Amendment No. 1 to Quarterly Report for period ending 06/06
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 Amendment 1
to
FORM 10-QSB
 
x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended June 30, 2006
 
¨
Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required)
 
For the transition period from                     to                    
 
Commission File Number: 0-22413
 
UNIVEC, INC.
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
11-3163455
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
822 Guilford Avenue, Suite 208, Baltimore, MD 21202
(Address of principal executive offices)
 
(410) 347-9959
(Issuers telephone number)

Former address: 4810 Seton Drive, Baltimore, MD 21215
(Former name, former address, and former fiscal year, if changed since last report)
 
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No 

As of August 31, 2006 Issuer had 57,478,726 shares of Common Stock, $0.001 par value, outstanding.
 
Transitional Small Business Disclosure Format: Yes¨ No x




1
 
 
Table of Contents

 
UNIVEC, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
 
 
 
 
 
 
 
 
 
PART 1
  
FINANCIAL INFORMATION
  
 
 
 
 
ITEM 1
  
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  
 
 
 
 
 
  
CONSOLIDATED BALANCE SHEET - June 30, 2006
  
3
 
 
 
 
  
CONSOLIDATED STATEMENT OF OPERATIONS - Six and Three months ended June 31, 2006 and 2005
  
4
 
 
 
 
  
CONSOLIDATED STATEMENT OF CASH FLOWS - Six months ended June 30, 2006 and 2005
  
5
 
 
 
 
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
6
 
 
 
ITEM 2
  
MANAGEMENT’S DISCUSSION AND ANALYSIS
  
8
 
 
 
ITEM 3
  
CONTROLS AND PROCEDURES
  
11
 
 
 
PART II
  
OTHER INFORMATION
  
13
 
 
 
ITEM 6
  
EXHIBITS AND REPORTS ON FORM 8-K
  
12
 
 
SIGNATURES
  
13
 
 



2

 
 
PART I
  
FINANCIAL INFORMATION
  
 
  
Item 1: Consolidated Financial Information
  
 
  
Univec, Inc. and Subsidiaries
  
 
June 30, 2006
  
ASSETS
       
Accounts receivable
  
$
34,384
 
Inventories
    
183,062
 
Investment and other miscellaneous balances receivable
    
151,200
 
 
        
Total current assets
    
368,646
 
 
        
Fixed assets, net
    
520,092
 
Other assets
    
49,423
 
 
        
Total assets
  
$
938,161
  
 
        
LIABILITIES AND STOCKHOLDERS' DEFICIT
        
Cash overdraft
  
$
185
  
Accounts payable and accrued expenses
    
1,725,191
  
Deferred payroll
    
1,940,658
 
Notes and loans payable - current
    
890,438
 
Loans payable - officers/directors
    
264,914
 
Due to affiliated companies
    
819,718
 
 
        
Total current liabilities
    
5,641,104
 
 
        
Officers/directors notes and loans payable - long-term
    
50,000
  
Notes and loans payable - long-term
    
318,183
 
 
        
Total liabilities
    
6,009,287
 
 
        
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: 208,333 shares (aggregate liquidation
        
value: $563,004)
    
208
  
Series E cumulative convertible preferred stock,
        
$.001 par value; authorized: 2,000 shares; issued and
        
outstanding: 312 shares (aggregate liquidation
        
value: $358,441)
    
1
 
Common stock $.001 par value; authorized: 75,000,000 shares;
    
59,045
 
issued: 59,044,921 and outstanding: 58,640,767 shares
        
Additional paid-in capital
    
11,542,462
 
Treasury stock, 404,154 shares - at cost
    
(28,291
)
Accumulated deficit
    
(16,644,551
)
 
        
Total stockholders' deficit
    
(5,071,126
)
 
        
Total liabilities and stockholders' deficit
  
$
938,161
  
 
        
 
See notes to the consolidated financial statements.
 

3



 
UNIVEC, Inc. and Subsidiaries
Consolidated Statement of Operations (Unaudited)
 
 

 
 
Three months ended June 30,
 
Six months ended June 30,
 
  
  
2006
  
2005
  
2006
  
2005
  
Revenues
  
$
6,480
  
$
45,056
  
$
13,684
  
$
85,067
  
Cost of revenues
    
(4,860
)
  
(8,201
)
  
(10,263
)
  
(23,147
)
                           
Gross Margin
    
1,620
   
36,855
   
3,421
   
61,920
 
 
                  
Operating Expenses
                  
   Marketing and selling
    
(95
)
  
(65,988
)
  
( 12,392
)
  
(158,078
)
   Product development
    
2,916
    
(648
)
  
2,578
    
(648
)
   General and administrative
    
(34,414
)
  
(389,941
)
  
(171,376
)
  
(728,346
)
                           
 Total operating expenses
    
(31,593
)
  
(456,577
)
  
(181,190
)
  
(887,072
)
                           
Loss from Operations
    
(29,973
)
  
(419,722
)
  
(177,769
)
  
(825,152
)
                           
Other Income (Expense)
                  
   Interest expense, net
    
(32,537
)
  
(43,874
)
  
(67,312
)
  
(73,295
)
                           
  Total other expenses
    
(32,537
)
  
(43,874
)
  
(67,312
)
  
(73,295
)
                           
  Net loss
    
(62,510
    
(463,596
)
  
(245,081
)
  
(898,447
)
                           
Dividends attributable to preferred stock
    
(8,213
)
  
(8,213
)
  
(16,426
)
  
(18,418
)
                           
Loss attributable to common stockholders
    
(70,723
)
  
(471,809
)
  
($261,507
)
  
($916,865
)
                           
Share information
                  
   Basic net loss per common share
    
($0.00
)
  
($0.01
)
  
($0.01
)
  
($0.02
)
   Basic weighted average number
                 
      of common shares outstanding
    
59,044,921
   
37,871,795
   
58,787,733
   
48,222,239
 
 
 
 
 
See notes to the consolidated financial statements.
 

 

4

 
Univec, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
Six months ended June 30, 2006 and 2005
 
 
  
2006
  
2005
  
 
  
 
  
 
  
Cash flows from operating activities
            
Net loss
  
$
(245,081
)
$
(898,447
)
Adjustments to reconcile net loss to net cash
              
   used in operating activities
              
   Depreciation and amortization
    
8,015
   
187,397
 
Stock based compensation
        
167,199
  
   Receipt of gain on marketable securities
          
36,349
 
Changes in assets and liabilities
              
   Accounts receivable
    
(9,520
)
  
56,891
  
   Inventories
    
10,263
      
   Other current assets and other assets
    
6,000
   
46,630
  
   Accounts payable and accrued expenses
    
156,150
    
(128,243
)
   Deferred payroll
    
62,175
   
346,592
 
 
          
   Net cash (used in) operating activities
    
(11,998
)
  
(185,632
)
 
          
Cash flows from investing activities
              
   Fixed assets acquired
    -     
(13,500
)
 
          
   Net cash used in investing activities
     -     
(13,500
)
 
          
Cash flows from financing activities
              
   Increase in due from affiliated companies
    
4,208
   
175,375
 
   Increase in loans payable - officers/directors
   
6,614
   
50,000
  
   Proceeds from sale of stock
          
85,000
 
   Payments on notes and loans payable
     -    
(137,717
)
 
          
   Net cash provided by financing activities
    
10,822
   
172,658
 
 
          
Net (decrease) in cash
    
(1,176
)
  
(26,474
)
Cash, beginning of period
    
991
   
29,444
 
 
          
Cash, end of period
  
$
(185
)
$
2,970
  
 
          
 
See notes to the consolidated financial statements.
 
 


 

5

UNIVEC, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Un-audited)
 
1. Nature of Operations
 
Univec, Inc. (Company) produces, licenses and markets medical products primarily syringes and specialty pharmaceutical drugs. Physician and Pharmaceutical Services, Inc. (PPSI), a subsidiary, provides pharmaceutical samples and group purchasing services of pharmaceutical products. Thermal Waste Technologies, Inc. (TWT), a subsidiary until its sale, marketed a medical waste disposal unit.
 
2. Summary of Significant Accounting Policies
 
Financial Statements
 
The accompanying un-audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and with the rules and regulations of the Securities and Exchange Commission for Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the interim periods presented have been included. These consolidated financial statements should be read in conjunction with the consolidated financial statements of Univec, Inc., together with the Company’s Management’s Discussion and Analysis, included in the Company’s Form 10-KSB for the year ended December 31, 2005. Interim results are not necessarily indicative of the results for a full year.
 
Net Loss Per Share
 
Basic net loss per share was computed based on the weighted-average number of common shares outstanding during the six and three month periods ended June 30, 2006 and 2005. Dilutive net loss per share has not been presented because it was anti-dilutive.
 
Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
 
New Accounting Pronouncements
 
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
 
 
 
 

6

3. Related Party Transactions
 
Due to Affiliated Companies
 
Subsequent to December 31, 2005, the Company borrowed a net total of $ 4,208 from affiliated companies,  owned by the chief executive officer of the Company.
 
4. Common Stock

In February 2006, the Company issued an aggregate of 1,410,639 shares of common stock to an executive officer of the Company in exchange for accrued employment contract benefits of $29,842.

In July 2006, the Company issued an aggregate of 3,264,669 shares of common stock to an executive officer of the Company in exchange for accrued employment contract benefits of $42,441.

On July 19, 2006 the Board of Directors declared of a one for ten common share reverse stock split. The  reverse stock split was authorized by the corporate shareholders at the annual stockholders meeting, which was held on October 14, 2005.
 
5. Subsequent Event

On July 31, 2006 the Company completed the private placement of a $2,000,000 6% Note Warrants Securities Purchase Agreement. The Agreement allows the investor to purchase 10,000,000 common stock warrants for seven years at an exercise price of $0.02 each. The Note and Warrants were issued in reliance upon exemptions from regulation pursuant to section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D promulgated thereto. Each of the Investors is an accredited investor as defined in Rule 501 of Regulation D under the Securities Act of 1933.



 

7

 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 Results of Operations
 
Condensed Consolidated Results of Operations
 

 
  
Three months ended
June 30,
  
Six months ended
June 30,
  
 
  
 
  
 
  
 
  
2006
  
2005
  
Change
  
2006
  
2005
  
Change
  
 
  
 
  
 
  
 
          
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
Revenues  
  
$
6,480
  
$
45,056
    
(86
%)
$
13,684
  
$
85,067
    
(84
%)
Cost of Revenues
   
(4,860
)
  
(8,201
)
  
(41
%)
  
(10,263
)
  
(23,147
    
(56
%)
Gross Margin
   
1,620
    
36,855
    
(96
%)
  
3,421
    
61,920
    
(94
%)
Expenses:
                              
   Marketing and Selling
   
95
    
65,988
    
(100
%)
  
12,392
    
158,078
    
(92
%)
   Product Development
   
(2,916
)
  
648
    
550
%
  
(2,578
)
  
648
    
497
%)
   General and Administrative
    
34,414
    
389,941
    
(91
%)
  
171,376
    
728,346
    
(76
%)
 
    
31,593
    
456,577
        
181,190
    
887,072
    
(80
%)
Other Income (Expense)
                              
   Interest Expense, Net
   
(32,537
)
  
(43,874
)
  
(26
%)
  
(67,312
)
  
(73,295
    
(8
%)
Net Loss
 
$
(62,510
)
$
(463,596
    
87
%
$
(245,081
  
$
(898,447
    
73
%
 
 



8


Results of Operations

For the Three Months Ended June 30, 2006, as Compared to the Three Months Ended June 30, 2005

Revenues
Revenues for the three months ended June 30, 2006 were $6,408, a decrease of $38,576, from $45,056 in revenues for the three months ended June 30, 2005. The decrease of 86% in revenues during 2006 was attributable to a decrease in product sales. Sales within Univec, Inc. comprised total sales for the three month period ended June 30, 2006. PPSI has experienced a complete reduction in sales to its principal group purchasing organization (GPO) customer. This sales depletion will continue to have a detrimental effect on operations for the impending future..

As a result of the decrease in revenues, management has decided to focus Company resources in the distribution sector allowing for direct control of product purchases and distribution, which in our belief will have greater gross margin opportunity, although gross revenue will be maintained at present levels. Management believes that this model will allow a direct relationship with the end purchaser and not be dependent on an intermediary. The Company will endeavor to replace declining revenues by placing increased product sales in the direct marketplace and by expanding its higher gross profit atypical product sales. The Company will focus on 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 Margin

Gross margin decreased to 25% from 82.0% as compared to the three months ended June 30, 2005.. The reduced gross margin is primarily due to the lower gross profit contribution from our reduced sales volume of our pharmaceutical drugs and syringes. We anticipate gross margin levels to remain at these decreased levels due to the GPO’s principal customer’s commercial activity decline.

Operating Expenses

Operating expenses for the three months ended June 30, 2006 were $31,593 as compared to $456,577 for the three months ended June 30, 2005 or a 93% decrease. Operating expenses for the three months ended June 30, 2006 consisted of $95 in selling and marketing fees, $(2,916) in product development fees and $34,414 in general and administrative expenses.

Several categories of operating expenses were reduced substantially during the three months ended June 30, 2006 as compared to the three months ended June 30, 2005. The most substantial of the expense reductions included the following:

   
Quarter ended
June 30, 2006
  
Quarter ended
June 30, 2005
  
Payroll and related expenses
  
$
0
  
$
185,516
  
Insurance
    
18,717
    
24,322
  
Professional fees
    
5,350
    
61,550
  
Travel and automobile
    
6,153
    
80,738
  
Equipment depreciation
    
0
    
28,047
  

Net Income (Loss)

The Company had a net loss of $62,510 for the three months ended June 30, 2006 and a loss of $463,596 for the three months ended June 30, 2005 or an 86% decrease. The decreased loss of $401,086 was mostly attributable to the reduction in general and administrative expenses.



9

For the Six Months Ended June 30, 2006, as Compared to the Six Months Ended June 30, 2005

Revenues

Revenues for the six months ended June 30, 2006 were $13,684, a decrease of $71,383, from $85,067 in revenues for the same period ended June 30, 2005. The decrease of 84% in revenues during 2006 was attributable to a decrease in product sales as discussed above.

Gross Margin

Gross margin decreased to 25% from 73.0% as compared to the six months ended June 30, 2005.. The reduced gross margin is primarily due to the lower gross profit contribution from the reduced sales volume of our pharmaceutical drugs and syringes. We anticipate gross margin levels to remain at these decreased levels due to the GPO’s principal customer’s commercial activity decline.

Operating Expenses

Operating expenses for the six months ended June 30, 2006 were $181,190 as compared to $887,072 for the six months ended June 30, 2005 or an 80% decrease. Operating expenses for the six months ended June 30, 2006 consisted of $12,392 in selling and marketing fees, $(2,578) in product development fees and $171,376 in general and administrative expenses.

Several categories of operating expenses were reduced substantially during the six months ended June 30, 2006 as compared to the six months ended June 30, 2005. The most substantial of the expense reductions included the following:

   
YTD June 30, 2006
  
YTD June 30, 2005
  
Payroll and related expenses
  
$
65,711
  
$
394,440
  
Insurance
    
42,199
    
82,311
  
Professional fees
    
21,676
    
134,778
  
Travel and automobile
    
12,153
    
87,185
  
Market consulting
    
0
    
45,000
  
Equipment depreciation
    
0
    
58,047
  

Net Income (Loss)

The Company had a net loss of $245,081 for the six months ended June 30, 2006 and a loss of $898,447 for the six months ended June 30, 2005 or a 73% decrease. The decreased loss of $653,366 was mostly attributable to the reduction in general and administrative expenses.

Liquidity and Capital Resources
 
 The working capital deficit of $5,072,075 at December 31, 2005, increased to a deficit of $5,272,458 (4%) at June 30, 2006 primarily because of a net loss incurred, increases in deferred compensation and accounts payable and accrued expenses.
 
Net cash used in operating activities decreased by $173,634 (94%) to $11,998 for the six month period ended June 30, 2006 from the comparable period in 2005, primarily due to the net loss incurred and by decreases in depreciation and amortization which was offset in part by increases in accounts payable and deferred payroll.
 
Net cash used in investing activities decreased by $13,500 as a result of not expending cash for the purchases of fixed asset equipment during the six months ended June 30, 2006 as compared with the six months ended June 30, 2005.
 
 
10
 
 
Net cash provided by financing activities decreased by $161,836 (94%) to $10,822 for the six months ended June 30, 2006 as compared with the six months ended June 30, 2005. This decrease resulted from an aggregate $76,836 decrease in borrowing activity which was offset by an $85,000 decrease in proceeds from the sale of Company stock during the comparable six month period ended June 30, 2005.
 
As a result of these actions, Univec’s management anticipates that operations will generate a negative cash flow during our fiscal year.

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
 
Univec’s business plan upon acquiring PPSI was to fully utilize its distribution capabilities to increase sales and profitability. A shortage of cash flow has slowed the effectiveness of the plan. Management has reviewed the carrying amount of goodwill and fixed assets, considering their fair value based on anticipated future undiscounted cash flows and appraisals of the equipment
 
We have also reviewed the carrying value of both our accounts receivable and inventory. Based on both our anticipated future undiscounted cash flows and recent financings, no impairment is required.
  
 
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.
 
Forward Looking Statements
 
Except for the historical information contained herein, the matters discussed in this report are forward-looking statements that involve risks and uncertainties, including market acceptance of Univec’s products, timely development and acceptance of new products, impact of competitive products, development of an effective organization, interruptions to production, and other risks detailed from time to time in Univec’s SEC reports and its Prospectus dated April 24, 1997 (as supplemented by the Prospectus Supplement dated April 29, 1997) forming a part of its Registration Statement on Form SB-2 (File No. 333-20187), as amended, which was declared effective by the Commission on April 24, 1997.
 
Item 3. Controls and Procedures.
 
Based on their evaluation required by Rule 13a-15(b) or 15d-15(b) under the Securities and Exchange Act of 1934 (the “Exchange Act”), management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of the end of the period covered by this report.
  
 

11

PART II
 
OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

 
(a)    Exhibits
  
 
 
 
31.1
  
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2
  
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 

(b)  Form 8-K

A Form 8-K was filed on July 31, 2006, reporting the completion of a private placement of a $2,000,000 6% Note and Warrants Securities Purchase Agreement. The agreement allows the investor to purchase 10,000,000 common stock warrants for seven years at an exercise price of $0.02 each. The Note and Warrants were issued in reliance upon exemptions from registration pursuant to Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D promulgated thereto. Each of the Investors is an accredited investor as defined in Rule 501 of Regulation D under the Securities Act of 1933.


 
 
 

12

SIGNATURES
 
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
UNIVEC, INC.
 
 
 
Dated: January 3, 2007,
 
 
 
/s/ Dr. David Dalton
 
 
 
 
Dr. David Dalton
 
 
 
 
Chief Executive Officer
(Principal Executive Officer)
 
 
 
Dated: January 3, 2007
 
 
 
/s/ Michael A. Lesisko
 
 
 
 
Mr. Michael A. Lesisko
 
 
 
 
Chief Financial Officer
(Principal Financial and Accounting Officer)