<PAGE>
===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-KSB/A
Amendment No. 4
---------------------
/ / Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended December 31, 1997
/ / Transition report under Section 13 or 15(d) of the Securities Act of 1934
for the transition period from to
-------------- ---------------
Commission file number 0-22413
UNIVEC, INC.
(Name of Small Business Issuer in its Charter)
Delaware 11-3163455
------------------------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
---------------------
22 Dubon Court
Farmingdale, NY 11735
(516) 777-2000
(Address and telephone number of principal executive office)
---------------------
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Act:
Title of Class
Common Stock, $.01 par value
Common Stock Purchase Warrants
---------------------
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 / /
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. / /
Revenues for the issuer's most recent fiscal year were $2,428,539.
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 March
13, 1998 was $2,523,373.
---------------------
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 / / No / /
APPLICABLE ONLY TO CORPORATE REGISTRANTS
As of March 13, 1998, the issuer had 2,981,769 shares of common stock, $.001
par value, outstanding.
Transitional Small Business Disclosure Format: Yes / / No /X/
DOCUMENTS INCORPORATED BY REFERENCE
None
===============================================================================
<PAGE>
Part I
Item 1. Description of Business.
UNIVEC, Inc. (the "Company" or "UNIVEC") develops, assembles, licenses and
markets safety hypodermic syringes designed to protect the healthcare worker and
patient against cross-infection. The Company also from time to time sells other
medical devices and intends to develop other medication delivery systems. 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.
In 1997, the Company commenced production and sales of its 1cc locking clip
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. The Company has received 510(k) clearance from the U.S.
Food and Drug Administration (the "FDA") to market its locking clip syringes in
the United States.
The Company believes that its 1cc difficult to reuse syringes are more
effective than competitive syringes and that they are competitively priced. The
Company also believes that it is the only company that markets a difficult to
reuse 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. The Company 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, the Company believes that aspirating syringes are
preferred by diabetes patients and needle-exchange programs.
The Company's initial marketing efforts have been directed primarily to
international relief agencies, including the International Red Cross, UNICEF and
the World Health Organization ("WHO"), as well as to public hospitals and health
facilities in the Northeastern United States. Pursuant to programs of
international relief agencies, the Company has shipped its lcc locking clip
syringe to over 30 countries. The Company also intends to market its locking
clip syringes to (i) governments of developing countries, (ii) private hospitals
and health facilities in the Northeastern United States, and (iii) distributors
in the United States. The Company also plans to license its patents and
proprietary manufacturing processes relating to its 1cc locking clip and other
syringe designs. To stimulate demand for its safety syringes, the Company 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.
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. At a conference in September 1997, UNICEF and WHO stated
jointly that "the consequences of re-use are striking. Current estimates put the
number of Hepatitis B cases provoked by four reuses of a syringe at up to 3,740
cases per 100,000 fully immunized children and the number of HIV infections at
81. When these risks are computed against current evidence of the reuse of
syringes, the total global morbidity due annually (to reuse) stands at around 10
million cases of Hepatitis B, 1.8 million cases of Hepatitis C, and 750,000
cases of HIV."
Relief agencies, including UNICEF and WHO, expect to administer almost a
billion injections to women and children through immunization programs in
developing countries in 1998 and 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. But 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 an article in the New York
Times on July 7, 1996, an estimated 21.8 million adults and children worldwide
are infected with HIV, 90% of whom 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
1
<PAGE>
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 ("IDUs'"). 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 children with HIV was over $418,000. In Russia,
where HIV-AIDS is nearly an epidemic because of intravenous drug use, Health
Ministry figures suggest that it will cost at least $5 billion a year to treat
Russia's AIDS patients in the year 2000 or 50% of Russia's projected budget for
healthcare in that year.
As a result of the increase in the incidence of HIV-AIDS cases, there has
also been considerable discussion concerning over-the-counter sales of
non-prescription syringes and needle exchange programs, in which intravenous
drug users exchange used syringes for sterile syringes. However, political and
social concerns that over-the-counter sales of non-prescription syringes and
needle exchange programs encourage and condone illegal drug use have limited the
access of intravenous drug users to sterile syringes, including those with the
added safety feature of a locking device to discourage reuse. Nevertheless, 41
states, including Connecticut, Florida, Ohio, Michigan, Texas and Virginia, have
legalized over-the-counter sales of non-prescription syringes.
As a result of the 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-destruct syringes instead of disposable, single use syringes in order to
avoid the hazards of unsafe injection practices." During 1996, New York State
enacted legislation authorizing a limited number of pilot projects to test the
practicality and effectiveness of difficult to reuse syringes. Such pilot tests
are to be conducted, subject to funding, in state-operated facilities, such as
prisons, hospitals, youth detention facilities and development centers.
Since the introduction of the disposable syringe in the late 1940's, two
types of features have been developed to deter the spread of blood-borne
pathogens as a result of accidental or deliberate reuse of syringes --
needle-stick prevention devices and difficult to reuse syringes.
Needle Stick Prevention
Needle-stick 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 needle-stick
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. Needle-stick prevention methods include:
Retracting Needles, which through mechanical devices incorporated in the
syringe, pull back the needle into the barrel after use. These devices are
effective needle-stick 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. Retractable Technologies, Inc.
(Texas) markets the Vanish Point(R), a 3cc syringe, at a retail price of $0.50
to hospitals and other health clinics. The Company believes that Vanish Point(R)
provides effective needle stick protection; however, it does not believe that
Vanish Point(R) provides adequate protection against deliberate reuse.
Self-Destruct Needles, which permit the needle to be collapsed or deformed
into a shape which cannot result in a needle-stick 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, which enclose the barrel of the syringe in a
second cylinder which the operator extends before and after use to cover the tip
of the needle. The extendible barrel sleeves often lock in their
2
<PAGE>
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. Becton Dickinson and Company ("Becton-Dickinson") and Sherwood Davis &
Geck ("Sherwood") distribute traditional (1cc and 3cc) syringes with extendible
barrel sleeves at a wholesale price of $0.18 to $0.21. The Company is developing
an extendible barrel sleeve for its 1cc locking clip syringe, as well as for a
3cc locking syringe to be developed by the Company.
Difficult to Reuse Syringes
To the Company's knowledge, only Bader & Partner Medizintechnik GmbH
("Bader"), a German machine tool maker, and Becton-Dickinson distribute
commercially a line of difficult to reuse syringes, none of which allow for
aspiration. Both companies developed their syringes for WHO and UNICEF
immunization programs.
Relative to difficult to reuse syringes manufactured by Bader and
Becton-Dickinson, the Company believes that its 1cc locking clip syringes are
more effective and that they are competitively priced. Unlike its competitors,
the Company markets a locking clip syringe with a 1cc barrel, which is ideal for
dispensing up to a .95cc dosage of medicine (e.g., allergy, immunization and
insulin medicines). It is more difficult to deliver dosages less than 1cc
accurately with a syringe barrel that is greater than 1cc. Also unlike its
competitors, the Company offers a lcc aspirating syringe that healthcare workers
can lock. Healthcare workers need aspirating syringes to mix medications in the
syringe barrel and inject medications intravenously. Furthermore, the Company
believes that aspirating syringes are preferred by diabetes patients and
needle-exchange programs.
Bader
The Bader DestroJect syringe is a non-aspirating syringe developed for use
with WHO's and UNICEF's Expanded Programmed on Immunization ("EPI") manufactured
since 1992 by Bader. The DestroJect syringe, available in a 1.5 cc size,
delivers a .5cc dose, which is the dosage for many immunizations. To deliver a
dosage other than .5cc, the Company believes that Bader would have to modify
components of the DestroJect syringe.
Becton-Dickinson
Designed in collaboration with UNICEF, the Becton-Dickinson UNIJECT is a
pre-filled or unit-dose syringe for immunization injections. The Company
believes that its 1cc locking clip syringe delivers medication more accurately
than the UNIJECT. Furthermore, the Company believes that its 1cc locking clip
syringe is easier to hold and inject medications with than the Becton-Dickinson
UNIJECT syringe.
The Becton-Dickinson SOLOSHOT syringe is a non-aspirating syringe
specifically designed for the EPI. The SOLOSHOT syringe, available in a 3cc
size, delivers a .5cc dose, which is the dosage for many immunizations. To
deliver a dosage other than .5cc, the Company believes that Becton-Dickinson
would have to modify components of the SOLOSHOT syringe.
UNIVEC
The Company has developed a 1cc locking clip syringe for aspirating and
non-aspirating applications, which is ideally suited for dispensing accurate
dosages of allergy, immunization and insulin medicines. The Company's 1cc
locking clip 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.
3
<PAGE>
The Company's 1cc non-aspirating syringe was developed for the needs of
immunization programs of EPI. Using existing components, the Company can limit
its non-aspirating syringe to any dosage between .05cc and .95cc.
The Company'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.
The Company'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.
The Company is developing a 3cc, non-aspirating syringe with a luer
(needleless) tip for use in hospitals and health clinics in 1999. In general,
hospitals and health clinics use more 3cc syringes than 1cc syringes. Hospitals
and clinics will have the choice of a syringe barrel with or without an
extendible barrel sleeve.
In March 1998, UNIVEC licensed rights to a United States patent for a
pre-filled or unit-dose syringe which is similar in function to the
Becton-Dickson UNIJECT syringe. The Company believes that its licensed design
for a pre-filled syringe will compete successfully with the Becton-Dickinson
UNIJECT design once it is developed.
Sales, Marketing and Distribution
The Company's initial marketing efforts have been directed primarily to
international relief agencies, including the International Red Cross, UNICEF and
WHO, as well as to public hospitals and health facilities in the Northeastern
United States. Pursuant to programs of international relief agencies, the
Company has shipped its lcc locking clip syringe to over 30 countries. The
Company also intends to market its locking clip syringes to (i) governments of
developing countries, (ii) private hospitals and health facilities in the
Northeastern United States, and (iii) distributors in the United States. The
Company also plans to license its patents and proprietary manufacturing
processes relating to its 1cc locking clip and other syringe designs. To
stimulate demand for its safety syringes, the Company 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.
Production
The Company's lcc locking syringes are being assembled by a contract
manufacturer in Portugal. The Portuguese manufacturer also molds the Company's
proprietary plungers for its domestic assembly facility. The Company owns
stamping and assembly equipment at the Portuguese manufacturer. Currently, the
Portuguese manufacturer is unable to offer the Company credit terms because of
its limited financial resources. The Company is the primary customer of the
Portuguese manufacturer.
The Company has commenced production of its 1cc locking clip syringe at its
Mineola, New York production facility. To ensure a sufficient supply of
clip-plunger subassemblies, the Company has entered into a non-binding letter of
intent with a Long Island contract manufacturer to produce up to 25,000,000 of
these subassemblies on an exclusive basis. The Long Island manufacturer owns the
machinery for its production of clip-plunger subassemblies.
The Company'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 the Company. The locking clip and plunger can be
assembled, with minor modifications, into barrels manufactured by
Becton-Dickinson, Sherwood,
4
<PAGE>
Terumo and other syringe manufacturers. A variety of domestic and foreign
manufacturers supply the components for the Company's lcc locking clip syringe.
The Company 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
most of the syringes sold by the Company have been manufactured by the
Portuguese contract manufacturer. However, the Company is pursuing alternate
sources of supply for certain 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 the
Company's business.
Competition
The Company's principal competition is from traditional disposable
syringes. Becton-Dickinson, Sherwood and Terumo control approximately 74%, 19%
and 5%, respectively, or a total of approximately 98%, 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 the Company'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 and
UNIJECT syringes were developed specifically for WHO-UNICEF-EPI immunization
programs. 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. The Company believes
that UNIVEC syringes are more effective than competitive difficult to reuse
syringes and that they 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 the
Company will be able to successfully compete in this market.
Patents and Proprietary Rights
In 1995, the Company 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 the Company. The Company also has filed a United States patent
application 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.
The Company also 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.
The Company has licensed the rights to a locking device patent to develop a
3cc locking syringe. The Company is obligated to make certain minimum annual
royalty payments in respect of the licensed rights to this locking device patent
and, to the extent the Company's products utilize the claims and designs of the
licensed patent, to pay royalties to the owner of the licensed patent ranging
from 2% to 6% of net sales (or in the case of products produced under
sublicenses granted to third parties, 25% to 40% of royalties received from
those parties). This invention has U.S. patent protection, but lacks foreign
patent protection. However, the Company has filed for patent protection in
certain European countries for this invention.
The Company also has licensed the rights to a patent to develop a
pre-filled or unit dose syringe. The Company is obligated to make certain
minimum annual royalty payments in respect of the licensed rights to this
patent and, to the extent the Company's products utilize the claims and designs
of the licensed patent, to pay royalties to the owner of the licensed patent of
5% of net sales, including net sales under sublicenses granted by the Company.
This invention has U.S. patent protection, but lacks foreign patent protection.
5
<PAGE>
The Company has registered trademarks UNIVEC(R), and Rx Ultra(R), 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.
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 thereunder
(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. The FDA has granted the Company 510(k)
clearance to market its 1cc locking clip syringe, which has been classified as a
Class II device under the FDC Act, and accordingly, the Company may market and
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 recordkeeping 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 of a
product 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. The Company's manufacturing facilities have not
been certified as satisfying GMP requirements. The Company'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. 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 the Company's products in foreign markets will also
subject the Company 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. The Company's products are required to satisfy international
manufacturing standards for sale in certain foreign countries. Although the
Company's Portuguese contract manufacturer expects to obtain ISO 9002 by the end
of 1998, until the contract manufacturer in Portugal obtains ISO 9002
certification, the Company could have difficulty selling to certain export
accounts, particularly in Europe. Currently, sales to international relief
agencies, the Company's primary market, are not affected by ISO certification or
other foreign regulations other than those regulations which have been imposed
by the international relief agencies, with which the Company has been in
compliance.
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
6
<PAGE>
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
the Company to comply with regulatory requirements. There can be no assurance
that the Company 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 the
Company's business, financial position and results of operations.
Employees
As of March 1, 1998, the Company employed 5 persons, including two in sales
and marketing, one in research and development and two in financial
administration. The Company also has engaged the services of several independent
contractors, including a company which provides production employees for its
facility in Mineola, New York. None of the Company's employees is covered by a
collective bargaining agreement.
Item 2. Description of Property.
The Company occupies its executive offices in Garden City, New York
(comprised of approximately 1,200 square feet of space) pursuant to a lease that
expires in December 1998; however, the Company may extend the term of the lease
for an additional two years. Rental expense for the space is $28,680 per annum,
subject to an increase of 4% per annum in each subsequent year. Dr. Alan H.
Gold, the President, a Director and principal stockholder of the Company, is the
president and a stockholder of the owner of the premises, the Long Island
Plastic Surgical Group.
The Company also occupies a light manufacturing facility in Mineola, New
York pursuant to a lease that expires in October 1998. Minimum future rentals
under this lease are $27,000 for fiscal 1998. At the option of the Company, the
lease can be extended for two renewal periods: from November 1998 to October
1999 for $3,400 per month and from November 1999 to October 2000 for $3,500 per
month.
Item 3. Legal Proceedings.
On February 11, 1998, the Company commenced a lawsuit against Sherwood and
its former corporate parent, American Home Products Corporation, in the Supreme
Court of the State of New York, Nassau County (Index No 98-003963) seeking money
damages of $500,000,000, plus punitive damages, alleging fraud, fraudulent
inducement, prima facie tort, tortuous interference with contract, tortuous
interference with existing and prospective business relationships, breach of
fiduciary duty, breach of duty of good faith and fair dealing, breach of
confidentiality and misuse of confidential information.
The action arises out of Sherwood's failure to produce components
satisfying the Company's tolerances. There can be no assurance that the Company
will obtain a significant monetary judgment, if any, against Sherwood, or that
the Company's prosecution of the lawsuit will not consume a significant amount
of the Company's limited management and monetary resources.
The Company is not involved in any other legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders, through the
solicitations of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1997.
Item 5. Market for Common Equity and Related Stockholder Matters.
(a)(1) Since April 24, 1997, the Company's Common Stock and redeemable
Common Stock Purchase Warrants ("Warrants") have traded on the Nasdaq SmallCap
Market under the symbols "UNVC" and "UNVCW", respectively.
7
<PAGE>
Set forth below are the high and low closing sale prices for the Common
Stock and Warrants on the Nasdaq SmallCap Market for each quarter since April
24, 1997.
<TABLE>
<CAPTION>
Common Stock Warrants
("UNVC") ("UNVCW")
-------------------------- -------------------------
Quarter Ended High Low High Low
- - ------------------------------------------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
June 30, 1997 (since April 24, 1997) ............ $ 10.125 $ 1.625 $ 7.688 $ 0.438
September 30, 1997 .............................. $ 4.438 $ 1.500 $ 1.750 $ 0.313
December 31, 1997 ............................... $ 2.500 $ 1.125 $ 0.813 $ 0.219
March 31, 1998 (through March 27, 1998) ......... $ 1.875 $ 1.375 $ 0.625 $ 0.219
</TABLE>
(2) As of February 18, 1998, there were 45 holders of record of the Common
Stock. The Company believes that there were over 800 beneficial owners of the
Common Stock as of that date.
(3) During the fiscal year ended December 31, 1997, the Company 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 the Company, and in the case of transactions exempt
from registration under Section 4(2) of the Securities Act, were sophisticated
investors.
1. On April 12, 1997, the Registrant granted options to purchase an aggregate
of 3,690,000 shares of Common Stock to directors and officers of the
Company as follows: Joel Schoenfeld (Chairman of Board and Chief Executive
Officer) -- 2,130,000 shares; Flora Schoenfeld (Secretary/Treasurer) --
200,000 shares; Alan H. Gold (President and a Director) -- 500,000 shares;
John Frank (Director) -- 500,000 shares; David Shonfeld (Director of
Research and Development and a Director) -- 200,000 shares; David Chabut
(Chief Financial Officer) -- 120,000 shares; and Richard Lerner (a
Director) -- 40,000 shares. These options are exercisable at $3.50 per
share, commencing upon the earliest of (x) April 24, 2006, (y) the
attainment of certain financial criteria by the Company or (z) the
occurrence of a "change in control" of the Company (as defined). The
issuance of these securities was exempt from registration under Sections
4(2) and 4(6) of the Securities Act.
2. On May 2, 1997, the Company issued and sold to David Chabut, the Chief
Financial Officer of the Company, 4,370 shares of Common Stock upon
exercise of options at an exercise price of $3.50 per share. The exercise
price of these options was paid for by cancellation of $15,295 payable to
Mr. Chabut for accrued but unpaid compensation. The issuance of the shares
was exempt from registration under Sections 4(2) and 4(6) of the Securities
Act.
3. On May 2, 1997, the Company issued and sold 34,397 shares of Common Stock
to John Frank, a director of the Company, in exchange for the cancellation
of $120,390 payable to him (purchase price of $3.50 per share). The
issuance of the shares was exempt from registration under Sections 4(2) and
4(6) of the Securities Act.
4. On May 2, 1997, the Company issued and sold 35,715 shares of Common Stock
to Andrew Jay, a consultant to the Company, in exchange for the
cancellation of $125,000 payable to him (purchase price of $3.50 per
share). The issuance of the shares was exempt from registration under
Section 4(2) of the Securities Act.
5. On June 27, 1997, the Company granted options to purchase an aggregate of
635,000 shares of Common Stock pursuant to its stock option plan to six
consultants to the Company. These options are exercisable at $3.50 per
share, commencing upon the earliest of (x) April 24, 2006. (y) the
attainment of certain financial criteria by the Company or (z) the
occurrence of a "change in control" of the Company (as defined). The
issuance of these securities was exempt from registration under Section
4(2) of the Securities Act.
8
<PAGE>
6. On December 20, 1997, the Company granted options to purchase an aggregate
of 170,000 shares of Common Stock pursuant to its stock option plan to
eight consultants, including the six members of its Scientific Advisory
Group of Experts. These options are exercisable at an exercise price of
$2.00 per share. The issuance of options to purchase 70,000 shares are
exercisable at any time prior to December 20, 2007, and options to purchase
100,000 shares are exercisable at any time prior to December 20, 2002.
7. On December 31, 1997, the Company issued and sold 100,000 shares of Common
Stock to Great Intelligent Industrial Limited for consulting services
(valued at $131,150). The issuance of these shares was exempt from
registration under Section 4(2) of the Securities Act.
(b) The Company commenced an initial public offering of its securities on
April 24, 1997 (the "Effective Date"), whereby it received net proceeds of
approximately $4,997,000 (the "Net Proceeds"). Since the Effective Date, the
Company has spent the following approximate amounts of the Net Proceeds towards
the purposes indicated:
Use of Net Proceeds through December 31, 1997
- ---------------------------------------------------------------------------
Equipment .................................................... $ 787,031
Marketing, promotion and public relations .................... 345,990
Product development .......................................... 253,701
Payment of bridge notes ...................................... 1,000,000
Management salaries .......................................... 208,000
Working capital and general corporate purposes ............... 1,135,797
Temporary investments in interest-bearing bank accounts ...... 1,266,481
----------
Net Proceeds ................................................ $4,997,000
==========
The expenditure by the Company of the Net Proceeds since the Effective Date
for any other items not listed above has not changed since the Company's last
filed periodic report (including Form S-R) and, pursuant to the Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder, the
listing of such expenditures is omitted from this report.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements, including the notes thereto,
appearing elsewhere in this report.
The Company has commenced production of its 1cc locking clip syringe at a
contract manufacturer in Portugal and at its Mineola, New York production
facility. The Company owns stamping and assembly equipment at the Portuguese
contract manufacturer. To ensure a sufficient supply of clip-plunger
subassemblies, the Company has entered into a non-binding letter of intent with
a Long Island contract manufacturer to produce up to 25,000,000 of these
subassemblies on an exclusive basis. The Long Island contract manufacturer owns
the machinery for its production of clip-plunger subassemblies.
Results of Operations
Fiscal Years Ended December 31, 1997 and 1996
Product Sales. Product sales for the fiscal year ended December 31, 1997
("Fiscal 1997") increased by approximately $284,000 as compared to the fiscal
year ended December 31, 1996 ("Fiscal 1996") as result of increased sales of
disposable medical devices. In order to fill demand for difficult to reuse
syringes from January to June 1997, the Company obtained and sold an inventory
of difficult to reuse syringes of an alternative design. From July to December
1997, production of the Company's patented 1cc locking clip syringe was
sufficient to meet demand. Some of the revenues for Fiscal 1997 were
attributable to resales of lancets and traditional disposable syringes. Revenues
for Fiscal 1996 were derived primarily from resales of lancets.
Income on Supply and Licensing Agreements. In the second quarter of 1996,
the Company entered into an agreement to buy syringe components from Sherwood
(the "Sherwood Supply Agreement"). In consideration for the Sherwood Supply
Agreement and an option to enter into a non-exclusive license to manufacture and
sell the
9
<PAGE>
Company's locking clip syringes in the United States, Sherwood sold all of its
right, title and interest in and to the production mold for the plunger,
including the mold inserts and insert base (together, the "Plunger Mold") to the
Company. The Company also entered into a lease agreement with Sherwood pursuant
to which it leased back the Plunger Mold to Sherwood (the "Equipment Lease") for
a period of six years for use in the manufacture and production of the plungers
as part of the assembly of non-aspirating syringes using the Company's
proprietary design specifications. The Company agreed to pay Sherwood 14.925% of
the cumulative invoiced amount of components in excess of $3,350,000 up to a
maximum invoiced amount of $6,700,000 (or a maximum of $500,000) in
consideration for aggregate rental payments from Sherwood of $1,946,016 in 36
equal consecutive monthly installments of $54,056, over the first three years of
the term of the Equipment Lease. Certain stockholders of the Company agreed to
pay Sherwood up to $1,000,000 (less 14.925% of each dollar paid by the Company
under the Sherwood Supply Agreement) in the event the Company failed to pay a
cumulative invoiced amount of $6,700,000 over the first three years of the
Sherwood Supply Agreement, provided Sherwood was able to deliver 100,000,000
plungers that met specified tolerances during such period. In July 1996, the
Company sold the Plunger Mold, subject to the Equipment Lease, together with the
Company's right to the payments under the Equipment Lease, to a financial
institution for net cash consideration of $1,600,000 ($1,837,904 less expenses
of approximately $238,000). In connection with such sale, the financial
institution agreed to sell the Plunger Mold back to the Company for a nominal
amount upon expiration of the term of the Equipment Lease. Because of the
related party guarantees, the Company deferred recognition of approximately
$1,684,000, which equals the net proceeds from the lease payments received and
the 34 payments sold to a financial institution. Unearned income in connection
with these agreements was to be recognized upon the sale of the Company's
locking clip syringes that include components supplied by Sherwood under the
Sherwood Supply Agreement.
During Fiscal 1997, Sherwood acknowledged that it was unable to produce
plungers that met the Company's tolerances, and it returned the Plunger Mold to
the Company. Because the related party guarantees are no longer effective, the
Company has recognized all of the deferred income related to the Sherwood Supply
Agreement during Fiscal 1997. For tax reporting, the Company recognized the
deferred income from the Sherwood Supply Agreement on its 1996 S corporation
return.
Cost of Product Sales. Cost of product sales for Fiscal 1997 increased by
approximately $152,000 as compared to Fiscal 1996. The cost of product sales for
Fiscal 1997 includes primarily the purchase of difficult to reuse syringes and
includes manufacturing expenses associated with the first month of production at
its production facility in Mineola, New York. From January to June 1997, cost of
product sales includes primarily the purchase of difficult to reuse syringes of
an alternative design to the Company's patented 1cc locking clip syringe; from
July to December 1997, cost of product sales includes primarily the manufacture
of UNIVEC's patented 1cc locking clip syringe by the Portuguese contract
manufacturer engaged by the Company to produce its branded products. The cost of
product sales for Fiscal 1996 includes primarily the purchase of lancets.
Marketing. Marketing expense for Fiscal 1997 increased by approximately
$258,000 as compared to Fiscal 1996. This increase is due primarily to
expenditures associated with promoting the Company's locking syringes to target
markets. During Fiscal 1996, the Company decided to spend money on fixed assets
for production rather than marketing.
Product Development. Product development expenses for Fiscal 1997 increased
by approximately $109,000 as compared to Fiscal 1996. This increase is due
primarily to expenditures for research and development for safety hypodermic
devices other than the Company's 1cc locking clip syringe. During Fiscal 1996,
the Company decided to spend money on fixed assets for production rather than
product development.
General and Administrative. General and administrative expenses for Fiscal
1997 increased by approximately $762,000 as compared to Fiscal 1996. This
increase is due primarily to increased insurance expenses and professional fees.
Included in general and administrative expenses for Fiscal 1997 is approximately
$388,000 in compensation paid in Common Stock or options to purchase Common
Stock issued to consultants; without these non-cash expenses, general and
administrative expenses would have been approximately $1,128,000, an increase of
approximately $375,000 over Fiscal 1996.
Royalty Expense. Royalty expense for Fiscal 1997 decreased by $73,000 as
compared to Fiscal 1996. This decrease is due primarily to the Company not
electing to continue two licensing agreements.
10
<PAGE>
Interest Expense, Net. Net interest expense for Fiscal 1997 increased by
approximately ($491,000) as compared to Fiscal 1996. This increase is due to the
write-off of deferred financing costs as result of the repayment of promissory
notes issued in connection with a bridge financing completed in the fourth
quarter of 1996, which resulted in a non cash charge of approximately
($783,000). Excluding this non cash charge, Fiscal 1997 would have net interest
income of approximately $32,000.
Net Loss. The net loss for Fiscal 1997 decreased by approximately $268,000
as compared to Fiscal 1996. This decrease is due primarily to non-cash income
recognized from the Sherwood Supply Agreement of approximately $1,684,000,
offset by non-cash expenses of approximately $1,171,000. See the discussion of
General and Administrative Expenses and Interest Expense, Net, above. Earnings
before interest, taxes, depreciation, amortization and other non-cash
income/charges ("EBITDA") for Fiscal 1996 was approximately ($1,106,000), as
compared to approximately ($2,002,000) for Fiscal 1997 or an increase of
approximately ($896,000) over Fiscal 1996, which is due primarily to increased
operating expenses (as discussed above), offset partially by higher gross
profits.
Liquidity and Capital Resources
In Fiscal 1997 and 1996, the Company used cash from operating activities.
Net losses in each of these periods greatly affected net cash from operations.
For Fiscal 1997, increased inventory and decreased accounts payable and accrued
expenses were significant uses of cash in addition to the net loss adjusted for
non-cash charges. For Fiscal 1996, increased accounts receivable and inventory
were significant uses of cash in addition to the net loss adjusted for non-cash
charges.
During May 1997, the Company received net proceeds of approximately
$4,997,000 from the sale of 1,725,000 shares of Common Stock and 2,587,500
common stock purchase warrants in its initial public offering. The Company used
approximately $1,031,000 of such net proceeds to pay the principal amount
($1,000,000) and accrued interest (approximately $31,000) on its bridge notes.
The Company's investing activities have consisted primarily of expenditures
for production equipment. Commencing in May 1997, the Company placed orders to
purchase assembly machines, presses, and tools to increase its capacity to
produce safety locking syringes. As of December 31, 1997, the Company had
outstanding purchase orders of approximately $900,000 to purchase syringe
components and production equipment.
The Company had available cash of approximately $1,200,000, but no accounts
receivable, at the end of Fiscal 1997. However, as a result of investments in
factory equipment and inventory in anticipation of increased levels of sales (as
to which there can be no assurance), as well as continuing losses, as of
February 28, 1998 the Company only had available cash of approximately $286,000,
plus accounts receivable of approximately $274,000. The Company is seeking
additional long term financing, which may involve dilution to existing
stockholders. However, there can be no assurance as to when, if ever, the
Company will be able to obtain additional long term financing. Furthermore,
there can be no assurance as to whether any additional long term financing will
be sufficient to sustain the current level of operations until such time, if
ever, as the Company achieves profitable operations. Until the Company achieves
profitable operations, it may have to curtail some of its operations.
Most of the Company's 1cc locking clip syringes have not contained syringe
barrels supplied by Sherwood, but almost all of the Company's 1cc locking clip
syringes have contained a plunger tip supplied, but not manufactured, by
Sherwood. However, the Company has instituted litigation against Sherwood for
failure to provide components for the manufacture of the Company's 1cc syringes.
Although smaller manufacturers have expressed an interest supplying components,
there can be no assurance the Company can obtain adequate supplies of components
(e.g., 1cc barrels with certain sizes of hypodermic needles and plunger tips)
for prices and terms acceptable to it. The failure to obtain adequate supplies
of components for acceptable prices and terms could have a materially adverse
effect on the Company's business, financial condition and results of operations.
The Company's consolidated financial statements for the year ended December
31, 1997, indicate that there is substantial doubt about the Company's ability
to continue as a going concern due to recurring losses. See Note 2 of Notes to
the Company's consolidated financial statements appearing elsewhere herein.
11
<PAGE>
The Company has been advised that its software has been designed and
developed with a resolution to the year 2000 issue ("Year 2000 Issue"). However,
there can be no assurance that the Company's suppliers and customers do not have
Year 2000 Issues. It is not possible at present to quantify the risk, if any, to
the Company of customers and/or suppliers not resolving the Year 2000 Issue on a
timely basis.
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 the Company'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 the Company'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.
The Company did not have any changes in or disagreements with its
accountants on accounting and financial disclosure.
12
<PAGE>
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 the Company are as
follows:
Name Age Position
- ----------------- ----- --------------------------------------
Joel Schoenfeld 53 Chairman of the Board; Chief Executive
Officer; and a Director
Alan H. Gold 51 President and a Director
Flora Schoenfeld 52 Treasurer and Secretary
John Frank 58 Director
Richard Lerner 53 Director
David Jay 68 Director
Joel Schoenfeld, the founder of the Company, has been Chairman of the Board
and Chief Executive Officer of the Company since its inception in August 1992.
Mr. Schoenfeld was the founder and President of J&B Schoenfeld, a global trading
company whose main focus was on the import, export and processing of pelts and
hides, specializing in trade with the USSR and Europe.
In 1988, Mr. Schoenfeld formed the American-Russian International Trading
Company ("AMRU"), which advised on trade agreements between the USSR and United
States. AMRU's broad base of interest and expertise enabled it to take on such
diverse projects as a joint venture with the Soviet government and military
known as AMRU-STAR, the representation of the Soviet Space Agency to Washington,
D.C., the introduction of western advertising to the USSR in conjunction with
another American company, Transportation Displays, Inc. ("TDI"), and the
construction of a studio producing children's films for international
distribution.
As a result of the political changes in the former USSR, Mr. Schoenfeld
sought to further his business strategies. In 1990, he founded Joel Schoenfeld &
Associates in Garden City, New York. With affiliate offices in Moscow, San Jose,
London, and Boston, the company's purpose was to originate, structure,
capitalize, negotiate and advise on the implementation of import and export
trade transactions, projects and programs.
Mr. Schoenfeld has been a commercial attache and a consultant to a number
of foreign and multinational governments. Currently, Mr. Schoenfeld is an
advisor to United Nations Development Programs ("UNDP"). Previously, he served
as:
o Senior Advisor to the Costa Rican Ambassador to the United Nations
o Senior Advisor and Coordinator, Chief of Staff to the Chairman of the
Committee of States Parties to the International Covenant on Civil and
Political Rights to the United Nations
o Senior Economic and Trade Advisor to the United Nations Commission on
Transnational Corporations
Mr. Schoenfeld is the husband of Flora Schoenfeld.
Alan H. Gold, M.D., has been President of the Company since July 1996 and a
Director of the Company since inception in August 1992. Dr. Gold has been a
plastic surgeon since 1972, and is president of the Long Island Plastic Surgical
Group. He is a vice president and board member of Day-Op Center of Long Island,
a privately-owned surgery center in New York. Dr. Gold is a medical advisor to
the UNDP.
Flora Schoenfeld has been Treasurer and Secretary of the Company since its
inception in August 1992. Since March 1992, she also has been Treasurer and
Secretary of Joel Schoenfeld & Associates. From 1980 to 1992, she was Treasurer
and Secretary of J & B Schoenfeld, Inc. Flora Schoenfeld is the wife of Joel
Schoenfeld.
John Frank has been a consultant to the Company in the areas of corporate
development and strategic planning since its inception in August 1992. Mr.
Frank has been Chief Information Officer of The Hartford Steam
13
<PAGE>
Boiler Inspection and Insurance Co. since August 1996. From October 1994 to
August 1996, he was Special Projects Manager for Electronic Data Systems
Corporation. From August 1993 to September 1994, he was the chief auditor of
Travelers Insurance Companies. From September 1991 to July 1993, he was a
principal of Lipera Frank Inc., of which he was a co-founder. From January 1982
to September 1991, Mr. Frank was a partner of Coopers & Lybrand, where he
managed strategic planning and financial management engagements for Fortune 500
clients. Mr. Frank is a CPA.
Richard Lerner has been a Director of the Company since inception in August
1992. He is President of Lerner, Gordon & Hirsch, P.C., a law firm.
David Jay has been a Director of the Company since January 1998. Prior to
his retirement in 1993, he was a CPA.
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 one standing committee, an Audit committee, The
Audit Committee is composed of Dr. Gold, Mr. Frank and Mr. Lerner. 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 the company, and
reviewing the effectiveness of procedures intended to prevent violations of law
and regulations. The Audit committee held two meetings in 1997.
The Board of Directors held seven meetings in 1997. 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 1997.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Officers, Directors and persons who own more than ten percent of a registered
class of the Company'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 the Company with copies of
all Section 16(a) forms they file. Based solely on a review of copies of such
reports received by the Company and written representations from such persons
concerning the necessity to file such reports, the Company is not aware of any
failures to file reports or report transactions in a timely manner during the
fiscal year ended December 31, 1997, except that Dr. Gold did not timely file a
Form 5 reporting the grant of a stock option in December 1997.
14
<PAGE>
Item 10. Executive Compensation.
The following table sets forth the compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and each other executive officer
of the Company whose salary and bonus for the year ended December 31, 1997
exceeded $100,000.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------ -----------------------
Other Annual Securities
Name and Principal Position Year Salary Compensation Underlying Options
- ------------------------------ ------ ----------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
Joel Schoenfeld, Chairman of 1997 $ 226,189(1) -- 2,130,000(2)
the Board and Chief 1996 $ 192,000(1) -- --
Executive Officer
David Chabut, Chief 1997 $ 120,000(4) -- 120,000(2)
Financial Officer(3) 1996 $ 104,051(4) $ 15,949(5) 20,513(6)
</TABLE>
- -------------
(1) The Company accrues compensation expense for Joel Schoenfeld at a rate of
$192,000 per annum, plus benefits, which include a car allowance
(approximately $9,800 in 1997 and $8,500 in 1996) and life/disability/health
and car insurance (approximately $24,400 in 1997 and $7,500 in 1996).
(2) Represents Time Accelerated Restricted Stock Options having an exercise
price of $3.50 per share. "Management -- Stock Option Plan."
(3) Mr. Chabut's employment with the Company was terminated on May 15, 1998.
(4) Includes health insurance benefits.
(5) Represents the amount reimbursed to Mr. Chabut for taxes incurred in
connection with his exercise of certain stock options described in footnote
(6) below.
(6) Represents options granted to Mr. Chabut at $3.50 per share. These options
have been exercised.
Employment Agreement
Joel Schoenfeld serves as Chairman of the Board and Chief Executive Officer
of the Company pursuant to an employment agreement which expires on March 28,
2000. The agreement provides Mr. Schoenfeld with a salary of $192,000
per annum and life, disability and health insurance benefits. The Company also
has agreed to reimburse Mr. Schoenfeld for automobile lease payments under his
existing vehicle lease, or alternatively, to provide him with an automobile
allowance of $10,800 per annum, and at the expiration of the vehicle lease, to
pay him the fair market value of the vehicle if he elects to exercise the option
to purchase the vehicle pursuant to the lease. The agreement contains a
non-competition covenant that prohibits him, directly or indirectly, from
engaging in a competitive business (as defined) for a period of twelve months
following the termination of his employment. The foregoing restriction does not
apply if the Company does not offer to extend or renew his employment following
the expiration of his employment agreement on terms not less favorable to him
than those set forth in his employment agreement.
Stock Options
The following table contains information concerning the grant of stock
options to Joel Schoenfeld and David Chabut (collectively, the "Named Executive
Officers") during the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
Number of Shares Percent of Total Options
Underlying Options Granted to Employees in Exercise Price Expiration
Name Granted Fiscal Year Per Share Date
- ----------------- -------------------- ------------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Joel Schoenfeld 2,130,000 72.2% $ 3.50 April 11, 2007
David Chabut(1) 120,000 4.1% 3.50 April 11, 2007
</TABLE>
- -------------
(1) Mr. Chabut's employment with the Company was terminated on May 15, 1998.
15
<PAGE>
The following table summarizes for each of the Named Executive Officers the
total number of unexercised options, if any, held at December 31, 1997, and the
aggregate dollar value of in-the-money, unexercised options, held at December
31, 1997. The value of the unexercised, in-the-money options at December 31,
1997, is the difference between their exercise or base price ($3.50), and the
fair market value of the underlying Common Stock on December 31, 1997. The
closing bid price of the Common Stock on December 31, 1997 was $1.438.
AGGREGATED OPTION EXERCISES -- JANUARY 1, 1997 --
DECEMBER 31, 1997 AND DECEMBER 31, 1997 OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Shares Acquired Upon Number of Securities In-The-Money
Exercise of Options Underlying Unexercised Options at
During Fiscal 1997 Options at December 31, 1997 December 31, 1997
--------------------------- ------------------------------- ------------------------------
Name Number Value Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------- -------- ---------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Joel Schoenfeld None None None 2,130,000 None None
David Chabut(1) 4,370 None None 120,000 None None
</TABLE>
- -------------
(1) Mr. Chabut's employment with the Company was terminated on May 15, 1998.
Stock Option Plan
The Company's Amended 1996 Stock Option Plan (the "Plan") authorizes the
grant of options to purchase 4,709,219 shares of Common Stock to directors,
employees (including officers) and consultants to the Company (collectively,
"Plan participants"). Options to purchase 4,315,513 shares of Common Stock have
been granted pursuant to the Plan, including Time Accelerated Restricted Stock
Options to purchase 4,125,000 shares of Common Stock granted to officers and
directors of the Company at an exercise price of $3.50 per share. Time
Accelerated Restricted Stock Options are exercisable commencing upon the
earliest of (i) April 24, 2006, (ii) April 24, 2000, if the Company has at least
$30,000,000 in gross revenues and net income of at least $2,000,000 for the
fiscal year ended December 31, 1999, (iii) April 24, 2001, if the Company has at
least $45,000,000 in gross revenues and net income of at least
$3,000,000 for the fiscal year ended December 31, 2000, (iv) April 24, 2002, if
the Company has at least $60,000,000 in gross revenues and net income of
$4,000,000 for the fiscal year ended December 31, 2001, or (v) immediately upon
the occurrence of a "change in control" (as defined) of the Company. In no event
may a Time Accelerated Restricted Stock Option be exercised after the tenth
anniversary of the date of grant. Time Accelerated Restricted Stock Options to
purchase 2,130,000 shares and 120,000 shares have been granted to Joel
Schoenfeld and David Chabut, respectively. ISOs to purchase an additional 20,513
shares also have been granted to and exercised by Mr. Chabut under the Plan.
16
<PAGE>
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 March 1, 1998 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.
<TABLE>
<CAPTION>
Amount and Percentage of Common
Nature of Beneficial Stock Beneficially
Name Ownership(1) Owned (2)
- ------------------------------------------------ ---------------------------- -----------------------
<S> <C> <C>
Joel and Flora Schoenfeld(3) .................. 613,743(4) 20.58 %
Alan H. Gold, M.D.(3) ......................... 343,333(4)(5) 11.48% (6)
Andrew Jay (7) ................................ 200,560(8) 6.51% (9)
John Frank(10) ................................ 153,775(11) 5.12% (12)
Richard Lerner(3) ............................. 41,026 1.38 %
David Jay (7) ................................. 6,435(13) *
David Chabut(14) .............................. 20,513 *
All directors and executive officers as a group
(7 persons) .................................. 1,178,825(15)(16) 39.11% (17)
</TABLE>
- -------------
* Less than 1%
(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 March 1, 1998, 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. Accordingly, the
information presented in the foregoing table does not include shares of
Common Stock issuable upon (i) conversion of the Series A Preferred Stock
(which may not be converted prior to April 24, 1999)or (ii) Time
Accelerated Restricted Stock Options (which may not be exercised prior to
the earliest of (x) April 24, 2006, (y) the attainment of certain financial
performance criteria or (z) the occurrence of a "change in control," as
defined).
(2) Except as otherwise stated, calculated on the basis of 2,981,769 shares of
Common Stock issued and outstanding.
(3) Address is c/o the Company, 999 Franklin Avenue, Garden City, New York
11530.
(4) All of the shares owned by Dr. Gold have been pledged to secure certain
indebtedness to Joel Schoenfeld. Dr. Gold retains voting and dispositive
power with respect to the pledged shares until the occurrence of a default
in the payment of the indebtedness secured by the pledged shares.
Accordingly, the pledged shares have been included in the number of shares
beneficially owned by Dr. Gold and excluded from the number of shares
beneficially owned by Mr. Schoenfeld.
(5) Includes 10,000 shares upon exercise of presently exercisable options.
(6) Calculated on the basis of 2,991,769 shares of Common Stock issued and
outstanding.
(7) Address for Andrew Jay is c/o David Jay, 58 Ruby Lane, Plainview, New York
11803. Andrew Jay is the son of David Jay and David Jay is the father of
Andrew Jay.
(8) Includes 100,000 shares issuable upon exercise of presently exercisable
options. Does not include shares owned by David Jay, as to which Andrew Jay
disclaims beneficial ownership.
(9) Calculated on the basis of 3,081,769 shares of Common Stock issued and
outstanding.
(10) Address is c/o The Hartford Steam Boiler Insurance & Inspection Co., P.O.
Box 5204, One State Street, Hartford, Connecticut 06102-5024.
17
<PAGE>
(11) Includes 22,236 shares issuable upon exercise of options, at an exercise
price of $3.50 per share, which expire on February 22, 1999.
(12) Calculated on the basis of 3,004,005 shares of Common Stock issued and
outstanding.
(13) Does not include shares owned by his son, Andrew Jay, as to which David Jay
disclaims beneficial ownership.
(14) Mr. Chabut's employment with the Company was terminated on May 15, 1998.
(15) For purposes of this calculation, shares of Common Stock beneficially owned
by more than one person have only been included once.
(16) Includes 32,236 shares issuable upon exercise of presently exercisable
options. See footnotes (5) and (11) above.
(17) Calculated on the basis of 3,014,005 shares of Common Stock issued and
outstanding.
Item 12. Certain Relationships and Related Transactions
From its inception in August 1992, the Company's operations have been
funded through advances from Joel Schoenfeld, Flora Schoenfeld and two companies
affiliated with Mr. Schoenfeld (collectively, the "Schoenfeld Parties"), and
certain other stockholders of the Company. As of December 30, 1996, the amount
due to these stockholders and affiliates with respect to the repayment of these
advances (including accrued interest) was as follows: the Schoenfeld Parties --
$1,160,877; Dr. Alan H. Gold -- $115,665; and John Frank - -- $118,390. The
Company issued its demand promissory notes evidencing its obligation to repay
the foregoing advances, together with accrued interest on the outstanding
principal amount thereof at 8% per annum. On December 30, 1996 and January 24,
1997, the Schoenfeld Parties and Dr. Alan H. Gold exchanged for cancellation
their notes for an aggregate of 1,160 shares and 115 shares, respectively, of
the Company's Series A Preferred Stock. On May 2, 1997, the Company issued
34,397 shares of Common Stock to Mr. Frank, a director of the Company, in
exchange for the cancellation of $120,390 payable to him. In addition, as of
December 31, 1996, the Company had accrued compensation payable to the
Schoenfeld Parties in the amount of $644,391, including management fees of
$382,191 for periods prior to June 30, 1994. Since June 30, 1994, the Company
has recorded a salary expense for Mr. Schoenfeld in lieu of management fees due
to affiliates of Mr. Schoenfeld. On March 12, 1997, the Company issued 644
shares of Series A Preferred Stock to Mr. Schoenfeld in exchange for the
cancellation of the amount payable to him for unpaid compensation.
In connection with the formation of the Company, and in consideration for
the dilution resulting to Flora Schoenfeld (the then owner of all of the
Company's outstanding shares) from the issuance by the Company of 333,333 shares
and 205,128 shares to Dr. Alan H. Gold and David Shonfeld (a former Director of
the Company), respectively, each of Dr. Gold and David Shonfeld delivered to
Flora Schoenfeld his non-interest bearing, demand promissory note in the amount
of $750,000, the payment of which each of them agreed to secure by a pledge of
his shares.
On November 21, 1997, following a default in payment of his promissory
note, Flora Schoenfeld purchased the 256,410 shares owned by David Shonfeld as a
secured party under a pledge agreement with David Shonfeld and pursuant to
Section 9-504(3) of the Uniform Commercial Code as in effect in New York for a
total purchase price of $515,384, or $2.01 per share, representing the average
of the high and low bid prices per share of Common Stock during the preceding 30
day period. The purchase price for the shares was credited against the $750,000
due Flora Schoenfeld under David Shonfeld's promissory notes.
In connection with the Sherwood Supply Agreement, Joel Schoenfeld, Dr. Alan
H. Gold, David Shonfeld and John Frank agreed, jointly and severally, to pay
Sherwood up to $1,000,000 (less $0.14925 for each dollar paid to Sherwood under
the Sherwood Supply Agreement) in the event the Company failed to pay a
cumulative invoiced amount of $6,700,000 over the first three years of the
Sherwood Supply Agreement, provided Sherwood was able to deliver 100,000,000
plungers that met the Company's tolerances during such period. In the third
quarter of 1997, Sherwood acknowledged that it was unable to produce plungers
that met the Company's tolerances. Consequently, the individual guarantees are
no longer effective. See "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
18
<PAGE>
On October 10, 1996, UNIVEC-NY, the then owner of all of the outstanding
capital stock of the Company, was merged with and into the Company, solely for
the purpose of effecting a change in its state of incorporation from New York to
Delaware. In the merger, shareholders of UNIVEC-NY received 10,256.3954 shares
of Common Stock for each share of UNIVEC-NY common stock owned, with the total
number of shares issuable to each shareholder rounded up to the nearest whole
share.
The Company occupies its executive offices, consisting of approximately
1,200 square feet of space, pursuant to a lease which expires in December 1998;
however, the Company has the right to extend the term of the lease for an
additional two years. Rental expense for the space is $28,704 per annum, subject
to an increase of 4% per annum in each subsequent year. Dr. Alan H. Gold, the
President, a Director and principal stockholder of the Company, is the president
and a stockholder of the owner of the premises, the Long Island Plastic Surgical
Group.
In December 1996, David Chabut, the former Chief Financial Officer of the
Company, exercised options to purchase 16,143 shares of Common Stock, having an
exercise price of $3.50 per share, the exercise price of which was paid for by
the cancellation of amounts payable to him for accrued, but unpaid compensation
($44,000) and certain advances ($12,500). On May 2, 1997, Mr. Chabut exercised
options to purchase an additional 4,370 shares of Common Stock (at $3.50 per
share) and paid the exercise price of these options by cancellation of amounts
payable to him for accrued but unpaid compensation ($15,295). The Company paid
the remaining amount due to Mr. Chabut ($15,949) for federal and state
withholding and payroll taxes incurred by him in connection with the exercise of
such options.
Item l3. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Description
- - ---------- -----------
<S> <C>
3.1* Restated Certificate of Incorporation of the Registrant.
3.2* By-laws of the Registrant, as amended.
4.1* Agreement and Plan of Merger dated as of October 7, 1996 between the Registrant and UNIVEC,
Inc., a New York corporation.
4.2* Form of warrant between the Registrant and the underwriters of the
Registrant's initial public offering.
4.3* Form of Warrant Agreement.
4.4* Specimen Common Stock Certificate.
4.5* Specimen Warrant Certificate (included as Exhibit A to Exhibit 4.3 herein).
4.8* Registration Rights Agreement.
10.1* O.E.M. Supply Agreement dated May 30, 1996, between the Registrant
and Sherwood Medical Company ("Sherwood") (1).
10.2* Guaranty of Certain Stockholders of the Registrant in favor of Sherwood.
10.3* Equipment Lease dated May 30, 1996 between the Registrant and Sherwood.
10.4* Purchase Agreement dated as of June 27, 1996 between the Registrant and Paramount Financial
Corporation.
10.5* Share Option Agreement dated June 5, 1995, between the Registrant and Leonard N. Tarr.
10.6* Amended 1996 Stock Option Plan of the Registrant.
10.7* Employment Agreement dated as of January 1, 1997 between the Registrant and Joel Schoenfeld.
10.8* Promissory notes of Dr. Alan H. Gold payable to Flora Schoenfeld.
10.9 Letter of Intent with Portuguese manufacturer (1).
21.1* List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule.
</TABLE>
- -------------
* Incorporated by reference from the Registrant's Registration Statement on
Form SB-2 (File No. 333-20187) declared effective on April 24, 1997.
(1) Confidential treatment has been granted for certain portions of this
document.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the fiscal quarter
ended December 31, 1997.
19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this amendment to the report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: December 10, 1998
UNIVEC, INC.
By: s/ Joel Schoenfeld
--------------------------------
Joel Schoenfeld
Chief Executive Officer
(Principal Executive Officer)
In accordance with the Securities Exchange Act of 1934, this amendment to
the report has been signed below by the following persons on behalf of the
Registrant on December 10, 1998 in the capacities indicated.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C>
/s/ Joel Schoenfeld Chairman of the Board, Chief Executive Officer and a Director
- ---------------------------- (Principal Executive Officer)
Joel Schoenfeld
/s/ Martin Jacobson Chief Financial Officer (Principal Financial and Accounting
- ---------------------------- Officer)
Martin Jacobson
/s/ Alan H. Gold President and a Director
- ----------------------------
Alan H. Gold, M.D.
/s/ John Frank Director
- ----------------------------
John Frank
/s/ Richard Lerner Director
- ----------------------------
Richard Lerner
Director
- ----------------------------
David Jay
</TABLE>
20
<PAGE>
UNIVEC, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND FOR THE TWO YEARS
ENDED DECEMBER 31, 1997
Univec, Inc. and Subsidiary
Index to Consolidated Financial Statements
Page
-----------
Report of Independent Accountants ........................... F-2
Consolidated Balance Sheet as of December 31, 1997
September 30, 1996 (unaudited) ............................. F-3
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996 ................................. F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997 and 1996 ........................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996 ................................. F-6
Notes to Consolidated Financial Statements .................. F-7 - F-15
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of Univec, Inc.:
We have audited the accompanying consolidated balance sheet of Univec, Inc. and
Subsidiary (the "Company") as of December 31, 1997 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall 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 Subsidiary as of December 31, 1997 and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred recurring losses
from operations since its inception which raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans with regard
to this matter are further discussed in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Melville, New York Coopers & Lybrand L.L.P.
March 17, 1998.
F-2
<PAGE>
Univec, Inc. and Subsidiary
Consolidated Balance Sheet
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Cash and cash equivalents .................................... $ 1,209,481
Restricted cash .............................................. 57,000
Inventory .................................................... 719,516
Other current assets ......................................... 87,349
------------
Total current assets ........................................ 2,073,346
Fixed assets, net ............................................ 1,544,166
Patent rights, net ........................................... 56,000
------------
Total assets ................................................ $ 3,673,512
============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable ............................................. $ 184,327
Accrued expenses ............................................. 102,162
Other current liabilities .................................... 57,000
------------
Total liabilities ........................................... 343,489
Commitments and contingencies (Note 8)
Stockholders' equity (Note 1):
Preferred stock $.001 par value; 4,997,500 shares authorized;
none issued and outstanding ...............................
Series A 8% Cumulative Convertible Preferred Stock, $.001 par
value, 2,500 shares authorized; 1,919 shares issued
and outstanding ........................................... 2
Common stock $.001 par value; 25,000,000 shares authorized;
issued and outstanding 2,981,769 shares ................... 2,982
Additional paid-in capital .................................. 5,266,163
Accumulated deficit ......................................... (1,939,124)
------------
Total stockholders' equity .................................. 3,330,023
------------
Total liabilities and stockholders' equity .................. $ 3,673,512
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
Univec, Inc. and Subsidiary
Consolidated Statements of Operations
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Revenues:
Product sales ..................................... $ 744,751 $ 461,131
Income on supply and licensing agreements ......... 1,683,788
------------ ------------
Total revenues .................................. 2,428,539 461,131
Expenses:
Cost of product sales ............................. 499,216 346,758
Marketing ......................................... 447,717 189,930
Product development ............................... 327,059 218,532
General and administrative ........................ 1,515,514 753,122
Royalties ......................................... 60,000 133,000
Interest expense .................................. 751,486 260,560
------------ ------------
Total expenses .................................. 3,600,992 1,901,902
------------ ------------
Net loss ........................................ $ (1,172,453) $ (1,440,771)
Dividends on preferred stock ....................... 153,520
------------ ------------
Loss attributable to common stockholders .......... $ (1,325,973) $ (1,440,771)
============ ============
Share information (Note 1):
Basic earnings per share
Net loss per share .............................. $ (.59)
============
Pro forma net loss per share .................... $ (1.36)
============
Average shares outstanding ...................... 2,250,357 1,059,299
============ ============
Diluted earnings per share
Net loss per share .............................. $ (.59)
============
Pro forma net loss per share .................... $ (1.36)
============
Average shares outstanding ...................... 2,250,357 1,059,299
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
Univec, Inc. and Subsidiary
Consolidated Statement of Stockholders' Equity
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Series A Preferred Common Stock
------------------ ---------------------
Shares Amount Shares Amount
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 ........... $ 1,059,001 $1,059
Conversion of indebtedness to
Series A Preferred Stock ............ 1,269 1
Common stock issued:
Stock options exercised ............ 16,143 16
Common stock issued to
pay liabilities ................... 7,143 7
Payment of offering costs ............
Warrants issued in connection
with private placement ..............
Net loss .............................
Balance, December 31, 1996 ........... 1,269 1 1,082,287 1,082
Conversion of indebtedness to
Series A Preferred Stock ............ 650 1
Common stock issued:
Common stock offering .............. 1,725,000 1,725
Common stock issued to
pay debt .......................... 70,112 71
Stock option exercised ............. 4,370 4
Issuance of common stock
for consulting fees ............... 100,000 100
Payment of deferred offering
costs ...............................
Reclassification of S corporation
losses as of April 24, 1997 .........
Stock options issued to non-
employees ...........................
Net loss .............................
Balance, December 31, 1997 ........... 1,919 $ 2 2,981,769 $2,982
===== ==== ========= ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Additional Deferred Total
Paid-in Accumulated Offering Stockholders'
Capital Deficit Costs Equity
--------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 ........... $ 433,941 $ (2,812,367) $ $ (2,377,367)
Conversion of indebtedness to
Series A Preferred Stock ............ 1,268,999 1,269,000
Common stock issued:
Stock options exercised ............ 56,484 56,500
Common stock issued to
pay liabilities ................... 24,993 25,000
Payment of offering costs ............ (92,500) (92,500)
Warrants issued in connection
with private placement .............. 675,000 675,000
Net loss ............................. (1,440,771) (1,440,771)
------------ ------------
Balance, December 31, 1996 ........... 2,459,417 (4,253,138) (92,500) (1,885,138)
Conversion of indebtedness to
Series A Preferred Stock ............ 649,999 650,000
Common stock issued:
Common stock offering .............. 4,994,817 4,996,542
Common stock issued to
pay debt .......................... 245,319 245,390
Stock option exercised ............. 15,291 15,295
Issuance of common stock
for consulting fees ............... 131,150 131,250
Payment of deferred offering
costs ............................... 92,500 92,500
Reclassification of S corporation
losses as of April 24, 1997 ......... (3,486,467) 3,486,467
Stock options issued to non-
employees ........................... 256,637 256,637
Net loss ............................. (1,172,453) (1,172,453)
------------ ------------
Balance, December 31, 1997 ........... $ 5,266,163 $ (1,939,124) $ -- $ 3,330,023
============= ============ ========== ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE>
Univec, Inc. and Subsidiary
Consolidated Statements of Cash Flows
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................................. $ (1,172,453) $ (1,440,771)
Adjustments to reconcile net loss to net cash used in operating
activities:
Issuance of common stock for services .............................. 131,250
Issuance of stock options to non-employees ......................... 256,637
Depreciation, amortization and other non-cash charges .............. 888,675 144,941
Income on supply and licensing agreements .......................... (1,683,788)
Changes in assets and liabilities:
Accounts receivable ............................................... 149,633 (86,307)
Inventory ......................................................... (480,145) (239,371)
Prepaid expenses and other current assets ......................... (35,887) (51,462)
Accounts payable and accrued expenses ............................. (338,925) 455,740
------------ ------------
Net cash used in operating activities ........................... (2,285,003) (1,217,230)
------------ ------------
Cash flows from investing activities:
Purchase of fixed assets ............................................. (826,664) (489,005)
Payment on note for acquisition of patent ............................ (20,000) (30,000)
------------ ------------
Net cash used in investing activities ........................... (846,664) (519,005)
------------ ------------
Cash flows from financing activities:
Repayment of bridge note ............................................. (1,000,000)
Proceeds from bridge note ............................................ 1,000,000
Proceeds from issuance of common stock, net .......................... 4,996,542
Payment of notes ..................................................... (16,340) (937,000)
Proceeds from issuance of notes ...................................... 57,000 397,000
Restricted funds ..................................................... (24,500) (32,500)
Issuance of notes to officers ........................................ 108,844
Advances from affiliates/stockholders, net ........................... 36,571
Deferred debt financing costs ........................................ (179,500)
Deferred offering costs .............................................. (92,500)
Unearned income on supply and licensing agreements ................... 1,683,788
------------
Net cash provided by financing activities ....................... 4,012,702 1,984,703
------------ ------------
Net increase in cash and cash equivalents ....................... 881,035 248,468
Cash and cash equivalents, beginning of period ........................ 328,446 79,978
------------ ------------
Cash and cash equivalents, end of period .............................. $ 1,209,481 $ 328,446
============ ============
Supplemental disclosures:
Cash paid during the year for:
Interest ........................................................... $ 40,128 $ 53,599
Income taxes ....................................................... 4,011 2,733
Supplemental disclosures of noncash investing and financing activities:
Expenses paid through the issuance of common stock ................. $ 25,000
Conversion of indebtedness to Series A Preferred Stock.
(See Note 9) ...................................................... $ 650,000 1,269,000
Conversion of indebtedness to common stock ......................... 245,390
Conversion of officer note to common stock ......................... 15,295 56,500
Warrants issued in connection with a debt offering ................. 675,000
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE>
Univec, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. Significant Accounting Policies:
Operations and Reorganization
Univec, Inc. (the "Company" or "Univec") was incorporated on August 18,
1992 in the State of New York. The Company was formed to develop, produce,
license and market medical products and resell medical devices of other
companies on a global basis.
On October 7, 1996, the Company formed a wholly-owned subsidiary organized
under the laws of Delaware. The new corporation has been authorized with
25,000,000 shares of common stock, $.001 par value and 5,000,000 shares of
preferred stock, $.001 par value. The Company merged with its wholly-owned
subsidiary, with the wholly-owned subsidiary being the surviving corporation.
Accordingly, the Company issued 10,256 for each outstanding common share of the
parent company. The accompanying financial statements of the Company
retroactively reflect the foregoing reorganization to present the current
capitalization.
Public Offering
During May 1997, the Company completed an initial public offering (the
"Offering) of 1,725,000 shares of common stock and 2,587,500 redeemable common
stock purchase warrants with net proceeds received of $4,996,542.
Simultaneous with the Offering, the Company utilized a portion of the net
proceeds to pay down the $1,000,000 in bridge financing that was issued in
December 1996 and expensed the remaining unamortized debt financing costs of
$783,292 to interest expense during fiscal 1997. In addition, 1,750,000 bridge
warrants originally issued were exchanged for warrants with identical terms as
the ones issued in connection with the Offering. The remaining 750,000 bridge
warrants were surrendered to the Company without additional consideration
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Rx Ultra, Inc., which was incorporated on
February 6, 1996. All material intercompany balances and transactions have been
eliminated.
Pro Forma Presentation
As a result of the change in tax status in connection with the public
offering, pro forma per share information is presented on the accompanying
statement of operations for 1996 as if the Company had always been a C
corporation.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments, purchased with
original maturities of three months or less, to be cash equivalents. At December
31, 1997, the Company had $57,000 of restricted cash held as collateral for the
Company's outstanding letter of credit, which is included in other current
liabilities.
Inventory
Inventory is valued at the lower of cost, determined by the first-in,
first-out method, or market. The cost elements of inventory include material,
labor and overhead. One supplier provided approximately 95% of the Company's
purchases in 1997.
Fixed Assets
Fixed assets are stated at original cost less accumulated depreciation.
Fixed assets are depreciated on a straight-line basis over the estimated useful
lives of the asset. Leasehold improvements are amortized over the life of the
improvement or the term of the lease, whichever is shorter. Construction in
progress is depreciated when the related assets are placed into service.
Maintenance and repairs are charged to expense as incurred;
F-7
<PAGE>
Univec, Inc. and Subsidiary
Notes to Consolidated Financial Statements -- (Continued)
1. Significant Accounting Policies: -- (Continued)
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.
Patent Rights and Royalties
Patent rights acquired are capitalized and amortized on a straight line
basis over an estimated useful life of seven years. Royalties based on future
revenues will be charged to operations when and if they are incurred (see Notes
5 and 8).
Product Development
Research and development costs are expensed as incurred.
Income Taxes
The Company had elected treatment as an S corporation for Federal and state
income taxation as of January 1, 1995. S corporation taxable income, whether
distributed or not, is passed through and taxed at the stockholder level.
Accordingly, no provision for Federal income taxes was included in the
accompanying statements of operations for the year ended December 31, 1996.
On the closing of the public offering during April 1997, the Company's
income tax status as an S corporation was terminated. The Company converted to a
C corporation and is now subject to both federal and state income taxes.
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Loss per Share
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Earnings per share amounts for all periods have
been restated to conform to the SFAS No. 128 requirements. Retroactive
restatement has been made to all share and per share amounts for the
reorganization described above.
Pro forma basic and diluted loss per share does not differ from historical
loss per share, as there is no effect from the Company converting from an S
corporation to a C corporation.
<PAGE>
Product Revenue Recognition
Product sales are recognized when products are shipped.
Income on Supply and Licensing Agreements
During May 1996, the Company entered into a five-year supply agreement with
a manufacturer and granted to the manufacturer an option to acquire a license to
manufacture and sell the Company's product. The supply agreement required
the manufacturer to supply up to 50,000,000 sets of syringe components per year
and 100,000,000 non-aspirating plungers, and certain stockholders of the Company
agreed to pay the manufacturer up to $1,000,000 in the event the Company did not
make certain minimum purchases under the Supply Agreement. The option to license
the Company's product granted the manufacturer the right to manufacture and sell
the Company's product to certain segments of the market for a royalty of 5% of
sales of the licensed product, provided the manufacturer was able to deliver,
under the Supply Agreement, product which conformed to the Company's
specifications.
As compensation to the Company for entering into the Supply Agreement,
granting the manufacturer the option to license the Company's technology and
leasing to the manufacturer certain equipment of nominal value, the manufacturer
agreed to make monthly lease payments to the Company over a three year period
aggregating approximately $1,946,000 and provided to the Company a performance
bond from an insurance company guaranteeing the manufacturer's payments. In July
1996, the Company assigned to an unrelated party its right to receive the last
34 payments under the lease arrangement with the manufacturer and its rights
under the performance bond, without recourse, for approximately $1.6 million.
The Company has no future obligations related to the assignment of the lease
receivable and the performance bond.
In 1996, the Company deferred the $1.6 million cash received and determined
to recognize the deferred amount as income based on future sales of the
Company's product delivered under the Supply Agreement.
During 1997, the manufacturer informed the Company that it was unable to
deliver product under the Supply Agreement to the Company's specifications. The
Company's stockholders were thereby released from liability for the payments
guaranteed to the manufacturer. The Company had no further obligation to make
any purchases pursuant to the Supply Agreement or to license its technology to
the manufacturer and the Company recognized as income the amounts previously
deferred.
F-8
<PAGE>
Univec, Inc. and Subsidiary
Notes to Consolidated Financial Statements -- (Continued)
1. Significant Accounting Policies: -- (Continued)
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.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist of cash deposits. Cash balances are held
principally at one financial institution and may, at times, exceed insurable
amounts. The Company believes it mitigates its risks by investing in or through
major financial institutions. Recoverability is dependent upon the performance
of the institutions.
During 1997, approximately 74% of product sales was to one customer. Fiscal
1996 net sales resulted primarily from the resale of medical devices
manufactured by others.
F-9
<PAGE>
Univec, Inc. and Subsidiary
Notes to Consolidated Financial Statements -- (Continued)
1. Significant Accounting Policies: -- (Continued)
The Company's contract manufacturers are concentrated among a few suppliers
and assemblers. Management believes there are a number of suppliers available to
provide component parts utilized in the Company's product.
Newly Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"), which requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 becomes effective in fiscal 1998. Management
does not believe that this change will have a significant impact on the
Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which establishes
standards for reporting information about operating segments. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 becomes effective in fiscal
1998. Management has not yet evaluated the effect of this change on the
Company's financial statement disclosures.
Reclassifications
Certain reclassifications have been made to conform prior year amounts to
the current year presentation.
2. Going Concern:
The financial statements have been prepared on a going concern basis, which
contemplates realization of assets and liquidation of liabilities in the
ordinary course of business. The Company has an accumulated deficit of
$1,939,124 as of December 31, 1997. The ability to continue as a going concern
is dependent, among other things, upon the Company's obtaining additional
working capital through long-term financing or equity infusion and the
attainment of profitable commercial operations.
Management believes that it has made the necessary investments in machinery
and equipment and intellectual technology to provide production capacity, such
that upon attainment of sufficient sales orders, the Company will generate
operating profits. Management recognizes that the Company must obtain such sales
orders to enable it to continue operations. The Company will continue to require
additional working capital until such time as operating profits are achieved.
Management's plans include consideration of alliances or other strategic
partnerships with entities interested in the Company's operations. The Company
has also retained investment advisors to assist with the possible sale of debt
or equity securities and is evaluating equipment financing alternatives. The
Company is also expanding its marketing efforts to generate sales from existing
and new sources.
Management expects that these efforts will provide sales to generate
operating profits in 1998, which, along with additional financing will allow the
Company to continue as a going concern.
However, there is no assurance that additional financing will be obtained
or revenues from product sales will generate profitable operations. The
financial statements do not include any adjustments that might result from the
outcome of these matters.
F-10
<PAGE>
Univec, Inc. and Subsidiary
Notes to Consolidated Financial Statements -- (Continued)
3. Inventories:
Components of inventories are as follows:
Raw material ................... $ 496,290
Work-in-process ................ 32,299
Finished goods ................. 190,927
---------
$ 719,516
=========
4. Fixed Assets:
Fixed assets consist of the following:
Estimated
useful lives
in years
------------
Construction in progress -- machinery ......... -- $ 454,489
Factory equipment ............................. 7 1,183,466
Office equipment .............................. 5 25,993
Leasehold improvements ........................ 1 30,638
-----------
1,694,586
Less accumulated depreciation ................. (150,420)
-----------
$ 1,544,166
===========
Depreciation expense was $86,598 and $57,733 in fiscal 1997 and 1996,
respectively. Construction in progress consists of additions and improvements to
machinery and equipment.
5. Patent Rights:
On June 30, 1994, the Company entered into an exclusive license agreement
with the estate of an inventor related to two patents for a non-reusable
syringe. Such agreement included payments aggregating $112,000 which amounts
were fully paid by June, 1997. Thereafter, the Company is required to pay
quarterly royalty payments of 5% of net sales of product manufactured by Univec
under the license agreement or 10% of the difference between net sales and
purchase price of product manufactured under the license agreement by third
parties for Univec shall be made. Univec may grant non-exclusive sublicenses
under the agreement, in which case 10% of any royalties collected by Univec
would be payable to the inventor's estate. If the manufactured product does not
use the non-reusable syringe of the type discussed in the patent, no royalties
are due, other than the minimum annual licensing fees.
Patent rights consist of the following:
Patent rights ......................... $ 112,000
Less accumulated amortization ......... (56,000)
---------
$ 56,000
=========
Amortization expense for fiscal 1997 and 1996 was $16,000, respectively.
6. Accrued Expenses:
Accrued expenses consist of the following:
Professional fees ................. $ 21,444
Royalties ......................... 25,000
Other ............................. 55,718
---------
$ 102,162
=========
F-11
<PAGE>
Univec, Inc. and Subsidiary
Notes to Consolidated Financial Statements -- (Continued)
7. Income Taxes:
The components of deferred taxes as of December 31, 1997 are as follows:
Deferred tax assets:
Net operating loss carryforwards ......... $ 634,617
Other .................................... 106,544
----------
Total deferred tax asset ........................... 741,161
----------
Deferred tax liabilities:
Property and equipment ................... 36,522
----------
Total deferred tax liability ........... 36,522
----------
Net deferred tax asset ...................... 704,639
Valuation allowance ......................... (704,639)
----------
$ --
==========
The following is a reconciliation of the reported income tax benefit
attributable to continuing operations to the expected income tax expense
(benefit) utilizing federal statutory tax rates.
<TABLE>
<CAPTION>
1997 1996
------------- ---------------
<S> <C> <C>
Expected income tax expense (benefit) ..................................... $ 24,472 $ (489,862)
Benefit of S corporation status ........................................... 544,323
Deferred benefit arising from conversion to C corporation status .......... (718,200)
Valuation allowance on deferred tax assets arising from conversion ........ 704,639
Change in valuation allowance arising in current year ..................... (13,662)
State income tax expense (benefit), net of federal income tax effect ...... 2,751 (54,461)
---------- -----------
$ -- $ --
========== ===========
</TABLE>
The Company has cumulative losses of $5,425,591 as of December 31, 1997
which includes C corporation losses incurred prior to the Company changing its
tax status to an S corporation during fiscal 1995. The Company's net operating
loss for tax purposes differs from the loss for financial reporting purposes as
a result of certain costs being capitalized and expensed over a five-year period
for tax purposes.
In 1997, the Company recorded a valuation allowance with respect to the
future benefits and net operating loss carryforwards which expire in 2007
reflected in deferred tax assets as a result of the uncertainty of their
ultimate realization.
8. Commitments and Contingencies:
Commitments
On January 1, 1995, the Company entered into an exclusive license agreement
with two inventors related to a patent for an insertable element which prevents
reuse of a plastic syringe. To maintain this license agreement in force, the
Company is required to pay an annual minimum licensing of $10,000. In order for
the agreement to remain exclusive, exclusivity payments of $25,000 in 1996 and
$50,000 annually thereafter, are required to be made. Under the license
agreement, royalty payments of 2% of net sales of product manufactured and 25%
of sublicense royalties received shall be made for products which do not use
specific insertable element as shown and described in the licensed patent
rights. Royalty payments of 6% of net sales of product manufactured and 40% of
sublicense royalties received shall be made for products that use the specific
insertable element. If the manufactured product does not use the non-reusable
syringe of the type discussed in the patent, no royalties are due, other than
the minimum annual licensing fees.
During fiscal 1997 and 1996, the Company paid $60,000 and $35,000,
respectively, under this agreement. The Company has an employment agreement with
an officer of the Company expiring during March 2000. Future payments under such
agreements are as follows:
F-12
<PAGE>
Univec, Inc. and Subsidiary
Notes to Consolidated Financial Statements -- (Continued)
8. Commitments and Contingencies: -- (Continued)
1998 ......................... $ 192,000
1999 ......................... 192,000
2000 ......................... 80,000
---------
$ 464,000
=========
The Company leases office space under an operating lease from a stockholder
and officer of the Company. Minimum future rentals under this lease are $28,680
through fiscal 1998. At the option of the Company, the lease can be extended for
an additional two years subject to an increase of 4% per annum in each
subsequent year. Rent expense for fiscal 1997 and 1996 was $28,680 and $27,600,
respectively.
In November 1997, the Company entered into an operating lease agreement for
a manufacturing facility which expires in October 1998. Minimum future rentals
under the agreement are $27,000. The Company has an option to extend the lease
term for two renewal periods at $3,400 per month for the period from November
1998 to October 1999, and $3,500 per month from November 1999 to October 2000.
Rent expense for fiscal 1997 was $5,400.
9. Equity:
The following share and per share amounts have been restated to reflect the
reorganization as described in Note 1.
Common Stock
On December 14, 1996, the Company issued 7,143 shares at a price of $3.50
per share in exchange for the cancellation of $25,000 of indebtedness payable to
a consultant for the Company. In addition, during December 1996, the Company
converted $56,500 of debt to an officer into 16,143 shares of common stock.
In May 1997, the Company issued 35,715 and 34,397 shares, respectively, at
a price of $3.50 per share in exchange for the cancellation of notes payable of
$125,000 and $120,390, respectively.
In May 1997, 4,370 stock options were exercised at a price of $3.50 in
exchange for the cancellation of debt of $15,295 to an officer.
In December 1997, the Company issued 100,000 shares with a value of
$131,250 as compensation to a consultant of the Company.
Preferred Stock
In connection with the reorganization in October 1996 (see Note 1), the
Company authorized the issuance of 1,269 shares of Series A Preferred Stock to
certain officers in exchange for the cancellation of notes due to affiliate and
payable to stockholders of $1,269,000.
In January and March 1997, the Company issued 650 shares of Series A
Preferred Stock to certain shareholders in exchange for amounts due of $650,000.
Series A preferred shares are entitled to receive, prior to the payment of
cash dividends of the common stock, cumulative dividends at a rate of $80 per
share per annum and may be redeemed at the option of the Company, at $1,000 per
share (aggregate liquidation preference of $1,919,000). In addition, preferred
stockholders are entitled to a liquidation preference of $1,000 per share, plus
accrued and unpaid dividends. Each share of Series A Preferred Stock is
convertible into 222.22 shares of common stock commencing April 24, 1999.
Holders of these shares have no voting rights.
F-13
<PAGE>
Univec, Inc. and Subsidiary
Notes to Consolidated Financial Statements -- (Continued)
9. Equity: -- (Continued)
Warrants
As of December 31, 1997, the Company has outstanding 4,487,500 redeemable
common stock purchase warrants ("Warrants"). Holders of Warrants to purchase
1,750,000 shares of common stock are subject to lock-up agreements until April
24, 1999, which may be released commencing April 24, 1998 by the managing
underwriter of the Company's initial public offering in its sole and absolute
discretion. Each warrant entitles the holder to purchase one share of common
stock at an exercise price of $4.50, subject to adjustment. The warrants are
subject to redemption by the Company at $.05 at any time commencing April 24,
1999 through April 23, 2002, provided the closing bid price of the common stock
has been at least $8.00 for 20 consecutive trading days.
Options
As of December 31, 1997, the Company had outstanding 55,672 options, which
it issued pursuant to financing agreements consummated prior to 1996. Each
option entitles the holder to purchase one share of common stock at an exercise
price of $3.50 per share. 55,672 shares issuable upon exercise of options are
subject to lock-up agreements until April 24, 1999, which in the case of 33,436
shares may be released commencing April 24, 1998 by the managing underwriter of
the Company's initial public offering in its sole and absolute discretion.
Additional Paid-In Capital
The reclassification from Additional Paid-In Capital to Accumulated Deficit
reflects S corporation undistributed losses as of April 24, 1997, the date of
the commencement of the Company's initial public offering.
10. Stock Option Plan:
During December 1996, the Board of Directors has adopted and the Company's
stockholders have approved the 1996 Stock Option Plan (the "Plan"). The Plan is
to be administered by the Board of Directors or a committee thereof. Pursuant to
the Plan, options to purchase 4,709,219 shares of common stock may be granted to
directors, employees (including officers) and consultants to the Company
(collectively, "Plan participants"). The Plan authorizes the issuance of
incentive stock options ("ISOs"), as defined in Section 422A of the Internal
Revenue Code of 1986, as amended, and non-qualified stock options ("NQSOs", and
together with ISOs, "Options"). 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 (a "10% Stockholder"), 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 ISOs 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 granted a 10% Stockholder be no less than 110% of the fair market value on
the date of grant.
The Company has set aside Options to purchase 4,500,000 shares of common
stock based on the criteria listed below. These Options will become exercisable
commencing upon the earlier of (x) nine years after the effective date of the
option, or (y) two years after the effective date of the option, provided that
in the case of clause (y), the Company shall have obtained (i) at least
$30,000,000 in gross revenues and after tax net income of at least $2,000,000 in
the second full fiscal year following the effective date, or (ii) at least
$45,000,000 in gross revenues and $3,000,000 in after-tax net income in the
third full fiscal year following the effective date, or (iii) at least
$60,000,000 in gross revenues and $4,000,000 in after-tax net income in the
fourth full fiscal year following the effective date. During fiscal 1997, the
Company granted 695,000 stock options to consultants. In connection with these
grants, the Company has recorded a compensation charge of approximately $256,600
which was based on the fair value of the options at the time of grant.
F-14
<PAGE>
Univec, Inc. and Subsidiary
Notes to Consolidated Financial Statements -- (Continued)
10. Stock Option Plan: -- (Continued)
A summary of the Company's stock options is as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------- ------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------ ---------------- ------------ ---------
<S> <C> <C> <C> <C>
Options outstanding, beginning of year ........... 4,370 $ 3.50
Granted .......................................... 4,500,000 2.00 to 3.50 20,513 3.50
Exercised ........................................ (4,370) 3.50 (16,143) 3.50
Canceled or lapsed ............................... (205,000) 3.50
--------- --------------
Options outstanding, end of year ................. 4,295,000 $ 2.00 to 3.50 4,370 $ 3.50
========= ============== ========== =======
Options exercisable, end of year ................. 170,000 4,370
========= ==========
Options available for grant, end of year ......... 393,706 4,688,706
========= ==========
Weighted-average fair value of options granted
during the year ................................. $ 3.15 $ 3.50
========== ==========
</TABLE>
The Company has applied the disclosure-only provision SFAS 123. Had
compensation cost been determined based on the fair value at the grant date
consistent with the provisions of SFAS 123, the Company's net income and
earnings per share would have been as follows for the years ended December 31,
1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
Loss attributable to common stockholders ..................... $ (1,325,973)
=============
Loss attributable to common stockholders, pro forma .......... $ (1,869,638) $ (1,440,771)
============= =============
Loss per share -- basic, as reported ......................... $ (.59)
=============
Loss per share -- basic, pro forma ........................... $ (.83) $ (1.36)
============= =============
Loss per share -- diluted, as reported ....................... $ (.59)
=============
Loss per share -- diluted, pro forma ......................... $ (.83) $ (1.36)
============= =============
</TABLE>
The weighted average fair value of each option has been estimated on the
date of grant using the Black Scholes options pricing model with the following
weighted average assumptions used for grants in 1997 and 1996, respectively; no
dividend yield; expected volatility of 80% to 100%, risk-free interest rate
(ranging from 5% - 7%); and expected lives of approximately 1 to 9 years.
Weighted averages are used because of varying assumed exercise dates.
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Weighted
Average Weighted
Remaining Average
Shares Contractual Shares Exercisable
Range of Exercise Prices Outstanding Life Exercisable Price
- -------------------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
$2.00 .................... 170,000 7.06 170,000 $ 2.00
$3.50 .................... 4,125,000 9.22 0 $ 3.50
--------- ---- ------- ------
$2.00 to $3.50 ........... 4,295,000 9.14 170,000 $ 3.44
========= ==== ======= ======
</TABLE>
F-15
<PAGE>
EXHIBIT 10.9
UNIVEC, INC.
Mr. Joel Shoenfeld
Chief Executive Officer
999 Franklin Avenue
Garden City, NY 11530
June 30, 1998
Dear Mr. Joel,
We are pleased to extend a new business arrangement to Univec to be in effect
for the next three years. This arrangement will be formalized by your counsel,
Mr. Gary Sazer.
All of the terms which we previously discussed are satisfactory to Inserpor and
we will memorialize these terms when we receive the written contract.
Effective immediately, please note a price change on orders from $ * to $ * per
hundred syringes 0.5 ml, with attachment needle 23 G x 1".
Thank you for working with Inserpor and we look forward to a mutually beneficial
association.
Sincerely,
INSERPOR
Ind. Seringas Portuguesa, S.A.
/s/ Fernando Ferreira
- -------------------------------------
Fernando Ferreira
President
- ----------
* Confidential treatment has been granted.
<PAGE>
LETTER OF INTENT BETWEEN UNIVEC AND INSERPOR
(1) The term of this agreement shall be for three (3) years. It may then be
extended upon mutual agreement.
(2) INSERPOR shall manufacture for UNIVEC:
(a) PLUNGERS as per the UNIVEC DESIGN for * cents U.S. each delivered to
the U.S. ($ * U.S. per 100 syringes).
(b) Assembled barrel with affixed 23 guage 1" needle with needle cap for *
cents U.S. each delivered to the U.S. ($ * U.S. per 100 syringes).
(3) UNIVEC intends to purchase:
(a) 25 million assembled barrels with affixed needle and cap as per UNIVEC
DESIGN
(b) 30 million aspirating (smooth) plungers as per UNIVEC DESIGN
(c) 15 million plungers with steps as per UNIVEC DESIGN
(4) UNIVEC shall receive from INSERPOR one (1) KHALE 1 cc syringe assembly
machine to be shipped to N.Y., U.S.A. in mid-December 1995.
(5) UNIVEC will produce a clip assembly machine attachment to be adapted and
integrated to the KHALE machine which when completed will be shipped back to
INSERPOR so that INSERPOR can begin production of the complete syringe,
assembled, packaged, and sterilized as per the UNIVEC DESIGN and
requirements.
(6) UNIVEC intends to purchase the completed syringe from INSERPOR for * cents
U.S. each ($ * per 100 syringes). This price, ex-works, is inclusive of
* cents U.S. per clip purchased by INSERPOR from UNIVEC.
- ----------
* Confidential treatment has been granted.
<PAGE>
(7) It is UNIVEC's intent to supply a clip attachment machine at UNIVEC's
expense to INSERPOR for adaptation to INSERPOR's "French Machine" in order
to permit it to be used to produce a complete syringe as per UNIVEC DESIGN.
/s/ Fernando Ferreira /s/ Joel Schoenfeld
- ---------------------------- ---------------------------
Fernando Ferreira Joel Schoenfeld
Director General Director
INSERPOR UNIVEC
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement on
Form S-3 (File No. 333-62261) and in post effective amendment No. 2 on Form S-3
to the registration statement on Form SB-2 (File No. 333-20187) of Univec, Inc.
and Subsidiary, of our report, which includes an explanatory paragraph regarding
the Company's ability to continue as a going concern, dated March 17, 1998, on
our audits of the consolidated financial statements of Univec, Inc. and
Subsidiary as of December 31, 1997 and for the years ended December 31, 1997 and
1996, which report appears in Amendment No. 3 to the Annual Report of Univec,
Inc. on Form 10-KSB for the year ended December 31, 1997. We also consent to
the reference to our firm under the caption "Experts" in said registration
statements.
/s/ PricewaterhouseCoopers LLP
------------------------------------
PricewaterhouseCoopers LLP
Melville, New York
December 8, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,209,481
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 719,516
<CURRENT-ASSETS> 2,073,346
<PP&E> 1,544,166
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,673,512
<CURRENT-LIABILITIES> 343,489
<BONDS> 0
0
2
<COMMON> 2,982
<OTHER-SE> 5,266,163
<TOTAL-LIABILITY-AND-EQUITY> 3,673,512
<SALES> 744,751
<TOTAL-REVENUES> 744,751
<CGS> 499,216
<TOTAL-COSTS> 499,216
<OTHER-EXPENSES> 2,350,290
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 751,486
<INCOME-PRETAX> (1,172,453)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,172,453)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,172,453)
<EPS-PRIMARY> (.59)
<EPS-DILUTED> (.59)
</TABLE>
