f10qsb0607_univec.htm
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
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, 2007
 
¨
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 13, 2007 Issuer had 63,288,804 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 STATEMENT OF FINANCIAL POSITION - June 30, 2007
3
 
 
 
 
  
CONSOLIDATED STATEMENT OF OPERATIONS - Three and Six months ended June 31, 2007 and 2006
4
 
 
 
 
  
CONSOLIDATED STATEMENT OF CASH FLOWS - Six months ended June 30, 2007 and 2006
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, 2007
  
         
ASSETS        
Cash
   $
264
  
Accounts receivable
    
13,456
  
Inventories
    
44,100
  
Other current assets 
    
1,200
  
    Total current assets
    
59,020
  
 
        
Fixed assets, net
    
361,725
  
Other assets
    
33,394
  
 
        
    Total assets
   $
454,139
  
 
        
LIABILITIES AND STOCKHOLDERS' DEFICIT
        
Accounts payable and accrued expenses
    
1,862,498
  
Accrued payroll
    
1,937,091
  
Notes and loans payable - current
    
890,438
  
Loans payable - officers/directors
    
244,412
  
Due to affiliated companies
    
123,283
  
 
        
    Total current liabilities
    
5,057,722
  
 
        
Officers/directors notes and loans payable - long-term
    
50,000
  
Notes and loans payable - long-term
    
1,597,983
  
 
        
    Total liabilities
    
6,705,705
  
 
        

 
 
 
 
 
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: $580,468)
    
208
  
    Series E cumulative convertible preferred stock,
        
      $.001 par value; authorized: 2,000 shares; issued and
        
      outstanding: 312 shares (aggregate liquidation
        
      value: $373,829)
    
1
  
    Common stock $.001 par value; authorized: 500,000,000 shares;
    
63,289
  
      issued: 63,288,804 and outstanding: 62,884,650 shares
        
Additional paid-in capital
    
11,601,878
  
Due from shareholder
     (150,000 )
Treasury stock, 404,154 shares – at cost
     (28,291 )
Accumulated deficit
     (17,738,651 )
 
        
Total stockholders’ deficit
     (6,251,566 )
 
        
Total liabilities and stockholders’ deficit
   $
454,139
  
 
        
 
 
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,
  
  
2007
    
2006
    
2007
    
2006
 
        
 
    
 
    
 
Revenues
   $
14,400
     $
6,480
     $
16,240
     $
13,684
  
Cost of revenues
    
12,780
      
4,860
      
13,380
      
10,263
  
 
                          
 
Gross Margin
    
1,660
      
1,620
      
1,860
      
3,421
  
 
                          
 
Operating Expenses
                          
 
   Marketing and selling
     -       (95 )     -       (12,392 )
   Product development
            
2,916
              
2,578
  
   General and administrative
     (55,210 )     (34,414 )     (99,128 )     (171,376 )
 
                          
 
 Total operating expenses
    
(55,210
       (31,593 )     (99,128 )     (181,190 )
 
                                
Loss from Operations
     (53,550 )     (29,973 )     (97,268 )     (177,769 )
Other Income (Expense)
                          
 
   Interest expense, net
     (29,423 )     (32,537 )     (58,846 )     (67,312 )
 
                                
  Total other expenses
     (29,423 )     (32,537 )     (58,846 )     (67,312 )
 
                                
  Net loss
     (82,973 )     (62,510 )     (156,114 )     (245,081 )
Dividends attributable to preferred stock
     (8,213 )     (8,213 )     (16,426 )     (16,426 )
 
                                
Loss attributable to common stockholders
     (91,186 )     (70,723 )   $ (172,540 )   $ (261,507 )
 
                                
Share information
                          
 
   Basic net loss per common share
   $ (0.001 )   $ (0.001 )   $ (0.003 )   $ (0.004 )
 
                                
   Basic weighted average number
                          
 
      of common shares outstanding
    
63,288,804
      
59,044,921
      
63,288,804
      
58,787,733
  
 
                                
 
See notes to the consolidated financial statements.
-4-
 
 
 
 
Univec, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
Six months ended June 30, 2007 and 2006
 
 
 
  
2007
    
2006
  
 
  
 
    
 
  
Cash flows from operating activities
            
Net loss
   $ (156,114 )   $ (245,081 )
Adjustments to reconcile net loss to net cash
                
   used in operating activities
                
   Depreciation and amortization
    
52,834
      
8,015
  
Changes in assets and liabilities
                
   Accounts receivable
             (9,520 )
   Inventories
    
600
      
10,263
  
   Other current assets and other assets
     (1,259 )    
6,000
  
   Accounts payable and accrued expenses
    
103,888
      
156,150
  
   Accrued payroll
            
62,175
  
 
                
   Net cash (used in) operating activities
     (51 )     (11,998 )
 
                
Cash flows from investing activities
                
   Net cash used in investing activities
    
0
      
0
  
 
                
Cash flows from financing activities
                
   Increase in due from affiliated companies
     0      
4,208
  
   Increase in loans payable – officers/directors
     0      
6,614
  
 
                
   Net cash provided by financing activities
    
0
      
10,822
  
 
                
Net (decrease) in cash
     (51 )     (1,176 )
Cash, beginning of period
    
315
      
991
  
 
                
Cash, end of period
   $
264
     $ (185 )
 
                
 
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 safety syringes and specialty pharmaceutical drugs. Physician and Pharmaceutical Services, Inc. (PPSI), a subsidiary, provides pharmaceutical samples and group purchasing services of pharmaceutical products.
 
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, 2006. 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, 2007 and 2006. 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-
 
 
 
 
 
UNIVEC, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Un-audited)
 
 
3. Common Stock

During the year ended December 31, 2006, the Company issued an aggregate of 5,810,078 shares of common stock to a stockholder in exchange for benefits not taken of $93,143.

4. Financing Agreement

At June 30, 2007 $1,270,800 of long-term loans payable were outstanding on a recently issued 6% Note Warrants Securities Purchase Agreement. This debt, dated July 31, 2006, is 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

 For the Three and Six Month periods Ended June 30, 2007 compared to the Three and Six Month periods Ended June 30, 2006

Condensed Consolidated Results of Operations
 
   
Three months ended
June 30,
    
Six months ended
June 30,
  
   
2007
    
2006
    
Change
    
2007
  
2006
    
Change
  
                                       
Revenues
   $
14,440
     $
6,480
       122 %   $
15,240
       $
13,684
       11 %
Cost of Revenues
     (12,780 )     (4,860 )     163 %     (13,380 )      
(10,263
       30 %)
Gross Margin
    
1,660
      
1,620
       2 %    
1,860
  
 
    
3,421
       (46 %)
Expenses:
                                                  
   Marketing and Selling
            
95
       (100 %)        
 
    
12,392
       (100 %)
   Product Development
             (2,916 )     100 %               (2,578 )     100 %
   General and Administrative
    
55,210
      
34,414
       (60 %)    
99,128
  
 
    
171,376
       46 %
 
     (53,550 )     (31,593 )     (69 %)     (97,268 )       (181,190 )     46 %
Other Income (Expense)
                                                  
   Interest Expense, Net
     (29,423 )     (32,537 )     10 %     (58,846 )       (67,312 )     (13 %)
Net Loss
   $ (82,973 )   $ (62,510 )     (33 %)   $
(156,114
  
)
   $ (245,081 )     36 %
 
 
 
-8-
 
 
 
 
 
As illustrated in the table above, overall revenues for the three month period ended June 30, 2007 increased by $7,960 (122%) as compared to the comparable period ended June 30, 2006. Revenues for the six month period ended June 30, 2007 increased by $1,556 (11%) as compared to the six month period ended June 30, 2006. Product sales alone accounted for all of these increases. Sales within Univec, Inc. comprised all of the total sales for the three and six month periods ended June 30, 2007. 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 not 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 minimal 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 physician sample and starter script provider as well as  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 six month periods ended June 30, 2007 increased to $1,660 from $1,620, and decreased to $1,860 from $3,421, respectively, as compared to the comparable periods ended June 30, 2006. The minimal 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 six month periods ended June 30, 2007 decreased by $95 (100%) and $12,392 (100%), respectively as compared to the comparable periods ended June 30, 2006. 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 June 30, 2007 as compared to the comparable periods ended June 30, 2006. 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 June 30, 2007 increased $20,796 (60%) as compared to the three month period ended June 30, 2006. This increase is due primarily to increases in insurance, legal and professional fees, financial funding commissions and securities maintenance expenses. However, during the six month period ended June 30, 2007 as compared to the comparable period ended June 30, 2007 general and administrative expenses decreased $72,248 (46%) primarily as a result of decreases in payroll, insurance, rent and professional fees expenses.


-9-
 
 
 
 
 
Interest expense for the three and six month periods ended June 30, 2007 decreased by $3,114 (10%) and $8,466 (13%), respectively, as compared to the similar periods ended June 30, 2006, primarily as a result of changes in the structure of the debt outstanding during 2007.

Net loss for the three month period ended June 30, 2007 increased by $20,463 (33%) as compared to the three month period ended June 30, 2006 primarily due to the $20,796 (60%) increase, as discussed above, in general and administrative expenses. However, the $72,248 reduction in general and administrative expenses during the six month period ended June 30, 2007 as compared to the comparable period ended June 30, 2006 are the primary reasons for the resulting $88,967 reduction in the net loss for the six month period ended June 30, 2007.
 
 
Liquidity and Capital Resources
 
The working capital deficit of $4,895,422 at December 31, 2006, was increased to a deficit of $4,998,702 (2.1%) at June 30, 2007 primarily because of the $156,114 net loss incurred during the six months ended June 30, 2007.
 
Operating activities used $11,947 (99%) less net cash during the six month period ended June 30, 2007 as compared to the comparable period in 2006, primarily due to the decreased net loss incurred which was offset in part by reduced increases in accounts payable, accrued expenses and accrued payroll.
 
There was no cash provided by / (used in) investing activities during the six months ended June 30, 2007.
 
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 and recognized appropriate write-offs during the periods prior to the quarter ended June 30, 2007, 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 additional impairment is required to be recognized.  
 
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.
 
-10-
 
 
 
 
Off-Balance Sheet Arrangements

We do not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).
 
 
Item 3.     Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of June 30, 2007. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that our disclosure and controls are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the fiscal quarter ended June 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


-11-
 
 
 
 
 
PART II - OTHER INFORMATION
 
Item 1.        Legal Proceedings.
 
To the best of our knowledge, neither the Company nor any of its subsidiaries is a party to any pending or threatened legal proceedings.

Item 2.         Unregistered Sales of Equity Securities and Use of Proceeds.

None. 
 
Item 3.       Defaults Upon Senior Securities.
 
None.
 
Item 4.        Submission of Matters to a Vote of Security Holders.
 
None.

Item 5.        Other Information.
 
None.
 
Item 6.       Exhibits.
 

Exhibit No.
  
Title of Document
 
 
 
31.1
 
Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002
 
 
 
31.2
 
Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002
 
 
 
32.1
 
Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002
 
 
 
32.2
 
Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002

-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, there unto duly authorized.

UNIVEC, INC.
 
 
By:
/s/ Dr. David Dalton
 
DR. DAVID DALTON
 
President, Chief Executive Officer
 
 
Date:
August 13, 2007
 
By:
/s/ Michael Lesisko
 
MICHAEL LESISKO
 
Chief Financial Officer
 
 
Date:
August 13, 2007