Amendment No. 1 to September 30, 2006 quarterly

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-QSB
Amendment No. 1
 
 
x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended September 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 November 10, 2006 Issuer had 63,440,360 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 - September 30, 2006
  
3
 
 
 
 
  
CONSOLIDATED STATEMENT OF OPERATIONS - Nine and Three months ended September 30, 2006 and 2005
  
4
 
 
 
 
  
CONSOLIDATED STATEMENT OF CASH FLOWS - Nine months ended September 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
  
12
 
 
 
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
Consolidated Balance Sheet (Unaudited)
September 30, 2006
 
ASSETS
  
 
  
Cash
  
$
70,204
  
Accounts receivable
    
35,393
  
Inventories
    
104,000
 
Due from affiliated companies
    
16,418
  
Investment and other miscellaneous balances receivable
    
151,200
 
 
      
Total current assets
    
377,215
  
 
      
Fixed assets, net
    
520,092
 
Other assets
    
45,416
 
 
      
Total assets
  
$
942,723
  
 
      
LIABILITIES AND STOCKHOLDERS' DEFICIT
      
Accounts payable and accrued expenses
  
$
1,740,449
  
Deferred payroll
    
1,910,724
 
Notes and loans payable - current
    
890,437
 
Loans payable - officers/directors
    
264,914
 
Total current liabilities
    
4,806,524
 
 
      
Officers/directors notes and loans payable - long-term
    
50,000
  
Notes and loans payable - long-term
    
1,663,183
  
 
      
Total liabilities
    
6,519,707
 
 
      
 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;
    
62,310
 
issued: 62,309,590 and outstanding: 61,905,436 shares
      
Additional paid-in capital
    
11,581,638
 
Treasury stock, 404,154 shares - at cost
    
(28,291
)
Accumulated deficit
    
(17,192,850
)
 
      
Total stockholders' deficit
    
(5,576,984
)
 
      
Total liabilities and stockholders' deficit
  
$
942,723
  
 
      
 
See notes to the consolidated financial statements.
 
-3-




UNIVEC, Inc. and Subsidiaries
Consolidated Statement of Operations(Unaudited)
 
 
  
 Three months ended
September 30,  
  
 Nine months ended
September 30,  
  
 
  
 2006 
  
 2005 
  
 2006 
  
 2005 
  
 
  
  
  
  
  
  
  
  
  
Revenues
  
$
2,808
  
$
(6,683
  
$
16,492
  
$
78,384
  
Cost of revenues
    
0
    
17,135
)
  
(10,263
)
  
(6,012
)
 
                      
Gross Margin
    
2,808
   
10,452
   
6,229
   
72,372
  
 
                          
Operating Expenses
                          
   Marketing and selling
    
(6,945
)
  
(74,897
)
  
( 19,337
)
  
(232,975
)
   Product development
    
0
    
0
    
2,578
    
(648
)
   General and administrative
    
(513,017
)
  
(283,161
)
  
(684,393
)
  
(1,011,507
)
 
                          
 Total operating expenses
    
(519,962
)
  
(358,058
)
  
(701,152
)
  
(1,245,130
)
 
                          
Loss from Operations
    
(517,154
)
  
(347,606
)
  
(694,923
)
  
(1,172,758
)
 
                          
Other Income (Expense)
                          
   Interest expense, net
    
(31,145
)
  
(72,712
)
  
(98,457
)
  
(146,007
)
 
                          
  Total other expenses
    
(31,145
)
  
(72,712
)
  
(98,457
)
  
(146,007
)
 
                          
  Net loss
    
(548,299
)
  
(420,318
)
  
(793,380
)
  
(1,318,765
)
 
                          
Dividends attributable to preferred stock
    
(8,213
)
  
(8,213
)
  
(24,639
)
  
(26,631
)
 
                      
Loss attributable to common stockholders
    
(556,512
)
  
(428,531
)
  
($818,019
)
  
($1,345,396
)
 
                    
Share information
                          
   Basic and diluted net loss per common share
    
($0.00
)
  
($0.01
)
  
($0.01
)
  
($0.03
)
 
                    
   Basic weighted average number
                         
      of common shares outstanding
    
61,883,764
   
56,464,432
   
59,831,084
   
50,999,828
 
 
                    
 
See notes to the consolidated financial statements.
 

-4-


 
Univec, Inc. and Subsidiaries
Nine months ended September 30, 2006 and 2005
 
 
  
2006
  
2005
  
 
            
Cash flows from operating activities
  
 
  
 
  
Net loss
  
$
(793,380
)
$
(1,318,765
)
Adjustments to reconcile net loss to net cash
          
`   used in operating activities
    
1
      
   Depreciation and amortization
    
12,022
    
286,312
  
Stock based compensation
          
167,198
  
   Receipt of gain on marketable securities
        
36,349
 
Changes in assets and liabilities
          
   Accounts receivable
    
(10,529
)
  
2,152,963
  
   Inventories
    
89,325
      
   Other current assets and other assets
    
6,000
   
46,630
  
   Accounts payable and accrued expenses
    
213,848
    
(2,097,475
)
   Deferred payroll
    
32,241
   
522,364
 
 
              
   Net cash (used in) operating activities
    
(450,473
)
  
(204,424
)
 
              
Cash flows from investing activities
          
   Increase in restricted cash
        
(8,542
)
   Fixed assets acquired
       
(13,500
)
 
              
   Net cash used in investing activities
        
(22,042
)
Cash flows from financing activities
          
   Increase in due from affiliated companies
        
243,560
 
   Increase in loans payable - officers/directors
   
6,614
   
55,000
  
   Proceeds from loans payable
    
1,345,000
      
   Proceeds from sale of stock
        
85,000
 
   Payments on loans from affiliated companies
    
(831,928
)
    
   Payments on notes and loans payable
      -    
(183,237
)
 
          
 `  Net cash provided by financing activities
    
519,686
    
200,323
  
 
              
Net increase (decrease) in cash
    
69,213
    
(26,143
)
Cash, beginning of period
    
991
   
29,444
 
 
              
Cash, end of period
  
$
70,204
  
$
3,301
  
 
 
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 in August 2004, 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 September 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. Debt Repayment
 
During the nine month period ended September 30, 2006, the Company repaid a net total of $831,928 of outstanding debt.
 
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 $29,482.

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.

In October 2006, the Company issued an aggregate of 1,134,770 shares of common stock to an executive officer of the Company in exchange for accrued employment contract benefits of $21,220.

5. Financing Agreement

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-



 


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

 Results of Operations
 
Condensed Consolidated Results of Operations
 

 
  
Three months ended
September 30,
  
Nine months ended
September 30,
  
 
  
 
  
 
  
 
  
2006
  
2005
  
Change
  
2006
  
2005
  
Change
  
 
  
 
  
 
  
 
          
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
Revenues  
  
$
2,808
  
$
(6,683
 )   
142
%
$
16,492
  
$
78,384
    
(79
%)
Cost of Revenues
   
-
 
  
(17,135
)
  
(100
%)
  
10,263
 
  
6,012
    
(71
%)
                                       
Gross Margin
   
2,808
    
10,452
    
(73
%)
  
6,229
    
72,372
    
(91
%)
                                       
Expenses:
                              
   Marketing and Selling
   
6,945
    
74,897
    
(91
%)
  
19,337
    
232,975
    
(92
%)
   Product Development
   
-
 
  
-
    
-
 
  
(2,578
)
  
648
    
497
%)
   General and Administrative
    
513,017
    
283,161
    
81
%
  
684,393
    
1,011,507
    
(32
%)
                                     
Loss from operations      (517,154 )   
(347,606 
 )    (49  %)    (694,923  )    (1,172,758  )    41  %
                                       
Other Income (Expense)
                              
   Interest Expense, Net
   
(31,145
)
  
(72,712
)
  
(26
%)
  
(98,457
)
  
(146,007
 )  
(33
%)
                                       
Net Loss
 
$
(548,299
)
$
(420,318
 )   
(30
%)
$
(793,380
 ) 
$
(1,318,765
 )   
40
%
 

 
-8-



 


As illustrated in the table above, overall revenues for the three month period ended September 30, 2006 increased by $9,491 (142%) as compared to the comparable period ended September 30, 2005. However, revenues for the nine month period ended September 30, 2006 decreased by $61,892 (79%) as compared to the nine month period ended September 30, 2005.Product sales alone accounted for all of these decreases. Sales within Univec, Inc. comprised all of the total sales for the three and nine month periods ended September 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 Company operations for the impending future period. The Company management has decided to concentrate resources on the distribution sector having direct control of product purchases and distribution that management feels will have greater gross margin opportunity although gross revenue will be maintained at present levels. Management feels 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 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.

Physician and Pharmaceutical Services, Inc. (PPSI) is a Group Purchasing Organization (GPO) and formulary management company. Group purchasing allows companies to get better prices by combining purchasing power. It is also important that the products being purchased are appropriate for the drug formulary that is approved.

Gross margin for the three and nine month periods ended September 30, 2006 decreased to $2,808 from $10,452, and to $6,229 from $72,372, respectively, as compared to the comparable periods ended September 30, 2005. The reduced gross margin is primarily due to the lower gross margin contribution from lower 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.
 
Marketing and selling costs for the three and nine month periods ended September 30, 2006 decreased by $67,952 (91%) and $213,638 (92%), respectively as compared to the comparable periods ended September 30, 2005. This decrease is primarily due to decreases in overall sales volume.

There were very minimal product development expenses incurred for three and nine month periods ended September 30, 2006 as compared to the comparable periods ended September 30, 2005. These decreases were the result of negligible expenditures for patent legal costs and product testing expense.

General and administrative expenses for the three month period ended September 30, 2006 increased $229,856 (81%) as compared to the three month period ended September 30, 2005. This increase is due primarily to increases in insurance, legal and professional fees, financial funding commissions and securities maintenance expenses. However, during the nine month period ended September 30, 2006 as compared to the comparable period ended September 30, 2005 general and administrative expenses decreased $327,114 (32%) primarily as a result of decreases in payroll and travel expenses.

 
-9-

 


Interest expense for the three and nine month periods ended September 30, 2006 decreased by $41,567 (57%) and $47,550 (33%), respectively, as compared to the similar periods ended September 30, 2005, primarily as a result increased debt outstanding during 2006.

Net loss for the three month period ended September 30, 2006 increased by $127,981 (30%) as compared to the three month period ended September 30, 2005 primarily due to the $229,856 (81%) increase, as discussed above, in general and administrative expenses. However, the $327,114 reduction in general and administrative expenses when combined with the $213,638 reduction in marketing and selling expenses during the nine month period ended September 30, 2006 as compared to the comparable period ended September 30, 2005 are the primary reasons for the resulting $525,385 reduction in the net loss for the nine month period ended September 30, 2006.
 
Liquidity and Capital Resources
 
 The working capital deficit of $5,072,075 at December 31, 2005, was decreased to a deficit of $4,429,309 (12%) at September 30, 2006 primarily because of a $1,345,000 long-term debt refinancing from current debt during the quarter ended September 30, 2006. However, a year-to-date net loss of $793,380 through September 30, 2006 did restrict the liquidity improvement realized in the refinancing arrangement.
 
Operating activities used net cash of $246,049 (120%) more during the nine month period ended September 30, 2006 from the comparable period in 2005, primarily due to the net loss incurred and by decreases in accounts receivable, depreciation and amortization expense which was offset in part by increases in accounts payable and deferred payroll.
 
Net cash used in investing activities decreased by $22,042 primarily as a result of not expending $13,500 for the purchases of fixed asset equipment during the nine months ended September 30, 2006 as compared with the nine months ended September 30, 2005.
 
Net cash provided by financing activities increased by $319,363 (159%) to $519,686 for the nine months ended September 30, 2006 as compared with the nine months ended September 30, 2005. This increase resulted from an aggregate $404,363 increase in borrowing activity which was offset by an $85,000 decrease in proceeds from the sale of Company stock during the comparable nine month period ended September 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.
 
 
-10-


 


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.
 
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
 
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.
 
 
32.1
  
Certification of the Chief Executive Officer pursuant U.S.C. Section 1350 as adopted pursuant Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32.2
  
Certification of the Chief Financial Officer pursuant U.S.C. Section 1350 as adopted pursuant Section 906 of the 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: February 22, 2007
 
 
 
/s/ Dr. David Dalton
 
 
 
 
Dr. David Dalton
 
 
 
 
Chief Executive Officer
(Principal Executive Officer)
 
 
 
Dated: February 22, 2007 
 
 
 
/s/ Michael A. Lesisko
 
 
 
 
Mr. Michael A. Lesisko
 
 
 
 
Chief Financial Officer
(Principal Financial and Accounting Officer)

 
-13-