<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1998
---------------------------
[ ] Transition Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
For the transition period from ______________ to _________________
Commission file number 0-22413
UNIVEC, INC.
----------------------------------------------
(Name of Small Business Issuer in Its charter)
Delaware 11-3163455
- -------------------------------- --------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
22 Dubon Court, Farmingdale, NY 11735
------------------------------------------------
(Address of Principal Executive Offices)
(516) 777-2000
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
999 Franklin Ave., Garden City, NY 11530
---------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.
Yes X No
----- -----
As of October 31, 1998, the Issuer had 2,981,769 shares of Common
Stock, $0.001 par value, outstanding.
Transitional Small Business Disclosure Format:
Yes x No
----- -----
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1: Consolidated Financial Information
Univec, Inc. and Subsidiary
Consolidated Balance Sheet
September 30
1998
ASSETS: (Unaudited)
Current assets:
Cash and cash equivalents $ 391,063
Accounts receivable 207,280
Inventory 1,075,487
Prepaid expenses and other current assets 46,307
-----------
Total current assets 1,720,137
Fixed assets, net 1,893,798
Patent rights, net 44,000
Other Assets 20,225
-----------
Total assets $ 3,678,160
===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable 724,027
Accrued expenses 124,347
-----------
Total liabilities 848,374
Stockholders' equity:
Preferred stock $.001 par value; 4,996,500 shares authorized;
none issued and outstanding
Series A 8% Cumulative Convertible Preferred Stock,
$.001 par value, 2,500 shares authorized; 2,072 shares
issued and outstanding 2
Series B 5% Cumulative Convertible Preferred Stock,
$.001 par value, 1,000 shares authorized; 750 shares
issued and outstanding 1
Common stock $.001 par value; 25,000,000 shares authorized;
issued and outstanding 2,981,769 shares 2,982
Additional paid-in capital 5,975,974
Accumulated deficit (3,149,173)
-----------
Total stockholders' equity 2,829,786
-----------
Total liabilities and stockholders' equity $ 3,678,160
===========
See accompanying notes to consolidated financial statements.
<PAGE>
Univec, Inc. and Subsidiary
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ ----------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 351,275 $ 72,221 $ 1,629,298 $ 590,698
Income on supply & licensing
agreements 1,683,788 1,683,788
---------- ----------- ------------ -----------
Total Revenues 351,275 1,756,009 1,629,298 2,274,486
Expenses:
Cost of sales 346,192 66,238 1,300,550 325,368
Marketing 62,817 108,267 268,258 320,101
Product development 67,643 105,023 243,425 253,680
General and administrative 375,599 318,165 958,322 877,756
Royalties 65,825 65,000
Interest (income)/expense, net ( 2,280) ( 34,082) 2,967 767,489
---------- ----------- ------------ -----------
Total expenses, net 849,971 563,611 2,839,347 2,609,394
---------- ----------- ------------ -----------
Net income/(loss) $ (498,696) $ 1,192,398 $( 1,210,049) $ (334,908)
========== =========== ============ ===========
Share information
Basic earnings per share
Net (loss) per share $ (.20)* $ (.44)*
========== ============
Proforma net income/(loss) $ 1.03 $ (.30)
per share =========== ===========
Weighted average common
stock outstanding 2,981,769 1,156,769 2,981,769 1,119,698
=========== =========== ============ ===========
Diluted earnings per share
Net (loss) per share $ (.20)* $ (.44)*
========== ============
Proforma net income/(loss) $ 1.03 $ (.30)
per share =========== ==========
Weighted average common
stock outstanding 2,981,769 1,156,769 2,981,769 1,119,698
========== =========== ============ ===========
</TABLE>
______________
*reflects deemed dividend of $101,868 applicable to the beneficial conversion
feature of preferred stock
See accompanying notes to consolidated financial statements.
<PAGE>
Univec, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------------
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $(1,210,049) $ (334,908)
Adjustments to reconcile net (loss) to net cash used
in operating activities:
Issuance of stock options to non-employees 85,061
Depreciation, amortization and other non cash charges 123,707 889,466
Income on supply and licensing agreements (1,683,788)
Changes in assets and liabilities:
Accounts receivable (207,280) 89,843
Inventory (355,971) (256,364)
Prepaid expenses and other current assets 41,042 21,219
Other assets ( 20,225)
Accounts payable and accrued expenses 561,885 (224,604)
----------- -----------
Net cash used in operating activities (981,830) (1,499,136)
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (461,339) (387,735)
Payment on note for acquisition of patent (20,000)
----------- -----------
Net cash used in investing activities (461,339) (407,735)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings 17,700
Payment of notes (1,015,949)
Proceeds from issuance of common stock, net 4,996,542
Proceeds from issuance of preferred stock, net 624,751
Restricted funds 32,500
----------- -----------
Net cash provided by financing activities 624,751 4,030,793
----------- -----------
Net increase (decrease) in cash (818,418) 2,123,922
Cash at beginning of period 1,209,481 328,446
----------- -----------
Cash at end of period $ 391,063 $ 2,452,368
=========== ===========
</TABLE>
Supplemental disclosures of noncash investing and financing activities:
Dividend of $153,250 payable in kind by issuance of 153 shares of
Series A 8% Cumulative Convertible Preferred Stock on March 31, 1998.
See accompanying notes to consolidated financial statements.
<PAGE>
Univec, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
1. General:
The unaudited consolidated financial statements included herein have been
prepared in accordance with the requirements of Regulation S-B and
supplementary financial information included herein, if any, and has been
prepared in accordance with Item 310(b) of Regulation S-B and, therefore,
omit or condense certain footnotes and other information normally included
in financial statements prepared in accordance with generally accepted
accounting principles. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation of the financial information for the interim periods reported
have been made. The financial statements should be read in conjunction with
the financial statements and notes thereto, together with Management's
Discussion and Analysis contained in the Company's Form 10-KSB/A for the
fiscal year ended December 31, 1997 and the Quarterly Reports on Form 10-Q
for the quarters ended June 30, 1998 and March 31, 1998. The results of
operations for the three and nine months ended September 30, 1998 are not
necessarily indicative of the results for the entire fiscal year ending
December 31, 1998.
2. Basic and Diluted 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. However, no restatement
is required because basic and diluted loss per share for prior and current
periods are the same.
Pro forma basic and diluted income/(loss) per share does not differ from
historical income/(loss) per share, as there is no effect from the Company
converting from an S Corporation to a C corporation.
3. Cash and Cash Equivalents:
Cash and cash equivalents includes $50,000 collateralizing a letter of
credit issued to a vendor for the purchase of inventory.
4. Stockholders' Equity:
On March 31, 1998, the Board of Directors declared a dividend of $153,520
payable in-kind to stockholders of Series A 8% Cumulative Convertible
Preferred Stock of record as of December 31, 1997. As a result, the Company
authorized the issuance of 153 shares of Series A 8% Cumulative Convertible
Preferred Stock.
On July 27, 1998, UNIVEC, INC. ("Company") sold 750 shares of its Series B
5% Convertible Preferred Stock ("Preferred Shares"), and Common Stock
Purchase Warrants exercisable to purchase 112,500 shares of the Company's
Common Stock ("Warrants") to an institutional investor. The aggregate
purchase price under the Securities Purchase Agreement was $750,000. Each
Preferred Share has a stated value of $1,000 and is convertible into the
number of shares of Common Stock having such value, calculated on the basis
of the lesser of (i) $1.925 per share and (ii) an amount equal to 80-85% of
a price related to the market price for the common stock during the twenty
trading day period preceding the conversion date as provided in the
certificate designating the terms and conditions of the Preferred Shares.
The Warrants carry an exercise price of $2.15 per share of Common Stock,
expiring August 1, 2001.
The net proceeds of $624,750, representing the aggregate purchase price less
expenses and $1 par value, is included in Additional Paid-in Capital. The
$624,750 includes a discount analogous to a dividend of $176,237 resulting
from an allocation of proceeds to the beneficial conversion feature of the
Preferred Shares. The beneficial conversion feature will be reflected
through the periods of the earliest conversion as required by accounting
standards as interpreted by the SEC.
Preferred stockholders are entitled to a liquidation perference of $1,000
per share, plus accrued and unpaid dividends.
<PAGE>
A summary of the changes in Stockholders' equity for the nine months ended
September 30, 1998 is as follows:
<TABLE>
<CAPTION>
Series A 8% Series B 5%
Cumulative Cumulative
Convertible Convertible Additional Total
Preferred Stock Preferred Stock Common Stock Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Shares Amount Capital Deficit Equity
------ ------ ------ ------ ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, 12/31/97 1,919 $2 2,981,769 $2,982 $5,266,163 $(1,939,124) $3,330,023
Payment of in kind 153
dividend
Sale of Series B 750 $1 624,750 624,751
Preferred Stock
Issuance of stock 85,061 85,061
options to
non-employees
Net (loss) (1,210,049) (1,210,049)
----- ---- ---- ---- --------- ------ ---------- ----------- ----------
Balance, 09/30/98 2,072 $2 750 $1 2,981,769 $2,982 $5,975,974 $(3,149,173 $2,829,786
===== ==== ==== ==== ========= ====== ========== =========== ==========
</TABLE>
5. Subsequent Event:
The Company has agreed to issue 360,000 shares of its common stock, subject
to restrictions within the meaning of Rule 144 of the Securities Act of
1933, for the purchase of equipment which is currently located at the
facilities of a foreign contractor.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Three Months Ended September 30, 1998 and 1997
Sales. Sales for the three months ended September 30, 1998 (the "1998
three-month period") increased by approximately $279,000 as compared to the
three months ended September 30, 1997 (the "1997 three-month period") as a
result of increased sales of its disposable medical devices, almost all of which
were either produced in the Company's own production facility in the United
States or in its Portuguese contract manufacturer. At this time, production of
the Company's 1cc locking clip syringes is insufficient to meet current demand.
Management believes that production of the Company's 1cc locking clip syringe
will continue to increase and will be able to meet a growing demand for the
Company's locking clip design.
Income on Supply and Licensing Agreements. Income on supply and
licensing agreements decreased by $1,683,788 in the current period as compared
to the 1997 three-month period as a result of the Company realizing during the
1997 three-month period, previously deferred income. There weren't any licensing
agreements in the 1998 three-month period.
Cost of Sales. Cost of sales for the 1998 three-month period increased
by approximately $280,000 as compared to the 1997 three-month period, primarily
due to increased sales.
Marketing. Marketing expense for the 1998 three-month period decreased
by approximately $46,000 as compared to the 1997 three-month period. This
decrease is due primarily to lower expenditures associated with promoting the
Company's safety locking syringes to target markets.
Product Development. Product development expenses for the 1998
three-month period decreased by approximately $37,000 as compared to the 1997
three-month period. This decrease is due primarily to management's decision to
utilize its resources primarily in the development of its own production
facility rather than on product development itself.
General and Administrative. General and administrative expenses for the
1998 three-month period increased by approximately $57,000 as compared to the
1997 three-month period. This increase is due primarily to increased legal fees
for proposed debt financing, offset in part by lower salaries.
Interest Income. Interest income for the 1998 three-month period
decreased by approximately $32,000 as compared to the 1997 three-month period.
This decrease is primarily due to lower cash balances available for investment
due to the use of cash for operating activities and the purchase of fixed
assets.
Net Loss. The net loss for the 1998 three-month period increased by
approximately $1,691,000 as compared to the 1997 three-month period. This
increase is due principally to $1,684,000 of realized income on supply and
licensing agreements in the 1997 three-month period as compared to none in the
current three-month period.
Nine Months Ended September 30, 1998 and 1997.
Sales. Sales for the nine months ended September 30, 1998 (the "1998
nine-month period") increased by approximately $1,039,000 as compared to the
nine months ended September 30, 1997 (the "1997 nine-month period") as a result
of increased sales of disposable medical devices, almost all of which were
either produced in the Company's own production facility in the United States or
in its Portuguese contract manufacturer. At this time, production capacity of
the Company's 1cc locking clip syringes is insufficient to meet current demand.
Management believes that production capacity of the Company's 1cc locking clip
syringe will continue to increase and will be able to meet a growing demand for
the Company's locking clip design. Some of the revenues for the 1997 nine-month
period were attributable to resales of lancets.
<PAGE>
Income on Supply and Licensing Agreements. Income on supply and
licensing agreements decreased by $1,683,788 in the 1998 nine-month period as
compared to the same period in 1997 as a result of the Company realizing during
the 1997 nine-month period previously deferred income. There weren't any
licensing agreements in the 1998 nine-month period.
Cost of Sales. Cost of sales for the 1998 nine-month period increased
by approximately $975,000 as compared to the 1997 nine-month period, principally
due to increased sales.
Marketing. Marketing expense for the 1998 nine-month period decreased
by approximately $52,000 as compared to the 1997 nine-month period. This
decrease is due primarily to lower expenditures associated with promoting the
Company's safety locking syringes to target markets, offset by increased
expenses incurred for marketing consultants.
Product Development. Product development expenses for the 1998
nine-month period decreased by approximately $10,000 as compared to the 1997
nine-month period. This decrease is due principally to the costs incurred by the
use of administrative help in the 1997 nine-month period.
General and Administrative. General and administrative expenses for the
1998 nine-month period increased by approximately $80,000 as compared to the
1997 nine-month period. This increase is due primarily to increased professional
fees and securities maintenance expenses as a result of the Company being
publicly held throughout the entire current period, offset in part by lower
salaries.
Interest Expense. Interest expense for the 1998 nine-month period
decreased by approximately $765,000 as compared to the 1997 nine-month period.
This decrease is principally due to the amortization and write-off of deferred
financing costs as a result of the repayment of the bridge notes, which resulted
in non cash charges of approximately $783,000 during the 1997 nine-month period.
Royalty Expense. Royalty expense for both nine-month periods
were approximately the same.
Net Loss. The net loss for the 1998 nine-month period increased by
approximately $875,000 as compared to the 1997 nine-month period. This increase
is due principally to $1,684,000 of realized income on supply and licensing
agreements in the 1997 nine-month period, as compared to none for the current
nine-month period offset in part by lower interest expense in the current year
as a result of the write-off of deferred financing costs of approximately
$783,000 in the 1997 nine-month period.
Liquidity and Capital Resources
In the 1998 and 1997 nine-month periods, the Company used cash from
operating activities, primarily due to net losses in each of these periods and
the realization of previously deferred income in the 1997 period. For the 1998
nine-month period, increased inventory and accounts receivable, as a result of
higher sales, were offset by increased accounts payable. For the 1997 nine-month
period, 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.
The Company's investing activities have consisted primarily of
expenditures for production equipment at its contract manufacturer in Portugal
and its production facility in Mineola, New York. As of September 30, 1998 the
Company had outstanding purchase orders of approximately $100,000 to purchase
production equipment in regular terms and has agreed to the purchase of
equipment which is located at the facilities of a foreign contractor, by issuing
360,000 shares of its common stock, subject to restrictions within the meaning
of Rule 144 of the Securities Act of 1933 (see Subsequent Event of the Notes to
Financial Statements).
In July, 1998 the Company received net proceeds of approximately
$625,000 through the sale of 750 shares of its Series B 5% Convertible Preferred
Stock. Management believes that its cash and accounts receivable balances will
be sufficient to fund its anticipated level of operations. The Company is
currently pursuing additional financing to provide additional working capital,
which could involve dilution to existing stockholders.
The Company has completed its assessment of the possible effects of the
Year 2000 problem on the Company's operations and financial condition. Based on
this assessment, the Year 2000 issue is not expected to have a material impact
on the Company's current financial position, liquidity or results of operations
and the Company does not anticipate incurring material costs in connection
therewith.
Except for the historical information herein, matters discussed in this
report are forward-looking statements that involve risks and uncertainties
detailed from time to time in the Company's Securities and Exchange Commission
(SEC) reports.
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
(c) Recent Sales of Unregistered Securities.
On July 27, 1998, the Registrant issued and sold to The Shaar
Fund Ltd., for an aggregate price of $750,000, 750 shares of the Registrant's
Series B 5% Convertible Preferred Stock, and Warrants expiring in three years to
purchase for $2.15 per share 112,500 shares of its Common Stock. The securities
were issued without registration in reliance on the exemption afforded by
Section 4(2) under the Securities Act of 1933, as amended. The registrant paid
commissions of $71,250 in connection with the transaction.
Conversion Rights. Each share of Series B Preferred Stock is
convertible into the number of shares of Common Stock having the value of
$1,000, on the basis of the lower of (i) $1.925 per share and (ii) a price equal
to 80 to 85% of a price related to the market price for the Common Stock at the
time of conversion, as provided in and subject to the terms and conditions of
the Certificate of Designation defining the Series B Preferred Stock (the
"conversion rate"), at the option of the holder thereof. The conversion rate is
subject to adjustment in the event of a stock split, stock dividend,
recapitalization, merger, consolidation or certain other events. If the
Registrant's Common Stock is delisted from trading on NASDAQ for any reason, the
remaining Series B Preferred Stock may be converted into Common Stock at a price
related to 75% of the market price of the Common Stock at the time of
conversion. The right of conversion with respect to the shares of the Series B
Preferred Stock called for redemption will terminate at the close of business on
the business day preceding the date fixed for redemption. Upon conversion, no
payment or allowance will be made in respect of any accrued but unpaid dividends
on the Series B Preferred Stock.
Up to 33-1/2% of the Series B Preferred Stock may be converted up to
150 days after July 27, 1998; up to 66-2/3% of the Series B Preferred Stock may
be converted up to 180 days after July 27, 1998; and all the Series B Preferred
Stock may be converted after 180 days following July 27, 1998. All the Series B
Preferred Stock must be converted no later than July 27, 2000.
On September 28, 1998, in reliance on the exemption from registration
afforded by Section 4(2) of the Securities Act of 1933,
the Registrant agreed to issue 360,000 shares of its Common Stock to Syrinter,
LTD., in exchange for the sale by Syrinter of certain equipment to the
Registrant. No commissions were paid in connection with the transaction.
--------------------
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits.
4.10 Certificate of Designation of Series B Preferred Stock.*
<PAGE>
4.11 Form of Warrant Agreement between the Registrant and
Purchaser of the Series B Preferred Stock.*
4.12 Registration Rights Agreement between Company and the
Purchaser of the Series B Preferred Stock.*
(b) Reports on Form 8-K.
None.
_____________
* Incorporated by reference from the Registrant's Registration Statement on
Form S-3 (File No. 333-62261) filed with the Securities and Exchange
Commission on August 26, 1998.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNIVEC, INC.
Dated: November 14, 1998 By: /s/ Joel Schoenfeld
---------------------------------
Joel Schoenfeld
Chairman of the Board and
Chief Executive Officer
Date: November 14, 1998 By: /s/ Martin Jacobson
---------------------------------
Martin Jacobson
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 391,063
<SECURITIES> 0
<RECEIVABLES> 207,080
<ALLOWANCES> 0
<INVENTORY> 1,075,487
<CURRENT-ASSETS> 1,720,137
<PP&E> 1,893,798
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,678,160
<CURRENT-LIABILITIES> 848,374
<BONDS> 0
0
3
<COMMON> 2,982
<OTHER-SE> 5,975,974
<TOTAL-LIABILITY-AND-EQUITY> 3,678,160
<SALES> 1,629,298
<TOTAL-REVENUES> 1,629,298
<CGS> 1,300,550
<TOTAL-COSTS> 1,300,550
<OTHER-EXPENSES> 1,535,830
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,967
<INCOME-PRETAX> (1,210,049)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,210,049)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,210,049)
<EPS-PRIMARY> (.44)
<EPS-DILUTED> (.44)
</TABLE>
