<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
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/ / Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended December 31, 1999
/ / 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
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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22 Dubon Court
Farmingdale, NY 11735
(631) 777-2000
(Address and telephone number of principal executive office)
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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, $.001 par value
Common Stock Purchase Warrants
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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 $3,344,559.
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
23, 1999 was $3,315,803.
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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 23 2000, the issuer had 4,986,697 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 marketing efforts have been directed primarily to
international relief agencies, including the International Red Cross, UNICEF,
the Japanese Official Development Assistance Program, and the World Health
Organization ("WHO"), as well as to public hospitals and health facilities in
the United States. Pursuant to programs of international relief agencies, the
Company has shipped its lcc locking clip syringe to over 72 countries. The
Company also intends to market its locking clip syringes to governments of
developing countries, private hospitals and health facilities in the United
States, and 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 has initiated 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, administered almost a billion
immunizations to women and children through immunization programs in developing
countries in 1998 and anticipate administering 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.
<PAGE>
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 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. 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 a child 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 1950'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.
<PAGE>
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 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.
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 Program 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.
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.
<PAGE>
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 larger size,aspirating and non-aspirating
syringes for sale to hospitals, health clinics, and relief agencies in 2000. In
general, hospitals and health clinics use more larger size 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.
In October 1999, UNIVEC licensed rights to a United States patent for a
sliding sheath to function on all standard syringes. The company believes that
its licensed design for a safety syringe will compete successfully with the
other safety syringes on the market. This design can be used on barrels of
various sizes.
Sales, Marketing and Distribution
The Company's marketing efforts have been directed primarily to
international relief agencies, including the International Red Cross, UNICEF,
the Japanese Official Development Assistance Program, and WHO, as well as to
public hospitals and health facilities in the United States. Pursuant to
programs of international relief agencies, the Company has shipped its lcc
locking clip syringe to over 72 countries. The Company also intends to market
its locking clip syringes to governments of developing countries, private
hospitals and health facilities in the United States, and 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 contract
manufacturers in both Portugal and Korea. The Portuguese manufacturer also molds
the Company's proprietary plungers. The Company owns stamping, assembly, and
molding equipment at the Portuguese manufacturer. The Company is the sole
customer of the Portuguese manufacturer.
The Company also produces 1cc locking clip syringes at its Farmingdale, New
York production facility. In addition, the Company entered into a contract with
an OEM manufacturer domestically, West Pharmaceutical Services, to produce its
patented clip plunger assembly. These assemblies can be shipped to standard
syringe manufacturers around the world to produce Auto-Destruct Syringes.
Currently Univec is shipping to approximately six syringe companies to produce
their patented syringe.
<PAGE>
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, 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 some of the syringes sold by the Company have been
manufactured by the Portuguese contract manufacturer. The company has been
successful through other sources worldwide in purchasing barrels to increase the
overall production capacity. In addition, the Company continues to send clip
plunger assemblies produced in New York and at West Pharmaceutical Services to
syringe manufacturers around the world to also increase overall production. The
Company continues to pursue alternate sources of supply for 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 was granted a United States patent 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.
<PAGE>
The Company has registered trademarks UNIVEC(R), and Rx Ultra(R),Rx Plus,
The Univec Crest, 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.
The Company was granted a U.S. patent for a hypodermic syringe having a
retractable needle. The syringe has a retractable needle head which is provided
to slide along longitudinal grooves in the barrel. In October 1999, the Company
licensed rights to a United States patent to develop a functional sliding shield
and has the irrevocable option, exercisable within three years to acquire an
exclusive royalty bearing license.
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. To date, the Company has not been audited
by the FDA. 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. The Company's
Portuguese contract manufacturer received final ISO 9002 Certification in March,
1999.
Obtaining the ISO 9002 facilitates sales 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.
<PAGE>
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 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.
For the years ended December 31, 1999 and 1998, the Company expended
approximately $126,000 and $956,000, respectively, on product development
expenses.
Employees
As of March 23, 2000, the Company employed 12 persons, including one in
sales and marketing, one in research and development, two in financial
administration, and eight in production. None of the Company's employees is
covered by a collective bargaining agreement.
Item 2. Description of Property.
The Company occupies a manufacturing facility, administrative, and
executive office in Farmingdale, New York (comprised of approximately 10,000
square feet of space) pursuant to a lease that expires in September 2003. Rental
expense for the space is $70,967 per annum plus certain common charges and real
estate tax escalations, subject to an increase of 3% per annum in each
subsequent year.
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.
Item 4 Submission of Matters to Vote of Security Holders.
None.
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. During the period
from April 21, 1999, through July 1, 1999, the Company's Common Stock and
redeemable Common Stock Purchase Warrants traded under the symbols "UNVCE" and
"UNVCWE", respectively, as a result of the late filing of the Form 10-KSB for
1998. Since July 2, 1999, the Company's common stock and warrants have been
quoted on the over- the-counter bulletin board under the symbols "UNVC" and
"UNVCW", respectively.
<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 for 1998 and
through July 1, 1999, and on the over-the-counter bulletin board from and after
July 2, 1999.
<TABLE>
<CAPTION>
Common Stock Warrants
("UNVC") ("UNVCW")
-------------------------- -------------------------
Quarter Ended High Low High Low
- - ------------------------------------------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
March 31, 1998 $ 1.875 $ 1.375 $ 0.625 $ 0.250
June 30, 1998 $ 2.625 $ 1.625 $ 1.125 $ 0.313
September 30, 1998 $ 2.188 $ 1.250 $ 1.250 $ 0.500
December 31, 1998 $ 1.875 $ 1.250 $ 1.063 $ 0.500
March 31, 1999 $ 1.375 $ 0.687 $ 0.875 $ 0.375
June 30, 1999 $ 1.312 $ 0.625 $ 0.625 $ 0.312
September 30, 1999 $ 1.187 $ 0.187 $ 0 $ 0
December 31, 1999 $ 0.625 $ 0.187 $ 0 $ 0
</TABLE>
(2) As of March 23, 2000, there were 78 holders of record of the Common
Stock and there were over 766 beneficial owners of the Common Stock as of that
date.
(3) During the fiscal year ended December 31, 1999, 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 In January, 1999, in consideration for the surrender for cancellation of
performance stock options to purchase 250,000 shares of Common Stock
previously granted to Mr. John Frank (Director),and 500,000 shares
previously granted to Dr. Alan Gold (Director), the Company has granted to
them options to purchase 250,000 shares of Common Stock and 500,000 shares
of Common Stock at an exercise price of $1.75 per share, exercisable at any
time on or before March 28, 2003. In addition, in consideration of services
rendered to the Company, the stock options granted to Mr. John Frank on
February 25, 1995, expiring February 23, 1999, to purchase 22,236 shares at
a purchase price of $3.50 per share, was amended to extend the expiration
date until February 22, 2009, and to change the exercise price to $1.75 per
share.
<PAGE>
2 In June, 1999, in exchange for 10,000 shares of Common Stock, the Company
entered into a licensing agreement valued at $11,250 with Unique Marketing
Enterprises to develop, manufacture, and sell a sliding sheath product.
3 In July, 1999, the Company issued an aggregate of 44,444 shares of its
common stock valued at $62,666 and 25,000 warrants to purchase Common Stock
valued at $5,000 as fees for services rendered to the Company as follows:
11,111 common shares and 8,500 warrants to The Malachi Group, Inc., 11,111
common shares and 8,500 warrants to Mr. Peter Baxter, 11,111 common shares
and 8,500 warrants to Zazoff Associates, and 11,111 common shares to The
Progressive Group.
4 In October, 1999, the Company granted ten year options at $.15 per share to
purchase 250,000 shares of Common Stock to a law firm related to an
agreement to compensate the firm for services rendered.
5 In November , 1999, the Registrant granted options to purchase an aggregate
of 2,124,124 shares of Common Stock at $.12 per share as follows: Joel
Schoenfeld (Chairman) 1,700,524 as compensation for deferred payroll; John
Frank(Director) 223,600 shares as repayment of a loan; and to Flora
Schoenfeld (Treasurer) 200,000 shares as compensation for deferred payroll.
6 In November, 1999, the Company granted options, expiring in five years to
purchase 30,000 shares of Common Stock at $.50 per share to Matz-Blancato &
Associates to provide public and government relation services to the
Company.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
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.
Results of Operations
Condensed Consolidated Results of Operations
1999 1998 %Change
----------- ----------- -----------
Net Sales $ 3,344,559 $ 1,846,949 81
Cost of Sales 2,885,863 1,180,196 145
----------- ----------- -----------
Gross Margin 458,696 666,753 (31)
Marketing Expense 647,773 696,311 (7)
Product Development 125,535 956,354 (87)
General and
Administrative 977,142 919,452 6
Write off Accounts Payable (239,573)
Interest Expense, Net 106,761 (8,158) 1408
----------- ----------- -----------
Net Loss ($1,158,942) ($1,897,206) (39)
=========== =========== ===========
As illustrated in the table above, product sales for the year ended
December 31, 1999 increased by $1,497,610 as compared to the year ended December
31, 1998. This increase resulted from marketing efforts which were effective in
negotiating substantial new contracts for the sale of product. Product sales
consisted primarily of the 1cc locking clip syringe, a difficult-to-reuse
syringe. The majority of syringes were either produced in the Company's own
production facility in New York or by its Portuguese contract manufacturer. The
Company increased its production capacity during 1999 by contracting with a
manufacturer located in Korea to supply syringes for existing contracts.
Under a substantial sales contract with the Government of Japan, 14,000,000
syringes were shipped during the fourth quarter of 1999. In addition, under a
new contact, approximately $400,000 will be shipped during the first quarter of
2000. Under an existing contract during 1999 with one customer to supply
41,000,000 syringes, approximately 19,000,000 syringes were not shipped and will
be deliverable through the year 2000.
<PAGE>
During the fourth quarter of 1999, product sales were $1,580,839, which is
47% of total product sales for the year. In addition, this increase in sales
reflects an increase of more than 300% of the sales for the comparable fourth
quarter period of 1998.
Gross margin for the year ended December 31, 1999 decreased by 31% as
compared to the year ending December 31, 1998. This decrease is a result of an
increased cost of goods related to the substantial increase in product sales and
to the increased overhead costs, specifically, increases in equipment
depreciation, and freight-in, offset in part by a decrease in direct labor. In
addition, production in the Long Island, New York facility has not been fully
utilized resulting in the increased cost of sales. During the fourth quarter of
1999, gross margin was 15%, representing an increase over the prior three
quarters of 1999. This increase was obtained through an increase in sales and
the increase in the utilization of a contract manufacturer for the production of
syringes. Gross margin on finished goods purchased from the Portuguese or Korean
manufacturer is significantly higher than at the Company's New York facility. As
the Company continues to increase sources of production at a more favorable
cost, gross margin will continue to improve.
Marketing costs in 1999 decreased $48,538 from 1998. The decrease is due to a
reduction in expenses incurred for marketing consultants and travel, offset in
part by an increase in warehouse expense. Marketing efforts during 1999 focused
on generating new sales contracts and servicing existing contracts.
Product development expense in 1999 decreased by $830,819 from 1998. This
decrease was due primarily to the management's decision to utilize its resources
for marketing and in developing alternative sources for product production.
In June, 1999, Univec entered into a licensing agreement to develop,
manufacture, and sell a sliding sheath to protect the health care worker. The
introduction of this new product is expected to increase sales and broaden the
Company's customer base to include a domestic market.
General and administrative expenses in 1999 increased $57,690 from 1998. This
increase is due primarily to an increase in accounting and legal expenses,
offset in part by decreases in insurance expense, office expense, and payroll.
The Company continues to implement cost reductions.
Interest expense for 1999 increased by $114,919 as compared to 1998.
Approximately $14,000 of interest expense reflect payments on a capital lease
obligation which was not in effect during the year 1998. Approximately $57,000,
which is 53% of total interest expense for 1999, represents costs associated
with seeking debt financing arrangements. Although financing was not secured
during the year 1999, a financing arrangement reflecting a sale-leaseback on
capital equipment located in the New York facility was agreed upon on March 15,
2000.
The write off of accounts payable of $239,573, primarily from the purchase of
components from Sherwood Medical, originally purchased in 1998, is related to
pending litigation between American Home Products, former parent company of
Sherwood Medical, and Univec, Inc.
The net loss for 1999 decreased by $738,264 as compared to 1998. This
decrease is primarily the result of a decrease in product development expense
and a write-off of accounts payable offset by a decrease in gross margin.
Liquidity and Capital Resources
The Company's working capital declined from $190,792 at December 31, 1998 to
a deficit of $103,051 at December 31, 1999, primarily resulting from the net
loss.
Net cash used in operating activities decreased by $682,020 from $1,125,764
for the year ended December 31, 1998, primarily due to an increase in sales and
a decrease in inventory, offset by an increase in accounts receivable.
Net cash provided by financing activities decreased by $106,065 in 1999
resulting from the proceeds of notes payable, net of repayments, and Series C
Preferred Stock in 1999 being less than the proceeds of the Series B Preferred
Stock in 1998. The Company's investing activities have consisted primarily of
expenditures for production equipment which decreased during 1999 by $500,804 as
compared to 1998.
With the marketing and sale of new products and increased production of the
locking clip syringe, the Company anticipates that operating activities will
generate a positive cash flow in the year 2000. In March 2000, the Company has
entered into a sale and leaseback arrangement to provide additional working
capital and in the future will seek additional equity financing which will
dilute existing shareholders. The delisting of the Company's common stock from
the Nasdaq SmallCap Market may hamper the Company's ability to raise equity.
<PAGE>
As of March 29, 2000, Univec's software and its customers' and suppliers'
software are "Year 2000" compliant.
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 12 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. A change in Registrant's
Certified Accountant was properly recorded two times to properly reflect two
changes in the Company's independent auditors pursuant to Item 304(a)(3) of
Regulation S-K under the Securities Act of 1933. Most recently Form 8-K dated
March 22, 1999 was signed and properly filed with the SEC to reflect the change
in independent auditors.
<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
- - ------------------ ----- ---------------------------------------
Alan Gold 53 Chief Executive Officer and a Director
Joel Schoenfeld 55 Chairman of the Board of Directors
President and a Director
Flora Schoenfeld 54 Treasurer and Secretary
John Frank 60 Director
Marla Manowitz 47 Chief Financial Officer
Richard Mintz 55 Director
Andrew Rosenberg 55 Director
Alan H. Gold, M.D., has been Chief Executive Officer of the Company since
November 30, 1999. and a Director of the Company since inception in August 1992.
Prior to November, 1999, Dr. Gold served as President of the Company since July
1996, and as Chairman of the Board of Directors since March 18, 1999. Dr. Gold
has been a plastic surgeon since 1972, and currently in private practice. Dr.
Gold is a medical advisor to the UNDP.
Joel Schoenfeld, the founder of the Company, had been Chief Executive
Officer of the Company from its inception in August 1992 until November 30,
1999, and also served as Chairman of the Board of Directors until Dr. Alan
Gold's election to the position on March 18, 1999. Since November, 1999, Mr.
Schoenfeld has served as Chairman of the Board of Directors. 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.
<PAGE>
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 was named in February, 1999 in a Federal Grand Jury Indictment
filed in the United States District Court for the Southern District of Ohio,
Western Division. The indictment alleges that Mr. Schoenfeld, along with four
other persons named in the indictment, engaged in conspiracy, wire fraud, and
laundering of monetary investments in connection with a commercial transaction
in 1991. In November, 1999, Mr. Schoenfeld resigned as Chief Executive Officer
and was elected to the position of Chairman of the Board of Directors.. Mr.
Schoenfeld continues as an employee of the Company.
Marla Manowitz, an independent certified public accountant, was appointed Chief
Financial Officer of the Company on March 18, 1999, a director on April 30, 1999
and served as head of the Company's internal accounting department since March,
1998. Prior thereto for more than the past five years she was principally
engaged as an accountant in her own private practice.
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 Vice President, Strategy and Corporate Development of The Hartford
Steam Boiler Inspection and Insurance Co. since February, 2000 and served as
Chief Information Officer from August 1996 through February, 2000.
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 Mintz was elected a director of the Company to fill a vacancy on
March 18, 1999. Mr. Mintz is also President of Peristaltic Technologies, Inc., a
manufacturer of medical infusion pumps and plastic disposable catheters, and
Vice President and General Manager of A.K. Allen & Co., Inc./Allen Avionics,
Inc., a manufacturer of electronic components and fluid power products,
positions he has held for more than the past five years.
Dr. Andrew Rosenberg has been a director of the Board of Directors since
November 30, 1999. His appointment replaces Mr. David Jay, who retired as a
director due to health reasons. Dr. Rosenberg serves as the Vice Chairman,
Department of Anesthesiology, Hospital for Joint Diseases, Orthopadic Institute
and has acted as a consultant to the Company since 1998.
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.
<PAGE>
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, and Mr. Frank . 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 1999.
The Board of Directors held six meetings in 1999, which include special
telephonic meetings as well as Unanimous Written Consent. 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 1999.
Section 16(a) Beneficial Ownership Reporting
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, 1999.
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, 1999
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 1999 $ 221,150(1) -- 1,700,524 (2)
Joel Schoenfeld 1998 $ 228,142(1) -- 2,145,000 (3)
</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 $7,900 in 1999 and $9,200 in 1998) and
life/disability/health and car insurance (approximately $21,250 in 1999 and
$27,000 in 1998).
(2) For the year ending December 31, 1999, Mr. Schoenfeld converted his accrued
payroll to options to purchase 1,700,524 shares of common stock at $.12 per
share.
(3) Represents the following stock options; (a) options expiring March 28, 2003
to purchase 2,130,000 shares at an exercise price of $1.75 per share and
(b) options expiring November 13, 2003 to purchase 15,000 shares at an
exercise price of $1.50 per share. "Management - Stock Option Plan."
Employment Agreement
Joel Schoenfeld serves as Chairman of the Board of Directors and as an
employee of the Company pursuant to an employment agreement which expires on
March 28, 2003. 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.
<PAGE>
Stock Options
The following table contains information concerning the grant of stock
options to Joel Schoenfeld ( the "Named Executive Officers") during the fiscal
year ended December 31, 1999.
<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 1,700,524(1) 64% $.12 Nov. 29,2003
</TABLE>
(1) In November 1999, Joel Schoenfeld was granted the right to convert all or
part of his claim of $203,063 for accrued compensation for 1998 and 1999 to a
maximum of 1,700,524 shares, representing a price of $.12 per share.
The following table summarizes for each of the Named Executive Officers the
total number of unexercised options, if any, held at December 31, 1999, and the
aggregate dollar value of in-the-money, unexercised options, held at December
31, 1999. The value of the unexercised, in-the-money options at December 31,
1999, is the difference between their exercise or base price ($.12), and the
fair market value of the underlying Common Stock on December 31, 1999. The
closing bid price of the Common Stock on December 31, 1999 was $.3125
AGGREGATED OPTION EXERCISES -- JANUARY 1, 1999 --
DECEMBER 31, 1999 AND DECEMBER 31, 1999 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 1999 Options at December 31, 1999 December 31, 1999
--------------------------- ------------------------------- ------------------------------
Name Number Value Realized Exercisable Unexercisable Exercisable Unexercisable
- - ----------------- -------- ---------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Joel Schoenfeld None None 3,845,524 None $ 327,351 None None
</TABLE>
<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 23, 2000 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) .................. 8,043,278(4)(5) 67.03% (6)
Alan H. Gold, M.D.(3) ......................... 1,409,888(4)(7) 23.35% (8)
John Frank(9) ................................. 1,299,375(10) 21.91% (11)
Marla Manowitz(12)............................. 60,600(13) *
Richard Mintz(14).............................. 118,000(15) *
Andrew Rosenberg(16)........................... 114,000(17) *
All directors and executive officers as a group
(7 persons) .................................. 11,045,141(18)(19) 77.97% (20)
</TABLE>
<PAGE>
* 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 15, 2000, 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.
(2) Except as otherwise stated, calculated on the basis of 4,986,697 shares of
Common Stock issued and outstanding on March 15, 1999.
(3) Address is c/o the Company, 22 Dubon Court, Farmingdale, New York 11735.
(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 6,575,524 shares upon exercise of presently exercisable
options, 432,885 shares issuable upon conversion of Series A Preferred
Stock, and 4,000 shares issuable upon exercise of the Company's Redeemable
Common Stock Purchase Warrants
(6) Calculated on the basis of 11,999,106 of Common Stock issued and
outstanding.
(7) Includes 1,025,000 shares upon exercise of presently exercisable options
and 27,555 shares issuable upon conversion of Series A Preferred Stock.
(8) Calculated on the basis of 6,039,252 shares of Common Stock issued and
outstanding.
(9) Address is c/o The Hartford Steam Boiler Insurance & Inspection Co., P.O.
Box 5204, One State Street, Hartford, Connecticut 06102-5024.
(10) Includes 778,236 shares issuable upon exercise of options, and 166,000
shares issuable upon exercise of the Company's Redeemable Common Stock
Purchase Warrants.
(11) Calculated on the basis of 5,930,933 shares of Common Stock issued and
outstanding.
<PAGE>
(12) Address is c/o the Company, 22 Dubon Court, Farmingdale, NY 11735.
(13) Includes 50,000 shares upon exercise of presently excerisable options.
(14) Address is c/o Sonic Industries, Inc., 225 Henrietta Avenue, Oceanside, New
York 11572.
(15) Includes 50,000 shares upon exercise of presently exercisable options.
(16) Address is c/o the Company, 22 Dubon Court, Farmingdale, NY 11735.
(17) Includes 70,000 shares upon exercise of presently exercisable options.
(18) For purposes of this calculation, shares of Common Stock beneficially
owned by more than one person have only been included once.
(19) Includes 9,179,200, shares issuable upon exercise of presently exercisable
options. See footnotes (5)(7)(10)(13)(15) and (17).
(20) Calculated on the basis of 14,165,897 shares of Common Stock issued and
outstanding.
<PAGE>
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.
In November 1999, Joel Schoenfeld, the former Chief Executive Officer of
the Company and current Chairman of the Board of Directors, and Flora
Schoenfeld, Treasurer/ Secretary, were granted the right to convert $204,063 and
$24,000, respectively, in accrued payroll due to them to common stock of the
Company at $.12 per share. In addition, Mr. John Frank, Director, converted a
loan of $25,000 due to him by the Company, plus interest and some expenses to
223,600 options to purchase common stock of the Company at $.12 per share which
were exercised on January 28, 2000. On January 29, 2000, Mr. Schoenfeld
exercised $50,000 in options due to him in exchange for 416,666 shares of Common
Stock. Of the 416,000 common shares, 250,000 shares were sold to Mr. John Frank,
in March, 2000 at a value of $30,000.
<PAGE>
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).
4.6* Registration Rights Agreement.
4.7** Certificate of Designation of Series B Preferred Stock.
4.8** Form of Warrant Agreement between Company and Selling Securityholder.
4.9** Registration Rights Agreement between Company and Selling Securityholder.
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 September 4, 1998 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.
10.10**** 1998 Stock Option Plan of the Registrant.
21.1* List of Subsidiaries.
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.
** Incorporated by reference from the Registrant's Registration Statement on
Form S-3 (File No. 333-62261) declared effective December 11, 1998.
*** Incorporated by reference from Amendment No. 4 to the Registrant's Annual
Report on Form 10-KSB for the year ended December 31, 1997 (File No.
0-22413).
**** Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 1998 (File No. 0-22413).
(b) Reports on Form 8-K.
The Company filed 8-K reports on March 22, 1999 and on April 6, 1999
reporting a change of independent auditor from Richard A. Eisner & Company, LLP
to Most Horowitz & Company, LLP.
On July 2, 1999, the Company filed an 8-K reporting UNIVEC's delisting from
the Nasdaq Small Cap Market.
<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: March 30, 2000
UNIVEC, INC.
By: s/ Alan Gold
--------------------------------
Alan Gold
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 March 30, 2000 in the capacities indicated.
<TABLE>
<CAPTION>
Signatures Title
--------- -------
<S> <C>
/s/ Alan Gold Chief Executive Officer and a Director
- ------------------------ (Principal Executive Officer)
Alan Gold, M.D.
/s/ Marla Manowitz Chief Financial Officer
- ------------------------ (Principal Financial and Accounting Officer)
Marla Manowitz
/s/ Joel Schoenfeld Chairman and a Director
- ------------------------
Joel Schoenfeld.
/s/ John Frank Director
- ------------------------
John Frank
/s/ Richard Mintz Director
- ------------------------
Richard Mintz
/s/ Andrew Rosenberg Director
- ------------------------
Andrew Rosenberg, M.D.
</TABLE>
<PAGE>
UNIVEC, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND FOR THE TWO YEARS THEN ENDED
Index to Consolidated Financial Statements
Page
----------
Report of Independent Accountants ....................... F--2
Consolidated Balance Sheet - December 31, 1999 F--3
Consolidated Statements of Operations - years ended
December 31, 1999 and 1998 ................................. F--4
Consolidated Statements of Stockholders' Equity - years
ended December 31, 1999 and 1998 ........................... F--5
Consolidated Statements of Cash Flows - years ended
December 31, 1999 and 1998 ................................. F--6
Notes to Consolidated Financial Statements .................. F--7 to F--15
<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 as of December 31, 1999 and the related consolidated statements of
operations, stockholders' equity and cash flows for the two years then ended.
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 audit.
We conducted our audit 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 audit provides 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, 1999 and the consolidated results of
their operations and their cash flows for the two years then ended in conformity
with generally accepted accounting principles.
New York, New York /s/ Most Horowitz & Company, LLP
February 23, 2000 (March 15, 2000, -------------------------------
as to Note 13) Most Horowitz & Company, LLP
F-2
<PAGE>
Univec, Inc. and Subsidiary
Consolidated Balance Sheet
December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Cash ........................................................... $ 129,640
Accounts receivable 595,584
Inventory 632,902
Other current assets 147,582
------------
Total current assets .......................................... 1,505,708
Fixed assets, net .............................................. 2,409,073
Other assets 41,068
------------
Total assets .................................................. $ 3,955,849
============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable and accrued expenses .......................... $ 1,093,967
Deferred payroll-officers 235,864
Current portion of capitalized lease obligation 49,803
Loans payable-current 229,125
---------
Total current liabilities ..................................... 1,608,759
Capitalized lease obligation 3,888
Loan payable 358,357
----------
Total Liabilities ............................................. 1,971,004
-----------
Commitments and contingencies (Notes 2, 3, 8, 11, and 13)
Stockholders' equity (Note 9):
Preferred stock $.001 par value; 4,995,500 shares authorized;
none issued and outstanding: none
Series A 8% Cumulative convertible preferred stock,-$.001 par
value; authorized: 2,500 shares; issued and outstanding:
2072 shares (aggregate liquidation value: $2,428,900) 2
Series B 5% cumulative convertible preferred stock- $.001 par
value; authorized: 1,000 shares; issued and outstanding:
612 shares (aggregate liquidation value: $659,507).......... 1
Series C 5% cumulative convertible preferred stock - $.001 par
value; authorized: 1000 shares, issued and outstanding: 250
shares (aggregate liquidation value $261,181) 1
Common stock $.001 par value; authorized: 25,000,000 shares;
issued and outstanding: 4,058,653 shares 4,059
Additional paid-in capital .................................... 7,129,574
Accumulated deficit ........................................... (5,148,792)
------------
Total stockholders' equity .................................... 1,984,845
------------
Total liabilities and stockholders' equity .................... $ 3,955,849
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
Univec, Inc. and Subsidiary
Consolidated Statements of Operations
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Revenues:
Product sales ..................................... $ 3,344,559 $ 1,846,949
------------ -----------
Expenses:
Cost of product sales ............................. 2,885,863 1,180,196
Marketing ......................................... 647,773 696,311
Product development ............................... 125,535 956,354
General and administrative ........................ 977,142 919,452
Write-off of accounts payable (239,573)
Interest expense, net.............................. 106,761 (8,158)
----------- ----------
Total expenses .................................. 4,503,501 3,744,155
----------- ----------
Net loss ........................................ (1,158,942) (1,897,206)
Dividends attributable to preferred stock (209,145) (181,323)
Dividends attributable to preferred stock resulting
from discount from beneficial conversion feature (18,206) (215,314)
----------- ----------
Loss attributable to common stockholders .......... $ (1,386,293) $ (2,293,843)
=========== ===========
Share information :
Basic and diluted earnings per share
Net loss per share .............................. $ (.37) $ (.74)
=========== ===========
Weighted average number of
common shares outstanding ...................... 3,776,517 3,082,764
=========== ===========
</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
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Series A Preferred Series B Preferred Series C Preferred Common Stock
------------------ ----------------- ----------------- --------------
Shares Amount Shares Amount Shares Amount Shares
Amount <S> <C> <C> <C> <C>
Balance, January 1, 1998 1,919 $ 2 2,981,769 $ 2,982
Stock dividend paid 153
Sale of Series B Preferred stock 750 $ 1
Issuance of stock options to
nonemployees
Common stock issued:
Acquisition of fixed assets 410,000 410
Consulting fees 27,667 28
Bonuses to employees 4,000 4
Conversion of Series B
Preferred stock (30) 30,832 31
Net loss
------- ------ ------ ------ ------ ------ ------ ------
Balance, December 31, 1998 2,072 2 720 1 3,454,268 3,455
Sale of Series C Preferred Stock 250 $ 1
Common stock issued:
Consulting fees 344,444 344
Conversion of Series B Preferred
Stock (108) 249,941 250
Acquisition of license option
(Note 8) 10,000 10
Net Loss
------- ----- ----- ----- ------ ------ --------- -----
Balance, December 31, 1999 2,072 $ 2 612 $ 1 250 $ 1 4,058,653 $4,059
====== ====== ====== ===== ====== ====== ======== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
----------- -------------- -------------
<S> <C> <C> <C>
Balance, January 1, 1998 $ 5,266,163 $ (1,939,124) $ 3,330,023
Stock dividend paid 153,520 ( 153,520)
Sale of Series B Preferred Stock 613,875 613,876
Issuance of stock options to
nonemployees 85,061 85,061
Common stock issued:
Acquisition of fixed assets 613,870 614,280
Consulting fees 36,785 36,813
Bonuses to employees 4,696 4,700
Conversion of Series B
Preferred Stock (31)
Net loss (1,897,206) (1,897,206)
------------- ----------- -----------
Balance, December 31, 1998 6,773,939 (3,989,850) 2,787,547
Sale of Series C Preferred Stock 209,989 209,990
Common stock issued:
Consulting fees 134,656 135,000
Conversion of Series B Preferred
Stock (250)
Acquisition of license 11,240 11,250
Net loss ............................ (1,158,942) (1,158,942)
------------- ------------- ----------------
Balance, December 31, 1999 ........... $ 7,129,574 $ (5,148,792) $ 1,984,845
============= ============ ===============
</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
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................... $(1,158,942) $(1,897,206)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation, amortization and write-off of patents (1998) .. 288,568 228,256
Issuance of common stock for services ....................... 135,000 126,574
Write-off of accounts payable ............................... (239,573)
Write-off of leasehold improvements ......................... 14,569
Increase (decrease) in cash from:
Accounts receivable ......................................... (452,790) (142,794)
Inventory ................................................... 456,435 (369,821)
Other current assets and other assets ....................... (135,325) 45,274
Accounts payable and accrued expenses ....................... 427,019 869,384
Deferred payroll-officers ................................... 235,864
----------- -----------
Net cash used in operating activities .................... (443,744) (1,125,764)
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (net of capital lease obligations
of $94,000 in 1998) ......................................... (65,608) (566,412)
----------- -----------
Cash flows from financing activities:
Proceeds from loans payable ................................. 527,507
Proceeds of preferred stock, net of expenses ................ 209,990 613,876
Payment of loans payable .................................... (189,377) (57,000)
Payments of capital lease obligations ....................... (40,309)
Restricted funds ............................................ 57,000
----------- -----------
Net cash provided by financing activities ................ 507,811 613,876
----------- -----------
Net decrease in cash ..................................... (1,541) (1,078,300)
Cash, beginning of period ...................................... 131,181 1,209,481
----------- -----------
Cash, end of period ............................................ $ 129,640 $ 131,181
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest ...................................... $ 16,235 $ 2,717
Supplemental disclosures of noncash activities:
Accounts payable converted to loan payable .................. $ 249,352
Common stock issued for license option (Note 8).............. $ 11,250
Common stock issued for purchases of fixed assets ........... $ 614,280
Stock dividend paid by issuance of 153 shares
of Series A Preferred Stock ............................... $ 153,520
</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. Nature of Operations
Univec, Inc. (Company) produces, licenses and markets medical products,
primarily syringes, and resells medical devices on a global basis.
2. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Rx Ultra, Inc. All material intercompany
balances and transactions have been eliminated.
Inventory
Inventory is valued at the lower of cost, determined by the first-in,
first-out method, or market.
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. Maintenance and
repairs are charged to expense as incurred; 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 were 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.
Product Development
Research and development costs are expensed as incurred.
Income Taxes
Deferred income taxes have been provided for temporary differences between
consolidated financial statement and income tax reporting, resulting primarily
from net operating loss carryforwards, capitalized costs and depreciation.
Loss per Share
Net loss per common share was computed based on the weighted average number
of common shares outstanding during the year.
Product Revenue Recognition
Product sales are recognized when products are shipped. Although the Company
warrants its products, it is unable to estimate the future costs relating to
warranty expense and, as such, recognizes warranty expenses as incurred.
Stock Based Compensation
Compensation cost for stock, stock options, warrants, etc., issued to
employees and non-employees is based on the fair value method.
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.
<PAGE>
3. Accounts Receivable
In December 1999, the Company entered into an agreement to sell selected
accounts receivable to a factor. Under the agreement, the Company shall receive
75% of sold accounts as a deposit and the balance upon payment. These sales are
subject to a 10% discount, but will receive a rebate of 6% if payment is made
within 30 days, decreasing to 2% if payment is within 90 days. All accounts not
paid within 90 days will be charged back to the Company. In addition, the
Company has collateralized all accounts receivable and certain intangibles.
As of December 31, 1999, the Company has sold accounts receivable of
$97,793, all of which have been subsequently collected.
4. Inventories
Inventories consisted of the following:
Raw material $ 377,168
Work-in-process 157,446
Finished goods 98,288
----------
$ 632,902
=========
5. Fixed Assets
Fixed assets consisted of the following:
<TABLE>
<CAPTION>
Estimated
useful lives
in years
-------------
<S> <C> <C>
Factory equipment(1) .......................... 7 $ 2,967,591
Office equipment .............................. 5 31,836
Leasehold improvements ........................ 5 15,672
Furniture & Fixtures 5 3,216
---------
3,018,315
Less accumulated depreciation ................. 609,242
---------
$ 2,409,073
==========
</TABLE>
(1) Includes construction in progress of $664,696
Depreciation expense was $288,568 and $172,256 in fiscal 1999 and 1998,
respectively.
6. Loans Payable
Loans payable consisted of:
Loan payable to a vendor (Note 8).......................... $249,352
Loan payable to officer/director on
demand, without interest (Note 13)....................... 107,716
Loan payable to a vendor on
December 31, 2000, with interest
at 10%, per annum (1)(2)................................. 92,640
Loan payable to a vendor (Note 8).......................... 80,433
Loan payable on demand to a director,
with interest at 6%, per annum (3)....................... 26,835
Loan payable to a vendor
in equal monthly installments through
June 2000, including interest............................ 20,506
Loan payable to a director on demand,
without interest (4)..................................... 10,000
--------
587,482
Less: Current loans payable............................... 229,125
--------
$358,357
========
(1) Collateralized by certain patents
(2) Guaranteed by a stockholder/officer up to $50,000
(3) To extend the due date, the Company granted a conversion to common
stock at $.12, per share, the fair value of the common stock. In
January 2000, the director converted and received 223,600 shares of
common stock.
(4) Guaranteed by a stockholder/officer
<PAGE>
7. Income Taxes
For the years ended December 31, 1999 and 1998, the Company's deferred tax
benefits (expenses) were as follows:
1999 1998
----------- -----------
Net operating loss carryforwards $ 94,000 $1,000,000
Capitalized costs 474,000 (185,000)
Depreciation (183,000) (90,000)
Compensation (62,000) 5,000
Patent (3,000)
Valuation allowance (320,000) (730,000)
---------- ------------
None None
========== ============
As of December 31, 1999. the tax effects of the components of deferred tax
assets and liabilities were as follows:
Deferred tax assets
Net operating loss carryforwards ......... $ 2,574,000
Capitalized costs 122,000
Compensation 110,000
Patent .................................... 28,000
------------
Total deferred tax asset ............... 2,834,000
Deferred tax liabilities
Depreciation ................... (291,000)
------------
Net deferred tax asset ................ 2,543,000
Valuation allowance ......................... (2,543,000)
------------
None
============
As of December 31, 1999, realization of the Company's net deferred tax asset
of approximately $2,543,000 was not considered more likely than not, and
accordingly, a valuation allowance of $2,543,000 was provided.
The following is a reconciliation of expected income tax benefit utilizing
the Federal statutory tax rate to income tax benefit reported on the statement
of operations.
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Expected income tax benefit .................................. $ (394,000) $ (645,000)
Change in valuation allowance arising in current year ........ 320,000 730,000
State income tax benefit, net of federal income tax effect ... 74,000 (85,000)
----------- ----------
None None
=========== ===========
</TABLE>
As of December 31, 1999, the Company had net operating loss carryforwards
of approximately $6,800,000 to reduce future taxable income expiring through
2014.
8. Commitments and Contingency
License Agreement
The Company is committed under an exclusive license agreement with two
inventors for a patent for an insertable element which prevents reuse of a
plastic syringe. To maintain this license agreement, the Company is required to
pay an annual minimum licensing fee of $10,000. To maintain exclusivity, the
Company is required to pay an annual minimum license fee of $50,000. Under the
license agreement, royalty payments of 2% of net sales of products 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 products manufactured and 40% of
sublicense royalties received shall be made for products that use the specific
insertable element. If the manufactured unit does not use the non-reusable
syringe of the type discussed in the patent, no royalties are due, other than
the minimum annual licensing fee.
<PAGE>
During both 1999 and 1998, the Company paid only minimum royalties of
$60,000 under this agreement.
In June 1999, the Company entered into a product development and licensing
agreement with a corporation engaged to design, develop, and produce a
functional component. The agreement provides an exclusive and irrevocable
option, exercisable within three years, to acquire an exclusive license for the
product. The Company is obligated to pay a royalty of $.001, per component sold,
with an advance royalty fee of $15,000 paid following the execution of the
agreement. The advance royalty is nonrefundable and will be credited toward
future royalty payments as they become due. In addition to the licensing fees,
the Company issued 10,000 shares of common stock upon execution of the
agreement, which was valued at $11,250. The agreement is for a period of the
later of ten years or the expiration of the last patent relating to the
component and its improvements, with the right to terminate the agreement if the
Company fails to produce and ship at least ten million of this component within
three years.
Lease
Effective October 1, 1998 the Company became committed under a lease for
production, storage and office space through September, 2003. The lease provides
for annual rent and additional rents for the Company's pro rata share of real
estate taxes, liability insurance, maintenance, etc. In addition, the lease is
renewable for an additional five years.
Total rent expense for 1999 and 1998 was $69,853 and $64,162, respectively.
As of December 31, 1999, the minimum future rent payments, exclusive of the
renewal, was:
Year Ended
December 31,
-------------
2000 $ 71,499
2001 73,641
2002 75,852
2003 58,168
---------
$279,160
=========
Employment Agreements
In September 1998, the Company amended its employment agreements with two
officers through February 2003, requiring aggregate annual compensation of
$233,600, plus annual increases of 10%. The agreements also provide for life,
disability and health insurance.
Purchase Commitments
As of December 31, 1999, the Company was committed to purchase components
for an aggregate of $380,000 through July 2001. In January, 1999, the
Company borrowed $94,000 from the supplier payable with interest of $19,000
based on production over the commitment period.
9. Stockholders'Equity
Common Stock
In September 1998, the Company purchased equipment valued at $539,280 in
exchange for 360,000 shares of common stock
In November 1998, the Company issued 16,667 shares of Common Stock to a
consultant for services of $21,875.
In December 1998, the Company issued 50,000 shares of Common Stock to a
consultant to modify specific equipment with a value of $75,000.
In December 1998, the Company issued 10,000 share of Common Stock to a
consultant for services valued at $13,625.
In December 1998, the Company issued an aggregate of 5,000 shares of common
stock to four employees and one consultant as a performance bonus, valued at
$6,013.
In January 1999, the Company issued 150,000 shares of common stock to a
consultant for services valued at $112,500.
In July 1999, the Company issued an aggregate of 44,444 shares of common
stock to four consultants for services valued at $62,666.
In November 1999, the Company issued 150,000 shares of common stock to a
consultant for services valued at $22,500.
<PAGE>
Preferred Stock
Series A Cumulative Convertible Preferred Shares (Series A) are entitled to
receive, prior to the payment of cash dividends to the common stock, a
cumulative dividend of $80, per share, per annum, and may be redeemed by the
Company, at $1,000, per share. In addition, Series A stockholders are entitled
to a liquidation preference of $1,000 per share, plus accrued and unpaid
dividends. Further, each share of Series A is convertible into 222.22 shares of
common stock.
In March 1998, the Board of Directors declared a dividend to stockholders
of Series A, as of December 31, 1997, of $153,520 payable by the issuance of 153
shares of Series A.
In 1998, the Company designated Series B 5% Cumulative Convertible
Preferred Shares (Series B) which are entitled to receive, prior to the payment
of dividends to the Series A and common stock, cumulative dividends of $50, per
share, per annum, and may be redeemed at the option of the Company, at $1,000,
per share. In addition, Series B stockholders are entitled to a liquidation
preference of $1,000, per share, plus accrued and unpaid dividends. Each share
of Series B, having a value of $1,000, is convertible into shares of common
stock at the lesser of $1.10, as amended, or 85%, decreasing to 75%, of market
value, as defined, through February 2001, as amended.
In July 1998, the Company issued 750 shares of Series B and warrants to
purchase 112,500 shares of common stock in exchange for $613,876, net of
offering expenses of $136,124. The Company has allocated $215,314 of the net
proceeds to the beneficial conversion feature of the Series B and treated the
resulting discount as a preferred dividend. These warrants are exercisable at
$2.15, per share, through July 2001. Upon issuance of the Series C, the exercise
price of these warrants was amended to $1.92, per share, through February 2002.
In December 1998, 30 shares of Series B 5% were converted to 30,832 shares
of common stock at an average price of $.973, per share.
In January, February and March 1999, 30 shares of Series B were converted to
129,941 shares of common stock at an average price of $.69, per share.
In October 1999, 18 shares of Series B were converted to 120,000 shares of
common stock at a price of $.15, per share.
In March 2000, 120,000 shares of Series B were converted to 277,778 shares
of common stock at an average price of $.43, per share.
In February 1999,the Company designated Series C 5% Cumulative Convertible
Preferred Shares (Series C) which are entitled to receive, prior to the payment
of dividends to the Series B, Series A and common stock, cumulative dividends of
$50, per share, per annum, and may be redeemed a the option of the Company, at
$1,000,per share. In addition, Series C stockholders are entitled to a
liquidation preference of $1,000, per share, plus accrued and unpaid dividends.
Each share of Series C, having a value of $1,000, is convertible into shares of
common stock at the lesser of $1.10 or 85%, decreasing to 75%, of market value,
as defined, through July 2001.
<PAGE>
On February 8, 1999, the Company issued 250 shares of Series C and warrants
to purchase 37,500 shares of common stock in exchange for $209,990, net of
offering expenses of $40,010. The Company has allocated $18,206 of the net
proceeds to the beneficial conversion feature of the Series C and treated the
resulting discount as a preferred dividend. These warrants are exercisable at
$1.92, per share, through February 2002.
Holders of preferred shares have no voting rights.
As of December 31, 1999, cumulative dividends in arrears on preferred stock
were:
Series A $356,900
Series B 47,507
Series C 11,181
--------
$415,588
========
Redeemable Common Stock Purchase Warrants
The Company has 2,587,500 Redeemable Common Stock Purchase Warrants
(Redeemable Warrants) outstanding entitling each holder to purchase one share of
common stock at an exercise price of $4.50, per share, through April 23, 2002.
The Redeemable Warrants are subject to redemption, at any time, by the Company
at $.05, per share, through April 23, 2002, provided the closing bid price of
the common stock has been at least $8.00 for 20 consecutive trading days.
In addition, both the exercise price and number of shares issuable upon
exercise of the Redeemable Warrants are subject to adjustment for certain
dilutive events. As of December 31, 1999, the exercise price has been decreased
to $2.18, per share, and the number of shares issuable upon exercise of the
Redeemable Warrants has been increased to 8,505,877.
Underwriter's Warrants
The Company has an outstanding Underwriter's Warrant to purchase 150,000
shares of common stock and 225,000 Redeemable Warrants, exercisable at %5.78,
per share, and $.17,per warrant, respectively, commencing April 1998 through
April 2003. Both the exercise price and number of shares issuable upon exercise
of the Underwriter's Warrant are subject to adjustment for certain dilutive
events. As of December 31, 1999, the exercise price has been decreased to $5.52,
per share, and the number of shares issuable upon the exercise of the
Underwriter's Warrant has been increased to 156,929.
Options
As of January 1, 1998, the Company had outstanding options outside the Plan
to purchase 55,672 shares of common stock, exercisable at $3.50, per share,
through 2009.
In September 1998, the Company granted stock options outside the Plan to
acquire 60,715 and 78,704 shares of common stock, exercisable at $2 and $3, per
share, respectively, through September 15, 2001, to a consultant and valued the
compensation at $85,061.
In July 1999, the Company issued warrants to purchase 25,000 shares of
common stock as part of the Series C financing arrangement, exercisable at
$2.15, per share, through August 1, 2001, and were valued at $5,000.
On September 30, 1999, the Company issued an option outside the Plan to
purchase 250,000 shares of common stock to a vendor, exercisable at $.15, per
share, through September 2009, payable by reduction of an amount due the vendor.
The shares which may be exercisable under the option, are subject to certain
restrictions and, upon the common stock of the Company achieving a certain
price, all unexercised options shall be exchanged for the remaining amount due
the vendor of approximately $250,000. In February 2000, the vendor exercised
options to purchase 10,000 shares at $.15, per share.
On November 12, 1999, the Company issued an option to purchase 30,000 shares
of common stock to a consultant, exercisable at $.50, per share, through
November 12, 2004. The options may be exercised in whole or in part on or after
January 3, 2000, and are included in the conditions and terms of a six month
consulting agreement.
<PAGE>
Reserved Shares
As of December 31, 1999, the Company has reserved shares of common stock as
follows:
Redeemable Warrants 8,505,877
Underwriter's warrant 381,929
Options under the Plan 5,009,219
Other Options 2,624,215
Series A conversions (a) 460,440
Series B conversions (a) 2,798,353
Series C conversions (a) 1,143,118
Series B warrants 112,500
Series C warrants 37,500
Litigation reserve 250,000
----------
21,323,151
==========
(a) assumes conversions as of December 31, 1999.
10. Stock Option Plans
The 1996 Stock Option Plan (Plan) is administered by the Board of Directors
or a committee thereof and options to purchase 4,709,219 shares of common stock
may be granted under the Plan to directors, employees (including officers) and
consultants to the Company. 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). 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, 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.
Under the Plan, 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.
In December 1998, the Company adopted the 1998 Stock Option Plan (98 Plan),
under which the Company may grant options to purchase 300,000 of common stock to
employees, directors, independent contractors and consultants of the Company.
The 98 Plan is similar to the Plan and authorizes the issuance of ISO's, NQSO's
and Stock Appreciation Rights.
In connection with the amended employment agreements (Note 8), existing
options to acquire an aggregate of 2,330,000 shares were cancelled and the
Company has replaced them with ISO's to acquire 2,330,000 shares at $1.75, per
share, through March 28, 2003.
In January 1999, existing options to acquire an aggregate of 750,000 shares
of common stock have been replaced with ISO's to acquire 750,000 shares,
exercisable at $1.75, per share, through March 28, 2003.
In October 1999, the Company issued ten year options to purchase 250,000
shares, each, to two officers of the Company at $.15, per share, under the Plan.
<PAGE>
The following table summarizes the activity of the Plans for 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
------------------------------- ------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Options outstanding, beginning of year ........... 3,849,000 $2.35 4,295,000 $3.10
Granted........................................... 1,250,000 $1.11 2,384,000 $1.74
Canceled or lapsed ............................... (750,000) $3.50 (2,830,000) $3.50
---------- -------------- ----------- --------------
Options outstanding, end of year ................. 4,349,000, $1.79 3,849,000 $2.35
========== ============== =========== ==============
Options exercisable, end of year ................. 3,404,000 $1.73 3,304,000 $2.13
========== ============== ========== ==============
Options available for grant, end of year ......... 660,219 1,160,219
========== ==========
Weighted-average fair value of options granted
during the year ................................. $1.11 $ 1.74
========== ==========
</TABLE>
The following table summarizes information about stock options outstanding
under the Plan at December 31, 1999:
<TABLE>
<CAPTION>
Weighted
Average Weighted
Remaining Average
Range of Outstanding Contractual Exercisable Exercisable
Exercise Prices Options Life Options Price
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$2.00 170,000 5.60 170,000 $2.00
$3.50 295,000 6.50 $3.50
$1.75 3,330,000 3.25 3,330,000 $1.75
$1.50 54,000 4.00 54,000 $1.50
$0.15 500,000 9.75 100,000 $0.15
----------- -------- ----------- ----------
$0.15 to $3.50 4,349,000 4.32 3,654,000 $1.70
=========== ======== =========== ==========
</TABLE>
11. Litigation
In February 1998, the Company commenced an action against a former supplier
for damages for breach of contract for their failure to deliver contracted
purchases of 100,000,000 components. In connection with this action, as of
December 31, 1999, the Company wrote-off accounts payable to the supplier of
$237,412.
In January 2000, the Company was notified that a former consultant is
planning to assert a claim against the Company seeking payments of consulting
fees in the amount of: (1) $4,000, per month, for eight years, (2) 250,000
shares of the Company's common stock, (3) costs and (4) damages of an
unspecified amount. The Company and counsel do not believe the fees are due and
will vigorously defend such claim
12. Concentrations
The Company maintains cash in financial institutions in excess of insured
limits. In assessing its risk, the Company's policy is t maintain funds only
with reputable financial institutions.
During 1999 and 1998, product sales to two and one customer(s) were
approximately 75% and 80%, respectively, of total product sales. As of December
31, 1999, accounts receivable from one customer was approximately 79% of total
accounts receivable.
During 1998, approximately 85% of total purchases were from one supplier. In
1999, the same supplier provided approximately 53% of total purchases.
13. Subsequent Events
In January 2000, an officer/director exercised options for 416,666 shares of
common stock at $.12, per share, and resold 250,000 of such shares to a director
for $30,000.
In February 2000, the Company issued options to purchase an aggregate of
3,430,000 shares of common stock at $.59, per share, to officers and directors
and 55,941 options to purchase common stock at $.59, per share, to a consultant.
On March 15, 2000, the Company sold equipment for an aggregate sales price
of $363,777, net of expenses of $71,223. The Company then leased back the
equipment requiring equal monthly payments for three years.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and consolidated statement of operations found on
pages F-3 and F-4 of the Company's Form 10-KSB for the year ended December 31,
1999, and is qualified in its entirety by reference to such consolidated
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 129,640
<SECURITIES> 0
<RECEIVABLES> 595,584
<ALLOWANCES> 0
<INVENTORY> 632,902
<CURRENT-ASSETS> 1,505,708
<PP&E> 3,018,315
<DEPRECIATION> (609,242)
<TOTAL-ASSETS> 3,955,849
<CURRENT-LIABILITIES> 1,608,759
<BONDS> 0
0
4
<COMMON> 4,059
<OTHER-SE> 1,980,782
<TOTAL-LIABILITY-AND-EQUITY> 3,955,849
<SALES> 3,344,559
<TOTAL-REVENUES> 3,344,559
<CGS> 2,885,863
<TOTAL-COSTS> 4,503,501
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,158,942)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,158,942)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,158,942)
<EPS-BASIC> (.37)
<EPS-DILUTED> (.37)
</TABLE>
