments be reported as a reduction of revenues. This reclassification is reported on the enclosed Statement of Operations for year-end December 31, 2003. No such cost adjustment payments have been made to any customer after that time. All of the financial information described in this footnote is presented in accordance with Accounting Principles Board Statement No. 20, paragraph 37 regarding the nature of the restatement disclosure.






The Company has corrected a $121,366 error on the loss on write-off of a capital lease less $11,958 related depreciation expense and $5,623 increased related interest expense restatement which occurred during the year ended December 31, 2003 in connection with the correction of a prior error in reporting capitalized lease of equipment. The underlying fixed assets were purchased by a related company owned by an officer of the Company and leased to the Company. In 2003, the Company originally incorrectly reported the payoff of the lease from proceeds of loans. This restatement recorded the reinstatement and subsequent write-off of the old capitalized lease and the capitalization of the new lease, which resulted in an additional prior period net loss of $115,031, less than $0.01, per share. The new lease was for a term of three years and provided for monthly rent of $3,944 and a purchase option of $100,000 at the end of the lease term.

The Company has corrected the reporting of this capitalized the lease. The capitalized lease obligation and related assets have been recorded at the lower of the present value of the minimum lease obligations or the fair value of the minimum lease obligations or the fair value of the related assets of $250,000. In July 2004, the Company purchased the equipment under the lease for $250,000, effectively canceling the lease.
 
The general and administrative expenses for 2003 have been reduced by $101,388 to properly report only costs actually incurred as 2003 expenditures. Certain previously reported fee expenses were established to be subsequent period costs.

The restated Consolidated Statement of Operations for the Year-ended December 31, 2003 is composed of the following accounting corrections. Various reclassifications have also been included therein. 
 
 
 
 
 
Year-end December 31, 2003 (net loss) as originally reported
 
 
($1,545,601
)
 
 
 
  
 
Increase in gross margin - year-end cutoff
 
 
12,439
 
Decrease in gross margin - inventory write-down
 
 
(50,000
)
Decrease in gross margin - reduction of revenue
 
 
(381,949
)
Net Decrease in gross margin
 
 
(419,510
)
 
 
 
  
 
Increase in net interest expense
 
 
(5,623
)
Decrease in depreciation expense
 
 
11,958
 
Loss on write-off of capital lease
 
 
(121,366
)
Reclassification of General and Administrative expenses
 
 
431,949
 
General and Administrative expense adjustment
 
 
101,388
 
Miscellaneous adjustments
 
 
1,204
 
Year-end December 31, 2003 (net loss) as restated
 
 
($1,545,601
)
 




 
Univec, Inc and Subsidiaries
 
 
 
 
 
 
 
Consolidated Statement of Operations (Restated)
 
 
 
 
 
 
 
Year ended December 31, 2003
 
 
 
 
 
 
 
 
 
Year-Ended
 
 
 
Year-Ended
 
 
 
Dec. 31, 2003
 
 
 
Dec. 31, 2003
 
 
 
(Originally reported)
 
Restatements
 
(Restated)
 
 
 
 
 
 
 
 
 
Revenues (Note 5)
 
$
16,133,652
 
$
(15,193.,905
) 
$
939,747
 
Cost of revenues
 
 
15,722,885
 
 
(14,774,395
) 
 
948,490
 
 
 
 
 
 
 
 
 
 
 
 
Gross Margin
 
 
410,767
 
 
(419,510
)
 
(8,743
)
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
 
 
Marketing and selling
 
 
387,769
 
 
(8,031
)
 
379,738
 
Product development
 
 
28,617
 
 
(70
)
 
28,547
 
General and administrative
 
 
1,478,913
 
 
(631,900
)
 
847,013
 
Loss on write-off of capitalized lease
 
 
 
 
 
121,366
 
 
121,366
 
Total Operating Expenses 
 
 
1,895,299
 
 
(518,635
)
 
1,376,664
 
 
 
 
 
 
 
 
 
 
 
 
Loss from Operations
 
 
(1,484,532
)
 
99,125
 
 
(1,385,407
)
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
 
 
(85,941
)
 
(5,623
)
 
(91,564
)
Gain on extinguishments of debt
 
 
24,872
 
 
 
 
 
24,872
 
 
 
 
 
 
 
 
 
 
 
 
Total other expenses
 
 
(61,069
)
 
(5,623
)
 
(66,692
)
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
 
(1,545,601
)
 
93,502
 
 
(1,452,099
)
 
 
 
 
 
 
 
 
 
 
 
Loss from discontinued operations
 
 
-
 
 
(93,502
)
 
(93,502
)
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
 
(1,545,601
)
 
-
 
 
(1,545,601
)
 
 
 
 
 
 
 
 
 
 
 
Dividends attributable to preferred stock
 
 
(39,025
)
 
-
 
 
(39,025
)
 
 
 
 
 
 
 
 
 
 
 
Loss attributable to common stockholders
 
$
(1,584,626
)
$
-
 
$
(1,584,626
)
 
 
 
 
 
 
 
 
 
 
 
Share information
 
 
 
 
 
 
 
 
 
 
Basic net loss per common share
 
$
(0.05
)
$
-
 
$
(0.05
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic weighted average number
 
 
 
 
 
 
 
 
 
 
of common shares outstanding
 
 
33,751,508
 
 
-
 
 
33,751,508
 
 
 
 
 
 
 
 
 
 
 
 
 
3. Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of December 31, 2004, the Company had negative working capital of $4,207,570 and stockholders' deficit of $3,717,269 and had previously incurred net losses of $(4,020,536) and $(1,584,626) for the years ended December 31, 2004 and 2003. The Company is also in default of approximately $1,200,000, of loans and notes payable all of which are payable on demand as a result of such defaults. These factors, among others, indicate that the Company's continuation as a going  concern is dependent upon its ability to obtain adequate financing and/or achieve profitable operations. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

Management is currently seeking additional investment capital to support its entrance into new business ventures and provide the capital needed to operate.

4. Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include all the accounts of the Company and its wholly-owned subsidiaries, Physician and Pharmaceutical Services, Inc. (PPSI), Thermal Waste Technologies, Inc. (TWT), until its sale and Rx Ultra, Inc. (inactive). All material inter-company balances and transactions have been eliminated. The consolidated financial statements include all the accounts of Thermal Waste Technologies, Inc. until its sale

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, 2004, no allowance was necessary.

Inventories

Inventories are valued at the lower of cost, determined by the first-in, first-out method, or market.

F-7
 
 
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 seven years. 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.

Shipping Income and Expense

Shipping income is included in product sales. Shipping expenses are included in marketing and selling.
 
Product Development

Research and development costs have been expensed as incurred.

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 anti-dilutive.

Revenue Recognition

Product sales are recognized when products are shipped. Although the Company warrants its products, it is unable to estimate the future costs relating to warranty expense and, as such, recognizes warranty expenses as incurred. Revenues for PPSI's group purchasing service (GPO) are recognized using the “net” sales method of  revenue reporting.

Stock Based Compensation

Compensation cost for stock, stock options, warrants, etc., issued to employees and non-employees is based on the fair value method.

Income Taxes

Deferred income taxes have been provided for temporary differences between financial statement and income tax reporting under the liability method , using expected tax rates and laws that are expected to be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not , that the deferred tax assets will not be realized.
 
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.
 
F-8
 
 
New Accounting Pronouncements

Financial Accounting Standards Board Statement # 123R, Stock Based Compensation, effective for the year ended December 31, 2006, has not been analyzed to determine if it will have a material effect on the Company’s financial statements.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

Note 5. Concentrations

The Company purchased 99% of its pharmaceutical drugs for its group purchasing service (GPO) from one vendor. This supplier is not a related party as defined in SFAS 57. The arrangement requires the Company to pay for the drugs within forty five days after the respective period month-end.

The Company maintains a corporate group purchasing sales arrangements with an affiliated company, Pharmacy Services, Inc. (PSI), which is a related party as defined in SFAS 57. This related party is a private company wholly owned by the President of Univec, Inc. The president of Univec, Inc. is also a significant shareholder of Univec, Inc. The Company, through its wholly owned subsidiary Physicians and Pharmaceutical Services, Inc. (PPSI) operates the GPO. PSI pays PPSI at group purchasing prices. PSI paid $19,046,224 for pharmaceutical drugs to PPSI during 2004. PSI must pay the Company for such goods within thirty days of the appropriate month-end. PSI pays the Company a specified price, which is based on the cost of the drugs as determined by the Company’s market experience with its non-related providers.
 
Revenue Recognition

As a result of the differing circumstances related to the Company’s manufacture, procurement, distribution and physician sampling programs, diverse financial accounting methods are utilized to recognize the revenue from its various financial sources.

The Company utilizes the “gross” sales method of recognizing the amount of revenue from its syringe manufacturing and specialty pharmaceutical drug product sales. This method is influenced by several factors as defined by EITF 99-19, which the Company’s market agreements indicate to be in accordance with the gross sales method. The most significant factor under these agreements include the Company’s retention of the inventory’s risk of loss for these products.
 
The GPO and physician sampling programs use the “net” method of revenue recognition (see Note # 2). However, the Company rather than the supplier is the primary credit obligor in these arrangements.
 
Distributor Arrangements

The Company markets its syringe products exclusively through distributors and various government agencies. Accounts receivable balances are payable within thirty days of shipment. Univec provides a product quality warranty on its products. The Company has never had any of its products returned due to product deficiencies. The products are priced under competitive arrangements with each customer. The product revenue recognition is based upon the prices charged to each customer. The Company has no price concessions which allow payments below the agreed prices.

Product Warranties

The Company provides a product warranty for the products sold. However, the Company has never had a product returned due to defective quality. Further, there are no warranty costs recognized in any of the years ended December 31, 2004 and 2003. The Company believes that because no warranty costs were incurred during any of the periods mentioned, there is no need to disclose any additional warranty cost policy or amounts.
 
6. Marketable Securities

As of December 31, 2004, marketable securities consisted of an investment in an equity security, with a fair market value of $36,349. Management has classified the investment as available-for-sale.
The Company received this security in December 2004 upon the conversion from a mutual to a stock insurance company in which Univec had owned a policy.

In January 2005, the security was sold for $36,101.
 
7. Inventories

Inventories consisted of the following:
 
Raw materials
 
$
152,252
 
Work-in-process
 
 
89,740
 
Finished goods
 
 
62,886
 
 
 
 
304,878
 
Less: allowance for valuation
 
 
(125,000
)
 
 
$
179,878
 

The Company provided a $75,000 and $50,000 valuation allowance in 2004 and 2003, respectively.

8. Fixed Assets

Fixed assets consisted of the following:
 
 
Equipment
  
$
1,100,784
  
Less: accumulated depreciation
    
478,099
 
 
  
$
622,685
  


As of December 31, 2004, the Company wrote-off fixed assets located at former suppliers with a cost of $371,764 and a net book value of $85,088.

Depreciation expense was $128,901 and $174,541 in 2004 and 2003, respectively. For the year ended December 31, 2004, fully depreciated assets were approximately $43,000.

F-9
 
9. Notes and Loans Payable

As of December 31, 2004, notes and loans payable consisted of:
 
Loan due to a shareholder through July, 2009,
       
   with interest at 4% (1) (3)
  
$
500,000
  
Loans payable to agencies for economic
        
   development payable at $9,230 per month until
        
   July 2009, with interest at 4% per annum (1) (3)
    
470,208
  
Loan payable to a vendor without specific
        
   payment terms or interest (2)
    
211,852
  
Loan payable to a vendor without, specific interest (3)
    
135,000
  
Loan payable to a vendor due April 30, 2007
        
   with interest at prime plus 2% per annum (3)
    
105,516
  
Notes payable on August 14, 2005, with interest at 8%
    
85,000
  
Note payable on to a former officer upon sale of
       
   subsidiary due June 2005, without specific interest
    
60,000
  
Notes payable on June 2005, with interest at 12%,
        
   per annum
   
55,000
  
Notes payable to a shareholder's trusts, with interest
        
   at 12%, per annum (2)
    
27,000
  
Other
   
34,438
  
 
    
1,684,014
  
Less: Current portion of notes and loans payable
    
1,472,162
  
 
  
$
211,852
  
 
(1) On July 23, 2004, the Company borrowed an aggregate of $500,000 from the City of Baltimore Development Corporation and the Maryland Department of Business and Economic Development payable in aggregate equal monthly installments of $9,230 over five years, with interest at 4%, per annum. Proceeds are to be used to purchase equipment of $450,000, which together with certain other equipment of the Company, collateralize the borrowings. The borrowings also required deposits of $335,000 and an irrevocable standby letter of credit of $200,000. Loans from certain officers and directors of approximately $180,000 have been subordinated.
 
As required under the borrowings, the Company has obtained a revolving line of credit of $500,000 from a stockholder of the Company under which the Company may borrow for working capital through July 22, 2009. Loans under the line bear interest at the prime rate, plus 2%, per annum, and may be converted into common stock at $.065, per share, as defined. If the line of credit is terminated within one year, there is a penalty of up to 90 days of interest. The Maryland Department of Business and Economic Development has guaranteed 80% of the loan and interest thereon. In July 2004, the Company borrowed $500,000 under the line of credit. As of December 31, 2004, interest rate was 7%, per annum.
 
Financing expenses in connection with these borrowings were $80,146 and will be amortized over the term of the borrowings.
 
(2) Subject to forgiveness upon the vendor's sale of shares of the Company’s common stock.
 
(3) In default due to either noncompliance or late payments. As a result of these defaults, the Company has reclassified long-term debt of $457,376 to current.

10. Due to Affiliated Companies

Due to affiliated companies, owned by the chief executive officer of the Company, on demand, with interest at 10%, per annum.

11. Loans Payable - Officer/Directors

As of December 31, 2004, 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)
  
$
200,000
  
Note payable to a director
   
53,300
  
Others
   
7,193
  
 
  
$
260,493
  
 
F-10

 
(1) The same terms as an underlying borrowing from a bank and collateralized by certain equipment. As of December 31, 2004 the interest rate was 7%, per annum.

12. Income Taxes
The Company files consolidated income tax returns with its subsidiaries. Prior to its acquisition, PPSI was a Subchapter S Corporation.

As of December 31, 2004, the Company had net operating loss carry forwards of approximately $15,250,000 available to reduce future taxable income expiring through 2024, which may be limited due to ownership changes.

For the years ended December 31, 2004 and 2003, the Company's deferred tax benefits (expenses) were as follows:

 
  
2004
  
2003
  
Net operating loss carry forwards
  
$
615,000
  
$
200,000
  
Depreciation
   
191,000
   
184,000
  
Goodwill
   
(19,000
)
  
(59,000
)
Compensation
   
132,000
   
200,000
  
Inventory and equipment valuation
              
allowances
   
60,000
        
Valuation allowance
    
(979,000
)
  
(525,000
)
None
          
None
  

As of December 31, 2004, the tax effects of the components of deferred tax assets and liabilities were as follows:

Deferred tax assets
  
 
  
Net operating loss carry forwards
  
$
5,352,000
  
Compensation
   
482,000
  
Depreciation
   
183,000
  
 
        
Total deferred tax asset
    
6,017,000
 
 
        
Deferred tax liabilities
        
Goodwill
   
(120,000
)
 
      
Net deferred tax asset
    
5,897,000
 
 
      
Valuation allowance
    
(5,897,000
)
 
        
None
       

As of December 31, 2004, realization of the Company's net deferred tax asset of approximately $5,425,000 was not considered more likely than not and, accordingly, a valuation allowance of $5,425,000 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.

 
  
2004
  
2003
  
 
  
 
  
 
  
Expected income tax benefit
 
$
(437,000
)
$
(303,000
)
Change in valuation allowance arising in current year
   
1,164,000
    
504,000
  
State income tax benefit, net of federal income tax effect
   
(107,000
)
  
(75,000
)
Other
   
(620,000
)
  
(126,000
)
None
         
None
  
 
F-11

 
13. Commitments and Contingency

Lease

The Company is committed under a non-cancelable lease for production, storage and office space through July 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 eight one year renewals at the Company's option.

For 2004 and 2003, total rent expense was $73,200 and $77,439, respectively.

Employment Agreement

The Company is committed under an employment agreement to 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 years ended December 31, 2004 and 2003, the compensation was $396,000 and $360,000, respectively, which have been deferred by the chief executive officer. The agreement also provides for bonuses, as determined by the officer and the Company, an automobile allowance (of $24,000, per annum, for 2004) and life,  disability and health insurance. 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.

14. Litigation Reserve

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 not be determined, no value was assigned to them.

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.
 
15. Stockholders' Equity
 
During 2004, the Company was listed as a public company on the OTC Bulletin Board. All of the transactions reported in Note 14 - Stockholders’ Equity had fair market valuations based on the publicly listed closing prices of the Company’s common stock for the pertinent transaction dates. Such publicly listed valuations are in accordance with the guidance provided by SFAS 123 and EITF 96-18
Common Stock

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.

In December 2003, the Company issued 100,000 shares of common stock in exchange for financial consulting services of $10,000.
 
During the year ended December 31, 2004, the Company issued an aggregate of 2,660,034 shares of common stock to a stockholder and three officers in payment of notes and loans of $10,000, deferred payroll of $$50,000 and benefits of $125,262.
 
F-12

 
In November 2004, the Company exchanged 6,000,000 shares of common stock for $240,000 of professional consulting services over a one-year term. As of December 31, 2004, the remaining balance of services to be rendered was $210,000, which is reflected as Stock Subscription Receivable in the Stockholders’ Deficit.

During 2004, the Company was listed as a public company on the OTC Bulletin Board. All of the transactions reported in the preceding discussion had fair market valuations based on the publicly listed closing prices of the Company’s common stock for the pertinent transaction dates. Such publicly listed valuations are in accordance with the guidance of SFAS 123 and EITF 96-18.

Preferred 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.

Series D

The Company has designated 1,250,000 shares of 5% cumulative convertible preferred stock (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, in cash at $2.40, per share. In addition, Series D stockholders are entitled to a liquidation preference of $2.40, per share, plus unpaid dividends. Each share of Series D is initially convertible into three shares of common stock.

 In December 2004, the Company sold 20,833 shares of Series D preferred stock to a customer for $50,000. The Company will also sell similar amounts on March 31, June 30,
September 30 and December 31, 2005.
 
F-13
 
Series E

In August 2003, the Company designated 2000 shares of 5% cumulative convertible preferred stock (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 dividends. In addition, Series E stockholders are entitled to a liquidation preference of $1,000, per share, plus all unpaid 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 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 2004 and 2003, 80 and 30 shares of Series E were converted into 1,790,341 and 340,909 shares of common stock at prices ranging from $.03 to $.09, per share.

Holders of preferred shares have no voting rights.

As of December 31, 2004, cumulative dividends in arrears on preferred stock were:
 
Series D
  
$
36,736
  
Series E
    
30,994
  
 
  
$
67,730
  
 
Non Plan Options

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 $36,400. Certain of these options to officers and directors vest over three years.

During the year ended December 31, 2004, the Company issued options to purchase an aggregate of 1,050,000 shares of common stock of the Company to two officers and an employee. The options are exercisable at $.04, per share, through December 2009 and were valued at $4,000.

During 2004 and 2003, options to purchase 4,850,000 and 1,763,941 shares, respectively, of common stock expired or were cancelled without being exercised.

Reserved Shares

As of December 31, 2004, the Company has reserved shares of common stock as follows:
 
Non-plan options and warrants
 
 
9,280,172
 
Options under the Plans
 
 
1,335,000
 
Series D conversions
 
 
375,000
 
Series E conversions(a)
 
 
4,027,218
 
Litigation
 
 
250,000
 
 
 
 
15,267,390
 
 
(a) assumes conversions as of December 31, 2004 at $.11, per share.

16. 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.

 The following table summarizes the activity of the Plans for 2004 and 2003.
 
 
  
2004
  
2003
  
 
  
 
  
Weighted
  
 
  
Weighted
  
 
  
 
  
Average
  
 
  
Average
  
 
  
 
  
Exercise
  
 
  
Exercise
  
 
  
Shares
  
Price
  
Shares
  
Price
  
 
  
 
  
 
  
 
  
 
  
Options outstanding, beginning of year
   
1,335,000
  
$
0.70
    
2,569,000
  
$
1.20
  
Granted
   
None
    
-
    
None
      
Canceled, exercised, expired or exchanged
   
None
    
-
    
(1,234,000
)
$
1.74
  
Options outstanding, end of year
   
1,335,000
  
$
0.70
    
1,335,000
  
$
0.70
  
Options exercisable, end of year
   
1,335,000
  
$
0.70
    
1,335,000
  
$
0.70
  
Options available for grant, end of year
   
1,050,000
        
1,050,000
      
Weighted-average fair value of options granted
                  
during the year
 
$
.00
      
$
.00
      

 
F-14
 

The following table summarizes information about stock options outstanding under the Plan at December 31, 2004:

 
 
Weighted
 
 
 
 
Average
 
Weighted
 
 
Remaining
 
Average
Range of
Outstanding
Contractual
Exercisable
Exercisable
Exercise Prices
Options
Life (Years)
Options
Price
$3.50
65,000
2.50
65,000
$3.50
$2.00
70,000
3.00
70,000
$2.00
$0.675
650,000
.50
650,000
$0.675
$0.50
100,000
6.25
100,000
$0.50
$0.24
35,000
8.00
35,000
$0.24
$0.20
60,000
1.75
60,000
$0.20
$0.15
355,000
5.50
355,000
$0.15
$0.15 to $3.50
1,335,000
2.70
1,335,000
$0.70


17. 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. In December 2003, the Company sold this license and assigned certain patents to a creditor in payment of $99,433 and also assigned certain 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.


F-15


Note 18, Discontinued Operations

The Company recognized a loss of $597,056 on the 2004 sale of Thermal Waste Technology Corporation (TWT) a wholly owned subsidiary. This loss included a $554,542 write-off for the total impairment of goodwill attributable to the subsidiary. TWT was sold to an officer of the Company and his related parties, all former owners of TWT, in exchange for 404,154 shares of common stock of the Company, cancellation of deferred compensation to the officer of $221,042 and cancellation of the officer’s employment agreement. In addition, the officer received options to purchase 97,710 shares of common stock of the Company, exercisable at $.01, per share, for 10 years and the other purchasers received option to purchase 296,444 shares of common stock of the Company, exercisable at $.07, per share, for 10 years. The officer also will receive $100,000 in cash, payable in monthly installments of $10,000, commencing August 2004 and medical insurance payments of $3,600. All of the Univec, Inc. common stock and options exchanged in the transaction was valued at publicly listed closing prices of the Company’s common stock. Such publicly listed valuations are in accordance with the guidance of SFAS 123 and EITF 96-18.

During the year-ended December 31, 2003 the Company reported that a corporate officer had instituted a legal action for approximately $200,000 for wages plus approximately $12,000 related to health and dental insurance premiums plus interest. All amounts within the claim were previously accrued by the Company as operating expenses as they were incurred. However, the Company’s defense in the matter included a claim that the officer had entered into one or more agreements with third parties on behalf of the Company without notifying the Company’s President or Board of Directors. The Company asserted that damages to the Company in excess of the alleged liability to the officer had been incurred.
 
F-16
 
19. Goodwill

Goodwill had represented 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 had not been amortized, but instead was subject to an annual assessment of impairment by applying a fair-value based test. The Company evaluated the carrying value of goodwill as of December 31, 2004.
The Company determined the carrying value of goodwill has been fully impaired and has written-off the carrying value of $1,774,119.
 
20. Subsequent Events

Common Stock

In January 2005, 30 shares of Series E and unpaid dividends thereon of $2,188 were converted into 804,688 shares of common stock at $.04, per share.

In January 2005, the Company issued an aggregate of 1,037,980 shares of common stock to three officers of the Company in exchange for deferred compensation of $60,000 and accrued expenses of $17,158.

In February 2005, the Company issued 50,000 shares of common stock to an officer in payment of deferred compensation of $5,000.

In March 2005, the Company sold 350,000 shares of common stock to two investors for an aggregate of $35,000.

Due to Affiliated Companies and Officers

Subsequent to December 31, 2004, the Company borrowed an additional $70,000 from the affiliated companies.

21. Selected Quarterly Financial Data - 2004 and 2003 (Unaudited)
 
Univec, Inc. and Subsidiaries
 
 
 
 
 
 
 
 
 
Balance Sheets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2004
 
September 30, 2004
 
June 30, 2004
 
March 31, 2004
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
    Cash
 
$
29,443
 
$
8,024
 
$
49,162
 
$
852
 
    Marketable securities
 
 
36,349
 
 
 
 
 
 
 
 
 
 
    Accounts receivable
 
 
3,123,493
 
 
1,628,446
 
 
1,508,933
 
 
1,472,635
 
    Inventories
 
 
179,878
 
 
269,672
 
 
301,913
 
 
295,248
 
    CDs - restricted
 
 
340,407
 
 
335,000
 
 
335,000
 
 
 
 
    Other current assets
 
 
46,630
 
 
83,341
 
 
96,297
 
 
124,888
 
    Total current assets
 
 
3,756,200
 
 
2,324,483
 
 
2,291,305
 
 
1,893,623
 
    Fixed assets - net
 
 
622,685
 
 
894,802
 
 
542,401
 
 
587,598
 
    Goodwill
 
 
 
 
 
1,774,119
 
 
2,328,662
 
 
2,328,662
 
    Other assets
 
 
79,468
 
 
83,475
 
 
6,000
 
 
6,000
 
Total assets
 
$
4,458,353
 
$
5,076,879
 
$
5,168,368
 
$
4,815,883
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders Deficit
 
 
 
 
 
 
 
 
 
 
 
 
 
    Accounts payable &
 
 
 
 
 
 
 
 
 
 
 
 
 
        accrued expenses
 
$
4,380,826
 
$
2,946,251
 
$
2,877,647
 
$
2,762,038
 
    Deferred payroll
 
 
1,271,488
 
 
1,092,697
 
 
1,261,588
 
 
1,064,292
 
    Notes and loans pay
 
 
 
 
 
 
 
 
 
 
 
 
 
        - current
 
 
1,472,163
 
 
1,065,795
 
 
350,872
 
 
166,376
 
    Loans payable -
 
 
 
 
 
 
 
 
 
 
 
 
 
        officers/directors
 
 
260,493
 
 
260,493
 
 
270,493
 
 
270,493
 
    Due to affiliated
 
 
 
 
 
 
 
 
 
 
 
 
 
        companies
 
 
578,800
 
 
504,643
 
 
663,452
 
 
328,017
 
Total current liabilities
 
 
7,963,770
 
 
5,869,879
 
 
5,424,052
 
 
4,591,216
 
    Notes and loans
 
 
 
 
 
 
 
 
 
 
 
 
 
        payable - long-term
 
 
211,852
 
 
696,814
 
 
409,051
 
 
497,033
 
Total liabilities
 
 
8,175,622
 
 
6,566,693
 
 
5,833,103
 
 
5,088,249
 
Stockholders’ deficit
 
 
 
 
 
 
 
 
 
 
 
 
 
    Preferred stock - D
 
 
125
 
 
104
 
 
104
 
 
104
 
    Preferred stock - E
 
 
1
 
 
1
 
 
1
 
 
1
 
    Common stock
 
 
45,619
 
 
38,628
 
 
37,872
 
 
37,872
 
    Additional paid-in
 
 
 
 
 
 
 
 
 
 
 
 
 
        capital
 
 
10,977,627
 
 
10,690,639
 
 
10,661,408
 
 
10,661,408
 
    Treasury stock
 
 
(28,291
)
 
(28,291
)
 
 
 
 
 
 
    Stock subscription
 
 
(210,000
)
 
 
 
 
 
 
 
 
 
    Accumulated deficit
 
 
(14,502,350
)
 
(12,190,895
)
 
(11,364,120
)
 
(10,971,751
)
Total stockholders'
 
 
 
 
 
 
 
 
 
 
 
 
 
    deficit
 
 
(3,717,269
)
 
(1,489,814
)
 
(664,735
)
 
(272,366
)
Total liabilities and
 
 
 
 
 
 
 
 
 
 
 
 
 
    stockholders deficit
 
$
4,458,353
 
$
5,076,879
 
$
5,168,368
 
$
4,815,883
 
 
F-17


    
Univec, Inc. and Subsidiaries
 
 
 
 
 
 
 
 
 
Balance Sheets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2003
 
September 30, 2003
 
June 30, 2003
 
March 31, 2003
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
    Cash
 
$
11,821
 
$
5,968
 
$
7,738
 
$
54,823
 
    Accounts receivable
 
 
1,273,322
 
 
61,308
 
 
72,820
 
 
163,851
 
    Inventories
 
 
291,715
 
 
448,438
 
 
457,021
 
 
459,480
 
    Other current assets
 
 
147,635
 
 
157,422
 
 
137,832
 
 
129,301
 
    Total current assets
 
 
1,724,493
 
 
673,136
 
 
675,411
 
 
807,455
 
    Fixed assets - net
 
 
633,536
 
 
573,011
 
 
620,714
 
 
665,887
 
    Goodwill
 
 
2,328,662
 
 
2,328,662
 
 
2,328,662
 
 
2,328,662
 
    Other assets
 
 
6,000
 
 
46,691
 
 
55,581
 
 
55,581
 
Total assets
 
$
4,692,691
 
$
3,621,500
 
$
3,680,368
 
$
3,857,585
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders Deficit
 
 
 
 
 
 
 
 
 
 
 
 
 
    Accounts payable &
 
 
 
 
 
 
 
 
 
 
 
 
 
        accrued expenses
 
$
2,571,528
 
$
1,397,920
 
$
1,388,157
 
$
1,322,089
 
    Deferred payroll
 
 
922,899
 
 
681,047
 
 
582,167
 
 
502,262
 
    Notes and loans pay
 
 
 
 
 
 
 
 
 
 
 
 
 
        - current
 
 
177,663
 
 
412,997
 
 
418,545
 
 
423,093
 
    Loans payable -
 
 
 
 
 
 
 
 
 
 
 
 
 
        officers/directors
 
 
216,493
 
 
200,419
 
 
112,419
 
 
4,419
 
    Due to affiliated
 
 
 
 
 
 
 
 
 
 
 
 
 
        companies
 
 
235,734
 
 
133,224
 
 
54,037
 
 
45,645
 
Total current liabilities
 
 
4,124,317
 
 
2,825,607
 
 
2,555,325
 
 
2,297,508
 
    Notes and loans
 
 
 
 
 
 
 
 
 
 
 
 
 
        payable - long-term
 
 
505,739
 
 
403,246
 
 
403,246
 
 
403,246
 
Total liabilities
 
 
4,630,056
 
 
3,228,853
 
 
2,958,571
 
 
2,700,754
 
Stockholders’ deficit
 
 
 
 
 
 
 
 
 
 
 
 
 
    Preferred stock - A
 
 
 
 
 
 
 
 
 
 
 
1
 
    Preferred stock - B
 
 
 
 
 
 
 
 
1
 
 
1
 
    Preferred stock - C
 
 
 
 
 
 
 
 
1
 
 
1
 
    Preferred stock - D
 
 
104
 
 
104
 
 
104
 
 
104
 
    Preferred stock - E
 
 
1
 
 
1
 
 
 
 
 
 
 
    Common stock
 
 
35,169
 
 
34,366
 
 
33,616
 
 
33,616
 
    Additional paid-in
 
 
 
 
 
 
 
 
 
 
 
 
 
        capital
 
 
10,506,007
 
 
10,410,745
 
 
10,294,788
 
 
10,294,785
 
    Treasury stock
 
 
 
 
 
 
 
 
 
 
 
 
 
    Stock subscription
 
 
 
 
 
 
 
 
 
 
 
 
 
    Accumulated deficit
 
 
(10,478,646
)
 
(10,052,569
)
 
(9,606,713
)
 
(9,171,677
)
Total stockholders'
 
 
 
 
 
 
 
 
 
 
 
 
 
    deficit
 
 
62,635
 
 
392,647
 
 
721,797
 
 
1,156,831
 
Total liabilities and
 
 
 
 
 
 
 
 
 
 
 
 
 
    stockholders deficit
 
$
4,692,691
 
$
3,621,500
 
$
3,680,368
 
$
3,857,585
 
 
F-18

    
Univec, Inc. and Subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Statements of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year ended
 
Three months ended
 
Nine months ended
 
Three months ended
 
Six months ended
 
Three months ended
 
Three months ended
 
 
 
Dec. 31, 2004
 
Dec. 31, 2004
 
Sept. 30, 2004
 
Sept. 30, 2004
 
June 30, 2004
 
June 30, 2004
 
March 31, 2004
 
Revenues
 
$
327,827
 
$
31,658
 
$
296,169
 
$
99,631
 
$
196,538
 
$
171,688
 
$
24,850
 
Cost of revenues
 
 
(128,933
)
 
(71,997
)
 
(56,936
)
 
(33,861
)
 
(23,075
)
 
(38,511
)
 
15,426
 
Gross margin
 
 
198,894
 
 
(40,339
)
 
239,233
 
 
65,770
 
 
173,463
 
 
133,177
 
 
40,286
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Marketing and selling
 
 
(123,400
)
 
(7,986
)
 
(115,414
)
 
14,052
 
 
(129,466
)
 
(5,328
)
 
(124,138
)
    Product development
 
 
(28,871
)
 
(609
)
 
(28,262
)
 
(25,530
)
 
(2,732
)
 
(1,886
)
 
(846
)
    General & administrative
 
 
(1,772,246
)
 
(457,965
)
 
(1,314,281
)
 
(393,881
)
 
(920,400
)
 
(486,329
)
 
(434,071
)
    Loss on write-off of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        goodwill
 
 
(1,774,119
)
 
(1,774,119
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Total operating expenses
 
 
(3,698,636
)
 
(2,240,679
)
 
(1,457,957
)
 
(405,359
)
 
(1,052,598
)
 
(493,543
)
 
(559,055
)
Loss from operations
 
 
(3,499,742
)
 
(2,281,018
)
 
(1,218,724
)
 
(339,589
)
 
(879,135
)
 
(360,366
)
 
(518,769
)
Other income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Interest expense, net
 
 
(108,092
)
 
(23,288
)
 
(84,804
)
 
(38,424
)
 
(46,380
)
 
(32,003
)
 
(14,377
)
    Gain on extinguishment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        of debt
 
 
144,819
 
 
64,225
 
 
80,594
 
 
40,554
 
 
40,040
 
 
0
 
 
40,040
 
    Other income (expense)
 
 
47,795
 
 
47,795
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        Total other income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        (expense)
 
 
84,522
 
 
88,732
 
 
(4,210
)
 
2,130
 
 
(6,340
)
 
(32,003
)
 
25,663
 
Loss from continuing
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    operations
 
 
(3,415,220
)
 
(2,192,286
)
 
(1,222,934
)
 
(337,459
)
 
(885,475
)
 
(392,369
)
 
(493,106
)
Loss from discontinued
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Discontinued operating
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        losses
 
 
(8,260
)
 
 
 
 
(8,260
)
 
(8,260
)
 
 
 
 
 
 
 
 
 
    Loss on sale of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        subsidiary
 
 
(597,056
)
 
(116,000
)
 
(481,056
)
 
(481,056
)
 
 
 
 
 
 
 
 
 
Net loss
 
 
(4,020,536
)
 
(2,308,286
)
 
(1,712,250
)
 
(826,775
)
 
(885,475
)
 
(392,369
)
 
(493,106
)
Dividends attributable to
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    preferred stock
 
 
(35,921
)
 
(8,721
)
 
(27,200
)
 
(8,650
)
 
(18,550
)
 
(9,275
)
 
(9,275
)
Loss attributable to
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    common stockholders
 
 
($4,056,457
)
 
($2,317,007
)
 
($1,739,450
)
 
($835,425
)
 
($904,025
)
 
($401,644
)
 
($502,381
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic net loss per share
 
 
($0.11
)
 
($0.06
)
 
($0.05
)
 
($0.02
)
 
($0.02
)
 
($0.01
)
 
($0.01
)
Basic weighted avg
 
 
38,510,467
 
 
39,393,090
 
 
37,394,433
 
 
38,244,097
 
 
36,952,559
 
 
37,871,795
 
 
35,331,157
 
    number common
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    shares outstanding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
F-19
 


Univec, Inc. and Subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Statements of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year ended
 
Three months ended
 
Nine months ended
 
Three months ended
 
Six months ended
 
Three months ended
 
Three months ended
 
 
 
Dec. 31, 2003
 
Dec. 31, 2003
 
Sept. 30, 2003
 
Sept. 30, 2003
 
June 30, 2003
 
June 30, 2003
 
March 31, 2003
 
Revenues
 
$
939,747
 
$
296,642
 
$
643,105
 
$
234,698
 
$
718,617
 
$
197,866
 
$
520,751
 
Cost of revenues
 
 
(948,490
)
 
(366,830
)
 
(581,660
)
 
(247,832
)
 
(644,038
)
 
(262,916
)
 
(381,122
)
Gross margin
 
 
(8,743
)
 
(70,188
)
 
61,445
 
 
(13,134
)
$
74,579
 
 
(65,050
)
 
139,629
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Marketing and selling
 
 
(379,738
)
 
(16,008
)
 
(363,730
)
 
(109,061
)
 
(254,669
)
 
(119,289
)
 
(135,380
)
    Product development
 
 
(28,547
)
 
(5,544
)
 
(23,003
)
 
(2,850
)
 
(20,153
)
 
(15,530
)
 
(4,623
)
    General & administrative
 
 
(847,013
)
 
(228,882
)
 
(618,131
)
 
(206,054
)
 
(412,077
)
 
(242,824
)
 
(169,253
)
Loss on write-off of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    capitalized lease
 
 
(121,366
)
 
 
 
 
(121,366
)
 
 
 
 
(121,366
)
 
 
 
 
(121,366
)
    Total operating expenses
 
 
(1,376,664
)
 
(250,434
)
 
(1,126,230
)
 
(317,965
)
 
(808,265
)
 
(377,643
)
 
(430,622
)
Loss from operations
 
 
(1,385,407
)
 
(320,622
)
 
(1,064,785
)
 
(331,099
)
 
(733,686
)
 
(442,693
)
 
(290,993
)
Other income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Interest expense, net
 
 
(91,564
)
 
(14,516
)
 
(77,048
)
 
(27,501
)
 
(49,547
)
 
(20,108
)
 
(29,439
)
    Gain on extinguishment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        of debt
 
 
24,872
 
 
24,872
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        Total other income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        (expense)
 
 
(66,692
)
 
10,356
 
 
(77,048
)
 
(27,501
)
 
(49,547
)
 
(20,108
)
 
(29,439
)
Loss from continuing
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    operations
 
 
(1,452,099
)
 
(310,266
)
 
(1,141,833
)
 
(358,600
)
 
(783,233
)
 
(462,801
)
 
(320,432
)
Loss from discontinued
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Discontinued operating
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
        income (losses)
 
 
(93,502
)
 
(117,809
)
 
24,307
 
 
4,450
 
 
19,857
 
 
27,765
 
 
(7,908
)
Net loss
 
 
(1,545,601
)
 
(428,075
)
 
(1,117,526
)
 
(354,150
)
 
(763,376
)
 
(435,036
)
 
(328,340
)
Dividends attributable to
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    preferred stock
 
 
(39,025
)
 
(9,704
)
 
(29,321
)
 
(8,811
)
 
(20,510
)
 
(10,255
)
 
(10,255
)
Loss attributable to
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    common stockholders
 
 
($1,584,626
)
 
($502,810
)
 
($1,081,816
)
 
($362,961
)
 
($718,855
)
 
($495,291
)
 
($338,595
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic net loss per share
 
 
($0.05
)
 
($0.02
)
 
($0.03
)
 
($0.01
)
 
($0.02
)
 
($0.01
)
 
($0.01
)
Basic weighted avg
 
 
33,751,508
 
 
33,298,675
 
 
33,421,349
 
 
33,790,008
 
 
32,307,211
 
 
33,616,095
 
 
32,847,588
 
    number common
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    shares outstanding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
F-20

  
  
Univec, Inc. and Subsidiaries
 
 
 
 
 
 
 
 
 
Statement of Cash Flow
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
Nine Months Ended
 
Six MonthsEnded
 
Three Months Ended
 
 
 
December 31, 2004
 
September 30, 2004
 
June 30, 2004
 
March 30, 2004
 
Cash flows from operating activities
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
 
($4,020,536
)
 
($1,712,250
)
 
($885,475
)
 
($493,106
)
Adjustments to reconcile net loss to net cash
 
 
 
 
 
 
 
 
 
 
 
 
 
    used in operating activities
 
 
 
 
 
 
 
 
 
 
 
 
 
    Loss on write-off of goodwill
 
 
1,774,119
 
 
 
 
 
 
 
 
 
 
    Loss on sale of subsidiary
 
 
481,719
 
 
489,316
 
 
 
 
 
 
 
    Depreciation and amortization
 
 
189,008
 
 
135,686
 
 
91,135
 
 
45,938
 
    Write-off of equipment
 
 
57,295
 
 
 
 
 
 
 
 
 
 
    Valuation allowance for inventories
 
 
75,000
 
 
 
 
 
 
 
 
 
 
    Stock based compensation
 
 
4,000
 
 
 
 
 
 
 
 
 
 
    Loss (gain) on cancellation of capital lease
 
 
(2,894
)
 
 
 
 
 
 
 
 
 
    Gain on extinguishment of debt
 
 
(98,547
)
 
(80,594
)
 
(40,040
)
 
(40,040
)
    Gain on receipt of marketable securities
 
 
(36,349
)
 
 
 
 
 
 
 
 
 
    Other
 
 
(11,435
)
 
 
 
 
 
 
 
 
 
Changes in assets and liabilities, net of
 
 
 
 
 
 
 
 
 
 
 
 
 
    effects from sale of TWT
 
 
 
 
 
 
 
 
 
 
 
 
 
    Accounts receivable
 
 
(506,983
)
 
(367,110
)
 
(235,611
)
 
(199,313
)
    Inventories
 
 
17,698
 
 
2,904
 
 
(10,198
)
 
(3,533
)
    Other current assets and other assets
 
 
(3,320
)
 
(104,130
)
 
51,338
 
 
28,332
 
    Accounts payable and accrued expenses
 
 
713,610
 
 
674,430
 
 
306,120
 
 
228,872
 
    Deferred payroll
 
 
619,631
 
 
440,840
 
 
496,793
 
 
299,497
 
    Net cash used in operating activities
 
 
(747,984
)
 
(520,908
)
 
(225,938
)
 
(133,353
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
 
 
    Purchases of fixed assets (net of capitalized
 
 
(397,068
)
 
(397,068
)
 
 
 
 
 
 
    Increase in restricted cash
 
 
(340,407
)
 
(335,000
)
 
(335,000
)
 
 
 
    Cash used in sale of subsidiary (net of notes and
 
 
 
 
 
 
 
 
 
 
 
 
 
        other payables in 2004)
 
 
(5,670
)
 
(92,977
)
 
 
 
 
 
 
    Net cash used in investing activities
 
 
(743,145
)
 
(825,045
)
 
(335,000
)
 
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
 
 
    Proceeds from notes and loans payable,
 
 
 
 
 
 
 
 
 
 
 
 
 
        net of expenses
 
 
1,104,344
 
 
1,184,623
 
 
140,585
 
 
 
 
    Increase in due to affiliated companies
 
 
567,193
 
 
270,883
 
 
429,693
 
 
92,283
 
    Increase in loans payable - officers/directors
 
 
54,000
 
 
54,000
 
 
54,000
 
 
54,000
 
    Proceeds from sale of stock
 
 
50,000
 
 
 
 
 
 
 
 
 
 
    Payments on notes and loans payable
 
 
(242,386
)
 
(167,350
)
 
(25,999
)
 
(23,899
)
    Payments of capitalized lease obligations
 
 
(21,232
)
 
 
 
 
 
 
 
 
 
    Dividends converted to proferred stock
 
 
(3,168
)
 
 
 
 
 
 
 
 
 
    Net cash provided by financing activities
 
 
1,508,751
 
 
1,342,156
 
 
598,279
 
 
122,384
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net increase (decrease) in cash
 
 
17,622
 
 
(3,797
)
 
37,341
 
 
(10,969
)
Cash, beginning of period
 
 
11,821
 
 
11,821
 
 
11,821
 
 
11,821
 
Cash, end of period
 
$
29,443
 
$
8,024
 
$
49,162
 
$
852
 
 
 
F-21


Univec, Inc. and Subsidiaries
 
 
 
 
 
 
 
 
 
Statement of Cash Flow
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
Nine Months Ended
 
Six MonthsEnded
 
Three Months Ended
 
 
 
December 31, 2003
 
September 30, 2003
 
June 30, 2003
 
March 30, 2003
 
Cash flows from operating activities
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
 
($1,545,601
)
 
($1,052,495
)
 
($698,345
)
 
($213,309
)
Adjustments to reconcile net loss to net cash
 
 
 
 
 
 
 
 
 
 
 
 
 
    used in operating activities
 
 
 
 
 
 
 
 
 
 
 
 
 
    Depreciation and amortization
 
 
165,511
 
 
144,278
 
 
96,575
 
 
51,402
 
    Valuation allowance for inventories
 
 
45,000
 
 
45,000
 
 
50,000
 
 
 
 
    Stock based compensation
 
 
14,400
 
 
 
 
 
 
 
 
 
 
    Issuance of common stock and options for services
 
 
22,000
 
 
22,000
 
 
 
 
 
 
 
    Loss (gain) on cancellatioin of capital lease
 
 
121,366
 
 
 
 
 
 
 
 
 
 
    Gain on extinguishment of debt
 
 
(24,872
)
 
 
 
 
 
 
 
 
 
Changes in assets and liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
    Accounts receivable
 
 
(2,293,183
)
 
274,005
 
 
262,493
 
 
171,462
 
    Inventories
 
 
128,413
 
 
21,690
 
 
8,107
 
 
5,648
 
    Other current assets and other assets
 
 
7,727
 
 
(42,751
)
 
(17,051
)
 
(23,520
)
    Accounts payable and accrued expenses
 
 
2,547,614
 
 
(6,526
)
 
(9,288
)
 
(50,359
)
    Deferred payroll
 
 
536,934
 
 
295,081
 
 
196,201
 
 
116,296
 
    Escrow deposits
 
 
(10,000
)
 
 
 
 
 
 
 
 
 
    Net cash used in operating activities
 
 
(284,691
)
 
(299,718
)
 
(111,308
)
 
57,620
 
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
 
 
    Purchases of fixed assets
 
 
(1
)
 
 
 
 
 
 
 
 
 
    Net cash used in investing activities
 
 
(1
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
 
 
    Proceeds from notes and loans payable,
 
 
 
 
 
 
 
 
 
 
 
 
 
        net of expenses
 
 
178,453
 
 
179,452
 
 
51,375
 
 
18,200
 
    Increase in due to affiliated companies
 
 
71,870
 
 
112,579
 
 
18,392
 
 
 
 
    Increase in loans payable - officers/directors
 
 
230,419
 
 
200,419
 
 
112,419
 
 
5,019
 
    Proceeds from sale of stock
 
 
20,000
 
 
20,000
 
 
 
 
 
 
 
    Payments on notes and loans payable
 
 
(229,364
)
 
(144,985
)
 
(114,150
)
 
(77,026
)
    Payments of capitalized lease obligations
 
 
(62,125
)
 
(149,039
)
 
(36,250
)
 
(36,250
)
    Net cash provided by financing activities
 
 
209,253
 
 
218,426
 
 
31,786
 
 
(90,057
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net increase (decrease) in cash
 
 
(75,439
)
 
(81,292
)
 
(79,522
)
 
(32,437
)
Cash, beginning of period
 
 
87,260
 
 
87,260
 
 
87,260
 
 
87,260
 
Cash, end of period
 
$
11,821
 
$
5,968
 
$
7,738
 
$
54,823
 

 
F-22