Endovasc 10-Q 2006 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

     Washington, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended September 30, 2006

o Transition Report to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the Transition Period from __________ to _________.

000-28371

(Commission File Numbers)

ENDOVASC, INC.

(Exact name of registrant as specified in its charter)

NEVADA	76-0512500
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

550 Club Drive, Suite 345

Montgomery, Texas 77316

(Address of principal executive offices) (Zip Code)

Registrant’s Telephone Number, Including Area Code: (936)582-5920

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer   o      Accelerated Filer   o Non-Accelerated Filer   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes o    No x 

There were 159,981,519 and 14,158,593 shares of Common Stock-Endovasc Series and Common Stock-NDC Series, respectively, par value $.001 per share, of Endovasc, Inc. outstanding as of October 27, 2006.

PART I

FINANCIAL INFORMATION

Item 1.	Financial Statements
	Statements of Net Assets as of September 30, 2006 and June 30, 2006	3
	Statements of Operations for the three months ended September 30, 2006 and 2005	4
	Statements of Cash Flows for the three months ended September 30, 2006 and 2005	5
	Statements of Changes in Net Assets for the three months ended September 30, 2006 and 2005	6
	Financial Highlights	7
	Schedule of Investments	8
	Notes to Unaudited Condensed Financial Statements	9

Endovasc, Inc.

Statements of Net Assets

(In thousands, except share data)

(In thousands, except share data)
	September 30, 2006			June 30, 2006
Assets				audited
Investments:
Investment in controlled companies, at fair value	$	2,005		$	1,605
(cost of $1,218 at September 30, 2006 and $1,168 at June 30, 2006)
Cash and cash equivalents		63			20
Subscriptions receivable		25			25
Prepaid expenses		25			35
Property and equipment, net		26			29
Total assets		2,144			1,714
Liabilities
Notes payable		34			46
Notes payable- stockholders		99			105
Capital leases		8			15
Accounts payable and accrued liabilities		256			303
Convertible debentures		1			1
Total liabilities		398			470
Net assets		1,746			1,244
Commitments and contingencies		-			-
Composition of net assets:
Common stock, $.001 par value, 500,000,000 shares authorized 157,981,519
and 146,694,319 shares outstanding at September 30, 2006
and June 30, 2006 respectively		157			147
Series NDC common stock, 14,158,593 shares issued
and outstanding		14			14
Preferred stock, $.001par value, 20,000,000 shares authorized,
208 shares of Series A 8% cumulative convertible
preferred stock issued and outstanding		-			-
Additional paid-in capital		27,945			27,700
Accumulated deficit:
Accumulated net operating loss		(27,157	)		(27,054	)
Unrealized appreciation on investments		787			437
Net assets	$	1,746		$	1,244
Net assets value per share
Common stock	$	0.0035		$	0.0017
Series NDC common Stock	$	0.0848		$	0.0706

The accompanying notes are an integral part of these financial statements

3

Endovasc, Inc.

Statements of Operations

(In thousands, except share data)

	3 Months Ended September 30, 2006			3 Months Ended September 30, 2005
Operating Income
Management fees	$	54		$	35
Other Income		25			3
Total income		79			38
Operating expenses
General and administrative		158			218
Professional fees		23			11
Interest expense		1			-
Total operating expenses		182			229
Operating loss		(103	)		(191	)
Net realized and unrealized gains
Unrealized appreciation of portfolio investments		350			31
Net increase (decrease) in net assets from operations		247			(160	)
Net increase (decrease) in net assets from operations per share:
Basic and dulited, Common stock	$	0.0003		$	0.0042
Baise and diluted, Series NDC	$	0.0141		$	0.0194
Weighted average common shares outstanding:
Basic and diluted, common stock		150,660,786			103,127,329
Basic and diluted, Series NDC common stock		14,158,593			14,158,593

The accompanying notes are an integral part of these financial statements

4

Endovasc, Inc.

Statements of Cash Flows

(In thousands)

	3 Months Ended September 30, 2006			3 Months Ended September 30, 2005
Cash flows from operating activities:
Net Income (loss)	$	245		$	(160	)
Adjustments to reconcile net Income (loss) to net cash used in operating activities:
Depreciation and amortization		3			5
Unrealized appreciation/(depreciation) on investments		(350	)		(31	)
Other assets/ prepaid expenses		10			4
Accounts payable and accrued liabilities		(44	)		8
Investment in portfolios		(50	)		(74	)
Net cash used in operating activities		(186	)		(248	)
Cash flows from financing activities:
Proceeds from sale of common stock		255			236
Repayment of long-term debt and notes payable		(13	)		(8	)
Payments of obligations under capital leases		(7	)		(10	)
Repayments of notes to stockholders		(6	)		(10	)
Net cash provided by financing activities		229			208
Net (decrease)/increase in cash and cash equivalents		43			(40	)
Cash and cash equivalents, beginning of year		20			116
Cash and cash equivalents, end of year	$	63		$	76
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1		$	4

The accompanying notes are an integral part of these financial statements

5

Endovasc, Inc.

Statements of Changes in Net Assets

(in thousands)

	Three Months Ended Sep 30 2006			Three Months Ended Sep 30 2005
Changes in net assets from operations:
Operating Loss	$	(103	)	$	(191	)
Changes in unrealized appreciation on investment, net		350			31
Net increase/(decrease) in net assets from operations		247			(160	)
Capital stock transaction - Common stock
Issuance of common stock for cash		255			236
Net increase in net assets from common stock transactions		255			236
Net increase in net assets		502			76
Net assets, beginning of period		1,244			356
Net assets, end of period	$	1,746		$	432

The accompanying notes are an integral part of these financial statements

6

Endovasc, Inc.

Financial Highlights

(In thousands, except share data)

 

	Common stock						Series NDC Common stock
	Three Months Ended Sep 30, 2006			Three Months Ended Sep 30, 2005			Three Months Ended Sep 30, 2006			Three Months Ended Sep 30, 2005
PER SHARE INFORMATION
Net asset value, beginning of period	$	0.0017		$	0.0017		$	0.0706		$	0.0124
Net increase (decrease) from operating		(0.0007	)		(0.0018	)		(0.0000	)		0.0000
Net change unrealized appreciation
of investments, net		0.0010			(0.0024	)		0.0141			0.0194
Net increase from stock transactions		0.0015			0.0023			-			-
Net asset value, end of period	$	0.0035		$	(0.0002	)	$	0.0848		$	0.0318
PER SHARE MARKET VALUE:
Beginning of period	$	0.0370		$	0.0430		$	0.0500		$	0.0770
End of period	$	0.0320		$	0.0300		$	0.0500		$	0.0550
Investment return, based on market price at end of period (1)		-16	%		-43	%		0.0	%		-40.0	%
(1) Periods of less than one year are not annualized.
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period	$	546		$	(18	)	$	1,200		$	450
Average net assets	$	395		$	82		$	1,100		$	313
Annualized ratio of expenses to average net assets		184	%		1124	%		0	%		0	%
Annualized ratio of net increase (decrease) in net assets from operations to average net assets		306	%		-977	%		73	%		352	%
Shares outstanding at end of period		157,981,519			111,537,569			14,158,593			14,158,593
Weighted average shares outstanding during period		150,660,786			103,127,329			14,158,593			14,158,593

The accompanying notes are an integral part of these financial statements

7

Endovasc, Inc.

Schedule of Investments

(In thousands, except share data)

								September 30, 2006				June 30, 2006
Portfolio Companies	Industry		Title of Security Held by Company		% of Class Held			Cost		Fair Value		Cost		Fair Value
Investments in equity securities
Liprostin, Inc		Biopharmaceutical		Common Stock		100	%	$	823	$	800	$	773	$	600
Angiogenix, LTD Inc		Biopharmaceutical		Common Stock		100	%		34		-		34		-
Nutraceutical Development Corporation		Biopharmaceutical		Common Stock		100	%		89		1,200		89		1,000
Investments in joint ventures
Endovasc-TissueGen Research Sponsors, LLC		Biopharmaceutical		Equity/Debt		49.90	%		55		3		55		3
Endovasc-TissueGen-Blumberg Research Sponsors, LLC		Biopharmaceutical		Equity/Debt		39.90	%		217		2		217		2
								$	1,218	$	2,005	$	1,168	$	1,605

The accompanying notes are an integral part of these financial statements

8

Notes to the Unaudited Condensed Financial Statements

(in thousands except share data)

1. Interim Financial Statements

The accompanying interim condensed financial statements and notes to the financial statements for the interim period as of September 30, 2006 and for the three months ended September 30, 2006 are unaudited. The accompanying interim unaudited financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial statements and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month period ended September 30, 2006, are not necessarily indicative of the results that may be expected for the year ending June 30, 2007. The condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Form 10-K of the Company as of and for the year ended June 30, 2006.

In accordance with Article 6 of Regulation S-X under the Securities Act of 1933 and Securities Exchange Act of 1934, the Company does not consolidate portfolio company investments in which the Company has a controlling interest.

2. Organization and Summary of Significant Accounting Policies

Endovasc, Inc. (the "Company") is incorporated under the laws of the State of Nevada. On October 6, 2004 the Company filed its election with the SEC (Form N-54A) to adopt business development company ("BDC") status under the Investment Company Act of 1940 ("1940 Act"). A BDC is a specialized type of investment company under the 1940 Act. A BDC may primarily be engaged in the business of furnishing capital and managerial expertise to companies that do not have ready access to capital through conventional financial channels; such companies are termed "eligible portfolio companies". The Company, as a BDC, may invest in other securities; however, such investments may not exceed 30% of the Company's total asset value at the time of such investment. The accompanying financial statements reflect the accounts of Endovasc, Inc., and the related results of operations. In accordance with Article 6 of Regulation S-X under the Securities Act of 1933 and Securities Exchange Act of 1934, the Company does not consolidate portfolio company investments in which the Company has a controlling interest. Accounting principles used in the preparation of the financial statements beginning October 6, 2004 are different than those of prior periods and, therefore, the financial position and results of operations of these periods are not directly comparable. The primary differences in accounting principles relate to the carrying value of investments. The Company has two classes of common shares (common stock and series NDC common stock). Both classes have identical rights, preferences, privileges and restrictions, except that dividends, distributions and other rights of series NDC common stock will be determined by the performance of, and right upon liquidation will be limited to the Company's nutraceutical business, including the Company's portfolio investment Nutraceutical Development Corporation. Company level operating expenses are allocated to each class of shares based on its relative net assets value. 

The Company currently has investments in five portfolio companies as follows:

Liprostin, Inc.

The Company has invested in the wholly-owned portfolio company Liprostin, Inc. which is engaged in the FDA process of obtaining FDA approval of Liprostin™ for the treatment of intermittent claudication. The active component Prostaglandin E-1(PGE-1) is encapsulated in a unique lipid membrane to protect PGE-1 from degradation in the blood stream.

Angiogenix Limited, Inc.

The Company has invested in the wholly-owned portfolio company Angiogenix Limited, Inc (“Angiogenix”). Angiogenix had an exclusive licensing agreement (the "Stanford License Agreement") with the Board of Trustees of the Leland Stanford University (the “University”) relating to US Patent Application 60,146,233 (issued as US Patent No. 6,417,205 B1 on July 9, 2002) relating to the administration of Nicotine or Nicotine Receptor Agonist (NRA) to induce the growth of new blood vessels ("angiogenesis").

9

Notes to the Unaudited Condensed Financial Statements

(in thousands except share data)

During the year ended June 30, 2005, the Company cancelled the Stanford License Agreement with the University.

Nutraceutical Development Corporation

The Company has invested in the wholly-owned portfolio company Nutraceutical Development Corporation (NDC). NDC was formed to develop certain technologies for use in dietary products designed to enhance health and provide beneficial biological effects (“nutraceuticals”). NDC is currently receiving royalties for the license of its proprietary muscle mass technology.

Endovasc-TissueGen Research Sponsors, L.C.C.

The Company has a 49.9% investment in a joint venture named Endovasc-TissueGen Research Sponsors, L.L.C. (the “Partnership”). The purpose of the Partnership is to develop a bioresorbable drug-eluting cardiovascular stent for the advanced treatment of coronary artery disease.

Endovasc-TissueGen-Blumberg Research Sponsors, L.C.C

The Company has a 39.9% investment in a joint venture named Endovasc-TissueGen-Blumberg Research Sponsors, L.L.C. (the “Joint Venture”). The purpose of the Joint Venture is to develop biodegradable stents for ureteral and prostate applications.

Significant 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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While it is believed that such estimates are reasonable, actual results could differ from those estimates.

As a business development company, the Company's investments are in private companies with no publicly available market price. Business development companies are required to carry investments at fair value. Generally, the fair value of a private security will initially be based primarily on its original cost to the Company. Management and the Company's board of directors must evaluate the actual and expected future operations of the portfolio companies, monitor market conditions and evaluate any new financings or other significant events that the portfolio companies may sustain in order to estimate a fair value for the investments in these companies at least quarterly. If the Company's estimates of the future differ from actual events in the future, for any reason, the Company may fail to record an unrecognized gain or loss or may record it later or earlier than it would with a perfect forecast of the future. Because these investments are restricted and illiquid, even if the Company correctly estimates a fair value for an investment today, that investment could lose some or all of its value in the near future without the Company realizing any benefit from its investments or recognizing any cash proceeds from the sale of these investments. If, in the future, the Company determines that a loss has occurred in any of its investments, that loss will be reflected as a reduction in the value of its investments on the Company's consolidated balance sheet, and the reduced values will negatively impact earnings and be reflected as a loss on the statements of operations.

10

Notes to the Unaudited Condensed Financial Statements

(in thousands except share data)

Investments

The Company's investments potentially subject the Company to various levels of risk associated with economic changes, interest rate fluctuations, political events, war and terrorism, and operating conditions beyond the control of the Company. Consequently, management's judgment as to the level of losses that currently exist or may develop in the future, if any, involves the consideration of current and anticipated conditions and their potential effects on the Company's investments. Due to the level of risk associated with investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in risks in the near term could materially impact the value of the amounts reflected in the accompanying financial statements. Investments are carried at fair value as determined in good faith by or under the direction of the Board of Directors of the Company based on information, including an independent valuation, and using valuation methodologies considered appropriate and reliable by the Board. Generally, the fair value of a private security will initially be based primarily on its original cost to the Company. Cost will be the primary factor used to determine fair value on an ongoing basis until significant developments or other factors affecting the investment (such as results of the portfolio company's operations, changes in general market conditions, subsequent financings, independent valuations or the availability of market quotations) provide a basis for value other than cost. For investments in which the Company earns an interest for services rendered, the Board estimates the fair value of the services as the initial basis for estimating fair value of the securities received. The Board believes that the methods used to value the investments reflected in the accompanying financial statements have been valued appropriately and that the values reflected herein have been calculated in accordance with generally accepted valuation methods which result in valuations in the Company's financial statements being recorded in accordance with generally accepted accounting principles in the United States of America. However, losses may occur, which may be material to the financial condition of the Company and proceeds, if any, from the disposition of securities could differ significantly from the values reflected herein. In particular, early stage and seed round investments in private companies, which is the focus of the Company, are typically in illiquid restricted securities with no current market and therefore no market prices or comparables are available upon which to base estimates. These factors, among others, make determination of fair value more difficult and subject to significant judgment errors by the Company's board of directors.

REVENUE RECOGNITION

As a business development company, the Company's revenue will be recognized primarily based on security transactions and related income. Security transactions are accounted for on a trade date basis. Net realized gains or losses on sales of securities are determined on the specific identification method. Interest income and expenses are recognized on the accrual basis. Dividend income is recorded on cumulative preferred equity securities on an accrual basis to the extent that such amounts are expected to be collected and on common equity securities on the record date for private companies or on the ex-dividend date for publicly traded companies. The Company assesses the collectibility of dividends and interest income receivables in connection with its determination of the fair value of the related security. To the extent that there are adverse future developments, previously recognized dividend and interest income may not be realized.

Through September 30, 2006, the Company had not received any taxable interest or taxable dividend income, or any other form of cash income or revenues, nor had it sold any investments, thus the Company has not recognized any realized gains or losses on its investments. When fees are paid to the Company by portfolio companies in their stock, in accordance with generally accepted accounting principles, the Company generally recognizes fee income to the extent of par value in the case of a new company or fair value in the case of an existing company, as determined by the Company's board of directors. Fees paid in shares of the stock of portfolio companies are both restricted and illiquid thus the Company may be unable to convert these shares of stock to cash in the future. Increases or decreases in the fair value of investments above or below accounting cost basis are not included in investment income but are included in the Statement of Operations as unrealized gains or losses until such time as the investment is liquidated or sold.

New Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements (“SFAS No. 157”). SFAS In September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 157, Fair Value Measurements. FASB Statement No. 157 provides enhanced guidance for using fair value to measure assets and liabilities. FASB Statement No. 157 also provides guidance regarding the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. FASB Statement No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. FASB Statement No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. FASB Statement No. 157 is not expected to have a material impact on our financial position or results of operations upon adoption.

11

Notes to the Unaudited Condensed Financial Statements

(in thousands except share data)

In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108 (“SAB 108”). SAB 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current-year financial statements. SAB 108 requires registrants to quantify misstatements using both the balance sheet and income-statement approaches and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. SAB 108 does not change the SEC’s previous guidance in SAB No. 99, Materiality, on evaluating the materiality of misstatements. A registrant applying the new guidance for the first time that identifies material errors in existence at the beginning of the first fiscal year ending after November 15, 2006, may correct those errors through a one-time cumulative effect adjustment to beginning-of-year retained earnings. The cumulative effect alternative is available only if the application of the new guidance results in a conclusion that a material error exists as of the beginning of the first fiscal year ending after November 15, 2006, and those misstatements were determined to be immaterial based on a proper application of the registrant’s previous method for quantifying misstatements. The adjustment should not include amounts related to changes in accounting estimates. SAB 108 is not expected to have a material impact on our financial position or results of operations.

3. Going Concern Considerations

Since its inception as a development stage enterprise, and subsequent to its conversion to a BDC, the Company has not generated significant revenue and has been dependent on debt and equity raised from individual investors to sustain its operations. The Company has conserved cash by issuing its common stock and preferred stock to satisfy obligations, to compensate individuals and vendors and to settle disputes that have arisen. However, during the three months ended September 30, 2006, and September 30, 2005, the Company incurred net increase and decrease in net assets from operations (in thousands) of $247 and $(160), respectively, and negative cash flows from operations of $(186) and $(248), respectively. These factors, along with a $(279) negative working capital position at September 30, 2006, raise substantial doubt about the Company’s ability to continue as a going concern.

Management plans to take specific steps to address its difficult financial situation as follows:

o In the near term the Company plans additional private sales of debt and common stock to sophisticated investors to fund its current operations.

o In the long-term, the Company believes that cash flows from commercialization of its products will provide the resources for continued operations.

There can be no assurance that the Company’s planned private sales of debt and equity securities or its planned public registration of common stock will be successful or that the Company will have the ability to commercialize its products and ultimately attain profitability. The Company’s long-term viability as a going concern is dependent upon four key factors, as follows:

o The Company’s ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the commercialization of its products.

12

Notes to the Unaudited Condensed Financial Statements

(in thousands except share data)

o The ability of the Company to obtain positive test results of its products in clinical trials.

o The ability of the Company to ultimately achieve adequate profitability and cash flows to sustain its operations.

o The Company’s cash requirement for 2007 is expected to be approximately $1,500 or $375 per quarter. The Company does not presently believe that the Company will have positive cash flow from operations in 2007.

The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

4. Notes Payable -Stockholders

During the three months ended September, 30, 2006 the company repaid $6 to the estate of the Company’s former Chief Operations Officer, which reduced the note payable to $99 at September 30, 2006.

5. Income Taxes

The difference between the 34% federal statutory income tax rate and amounts shown in the accompanying interim financial statements is primarily attributable to an increase in the valuation allowance applied against the tax benefit from utilization of net operating loss carryforwards.

6. Capital Share Transactions

For the three months ended September 30, 2006 the Company issued 10,497,500 shares of common stock with a par value of $.001 to 2 individuals for a purchase price of $255, consisting of $230 cash, $25 stock subscription receivable. The subscription was fully paid as of October 13, 2006. This issuance increase the number of common shares issued and outstanding from 146,684,019 to 157,181,519 as of September, 30, 2006.

7. Legal Proceedings

On August 28, 2003, Cause No. 03-08-0681-CV, "The Dow Chemical Company vs. Endovasc LTD., Inc.," was filed against the Company in the District Court of Montgomery County, Texas, 359th Judicial District. Dow Chemical Company ("Dow") filed a complaint against the Company for breach of contract and damages. The amount of damages sought is approximately $230. This case is being vigorously defended against the allegations made by Dow. The Company has filed a counter-claim against Dow for breach of contract and damages. This case has been tried and a judgment entered by the district court against the Company. This case in appeal and a prediction cannot be made as to the final outcome of the complaint and damages allegedly owed to Dow or the company. This case is being adjudicated and the verdict is pending. No amounts have been accrued for this contingency.

On November 7, 2003, Cause No. 03-11-08112-CV, "Greg Creekmore vs. Endovasc, Inc. and Endovasc, LTD., Inc.," was filed against the Company in the District Court of Montgomery County, Texas, 284th Judicial District. Greg Creekmore ("Creekmore") filed a complaint against the Company for breach of a consulting contract between the parties. Creekmore seeks payment of $114 plus interest, one million shares of the Company common stock and reimbursement of court costs including reasonable attorneys' fees allowed by law. This case is being vigorously defended against the allegations made by Creekmore. A prediction cannot be made as to the final outcome of the complaint and damages allegedly owed to Creekmore. However, management believes it will prevail and accordingly, no amounts have been accrued for this contingency.

On January 13, 2004, Case No. H-03-5226, "Lorenz M. Hofmann, Ph.D. and LMH Associates, Inc. vs. Endovasc, LTD., Inc., Endovasc, Inc., David P. Summers, Ph.D. and M. Dwight Cantrell" was filed against the Company in the United States District Court for the Southern District of Texas Houston Division. Lorenz M. Hofmann, Ph.D. and LMH Associates, Inc. ("LMH") filed a complaint against the Company for breach of contract and damages. The Company filed a counter-claim against LMH for breach of contract and damages. During the year ended June 30. 2006, The Company was rendered an adverse decision in the case. The plaintiff's award, including attorney’ fees, totaled $128. The balance due to LMH at September 30, 2006 is $63.

13

Notes to the Unaudited Condensed Financial Statements

(in thousands except share data)

In November 2004, the Company filed a lawsuit against the former President and CEO, David P. Summers in the 284th District Court of Montgomery County, Texas. The suit filed on Company’s behalf alleges a civil conspiracy, breach of fiduciary duty and breach of contract and rescission by David P. Summers and seeks restitution and damages in excess of $3,500.

The Company is subject to certain other legal proceedings and claims which arose in the ordinary course of our business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect our financial position, results of operations or cash flows.

14

ITEM 2    Managements Discussion and Analysis of Financial Condition and Results of Operations

The information contained in this section should be read in conjunction with the Selected Consolidated Financial and Other Data, the Selected Operating Data and our Consolidated Financial Statements and notes thereto appearing elsewhere in this Quarterly Report. This Quarterly Report, including the Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs, and our assumptions. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", and "estimates" and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including without limitation (1) any future economic downturn could impair our customers' ability to repay our loans and increase our non-performing assets, (2)economic downturns can disproportionately impact certain sectors in which we concentrate, and any future economic downturn could disproportionately impact the industries in which we concentrate causing us to suffer losses in our portfolio and experience diminished demand for capital in these industry sectors, (3) a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities, (4) interest rate volatility could adversely affect our results, (5) the risks associated with the possible disruption in our operations due to terrorism and (6) the risks, uncertainties and other factors we identify from time to time in our filings with the Securities and Exchange Commission, including our Form 10-Ks, Form 10-Qs and Form 8-Ks. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be incorrect. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report.

CRITICAL ACCOUNTING POLICIES

We believe that of the significant accounting policies used in the preparation of our financial statements (See Note 1 to the audited financial statements for the year ended June 30, 2005), the following are critical accounting policies, which may involve a higher degree of judgment, complexity and estimates.

SIGNIFICANT ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 dates of the financial statements and the reported amounts of revenues and expenses during the periods. Actual results could differ from estimates making it reasonably possible that a change in the estimates could occur in the near term.

INVESTMENTS

Investments are reported at fair market value. The most significant estimate inherent in the preparation of our consolidated financial statements is the valuation of its investment and the related unrealized appreciation or depreciation. Upon our conversion to a business development company, we employed an independent business valuation expert to value our portfolio companies. The Board of Directors determined all portfolio companies and investments at fair market value under a good faith standard.

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STOCK-BASED COMPENSATION

Adoption of SFAS 123(R)

Until June 30, 2005, we accounted for employee stock options using the intrinsic value method in accordance with Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and had adopted the disclosure-only alternative of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure which requires pro-forma disclosure of compensation expense associated with stock options under the fair value method. Under the intrinsic value method, we only recorded stock-based compensation resulting from options granted at below fair market value. Effective July 1, 2005, we adopted SFAS No. 123R, “Share Based Payment”, which requires that they measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, and recognize that cost over the vesting period.

Valuation and Amortization Method—We estimate the fair value of stock options granted using the Black-Scholes option-pricing formula and a single option award approach. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.

Expected Term—The expected term represents the period that our stock-based awards are expected to be outstanding and is determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards.

Expected Volatility—Stock-based payments made prior to July 1, 2005 were accounted for using the intrinsic value method under APB 25. The fair value of stock based payments made subsequent to June 30, 2005 is valued using the Black-Scholes valuation method with a volatility factor based on our historical stock trading history.

Risk-Free Interest Rate—We base the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on U.S. Treasury securities with an equivalent term.

Estimated Forfeitures—When estimating forfeitures, we consider voluntary termination behavior as well as analysis of actual option forfeitures.

On October 21, 2005, our Board of Directors adopted the 2005 Executive Compensation Plan (the “Plan”). Amendment No. 1 to the Plan was adopted by the Board of Directors on November 14, 2005. On December 16, 2005, the stockholders approved the 2005 Plan and the grant of stock options. The maximum number of shares currently reserved for issuance is equal to 15% of the number of shares of Common Stock issued and outstanding at any time.

We are not presently able to compensate our officers and employees with cash because of the lack of available funds from operations. The Plan was adopted to provide a means by which the Company can attract and retain officers and employees and give such officers and employees an interest in the success of the Company. Under the Plan, the Board of Directors (or a committee designated by the Board of Directors) may grant options to purchase shares of the Company Common Stock to officers and employees. Directors are not eligible to receive options under the Plan.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject us to concentrations of credit risk consist principally of investments and cash. We place our cash with high credit quality financial institutions. At times in the future, such amounts may exceed the FDIC insured limits.

PORTFOLIO INVESTMENTS

Investments are reported at fair value. The most significant estimate inherent in the preparation of our financial statements is the valuation of our investments and the related unrealized appreciation or depreciation.

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Upon our conversion to a business development company, we employed an independent business valuation expert to value our portfolio companies. The Board of Directors determined all portfolio companies and investments at fair value under a good faith standard.

We currently have investments in five portfolio companies as follows:

Liprostin, Inc.

We have an investment in a wholly-owned portfolio company Liprostin, Inc. which is engaged in the FDA approval of Liprostin™ for the treatment of intermittent claudication. The active component Prostaglandin E-1(PGE-1) is encapsulated in a unique lipid membrane to protect PGE-1 from degradation in the blood stream.

Liprostin, Inc. conducted a successful Phase I clinical trial to test product safety and tolerance levels using a small group of healthy subjects in January 2001. Based on the results of this trial, and the previously established safety profile of PGE-1, the FDA recommended that we proceed to a Phase III trial to determine the safety and efficacy of the administration of Liprostin™ in combination with angioplasty for the treatment of intermittent claudication or critical limb ischemia. In 2003, Liprostin, Inc. submitted a protocol for the phase II clinical study entitled “A Phase II, Open label, Multi-center study of Liposomal prostaglandin E-1 (Liprostin™) in Patients with Critical Limb Ischemia and Intermittent Claudication”.

The Phase II clinical trial consisting of 73 patients was initiated in December 2003 and concluded in August 2004. The successful results of this trial for peripheral arterial occlusive disease were presented to the FDA in the fall of 2004.

Liprostin, Inc. will conduct a Phase IIIa trial to establish efficacy and safety profile in order to seek or enter into a partnership with a suitable company to co-develop and market our lead product Liprostin™ for treatment of peripheral vascular disease. Opportunities to out-license or sell the technology are also being considered. We expect to enter into a phase IIIa clinical trial in 2006.

Distribution Methods

Upon receipt of necessary governmental regulatory consent, Liprostin intends to distribute its products utilizing Liprostin™ technologies worldwide.

Governmental Regulation

The clinical trials performed in support of the IND 61,026 have been carried out in compliance with the regulations stipulated by the Food and Drug Administration.

Competition

Major contributors of Peripheral Vascular Disease (“PVD”) include smoking, diabetes, high fat or cholesterol levels in the blood, high blood pressure, obesity, and lack of exercise. Thus, treatment of these symptoms may help to slow the progression of the disease. Surgical procedures such as angioplasty, (and stent placement, if needed) and by-pass surgery are used as to increase blood flow to the extremities in the more severe cases.

There is no “standard of care” medication for the treatment of PVD. Medications such as aspirin or Plavix® (clopidogrel) are usually advised, although these do not help with symptoms of PVD, but help to prevent blood clots (thrombosis) forming in arteries. Cilostazol® has recently been shown to improve walking distance in people with PVD and blood flow in the lower leg.

Nutraceutical Development Corporation

We have an investment in a wholly-owned portfolio company, Nutraceutical Development Corporation (“NDC”) which developed a technology for use in dietary supplements to enhance muscle mass muscle strength when used in combination with a strenuous exercise program.

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In 2002, NDC began experimentation in mice to demonstrate accelerated muscle mass was achieved when fed very low doses of the compound in drinking water combined with extensive exercise during a three week regimen. The mice that were given low amounts developed a significant muscle increase compared to the controlled mice. A scientifically controlled double blind, double placebo study in healthy weight lifters confirmed our earlier animal results and in August of 2003 we filed a Patent Application, No.10/633,325 relating to this discovery.

An agreement to exclusively sublicense the patent was formed between NDC and Basic Research, L.L.C. of Salt Lake City Utah in July of 2003. NDC will receive a 10% royalty on all revenues generated. Due to delays in product manufacturing, the minimum royalty payment date is being renegotiated with the licensee. This contract to retain exclusivity includes a clause allowing termination of the contract by Basic Research, L.L.C. for cause including their decision to discontinue selling the licensed product.

Based on the information embodied in the patent, the product Endothil - CR was developed and launched at the Arnold Classic Convention in March of 2005 and is now being sold at GNC stores nationwide.

Distribution Methods

NDC intends to seek additional applications of its technology and to conceptualize products for related indications. Basic Research, L.L.C will receive first right of refusal for the development of other products.

Endovasc-TissueGen Research Sponsors, L.L.C.

We have a 49.9% investment in a joint venture named Endovasc-TissueGen Research Sponsors, L.L.C. (the “Partnership”). The purpose of the Partnership is to develop a bioresorbable drug-eluting cardiovascular stent (DES) for the advanced treatment of coronary artery disease.

Competition

There is considerable competition from medical device manufacturers with respect to the development of stent-coating technologies for metal stents. These competitors include Guidant, Inc., Cook, Inc., Cordis, Medtronics, Inc and Boston Scientific, Inc. To our knowledge, current competition in this technology is limited to the use of drugs, such as paclitaxol and other taxol derivatives and sirrolimus (Cordis).

Endovasc-TissueGen-Blumberg Research Sponsors, L.L.C.

We have a 39.9% investment in a joint venture named Endovasc-TissueGen-Blumberg Research Sponsors, L.L.C. (the “Joint Venture”). The purpose of the Joint Venture is to develop biodegradable stents for ureteral and prostate applications.

Competition

Boston Scientific, Inc. developed a biodegradable urinary stent but has chosen not to commercialize this product.

Angiogenix Ltd., Inc

We have an investment in the wholly-owned, unconsolidated subsidiary, Angiogenix Limited, Inc. (“Angiogenix”). Angiogenix had an exclusive licensing agreement (the "Stanford License Agreement") with the Board of Trustees of the Leland Stanford University relating to US Patent Application 60/146,233 (issued as US Patent No. 6,417,205 B1 on July 9, 2002) relating to the administration of Nicotine or Nicotine Receptor Agonist (NRA) to induce the growth of new blood vessels angiogenesis. During the year ended June 30, 2005, we elected to cancel our license agreement with Leland J. Stanford University.

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Results of Operations Three Months Ended September 30, 2006 and 2005

During the quarter ended September, 30, 2006 our income increased to $80,000 compared with income of $38,000 for the quarter ending September, 30, 2005. This increase is a result of management fees and expense reimbursements from our portfolio companies.

During the quarter ended September, 30, 2006, operating, general and administrative expenses were $181,000 compared to $229,000 for the quarter ending September, 30, 2005. The decrease is primarily due to a decrease in public relations and consulting fees.

Cash flows used in operating activities for the three months ended September 30, 2006 decreased $38,000 to $136,000 compared to $174,000 for the three months ended September 30, 2005, primarily due to a decrease operating expenses.

LIQUIDITY AND CAPITAL RESOURCES (IN THOUSANDS)

On September 30, 2006, our cash and cash equivalents is $63,000.

We had a working capital deficit at September 30, 2006 of $279,000 compared to a deficit of $384,000 at June 30, 2006. This decrease is primarily due to an increase in our current assets.

Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis, to comply with the terms of our financing agreements, to obtain additional financing or refinancing as may be required, and ultimately to attain positive cash flows from operations and profits. Our investments in our portfolio investment companies are reflected on the accompanying balance sheets at the board of directors' best estimate of fair value. Because the investments are illiquid, we are limited in our ability to sell the investments in our portfolio companies. The value of these investments may decline substantially resulting in us receiving little or no cash value for our services and investments in these portfolio companies.

These events raise doubt as to our ability to continue as a going concern. The report of our independent public accountants, which accompanied our financial statements for the year ended June 30, 2005, was qualified with respect to that risk. In order to continue as a going concern, we must raise additional funds as noted above and ultimately achieve profit from our operations.

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our functional currency is the U.S. dollar.

Our investment activities contain elements of risk. The portion of our investment portfolio consisting of equity or equity-linked debt securities in private companies is subject to valuation risk. Because there is typically no public market for the equity and equity-linked debt securities in which it invests, the valuation of the equity interest in the portfolio is stated at “fair value” and determined in good faith under the direction of our Board of Directors on a quarterly basis in accordance with our investment valuation policy.

In the absence of a readily ascertainable market value, the estimated value of our portfolio may differ significantly from the value that would be placed on the portfolio if a ready market for the investments existed. Any changes in valuation are recorded in our Statement of Operations as “Net unrealized appreciation (depreciation) on investments”.

As of June 30, 2006, we have no off-balance sheet investments or hedging investments.

We do not believe that our business is materially affected by inflation, other than the impact inflation may have on the securities markets, the valuations of business enterprises and the relationship of such valuation to underlying earnings, all of which will influence the value of our investments.

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ITEM 4    CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

An evaluation made at the end of the period covered by this report was performed under the supervision and with the participation of our president, chief executive officer ("CEO") and the chief financial officer ("CFO") of the effectiveness of the design and operation of our disclosure controls and procedures to insure that we record, processes, summarize and report in a timely and effective manner the information required to be disclosed in reports filed with or submitted to the Securities and Exchange Commission. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective in timely bringing to their attention material information related to us required to be included in our periodic Securities and Exchange Commission filings. Since the date of this evaluation, there have been no significant changes in our internal controls or in other factors that could significantly affect those controls.

However, due to the limited number of employees engaged in the authorization, recording, processing and reporting of transactions, there is inherently a lack of segregation of duties. We periodically assesses the cost versus benefit of adding the resources that would remedy or mitigate this situation, and currently do not consider the benefits to outweigh the costs of adding additional staff in light of the limited number of transactions related to our operations.

(b) Changes in Internal Controls Over Financial Reporting.

There have been no significant changes in internal control over financial reporting that occurred during the fiscal period covered by this report that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

.

PART II

ITEM 1    LEGAL PROCEEDINGS

On August 28, 2003, Cause No. 03-08-0681-CV, "The Dow Chemical Company vs. Endovasc LTD., Inc.," was filed against us in the District Court of Montgomery County, Texas, 359th Judicial District. Dow Chemical Company ("Dow") filed a complaint against us for breach of contract and damages. The amount of damages sought is approximately $230,000. This case is being vigorously defended against the allegations made by Dow. We have filed a counter-claim against Dow for breach of contract and damages. A prediction cannot be made as to the final outcome of the complaint and damages allegedly owed to Dow or to us. This case has been tried and a judgment entered by the District Court against us. This case is on appeal and is being vigorously defended against the allegations made by Dow and the counter-claim is being vigorously pursued as well. A prediction cannot be made as to the final outcome of the complaint and damages allegedly owed to Dow. No amounts have been accrued for this contingency.

On November 7, 2003, Cause No. 03-11-08112-CV, "Greg Creekmore vs. Endovasc, Inc. and Endovasc, LTD., Inc.," was filed against us in the District Court of Montgomery County, Texas, 284th Judicial District. Greg Creekmore ("Creekmore") filed a complaint against us for breach of a consulting contract between the parties. Creekmore seeks payment of $114,000 plus interest, one million shares of our common stock and reimbursement of court costs including reasonable attorneys' fees allowed by law. This case is being vigorously defended against the allegations made by Creekmore. A prediction cannot be made as to the final outcome of the complaint and damages allegedly owed to Creekmore. However, management believes it will prevail and accordingly, no amounts have been accrued for this contingency.

On January 13, 2004, Case No. H-03-5226, "Lorenz M. Hofmann, Ph.D. and LMH Associates, Inc. vs. Endovasc, LTD., Inc., Endovasc, Inc., David P. Summers, Ph.D. and M. Dwight Cantrell" was filed against us in the United States District Court for the Southern District of Texas Houston Division. Lorenz M. Hofmann, Ph.D. and LMH Associates, Inc. ("LMH") filed a complaint against us for breach of contract and damages. LMH seeks payment of $96,000. We filed a counter-claim against LMH for breach of contract and damages. This case has been tried and a judgment was rendered in favor of the plaintiff. The plaintiff's award, including attorney’ fees, total $128,000. The balance due to LMH at September 30, 2006 is $63.

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In November 2004, we filed a lawsuit against our former President and CEO in the 284th District Court of Montgomery County, Texas. The suit filed on our behalf alleges a civil conspiracy, breach of fiduciary duty and breach of contract and rescission by our former CEO and seeks restitution and damages in excess of $3.5 million.

We are subject to certain other legal proceedings and claims which arose in the ordinary course of our business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect our financial position, results of operations or cash flows.

ITEM 1A.    Risk Factors

No material changes from risk factors as previously disclosed in the form 10K for year ended June 30, 2006.

ITEM 2    Unregistered Sales of Securities and Use of Proceeds

In October of 2004 a form 1-E filing was made which indicated our intent to raise capital under regulation E. During the three months ended September, 30, 2006 the following transactions were effected by us in reliance upon exemptions from registration under the Securities Act of 1933 as amended (the "Act"). Unless stated otherwise, we believe that each of the persons who received these unregistered securities had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the receipt of these securities, and that they were knowledgeable about our operations and financial condition. No underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with the transactions. These transactions did not involve a public offering. Each certificate issued for these unregistered securities contained a legend stating that the securities have not been registered under the Act and setting forth the restrictions on the transferability and the sale of the securities. During the three months ended September 30, 2006 we issued 10,497,500 shares of common stock to 2 individuals with an aggregate value of $255,000. These transactions were exempt from registration pursuant to Regulation E.

ITEM 3    Defaults Upon Senior Securities

None.

ITEM 4    Submission of Matters to a Vote of Security Holders

None.

ITEM 5    Other Information

None.

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ITEM 6    Exhibits

31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

In accordance with the requirements of Sections 13 and 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

		ENDOVASC, INC.
Date:	November 10, 2006		By:	/s/ Diane Dottavio
			Diane Dottavio
			Chief Executive Officer
Date:	November 10, 2006		By:	/s/ Diane Dottavio
			Diane Dottavio
			Chief Financial Officer

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