As filed with the Securities and Exchange Commission on November 15, 2001
Registration No. 333-60938
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------------
ENDOVASC LTD., INC.
(Exact name of small business Issuer as specified in its charter)
NEVADA 76-0512500 2836
(State or other jurisdiction (I.R.S. Employer (Primary Standard
of incorporation or Identification Industrial Classification
organization) Number) Code Number)
15001 WALDEN ROAD
SUITE 108
MONTGOMERY, TEXAS 77356
(936) 448-2222
(Address and telephone number of principal executive offices)
MR. DAVID P. SUMMERS
15001 WALDEN ROAD
SUITE 108
MONTGOMERY, TEXAS 77356
(936) 448-2222
(Name, address and telephone number of agent for service)
Copies of all communications to:
RICHARD A. FRIEDMAN, ESQ.
SICHENZIA, ROSS, FRIEDMAN & FERENCE LLP
135 WEST 50TH STREET
NEW YORK, NEW YORK 10022
TELEPHONE NO.: (212) 664-1200
FACSIMILE NO.: (212) 664-7329
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
------------------------------------------------
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT IN
LIGHT OF MARKET CONDITIONS AND OTHER FACTORS.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
Pursuant to Rule 429 promulgated under the Securities Act of 1933, the
enclosed prospectus constitutes a combined prospectus also relating to an
aggregate of up to $589,000 shares of our common stock that were previously
registered for sale in a Registration Statement on Form SB-2, Registration No.
333-68376. As such, this prospectus also constitutes post-effective amendment
no. 1 to the Registration Statement on Form SB-2, Registration No. 333-68376,
which shall hereafter become effective concurrently with the effectiveness of
this post-effective amendment no. 1 to the Registration Statement in accordance
with Section 8(c) of the Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
Preliminary Prospectus Subject to Completion, Dated _____, 2001
ENDOVASC, LTD., INC.
26,565,592 SHARES OF COMMON STOCK
AND
UP TO AN ADDITIONAL $589,000 WORTH OF COMMON STOCK
This prospectus relates to the resale by the selling stockholder of up to
26,565,592 shares of our common stock and up to an additional $589,000 worth of
our common stock. The selling stockholders may sell common stock from time to
time in the principal market on which the stock is traded at the prevailing
market price or in negotiated transactions. The selling stockholder is deemed
an underwriter of the shares of common stock which they are offering.
We will not receive any proceeds from the sale of shares by the selling
stockholder. However, we will receive proceeds upon the exercise of any
warrants that may be exercised by the selling stockholder.
Our common stock is quoted on the Over-the-Counter Bulletin board under the
symbol "ENDV." On October 25, 2001, the closing price of our common stock was
$0.041 per share.
- --------------------------------------------------------------------------------
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE THE "RISK FACTORS"
BEGINNING ON PAGE 5.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS COMPLETE OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
SECTION PAGE NUMBER
- ------- -----------
Prospectus Summary. . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Market For Securities . . . . . . . . . . . . . . . . . . . . . . . 8
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Management's Discussion and
Analysis of Financial Condition and Results of Operations. . . 9
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Executive Compensation Table. . . . . . . . . . . . . . . . . . . . 18
Principal Stockholders. . . . . . . . . . . . . . . . . . . . . . . 20
Certain Transactions. . . . . . . . . . . . . . . . . . . . . . . . 21
Description of Securities . . . . . . . . . . . . . . . . . . . . . 22
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . 24
Selling stockholder . . . . . . . . . . . . . . . . . . . . . . . . 25
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . . 26
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Index to Financial Statements . . . . . . . . . . . . . . . . . . . F-1
2
PROSPECTUS SUMMARY
We develop, market and license biopharmaceutical products, particularly
liposomal drug delivery methods, for the human healthcare industry. We develop
microscopic cell-like spheres, liposomes, to entrap and protect drugs from
degradation in the blood stream and deliver drugs to their intended target for
controlled and efficient administration.
Our current product development focuses on two technologies - Liprostin(TM)
and Nicotine Receptor Agonist. Our Liprostin technology is a Prostaglandin E-1
delivery system for lung and heart related medical applications. Our Nicotine
Receptor Agonist technology promotes blood vessel growth intended for use in
various biological applications. Our products are in the process of clinical
testing and have not been approved for general sales. Consequently, we have not
generated revenues and have historically operated with significant losses. We
intend to develop several medical treatment product lines based on these two
technologies.
THE OFFERING
Common stock outstanding before
this offering . . . . . . . . . . . We have 58,528,651 shares of common stock outstanding prior to this offering.
Common stock offered by the
selling stockholders . . . . . Up to 26,565,592 shares of common stock and up to an additional $589,000
worth of our common stock
Common stock outstanding after this
Offering . . . . . . . . . . . . . Up to 100,000,000 shares at current market prices.
Use of proceeds . . . . . . . . . . We will not receive any proceeds from the sale of securities by the selling
stockholders.
Risk factors . . . . . . . . . . . Investing in these securities involves a high degree of risk and immediate and
substantial dilution of your investment. As an investor, you should be able to
bear a complete loss of your investment. See "Risk Factors" and "Dilution" for
a more detailed discussion.
Forward-looking statements . . . . This prospectus contains forward-looking statements that address, among other
things, our expansion and acquisition strategy, business development, use of
proceeds, projected capital expenditures, liquidity, and our development of
additional revenue sources. The forward-looking statements are based on our
current expectations and are subject to risks, uncertainties and assumptions. We
base these forward-looking statements on information currently available to us,
and we assume no obligation to update them. Our actual results may differ
materially from the results anticipated in these forward-looking statements, due
to various factors.
3
SUMMARY FINANCIAL DATA
The information set forth below for the years ended June 30, 2001 and 2000,
which is derived from the audited financial statements, should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements, including
the notes thereto and other financial information, appearing elsewhere in this
registration statement.
STATEMENT OF OPERATIONS DATA
(In thousands, except share data)
THREE MONTHS ENDED
SEPTEMBER 30
2001 2000
----------------- -----------------
(UNAUDITED)
Total Income $ 246 $ -
Net loss (575) (586)
Basic net
loss per share (0.01) (0.05)
Diluted net
loss per share (0.01) (0.05)
BALANCE SHEET DATA
SEPTEMBER 30, 2001
------------------
Total assets $ 618
Working capital deficit (359)
Total liabilities 1,119
Total stockholders' deficit (501)
4
RISK FACTORS
Investing in our securities will provide you with an equity ownership
interest in Endovasc. As one of our shareholders, your investment will be
subject to risks inherent in our business. If any of the following risks
actually occur, our business could be harmed. In that event, the trading price
of our shares might decline, and you could lose all or part of your investment.
You should carefully consider the following factors as well as other information
contained in this prospectus before deciding to invest in shares of our
securities.
RISKS RELATING TO OUR BUSINESS:
We have a history of losses, which may continue, requiring us to seek additional
sources of capital, which may not be available, requiring us to curtail or cease
operations.
We incurred net losses of $(2,842,000) for our fiscal year ended June 30,
2001 and $(575,000) for the three months ended September 30, 2001. We cannot
assure you that we can achieve or sustain profitability on a quarterly or annual
basis in the future. If revenues grow more slowly than we anticipate, or if
operating expenses exceed our expectations or cannot be adjusted accordingly, we
will continue to incur losses. In addition, we may require additional funds to
sustain and expand our sales and marketing activities, research and development,
and our strategic alliances, particularly if a well-financed competitor emerges
or if there is a rapid technological shift in the telecommunications industry.
There can be no assurance that financing will be available in amounts or on
terms acceptable to us, if at all. The inability to obtain sufficient funds from
operations or external sources would require us to curtail or cease operations.
The Failure To Manage Our Growth In Operations And Hire Additional Qualified
Employees Could Result In Additional Losses And Lower Revenue.
The expected growth of our operations place a significant strain on our
current management resources. To manage this expected growth, we will need to
improve our:
- transaction processing methods;
- operations and financial systems;
- procedures and controls; and
- training and management of our employees.
Competition for personnel is intense, and we cannot assure stockholders that we
will be able to successfully attract, integrate or retain sufficiently qualified
personnel. Our failure to attract and retain the necessary personnel or to
effectively manage our employee and operations growth could result in additional
losses and lower revenue.
We Have Tangible Net Worth Deficit And A Going-Concern Qualification In Our
Certifying Accountant's Financial Statement Report, Either Or Both Of Which May
Make Capital Raising More Difficult And May Require Us To Scale Back Or Cease
Operations.
We have a net worth deficit as of our latest balance sheet date. This
deficit indicates that we will be unable to meet our future obligations unless
additional funding sources are obtained. To date we have been able to obtain
funding and meet our obligations in a timely manner. However, if in the future
we are unsuccessful in attracting new sources of funding then we will be unable
to continue in business. In addition, the report of our auditors includes a
going concern qualification which indicates an absence of obvious or reasonably
assured sources of future funding that will be required by us to maintain
ongoing operations. To date we have successfully funded Endovasc by attracting
additional equity investments and small issues of debt. We believe that our
ongoing efforts will continue to successfully fund operations until positive
cash flow is attained. However, there is no guarantee that our efforts will be
able to attract additional necessary equity and/or debt investors. If we are
unable to obtain this additional funding, we may not be able to continue
operations.
5
Existing or Potential Markets May Not Accept our Products and We May Experience
an Inability to Generate Revenue or Profits.
Our success depends significantly on obtaining and increasing penetration
of existing and new markets and the acceptance of our products in these markets.
Our products may not achieve or maintain market acceptance. We also may not be
successful in increasing our market share with respect to any of our current
products. Market acceptance will depend, in large part, upon our ability to
educate consumers, health care providers and other institutional end users as to
the distinctive characteristics and benefits of our products. If we fail to
achieve significant market acceptance of our preventative products, we would not
generate sufficient revenues, lose revenues or make a profit in the future.
We Depend On Dr. David Summers for our Success and the Loss of Mr. Summers Could
Limit our Success.
Our success depends on the continuing services of Dr. David Summers, our
Chief Executive Officer. The loss of Dr. Summers could have a material and
adverse effect on our operations. Our success also depends on our ability to
attract and retain qualified scientific, engineering, manufacturing, sales,
marketing, and management personnel. We believe that our industry's employment
market is highly competitive. We cannot assure our success in attracting and
retaining key personnel for our operations. Our inability to attract and retain
key personnel may materially and adversely affect our operations.
We Have No Internal Manufacturing Capability and Depend Heavily Upon Third Party
Suppliers, and the Inability or Unwillingness of These Third Parties to Supply
our Products Could Result in Interruptions of our Product Supply Capability and
a Loss of Customers and Revenues.
Upon commercial distribution of our products, if any, third-party contract
manufacturers may affect large-scale production of our products. We cannot
assure the availability of third-party manufacturers that meet governmental
regulatory standards for the manufacture of our products, or that an agreement
with them will be available on terms acceptable to us. Our potential dependence
on third-party manufacturers may cause fluctuations in product revenues, based
on their ability to manufacture our products according to our specifications and
production requirements. Our inability to enter into agreements with
third-party distributors or agents and our dependence on their manufacture of
our product may materially and adversely affect our operations.
We Have Limited Sales, Marketing and Distribution Capabilities and Rely
Extensively On Third Parties to Market and Distribute our Product. The Failure
or Unwillingness of These Parties to Market our Products Could Limit our Ability
to Generate Revenues or Profits.
We rely extensively on third party manufacturers' sales representatives and
on marketing and distribution companies to market and distribute our products.
Accordingly, sales of our products depend largely on the strength and financial
condition of others, the expertise and relationships of our manufacturers' sales
representatives, marketers and distributors with customers, and the interest of
these parties in selling and marketing our products. Our manufacturers' sales
representatives and marketing and distribution parties also sell, market and
distribute the products of other companies. If we do not generate substantial
sales through our manufacturers' sales representatives and distributors, we may
not generate sufficient revenues and profits. If our relationships with our
third party manufacturers' sales representatives and our marketing and
distribution partners were to terminate, we would need to develop relationships
with other third parties or substantially increase our own sales and marketing
forces. To develop sales and marketing forces internally would require
significant cash and other resources and could cause delays or interruptions in
our product supply to customers. This could result in the loss of significant
sales or customers and limit our ability to become profitable.
RISKS RELATING TO OUR CURRENT FINANCING AGREEMENT:
There are a Large Number of Shares Underlying our Convertible Note, and Warrants
That May be Available for Future Sale and the Sale of These Shares May Depress
the Market Price of our Common Stock.
As of October 25, 2001, we have 58,528,651 shares of common stock issued
and outstanding and a convertible promissory note outstanding that may be
converted into 39,995,349 hares of common stock at current market prices, and
outstanding warrants to purchase 1,476,000 shares of common stock. In addition,
6
the number of shares of common stock issuable upon conversion of the outstanding
convertible note may increase if the market price of our stock declines. All of
the shares, including all of the shares issuable upon conversion of the note and
upon exercise of our warrants, may be sold without restriction. The sale of
these shares may adversely affect the market price of our common stock.
The Issuance Of Shares Upon Conversion Of The Convertible Note And Exercise Of
Outstanding Warrants May Cause Immediate And Substantial Dilution To Our
Existing Stockholders.
The issuance of shares upon conversion of the convertible note and exercise
of warrants may result in substantial dilution to the interests of other
stockholders since the selling stockholder may ultimately convert and sell the
full amount issuable on conversion. Although the selling stockholder may not
convert their convertible note and/or exercise their warrants if such conversion
or exercise would cause them to own more than 4.99% of our outstanding common
stock, this restriction does not prevent the selling stockholder from converting
and/or exercising some of their holdings and then converting the rest of their
holdings. In this way, the selling stockholder could sell more than this limit
while never holding more than this limit. There is no upper limit on the number
of shares that may be issued which will have the effect of further diluting the
proportionate equity interest and voting power of holders of our common stock,
including investors in this offering.
RISKS RELATING TO OUR STOCK:
The Lack of a Mature Trading Market for our Common Stock May Cause our Stock
Price to Decline Significantly and Limit the Liquidity of our Common Stock.
We do not meet the listing requirements for the listing or quotation of our
common stock on any national or regional securities exchange or on Nasdaq.
Currently, our common stock is traded on the Over-The-Counter Bulletin Board. As
a result, accurate current quotations as to the value of our common stock are
unavailable making it more difficult for investors to dispose of our common
stock. The lack of current quotations and liquidity can cause our stock price to
decline or to trade lower than the prices that might prevail if our securities
were listed or quoted on an exchange or on Nasdaq.
Our Common Stock is Subject to the "Penny Stock" Rules of the SEC and the
Trading Market in our Securities is Limited, Which Makes Transactions in our
Stock Cumbersome and May Reduce the Value of an Investment in our Stock.
Since our common stock is not listed or quoted on any exchange or on
Nasdaq, and no other exemptions currently apply, trading in our common stock on
the Over-The-Counter Bulletin Board is subject to the "penny stock" rules of the
SEC. These rules require, among other things, that any broker engaging in a
transaction in our securities provide its customers with a risk disclosure
document, disclosure of market quotations, if any, disclosure of the
compensation of the broker and its salespersons in the transaction, and monthly
account statements showing the market values of our securities held in the
customer's accounts. The brokers must provide bid and offer quotations and
compensation information before making any purchase or sale of a penny stock and
also provide this information in the customer's confirmation. Generally, brokers
may be less willing to execute transactions in securities subject to the "penny
stock" rules. This may make it more difficult for investors to dispose of our
common stock and cause a decline in the market value of our stock.
7
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by the selling stockholder of our company. There will
be no proceeds to our company from the sale of shares of common stock in this
offering, except upon the exercise of warrants.
MARKET FOR SECURITIES
Our common stock trades on the Over-The-Counter Bulletin Board under the
symbol "ENDV". The following table sets forth the range of high and low
closing prices for our common stock for each quarter indicated, as reported on
the Over-The-Counter Bulletin Board. The quotations represent inter-dealer
prices without retail markup, markdown or commission, and may not necessarily
represent actual transactions.
DATE HIGH LOW
---- ----- ----
1st Quarter - 1998 * *
2nd Quarter - 1998 * *
3rd Quarter - 1998 6 .38
4th Quarter - 1998 1.50 .38
1st Quarter - 1999 1.00 .19
2nd Quarter - 1999 .88 .38
3rd Quarter - 1999 .63 .13
4th Quarter - 1999 .30 .06
1st Quarter - 2000 15.00 .10
2nd Quarter - 2000 4.00 1.20
3rd Quarter - 2000 2.25 0.75
4th Quarter - 2000 .88 0.16
1st Quarter - 2001 0.40 0.16
2nd Quarter - 2001 0.18 0.06
- No bids or trades reported
As of June 30, 2001, we had approximately 4,600 record and beneficial
stockholders
DIVIDENDS
Holders of our common stock are entitled to receive such dividends as may be
declared by our board of directors. No dividends on our common stock have ever
been paid, and we do not anticipate that dividends will be paid on our common
stock in the next fiscal year. Our ability to pay dividends on common stock may
be limited by agreements with institutional lenders or others.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The statements contained in this Form 10-Q that are not historical are
forward-looking statements, including statements regarding the Company's
expectations, intentions, beliefs or strategies regarding the future.
Forward-looking statements include the Company's statements regarding liquidity,
anticipated cash needs and availability and anticipated expense levels. All
forward-looking statements included in this Report are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statement. It is important to note
that the Company's actual results could differ materially from those in such
forward-looking statements. Additionally, the following discussion and analysis
should be read in conjunction with the Financial Statements and notes thereto
appearing in our annual report filed in Form 10-KSB for the period ending June
30, 2001.
OVERVIEW
- --------
The Company is in the research and development stage and has had limited
operating revenues since its inception on June 10, 1996. From June 10, 1996
through September 30, 2001, the Company had an accumulated deficit of
$9,332,000.
Our research and development efforts are focused on our core product -
Liprostin(TM). We are conducting clinical trial testing of Liprostin(TM) to
obtain the approval of the U.S. Food and Drug Administration (FDA) for sale of
Liprostin(TM) in the United States. Phase I clinical trials to test the
product's safety and tolerance levels using a small group of healthy subjects,
as well as providing information about the product's effectiveness and dosage
levels was successfully completed in January 2001. With this success, the
Company has decided to proceed to Phase III clinical trials, as had been
suggested by the FDA in late 1999. An IND and protocol for a Phase III
randomized, multicenter study of Liprostin(TM) in conjunction with percutaneous
transluminal angioplasty in patients with critical limb ischemia was filed with
the FDA in August 2001. Also, the Company filed an Orphan Drug Application with
the FDA in July 2001. Orphan Drug is a designation by the FDA to indicate a
therapy developed to treat a rare disease (one which afflicts a U.S. population
of less than 200,000 people). Because there are few financial incentives for
drug companies to develop therapies for diseases that afflict so few people, the
U.S. government offers additional incentives to drug companies that develop
these drugs, which include: 1) eligibility for an FDA grant of up to $300,000
per year for a maximum of 3 years; 2) a tax credit equal to 50% of the qualified
clinical testing expenses for the taxable year in which the clinical study(s)
are conducted; and most importantly, 3) a 7 year exclusivity to market the drug
as adjunct treatment for the rare disease. We expect to complete Phase III
clinical trials by late 2004.
In addition, we are conducting feasibility studies with prospective
strategic partners to find practical collaborative products that incorporate
Liprostin with other technologies. We intend to develop new uses for our core
product Liprostin, including applications to hip or bone prostheses, cancer
treatment, inflammatory disease, liver disease and wound healing.
We have successfully completed preclinical trials in rabbits for our
Nicotine Receptor Agonist at Stanford University, and have initiated animal
studies in dogs and pigs at Columbia University to continue safety and efficacy
studies of this technology. We are currently developing this technology for use
in treatment of peripheral occlusive arterial disease, in addition to other
applications.
We successfully completed a feasibility study of our stent coating
technology using our patented Prostaglandin E1 with a major medical device
manufacturer in early 2001. We have continued that work with other medical
device companies, as well.
9
RESULTS OF OPERATIONS
- ---------------------
THREE MONTH PERIOD ENDED SEPTEMBER 30, 2001 AND 2000
- ----------------------------------------------------
During the three months ended September 30, 2001, the Company had total
revenues of $246,835 compared with no revenue for the three months ended
September 30, 2000. The increase relates to revenue to be received from an
external research agreement with another company entered into in July 2001
whereby the Company is to receive assistance from this company in funding its
research and development costs related to its Nicotine Receptor Agonist.
During the three months ended September 30, 2001 and 2000, administrative
and operating expenses were $384,335 and $237,137, respectively. The increase
in costs and operating expenses is primarily due to an increase in facilities
cost, personnel and overhead as rent and other costs increased. Financing costs
and legal fees associated with securing the convertible debentures were also
expensed during the three months ended September 30, 2001.
Research and development costs totaled $261,259 during the three months
ended September 30, 2001, compared to $318,600 during the three months ended
September 30, 2000. This decrease of $57,341 was related to the lower cost of
materials, labor and travel connected to the initiation of the animal study at
Columbia University with NRA, the Phase II clinical studies and preparation with
Liprostin(TM) and the ongoing, in-house projects for medicinally coated vascular
stents and a biodegradable resorbable stent.
Interest expense increased from $33,000 during the three months ended
September 30, 2000 to $177,000 during the three months ended September 30, 2001.
This increase is a result of the cost of the beneficial conversion feature
related to the convertible debentures recorded during the three months ended
September 30, 2001.
FISCAL YEAR ENDED JUNE 30, 2001 AND 2000
- ----------------------------------------
During the fiscal year ended June 30, 2001, the Company's net revenues
increased to $75,000 compared with revenues of $24,000 for the previous fiscal
year ended June 30, 2000. All revenues during this period were from sales of
research and development services provided by the Company to third parties. The
Company had agreements with a device manufacturer for feasibility and
development of the proprietary use of Liprostin in the treatment of various
vascular diseases by application of medicinal coatings to vascular stents for
elimination or reduction of new tissue growth in and around the stents, a
condition known as restenosis.
During the fiscal year ending June 30, 2001 and 2000, costs and operating
expenses were $2,942,000 and $2,879,000, respectively. The increase in costs and
operating expenses for the year is primarily due to an increase in the cost of
research and development, clinical trials, scientific consulting, facilities,
and overhead.
Cash flows used in operating activities for the fiscal year ending June 30,
2001 increased $376,000 to $1,943,000, compared to $1,567,000 for the previous
fiscal year ending June 30, 2000, primarily due to the increased cost of
scientific consultants, materials and prototype manufacturing and the payment of
these additional expenses with cash rather than the Company's common stock.
Interest expense decreased for the fiscal year ending June 30, 2001 by
$109,000 or 86%. This was due to the convertible debentures being converted to
common stock during the fiscal year ended June 30, 2000, resulting in no
convertible debentures outstanding during the fiscal year ended June 30, 2001.
Research and development expenses totaled $1,348,000 during the fiscal year
ending June 30, 2001, an increase of $371M from $977,000 for the fiscal year
ended June 30, 2000. These expenses were related to the increased cost of new
materials, labor and travel connected to the production of the Liprostin and the
ongoing, in-house projects for medicinally coated vascular stents.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had a working capital deficit at September 30, 2001 of
$359,000, compared to a deficit of $762,344 at September 30, 2000. This
reduction in the working capital deficit is primarily related to the reduction
10
of accrued expenses through the issuance of 8,000,000 shares of the Company's
common stock in connection with a lawsuit settlement.
The Company requires significant additional funds to enable it to proceed
with its Phase II/III Liprostin(TM) clinical trials, as well as research and
development of its licensed product Nicotine Receptor Agonist. In May 2000, the
Company completed a $4.5 million financing commitment related to the private
placement and sale of its convertible preferred stock in three (3) $1.5 million
tranches.
Pursuant to the commitment, the Company received $1,040,300 on May 10,
2000, $569,757 on November 2000, and $653,488 on April 12, 2001 which is net of
related offering costs. There can be no assurance that the Company will take
down the remaining tranches.
During the three months ended September 30, 2001 the Company issued
$400,000 of convertible debentures, of which it received $333,000, net of
related offering costs. The debentures bear interest at 8%, which is due
quarterly in arrears, with the principal due September 2003.
The Company continues to actively pursue additional financing,
collaborations with firms, and other arrangements aimed at increasing its
capital resources. Failure to acquire such funds may adversely impact the
scheduled marked introduction of Liprostin(TM) and possibly adversely affect the
Company's operations. In order to continue as a going concern, the Company must
raise additional funds and ultimately achieve profit from its operation.
11
BUSINESS
HISTORY
We incorporated as a biopharmaceutical company under the laws of the state
of Nevada on June 10, 1996, under the name Endovasc, Inc. Upon our initial
incorporation, we were authorized to issue an aggregate of 25,000 shares of
capital stock with a par value of $0.001 per share. On September 5, 1996, we
amended our articles of incorporation to increase our authorized shares to
100,000,000 shares of common stock, par value $0.001 per share. On May 28,
1997, we amended our articles of incorporation to change our name to Endovasc
Ltd., Inc. On June 2, 1997, we amended our articles of incorporation to
authorize a total of 120,000,000 shares of capital stock, par value $0.001 per
share, of which 100,000,000 shares are common shares and 20,000,000 shares are
preferred shares.
On or about October 8, 1999, we received preclinical approval to file an
Investigational New Drug application for Phase I and II clinical trials of our
Liprostin technology. On or about February 25, 1999, we obtained the exclusive
licensing rights to Nicotine Receptor Agonist technology from the University of
Stanford, in exchange for stock and cash. We have commenced preclinical trials
on the safety and efficacy of Nicotine Receptor Agonist in conjunction with
Stanford University.
The Company has not been subject to bankruptcy, receivership or any similar
proceeding.
OVERVIEW
We develop, market and license biopharmaceutical products, particularly
liposomal drug delivery methods, for the human healthcare industry. We develop
liposomes, which are microscopic cell-like spheres composed of a thin, durable
lipid membrane surrounding a hollow compartment. Liposomes entrap and protect
drugs from degradation in the blood stream and can be engineered to regulate the
transport of molecules across their outer membrane. Using this technology, we
are developing products that deliver drugs to their intended target and release
them with efficiency and control.
Currently, our product development is focused on two product lines -
Liprostin and Nicotine Receptor Agonist. Although we hold patents and patents
pending for products in the process of clinical testing, our products have not
been approved for general sales. Consequently, we have not generated any
revenues and have historically operated with significant losses. Although our
current development efforts focus on vascular (heart and lung) applications of
our products, we intend to develop our technologies for use in many medical
treatment applications. We believe that this unique and highly adaptable
technology will put our products at the forefront of the multi-billion dollar
drug market.
LIPROSTIN TECHNOLOGY
Our Liprostin products provide targeted delivery of Prostaglandin E-1 to
blood vessels in connection with angioplasty procedures. Angioplasty is a common
medical procedure that utilizes a small balloon-like structure to expand and
clear blocked cardio-pulmonary blood vessels. Prostaglandin E1, a naturally
occurring hormone, is used to prevent common secondary blockages from occurring
after angioplasty treatment; these blockages are known as restenosis. Restenosis
following balloon angioplasty or stent placement is the most common problem
occurring in the over 1,000,000 patients undergoing these procedures annually
worldwide, according to the American Heart Association. According to the
American Heart Association, the incidence of restenosis can be as high as
40-50%, within six months of the procedure (slightly less with stents) and most
drugs tested have not yet been proven to reduce restenosis significantly in
clinical trials. Similarly, Prostaglandin E1's short lifespan in the blood
stream can render it ineffective in preventing restenosis. Liprostin delivery
system utilized liposomal encapsulation of Prostaglandin E1 to provide a longer
and more controlled release of Prostaglandin E1 and to improve therapeutic
effectiveness of the drug. Liprostin, as an adjunct therapy for the treatment of
critical limb ischemic (CLI) complications will be administered as an
intra-arterial bolus prior to, and immediately after PTA and followed by
intravenous infusion. We intend to develop our Liprostin product lines further
to treat conditions such as restenosis, coronary arrest, occlusive disease,
ischemic ulcers, CLI (limb salvage), claudicants, liver disease,arthritis, and
as a topical solution for wound healing.
12
We have successfully completed Phase I clinical trials of Liprostin and, at
the previous recommendation by the FDA are preparing for Phase III clinical
trials for Critical Limb Ischemia (CLI) in a large patient base including
clinical sites in both the U.S. and Buenos Aires.
We have protected our proprietary rights to Liprostin technology through US
Patent 4,820,732, US Patent 4,955,878 and Notice of Allowance to US Patent
5,980,551 received on November 9, 1999, and Trademark Application Ser. No.
75/632,736 (Liprostin) and various patents pending.
Stent Coating Technology
We are developing Prostaglandin E-1 coated balloon catheters and stents, as
well as Nicotine Receptor Agonist (NRA) coated stents for varied vascular
applications. As described above, balloon catheters are utilized to physically
expand and clear blocked blood vessels in vascular surgical procedures.
Conversely, stents are small structures used during and after vascular surgery
to support vessels and deliver agents that promote healing. This technology
accomplishes the opening and maintenance of a blood vessel by mechanical means
(stent) while providing medicinal drug treatment from the gradual release of
Prostaglandin E1, NRA or other drugs from the slowly degrading, biocompatible
substrate of the intravascular stent. Other therapeutic treatments include
anti-tumor agent coated stents placed in the main feeding vessels for treatment
of malignant tumors, where the stent will continuously release anti-tumor drugs
directly to the tumor site.
We have protected our proprietary rights to our stent coating technology
through patents and patents pending.
NICOTINE RECEPTOR AGONIST TECHNOLOGY
Our Nicotine Receptor Agonist technology promotes new growth of blood
vessels (known as angiogenesis or vasculogenesis), and has applications in the
treatment of heart disease, stroke, limb circulatory disease, and wound healing.
Researches at Stanford University discovered the technology during a 1999 study
funded by the Tobacco-Related Diseases Research Program of the University of
California, the American Heart Association, the National Institutes of Health
and the Deutsche Froschungsgemeinschkaft. While studying the damaging effects
of tobacco smoke, researchers discovered that smokers appeared less susceptible
to deaths due to infarction as compared to non-smokers. This counterintuitive
discovery suggested that low-dose (non-smoked) nicotine had extraordinary
angiogenic and vasculogenic growth factor potential. To develop technology based
on this unique discovery, we obtained a worldwide exclusive right to the patent
application for Nicotine Receptor Agonist in February 2000.
Further study of our Nicotine Receptor Agonist technology revealed more
conclusive results. Experiments have shown that nicotine promotes angiogenesis
and vasculogenesis in areas of the body that are deprived of proper blood
supply. Blockages of the arteries that feed an organ, often caused by build-up
of fatty material, cholesterol and plaques in arterial walls, may deprive the
tissue of proper blood supply. These blockages reduce the body's ability to
supply organs and surrounding tissue with nutrients, particularly oxygen, which
results in a condition called ischemia. Ischemia reduces cells' ability to
function and in severe cases causes rapid cell death. The body naturally
defends against ischemia by reducing the work required from the affected area
and attempting to grow new blood vessels into the ischemic area. Stanford
researchers found tobacco smokers had significantly more growth of new vessels
around such blockages than non-smokers, apparently due to the therapeutic
effects of nicotine. Upon further analysis, researchers determined that a
particular fraction of the nicotine molecule could provide a method of treating
and preventing a range of diseases and ailments involving angiogenesis. These
diseases, such as myocardial and cerebral infarction, mesenteric or limb
ischemia, common wounds, vascular occlusion, and vascular stenosis, commonly
called "hardening of the arteries", affect millions of persons every year in the
United States alone (American Heart Association).
We estimate that the market for treatment of these diseases is over $5
billion. For example, we estimate that a course of treatment for coronary
ischemia utilizing Nicotine Receptor Agonist drugs would cost approximately
$10,000 to $15,000. This type of treatment would be significantly less expensive
and intensive than current alternatives of angioplasty and or open heart
surgery, providing a "biological bypass." We hope to market a commercially
viable product using this Nicotine Receptor Agonist technology within three
years.
13
DISTRIBUTION METHODS
Upon receipt of necessary governmental regulatory consent, we intend to
distribute products utilizing our Liprostin, stent-coating, and Nicotine
Receptor Agonist technologies worldwide. As previously described, we are
developing our products for varied vascular applications.
In addition to peer review, seminars, journals and direct sales, we intend
to market and distribute our products in conjunction with business partners
experienced in marketing and distribution in the biopharmaceutical and medical
industries. If we are unable to reach an agreement with marketing and
distribution partners that are acceptable to us, we may raise the funds
necessary to create our own production, marketing and distribution
infrastructure through a public offering of our securities.
PATENTS AND PROPRIETARY RIGHTS
We believe that adequate protection of our proprietary technology is a
vital aspect of our business operations. Consequently, we pursue patent
protection for our proprietary technology in the United States and in foreign
countries, as deemed necessary to protect development of our operations.
We have patent protection for several products and are pursuing patent and
trademark applications for additional products. In August 1996, Dr. Jackie R.
See transferred and assigned patent rights in the United States, Germany and
Canada for two of our products. The first patent, United States Patent No.
4,820,732, was issued on April 11, 1989, and protects our proprietary technology
regarding a "Method and Composition for Reducing Dysfunction in Angioplasty
Procedures". The second patent, United States Patent No. 4,955,878, was issued
on September 11, 1990, and protects our proprietary technology regarding a "Kit
for Treating Arterial Dysfunction Resulting from Angioplasty Procedures". We
have not maintained the application of this second patent and intend to let its
protections expire to the benefit of the public domain, except as limited by
patent applications described below.
In addition to these assigned patents, we obtained a United States patent
for our proprietary technology regarding a "Composition and Method for Making a
Biodegradable Drug Delivery Stent", on November 9, 1999. Similarly, we have
filed a patent application for this technology under the Patent Cooperation
Treaty, as well as with the European Patent office and European Union. These
applications seek patent protection in France, Germany and the United Kingdom.
We have United States patent applications pending for several other
technologies. In June 1997, we filed a United States patent application for our
proprietary technology regarding a "Method and Apparatus for Treating Vascular
Disease with PGE-1 Bearing Liposomes". In May 1999, we filed a United States
patent application for our proprietary technology regarding "Prosthesis with
Biodegradable Surface Coating and Method for Making Same". The May 1999
application is a "continuation in part" of our patent application regarding
"Composition and Method for Making a Biodegradable Drug Delivery Stent," and, if
granted, will protect this technology's application in various medical products.
In June 1999, we filed a United States patent application for our proprietary
technology regarding "Sterically Stabilized Liposomes with Improvement of Blood
Retention Times and Targeting of Sites of Disease by Prostaglandins in
Particulate Drug Carriers." In May 2000, we filed a United States patent
application for proprietary technology regarding "Resorbable Prosthesis with
Biodegradable Surface Coating and Method for Making Same."
We are seeking trademark protection for the name Liprostin(TM) under
Trademark Application Ser. No. 75/632,736. In May of 1999, the United States
Patent and Trademark Office notified us that our pending Patent US Ser. No.
09/309,949 would be allowed (Notice of Allowance). We also own rights to
several trademarks employed in our business, including our logo, the registered
domain name of www.endovasc.com, and other trade and service marks identifying
----------------
our products and services.
In February 2000, we obtained exclusive worldwide licensing of patent
rights to develop, manufacture, use and sell products incorporating nicotine and
nicotine agonists for therapeutic angiogenesis. Pursuant to our acquisition of
these patent rights from the Leland Stanford Junior University, we agreed to pay
royalties to the university on sales of any products incorporating the nicotine
agonist technology. Our licensing rights may be terminated in the event that we
default on payment of royalties, in addition to certain other circumstances.
14
It is important to note that other public and private institutions may have
obtained, or filed applications for, patents that we may need for development of
our products. We cannot know the scope or validity of such patents, the extent
that we may desire to acquire licenses under such patents, or the availability
of such licenses upon terms that are acceptable to us.
GOVERNMENTAL REGULATION
United States and international governmental regulation of the
biopharmaceutical industry is a significant factor in our operations,
particularly our research and development activities. In the United States the
Food and Drug Administration oversees clinical testing, production and marketing
of our products for human therapeutic use through rigorous mandatory procedures
and safety.
The Food & Drug Administration requires satisfaction of several procedures
prior to approving marketing and distribution of pharmaceutical products in the
United States. These includes (i) preclinical tests, (ii) submission of an
application for an Investigational New Drug, which must become effective before
commencing human clinical trials, (iii) thoroughly documented and supervised
human clinical trials to determine drug safety and efficacy in its intended
application, (iv) submission and acceptance of an Investigational New Drug
Application, in the case of drugs, or a Product License Application, in the case
of biologics, and (v) approval of the Investigational New Drug Application or
Product License Application prior to commercial sale or shipment of the drug or
biologic. In addition to this process, each domestic drug manufacturing
establishment must be registered or licensed with the Food and Drug
Administration. Domestic manufacturing establishments are also subject to
inspections by the FDA and by other federal, state and local agencies and must
comply with Good Manufacturing Practices as required.
Clinical trials are typically conducted in three sequential phases, which
may overlap. Phase I clinical studies test dosage and tolerance upon initial
introduction of the drug to humans. Phase II clinical studies document
evaluation of drug safety and efficacy. Phase III trials document large scale
evaluation of drug safety and efficacy and may utilize larger patient pools,
depending on the type of marketing approval that is sought.
Clinical testing and the Food and Drug Administration approval process for
a new product often involves significant time and resources. The Food and Drug
Administration may grant an unconditional approval of a drug for a particular
indication or may grant approval pending further post-marketing testing. In
addition, further clinical studies may be required to provide additional safety
data or to gain approval for an alternative product application than was
originally approved.
International biopharmaceutical product sales and distribution are subject
to widely varying regulatory requirements. Generally, the European Union has
coordinated its member states' common standards for clinical testing of new
drugs. Due to difference in regulatory restrictions in the European Union and
other foreign jurisdictions the time required to obtain regulatory approval from
a foreign country's regulatory agencies may be longer or shorter than that
required for Food and Drug Administration approval.
In addition to these regulations, our operation is subject to regulations
under state and federal law regarding occupational safety, laboratory practices,
the use and handling of radioisotopes, environmental protection and hazardous
substance control as well as other present and possible future local, state,
federal and foreign regulation.
COMPETITION
Competition in the biopharmaceutical industry and the liposome and
lipid-based product area is intense. Factors such as product performance,
patient compliance, physician acceptance, ease of use, safety, price, marketing,
distribution and adaptability of administration are crucial to capturing market
position in our industry. Competition may also be based on other company's
development of alternative products and approaches aimed at the treatment,
diagnoses or prevention of the same diseases as our products.
Competition from other companies is based on scientific and technological
factors, the availability of patent protection, the ability to commercialize
technological developments, the ability to obtain government approval for
testing, manufacturing and marketing and the economic factors resulting from the
use of those products. Many companies, both public and private, including
15
well-known pharmaceutical and chemical companies, many of which have greater
capital resources than we do, are seeking to develop lipid and liposome based
products similar to our own. In addition, colleges, universities, and public
and private research institutions are similarly seeking to establish proprietary
rights to these product technologies.
We face established and well-funded competition from other companies
developing liposome based drug delivery systems. These liposome competitors
include Eli Lilly, The Liposome Company and Schering-Plough. These companies
generally use liposome for the delivery of antitumor drugs, while our products
are primarily intended for use in vascular treatments. To our knowledge,
current competition in the vascular treatment area is limited to ReoPro(R)
sold by Centocor and marketed by Eli Lilly, which is used in angioplasty.
We also face established and well-funded competition from medical device
manufacturers in the development of stent-coating technologies. These
competitors include major medical device manufacturers such as, Guidant, Inc.,
Cook, Inc., and Boston Scientific, Inc. To our knowledge current competition in
this technology is limited to the use of drugs used in cancer therapies, as
opposed to our Prostaglandin E1, which is a naturally occurring, chemically
related fatty acid shown to be a potent vasodilator, platelet inhibitor and
anti-thrombotic.
RESEARCH AND DEVELOPMENT
We maintain 1,400 square feet of lab space equipped with customary wet
laboratory equipment at our headquarters in Montgomery, Texas.
Our research and development efforts are focused on our core product -
Liprostin. We are conducting clinical trial testing of Liprostin to obtain the
Federal Drug Administration approval of its sale in the United States. Phase I
clinical trials to test product safety and tolerance levels using a small group
of healthy subjects, as well as providing information about the product's
effectiveness and dosage levels was successfully completed in January 2001.
With this success, the company determined to proceed to Phase III clinical
trials as had been suggested by the FDA in late 1999. An IND and protocol for a
Phase III, "Randomized, multicenter study of Liposomal prostaglandin E1
(Liprostin) in conjunction with percutaneous transluminal angioplasty in
patients with critical limb ischemia" was filed with the FDA on August 2001.
Also, the company filed an Orphan Drug application with the FDA on July 2001.
Orphan Drug is a designation of the FDA to indicate a therapy developed to treat
a rare disease (one which afflicts a U.S. population of less than 200,000
people). Because there are few financial incentives for drug companies to
develop therapies for diseases that afflict so few people, the U.S. government
offers additional incentives to drug companies that develop these drugs, which
include: 1)eligibility for an FDA grant of up to $300,000 per year for a maximum
of 3 years; 2)a tax credit equal to 50% of the qualified clinical testing
expenses for the taxable year in which the clinical study(s) were conducted; and
most importantly, 3)a 7 year exclusivity to market the drug as adjunct treatment
for the rare disease. We expect to complete phase III clinical trials by late
2004.
In addition, we are conducting feasibility studies with prospective
strategic partners to find practical collaborative products that incorporate
Liprostin with other technologies. We intend to develop new uses for our core
product Liprostin, including applications in hip or bone prostheses, cancer
treatment, inflammatory disease, liver disease, and wound healing.
We have successfully completed preclinical trials in rabbits for Nicotine
receptor agonist at Stanford University, and have initiated animal studies in
dogs and pigs at Columbia University to continue safety and efficacy studies of
this technology. We are currently developing this technology for use in
treatment of peripheral occlusive arterial disease, in addition to other
applications.
We successfully completed a feasibility study of our stent-coating
technology using our patented Prostaglandin E1 with a major medical device
manufacturer in early 2001; and we have continued that work with other medical
device companies, as well.
EMPLOYEES
As of June 30, 2001, we employed ten employees, including five management
and five support staff employees. In addition, we employ one full-time and
twelve part-time consultants. None of our employees or independent contractors
is subject to a collective bargaining agreement and we believe that our
relations with our employees are good.
16
PROPERTIES
We maintain our executive offices and research and development facilities
at 15001 Walden Road, Suites 100, 108, 234 and 235, Montgomery, Texas 77356. We
lease these 4,950 square foot facilities at an aggregate monthly rental rate of
$4,150.
LEGAL PROCEEDINGS
We are not involved in any material litigation or legal proceedings and are
not aware of any potential material litigation or proceeding threatened against
us.
We were named as a defendant in a civil lawsuit styled David F. Miller v.
Endovasc Ltd., Inc., Number 99-4-02283-CV, in the 9th Judicial District Court of
Montgomery County, Texas. The plaintiff claimed damages as a result of an
alleged breach of consulting contract with us. A bench trial was held on May 14,
2001. On June 15, 2001, a judgment was entered against us in the amount of
$3,240,000 plus pre and post-judgment interest. This judgment exceeded the book
value of our assets. We filed a motion for a new trial, and the parties
participated in mediation prior to a ruling on our motion for a new trial. The
mediation resulted in a settlement, which was entered into the court records on
August 10, 2001. As a result of the settlement, we issued 8,000,000 free-trading
shares, based on an exemption from registration provided by Section 3(a) (10) of
the Securities Act of 1933 as amended, of our common stock in the name of the
plaintiff. The settlement terminated all disputes of any kind between the
parties, and also terminated a related matter styled David F. Miller v. Gary
Ball Case #CV0003644, in Washoe County, Nevada. The above information was filed
with the SEC in a Form 8-K on August 10, 2001.
17
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our Directors, executive officers, and key employees are as follows:
Period Served As
Name Age Position Officer/Director/Key
Employee
- -----------------------------------------------------------------------------------
David P. Summers 62 Chief Executive Officer Inception (1996) to
and Chairman Present
Diane Dottavio 49 Director of Research and March 2000 to Present
Development
Barbara J. Richardson 54 Vice President of Operations, January 2000 to Present
Secretary and Director
M. Dwight Cantrell 55 Chief Financial Officer, January 1997 to Present
Treasurer and Director
John T. (Jack) Sorbi 64 Vice President of Business November 2000 to Present
Development/Sales/Marketing
Gary R. Ball 41 Director July 1996 to Present
Claudio R. Roman 43 Director January 1997 to Present
Set forth below is a brief background of the executive officers, Directors and
key employees of the Company, based on information supplied by them.
DR. DAVID P. SUMMERS serves as our Chief Executive Officer and Chairman.
Dr. Summers has served in this capacity on a full-time basis since our inception
and is primarily responsible for our operations as a whole. Prior to working
with Endovasc, Dr. Summers founded American BioMed, Inc. and served as its
President and Chief Executive Officer from 1984 to 1995. Dr. Summers is a
Fellow in the American College of Angioplasty as well as the inventor of several
medical devices used to treat cardiovascular diseases. He is the author of 18
issued patents and has 8 patents pending. Prior to founding American BioMed,
Dr. Summers assisted with the management of several corporations, including C.R.
Bard, Inc., a manufacture and distributor of cardiovascular medical products,
Karl Stortz Endoscopy, an endoscopic instrument company, and Pall Corporation, a
manufacturer and distributor of blood filtration products. Dr. Summers holds an
M.B.A. degree from Pepperdine University as well as a Ph.D. in International
Economics from Kennedy-Western University. He is also a member of the New York
Academy of Sciences, the American Association of Advancement of Science, the
Houston Inventors Association, the International Society for Endovascular
Surgery, the European Vascular Society, and the Society of Plastic Engineers.
18
DIANE DOTTAVIO serves as our Acting Chief Scientific Officer and Director
of Research and Development. Prior to joining us, Ms. Dottavio served as Senior
Scientist with Leukosite, Inc., from 1994 to 1996, and as Director of Laboratory
Instruction and Research at the University of Houston, from 1997 to this year.
Ms. Dottavio holds a B.S. in Biology and a M.S. in Organic Chemistry from the
University of New Mexico, as well as a Ph.D. in Biochemistry from the University
of Texas.
BARBARA J. RICHARDSON serves as our Vice President of Operations, Secretary
and Director. Ms. Richardson is experienced in small business management and
marketing. Prior to joining us in January of this year, Ms. Richardson served as
Senior Administrative Coordinator for Baylor College of Medicine, from 1994 to
this year.
M. DWIGHT CANTRELL serves as our Chief Financial Officer, Treasurer and
Director, on a part-time basis. Mr. Cantrell has maintained, and continues to
maintain, a public accounting practice in the state of Texas since 1976. Mr.
Cantrell is a public accountant, and holds a B.S. in accounting from Southern
Ohio University.
JOHN (JACK) SORBI serves as our Vice President of Business Development,
Sales, and Marketing, is responsible for pursuing collaborations and alliances
with companies who can complement the company's products and achieve company
goals. He also maintains communications with the shareholders and the
investment community. Mr. Sorbi has a thirty-five year background in sales,
marketing and operations in both large and small business environments. He has
experience in new business development and building strong partnerships through
creative programs and various media promotions, such as video, broadcast, and
conventions. As the owner of his own agency for a number of years, he assisted
businesses in banking, retail, and medical device manufacturing.
GARY R. BALL serves as our Director and is one of our co-founders. Prior
to co-founding us in July 1996, Mr. Ball served as a mechanical engineer with
American BioMed, Inc., from 1991 to 1996. Mr. Ball is a co-inventor of two U.S.
patents and is experienced in prototype design, research, and development, as
well as reliability testing and patent research and filing.
CLAUDIO R. ROMAN serves as our Director. Mr. Roman is a practicing
attorney in the State of Texas. Mr. Roman has maintained, and continues to
maintain, a private law practice in the state of Texas since 1985. Mr. Roman
holds a J.D. degree from the University of Houston School of Law.
Our Directors hold office until the next annual meeting of our stockholders
and until their successors have been elected and duly qualified. Executive
officers are elected by our Board of Directors annually and serve at the
discretion of the Board.
COMPENSATION OF DIRECTORS
Non-employee Directors receive no salary for their services and receive no
fee from the Company for their participation in meetings, although all Directors
are reimbursed for reasonable travel and other out-of-pocket expenses incurred
in attending meetings of the Board.
19
EXECUTIVE COMPENSATION
The following table sets forth certain summary information with respect to
the compensation paid to the our executive officers for services rendered to us,
in all capacities, for the fiscal years ended June 30, 2000, 1999, and 1998.
Other than as listed below, we had no executive officers whose total annual
salary and bonus exceeded $100,000 for that fiscal year:
SUMMARY COMPENSATION TABLE
Long Term Compensation
-------------------------------------------------
Annual Compensation Awards Payouts
----------------------------- ---------- ----------
Other Securities
Annual Restricted Under- Other
Name and Compen- Stock Lying LTIP Compen-
Principal Salary Bonus sation Awards Options/ Payouts sation
Position Year ($) ($) ($) ($) ($) ($) SARs(#)
David P. Summers 2001 75,097 - - - 200,000 $ 0.40 -
CEO and Director 2000 66,500 - - - - - -
1999 75,000 - - - 1,000,000 $ 0.25 -
Directors of the Company receive no compensation for their services as
Directors.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Dr. David Summers and Ms.
Barbara Richardson. We entered into a three-year employment contract with Dr.
Summers in 1996, providing for annual compensation of $150,000 in cash and
equity interests. The original term of this contract has expired, but the term
has been renewed for a one-year period each June since its original expiration.
We also have a one-year automatically renewable employment contract with
Ms. Richardson, providing for annual compensation of $70,000 in cash and equity
interests.
STOCK OPTION PLANS
We adopted a stock option plan (the "2000 Plan") at our annual
shareholders meeting in October, 2000, pursuant to which 3,000,000 shares of
common stock were reserved for issuance. The following is a description of the
2000 Plan.
The 2000 Plan is administered by the Board of Directors, or by a committee
with at least two Directors as delegated by the Board of Directors who determine
among other things, those individuals who shall receive options, the time period
during which the options may be partially or fully exercised, the number of
shares of common stock issuable upon the exercise of the options and the option
exercise price.
The 2000 Plan is for a period of ten years. Options under the 2000 Plan
must be issued within ten years from the effective date of the 2000 Plan.
Options may be granted to officers, Directors, consultants, key employees,
advisors and similar parties who provide their skills and expertise to us.
Options granted under the 2000 Plan may be exercisable for up to ten years, may
require vesting, and shall be at an exercise price all as determined by the
Board of Directors. Options will be non-transferable except to an option
holder's personal holding company or registered retirement savings plan and
except by the laws of descent and distribution or a change in our control, as
defined in the 2000 Plan, and are exercisable only by the participant during his
or her lifetime. Change in control includes (i) the sale of substantially all of
20
our assets and merger or consolidation with another, or (ii) a majority of the
Board of Directors changes other than by election by the shareholders pursuant
to a Board of Directors' solicitation or by vacancies filled by the Board of
Directors caused by death or resignation of such person.
If a participant ceases affiliation with us by reason of death, permanent
disability or the retirement of an optionee either pursuant to a pension or
retirement plan we adopted on the normal retirement date prescribed by us from
time to time, the option remains exercisable for three months from such
occurrence but not beyond the option's expiration date. Other termination gives
the participant three months to exercise, except for termination for cause that
results in immediate termination of the option.
Options granted under the 2000 Plan, at the discretion of the compensation
committee or the Board of Directors, may be exercised either with cash, by
certified check or bank cashier's check, common stock having a fair market equal
to the cash exercise price, the participant's promissory note, or with an
assignment to us of sufficient proceeds from the sale of the common stock
acquired upon exercise of the Options with an authorization to the broker or
selling agent to pay that amount to us, or any combination of the above.
The exercise price of an option may not be less than the fair market value
per share of common stock on the date that the option is granted in order to
receive certain tax benefits under the Income Tax Act of United States (the
"ITA"). The exercise price of all future options will be at least 100% of the
fair market value of the common stock on the date of grant of the options. A
benefit equal to the amount by which the fair market value of the shares at the
time the employee acquires them exceeds the total of the amount paid for the
shares or the amount paid for the right to acquire the shares shall be deemed to
be received by the employee in the year the shares are acquired pursuant to
paragraph 7(1) of the ITA. Where the exercise price of the option is equal to
the fair market value of the shares at the time the option is granted, paragraph
110(1)(d) of the ITA allows a deduction from income equal to one quarter of the
benefit as calculated above. If the exercise price of the option is less than
the fair market value at the time it is granted, no deduction under paragraph
110(1)(d) is permitted. Options granted to any non-employees, whether Directors
or consultants or otherwise will confer a tax benefit in contemplation of the
person becoming a shareholder pursuant to subsection 15(1) of the ITA.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by us become available again for issuance under the 2000
Plan.
The 2000 Plan may be terminated or amended at any time by the Board of
Directors, except that the number of shares of common stock reserved for
issuance upon the exercise of options granted under the 2000 Plan may not be
increased without the consent of our shareholders.
At June 30, 2001 1,325,500 options have been issued at prices ranging from
$1.00 to $0.40.
21
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of this
prospectus regarding certain ownership of our outstanding common stock by all
officers and directors individually, all officers and directors as a group, and
all beneficial owners of more than five percent of the common stock.
AMOUNT OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL BENEFICIAL
BENEFICIAL OWNER **(1) OWNERSHIP(1)(2) OWNERSHIP
- ------------------------------------------ ---------------- -------------
David P. Summers 7,574,526 (3) 12.94
Diane Dottavio 100,000 *
Barbara J. Richardson 1,260,000 2.20
Jack Sorbi 25,000 *
M. Dwight Cantrell 1,760,000 3.00
Gary R. Ball 993,500 (4) 1.70
Claudio R. Roman 50,000 *
Celeste Trust Reg. 4,642,857*(5)(6) 7.30
Balmore Funds 6,495,958*(5)(7) 9.99
David Miller 8,000,000 13.67
All Directors and Executive Officers as a
Group (7 persons) 11,763,026 20.01
<FN>
______________________
* Less than one percent.
** Except as otherwise noted, the address of the beneficial owners described
in this table shall be c/o Endovasc Ltd., Inc., 15001 Walden Road, Suite
108, Montgomery, Texas 77356.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of the registration
statement upon the exercise of options or warrants. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants
that are held by such person and which are exercisable within 60 days of
the date of this registration statement have been exercised. Unless
otherwise indicated, the company believes that all persons named in the
table have voting and investment power with respect to all shares of common
stock beneficially owned by them.
(2) Based upon 58,528,651 shares of common stock outstanding as of October 31,
2001, assuming no other changes in the beneficial ownership of our
securities, except as noted hereto.
(3) Dr. Summer's beneficially owned shares include approximately 243,000 shares
beneficially owned by his wife, Dorothy Summers. Mr. Summers exercises no
investment or voting power over any of the shares owned by his wife, and
disclaims beneficial ownership of those shares.
(4) Mr. Ball's beneficially owned shares include approximately 5,000 shares
beneficially owned by his wife, Sherry Ball. Mr. Ball exercises no
investment or voting power over any of the shares owned by his wife, and
disclaims beneficial ownership of those shares.
(5) Represents shares of common stock issuable upon conversion of preferred
stock at an assumed conversion price of $0.028 per share. Because the
number of shares of common stock issuable upon conversion of the preferred
stock is dependent in part upon the market price of the common stock prior
to a conversion, the actual number of shares of common stock that will be
issued upon conversion will fluctuate daily and cannot be determined at
this time. However, the selling shareholder has contractually agreed to
restrict its ability to convert its preferred stock and receive shares of
our common stock such that the number of shares of common stock held by it
and its affiliates after such conversion exceed 9.99% of the then issued
and outstanding shares of common stock following such conversion.
(6) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Thomas Hackl may be deemed a control person of the shares owned by such
entity. The selling shareholder is deemed an "underwriter" within the
meaning of Section 2(11) of the Securities Act of 1933.
22
(7) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Gisela Kindle may be deemed a control person of the shares owned by such
entity. The selling shareholder is deemed an "underwriter" within the
meaning of Section 2(11) of the Securities Act of 1933.
23
CERTAIN TRANSACTIONS
As of the date of this prospectus, we have not entered into a transaction
during the past two years with a value in excess of $60,000 with a Director,
officer, or beneficial owner of 5% or more of our capital stock, or members of
their immediate families that had, or is to have, a direct or indirect material
interest in us, except as follows:
Effective December 9, 1997, we entered into a stock option agreement with
Gary R. Ball. Under this agreement, Mr. Ball is granted an option to purchase up
to 600,000 shares of our common stock at a purchase price below the prevailing
market price. The option is for a three year period expiring December 8, 2000.
In January 2000, Mr. Ball exercised his option under the agreement in exchange
for $60,000 in accrued debt.
During the fiscal year ended June 30, 1998, we also entered into an
agreement with M. Dwight Cantrell under the terms of which he was compensated
for past services as our Director. Under the terms of this agreement, Mr.
Cantrell was granted an option to purchase 100,000 shares of our common stock at
a purchase price of $0.25 per share for a term of three years. This option was
exercised during the fiscal year ended June 30, 2001.
During the fiscal year ended June 30, 1998, we entered into an agreement to
purchase the rights to patent number 4,820,732 and patent number 955,878 from
Francis Pizzulli. The purchase price was $125,000, $50,000 of which was payable
upon execution and $75,000 of which was due by December 31, 1997. The agreement
also called for the issuance of 200,000 shares of our common stock. We made the
initial $50,000 payment and issued the 200,000 shares of stock, pursuant to the
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended. However, we did not make the $75,000 payment as scheduled. The
agreement indicated that if the final payment was not made within seven months
from the execution of the agreement that the final payment would be increased to
$150,000 plus the issuance an additional 200,000 shares of stock. We issued a
total of 300,000 shares in final settlement of the agreement, in February 2000.
Between March 1998 and December 1999, David Summers, our Chairman of the
Board of Directors and Chief Executive Officer, made two advances to us in the
amounts of $123,000 and $25,000, respectively. These advances were made on an
unsecured basis, with no interest accrual, and were due and payable on June 30,
2000. During December 1999, we issued 1,250,000 shares of common stock, valued
at $0.10 to $0.12 per share as of the date of the issuance, in full and final
repayment of the aforementioned advances.
During the fiscal year ended June 30, 1998, we entered into an agreement
with Claudio Roman, Esq., pursuant to which he was compensated for past services
as our legal counsel. Under the terms of this agreement, Mr. Roman was granted
an option to purchase 50,000 shares of our common stock at a purchase price of
$0.25 per share for a term of three years. This option has not been exercised.
During the fiscal year ending June 30, 1998, we entered into a stock option
agreement with Dr. David P. Summers. Under this agreement, Dr. Summers was
granted an option to purchase up to 1,000,000 shares of our common stock at a
purchase price of $0.25 per share exercisable for a period of three years. This
option was exercised during the fiscal year ending June 30, 2001.
During the fiscal year ended June 30, 2000, David Summers, our Chairman of
the Board of Directors, and Chief Executive Officer, made advances to the
corporation totaling $795,748. From January 1, 2001 through June 30, 2001,
$696,748 of this debt was retired in exchange for 4,210,526 shares of common
stock, leaving a balance of $99,000 outstanding.
The Company believes that all transactions between the Company and its
officers, directors and employees described above are on terms no less favorable
to the Company than could have been obtained from unaffiliated parties under
similar circumstances other than certain advances received from Dr. David
Summers which are non-interest bearing.
24
DESCRIPTION OF SECURITIES
Our authorized capital consists of 120,000,000 shares of capital stock, par
value $0.001 per share, of which 100,000,000 shares are common stock shares and
20,000,000 shares are preferred stock shares that may be issued in one or more
series at the discretion of the Board of Directors. As of the date hereof,
58,528,651 shares of common stock, options and warrants to purchase up to
1,476,000 shares of common stock, and 15,760 shares of preferred stock are
issued and outstanding.
COMMON STOCK
Holders of shares of our common stock are entitled to one vote per share on
each matter submitted to vote at any meeting of shareholders. Shares of common
stock do not carry cumulative voting rights and, therefore, holders of a
majority of the outstanding shares of common stock will be able to elect the
entire Board of Directors, and, if they do so, minority shareholders would not
be able to elect any members to the Board of Directors. Our Board of Directors
has authority, without the action by our shareholders, to issue all or any
portion of the authorized but unissued shares of common stock, which would
reduce our shareholders' ownership interest in us and which may dilute our
common stock's book value.
Our by-laws provide that a majority of the shares issued and outstanding
and entitled to vote on a matter shall constitute a quorum for shareholders'
meetings, except with respect to matters for which a greater quorum is required
by law.
Our shareholders have no pre-emptive rights to acquire additional shares of
common stock. The shares of common stock are not subject to redemption and carry
no subscription or conversion rights. In the event of our liquidation, the
shares of common stock are entitled to share equally in corporate assets after
satisfaction of all liabilities. All of the shares of common stock currently
issued and outstanding are fully paid and non-assessable.
Holders of shares of common stock are entitled to receive such dividends as
the Board of Directors may from time to time declare out of funds legally
available for the payment of dividends. We have not paid dividends on our shares
of common stock and there can be no assurance that we will pay dividends in the
foreseeable future.
PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time in one or more
series as may from time to time be determined by our Board of Directors. Our
Board of Directors has authority, without action by the shareholders, to
determine the voting rights, preferences as to dividends and liquidation,
conversion rights and any other rights of such series. Any Preferred Shares, if
and when issued, may carry rights superior to those of the shares of common
stock.
SERIES A 8% CUMULATIVE CONVERTIBLE PREFERRED STOCK
Holders of the series A preferred stock are entitled to receive cash
dividends, payable quarterly and have preferential liquidation rights above all
other issuances of common stock for an amount equal to the stated value. The
preferred stock and unpaid dividends are convertible into shares of common stock
equal to an amount determined by the market value of the common stock at the
date of conversion, adjusted for changes in the market price prior to the
conversion. Holders of the preferred stock do not have voting rights.
The conversion price for the convertible preferred stock shall be the
lesser of (a) 85% of the average of the three lowest closing bid prices for the
thirty (30) trading days immediately preceding the issue date of the convertible
preferred stock, or (b) 70% of the average of the three (3) lowest closing bid
prices for the thirty (30) days immediately preceding the conversion of the
shares of convertible preferred stock. The maximum number of shares of common
stock that any subscriber or group of affiliated subscribers may own after
conversion at any given time is 9.99%.
The parties have made mutually agreeable standard representations and
warranties. We have also entered into certain covenants including, but not
limited to, the following: (i) we may not redeem the convertible debentures
without the consent of the holder; (ii) we will pay to certain finders a cash
fee for location of the financings; (iii) we have agreed to incur certain
penalties for untimely delivery of the shares.
25
OPTIONS AND WARRANTS
Following is a summary of outstanding options at June 30, 2001:
NUMBER OF SHARES VESTED EXPIRATION DATE EXERCISE PRICE
---------------- ------ --------------- --------------
150 150 October, 2001 $ 0.75
1,276 - December, 2003 0.40
50 - December, 2003 1.00
----------- ------
1,476 150
=========== ======
SECURITIES INCLUDED IN THIS PROSPECTUS
Shares Underlying Series A 8% Cumulative Convertible Preferred Stock
In this prospectus, we are registering 33,662,095 shares of Common Stock
underlying 21,207 shares of outstanding Series A 8% Cumulative Convertible
Preferred Stock issued to six investors pursuant to a Subscription Agreement
entered into in May 2000 in which the investors originally agreed to purchase an
aggregate of $4.5 million of convertible preferred stock, in three (3) $1.5
million tranches.
Holders of the preferred stock are entitled to receive cash dividends,
payable quarterly and have preferential liquidation rights above all other
issuances of common stock for an amount equal to the stated value. The
preferred stock and unpaid dividends are convertible into shares of common stock
equal to an amount determined by the market value of the common stock at the
date of conversion, adjusted for changes in the market price prior to the
conversion. Holders of the preferred stock do not have voting rights.
As of the date hereof, the number of shares of common stock issuable upon
conversion of the outstanding convertible preferred stock is 33,662,095, based
on a conversion price of $0.063 per share. We are required to register 200% of
this amount, for a total of 67,324,190 shares. In addition, 666,666 shares
underlying warrants are being registered. These warrants have exercise price
between 0.147 and $1.89 per share.
On May 9, 2001, Endovasc and the subscribers agreed to amend the terms of
their agreements such that no further issuances of securities will be made under
the agreements with the subscribers.
The conversion price for the convertible preferred stock shall be the
lesser of (a) 85% of the average of the three lowest closing bid prices for the
thirty (30) trading days immediately preceding the issue date of the convertible
preferred stock, or (b) 70% of the average of the three (3) lowest closing bid
prices for the thirty (30) days immediately preceding the conversion of the
shares of convertible preferred stock. The maximum number of shares of common
stock that any subscriber or group of affiliated subscribers may own after
conversion at any given time is 9.99%.
The parties have made mutually agreeable standard representations and
warranties. We have also entered into certain covenants including, but not
limited to, the following: (i) we may not redeem the convertible debentures
without the consent of the holder; (ii) we will pay to certain finders a cash
fee for location of the financings; (iii) we have agreed to incur certain
penalties for untimely delivery of the shares.
Shares Underlying 8% Convertible Notes and Warants
In this prospectus, we are registering $589,000 worth of shares of Common
Stock and 100,000 shares of common stock underlying warrants issued pursuant to
a subscription agreement entered into in August 2001 with two investors for the
sale of (i) an aggregate of $400,000 in convertible notes and (ii) warrants to
purchase 100,000 shares of our common stock.
On August 17, 2001, we entered into a subscription agreement with two
investors for the sale of (i) an aggregate of $400,000 in convertible notes and
(ii) warrants to purchase 100,000 shares of our common stock.
26
The $400,000 convertible notes issued bear interest at 8% and are
convertible into our common stock at the lesser of:
a) $0.0425; or
b) 70% of the average of the three lowest closing prices of our common
stock for the thirty trading days immediately prior to the conversion
date.
The unconverted portion of the notes is due August 17, 2003.
The warrants have an exercise price of:
a) $0.0612; or
120% of the three lowest closing prices of our common stock for the ten trading
days prior to the exercise of the warrant.
TRANSFER AGENT
Nevada Agency & Trust Company, Valley Bank Plaza, Suite 880, 50 West
Liberty Street, Reno, Nevada 89501, will act as transfer agent and registrar for
our securities.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, we have outstanding 58,528,651 shares of
common stock.
14,089,845 of our shares of outstanding common stock are "restricted
securities" as that term is defined in Rule 144 under the Securities Act of
1933, as amended ("Act"), and under certain circumstances may be sold without
registration pursuant to that rule.
In general, under Rule 144 as currently in effect, subject to satisfaction
of certain other conditions, a person (or persons whose shares are required to
be aggregated), including our affiliates, who beneficially owns "restricted
shares" for a period of at least two years is entitled to sell within any
three-month period, a number of shares that does not exceed the greater of 1%
(558,286 as of the date of this prospectus) of the then outstanding shares of
common stock, or if the common stock is quoted on the NASDAQ System, the average
weekly trading volume of the common stock during the four calendar weeks
preceding the filing of the required notice of sale with the Securities and
Exchange Commission. The seller also must comply with the notice and manner of
sale requirements of Rule 144, and there must be current public information
available about us. In addition, any person (or persons whose shares are
aggregated) who is not, at the time of the sale, nor during the preceding three
months, our affiliate, and who has beneficially owned restricted shares for at
least three years, can sell such shares under Rule 144 without regard to any of
the limitations described above.
No predictions can be made of the effect, if any, that future sales of
restricted shares or the availability of restricted shares for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the restricted shares of common stock in the public
market could adversely affect the then prevailing market prices for the common
stock and could impair our ability to raise capital through the sale of our
equity securities.
27
SELLING STOCKHOLDERS
The tables below sets forth information concerning the resale of the shares
of common stock by the selling stockholders. We will not receive any proceeds
from the resale of the common stock by the selling stockholders. We will receive
proceeds from the exercise of the warrants. Assuming all the shares registered
below are sold by the selling stockholders, none of the selling stockholders
will continue to own any shares of our common stock.
The following tables also sets forth the name of each person who is
offering the resale of shares of common stock by this prospectus, the number of
shares of common stock beneficially owned by each person, the number of shares
of common stock that may be sold in this offering and the number of shares of
common stock each person will own after the offering, assuming they sell all of
the shares offered.
Total
Total Shares of Percentage Percentage of
Common Stock of Common Percentage of Beneficial Common
Name Issuable Upon Stock, Shares of Beneficial Common Ownership Stock Owned
Conversion of Assuming Common Stock Ownership Stock Owned After the After
Notes and/or Full Included in Before the Before Offering Offering
Warrants Conversion Prospectus Offering Offering (1) (1)
- ----------------------- ---------------- ----------- --------------- ----------- -------------- ----------- --------------
Keshet, L.P. (8) 22,385,714 (2) 27.7% 14,737,857 (4) 3,073,970 4.99% (6) -- --
- ----------------------- ---------------- ----------- --------------- ----------- -------------- ----------- --------------
Balmore S.A. (9) 10,357,142 (3) 15.0% 4,872,470 (4) 6,495,958 9.99% (7) -- --
- ----------------------- ---------------- ----------- --------------- ----------- -------------- ----------- --------------
Celeste Trust Reg. (10) 4,642,857 (3) 7.3% 2,557,016 (4) 4,642,857 7.3% (7) -- --
- ----------------------- ---------------- ----------- --------------- ----------- -------------- ----------- --------------
Nesher Ltd. (8) 3,285,714 (2) 5.3% 2,304,152(4) 3,073,970 4.99% (6) -- --
- ----------------------- ---------------- ----------- --------------- ----------- -------------- ----------- --------------
Talbiya B. Investments 3,178,571 (2) 5.2% 2,122,596(4) 3,073,970 4.99% (6) -- --
Ltd. (8)
- ----------------------- ---------------- ----------- --------------- ----------- -------------- ----------- --------------
Alon Enterprises Ltd. 422,222 * 344,591 (5) 422,222 (5) * -- --
(11)
- ----------------------- ---------------- ----------- --------------- ----------- -------------- ----------- --------------
Libra Finance S.A. (12) 244,445 * 166,814 (5) 244,445 (5) * -- --
- ----------------------- ---------------- ----------- --------------- ----------- -------------- ----------- --------------
The Keshet Fund L.P. 7,182,927 (13) 10.9% Up to 3,073,970 4.99% (6) -- --
(8) $294,500
worth of
common stock
- ----------------------- ---------------- ----------- --------------- ----------- -------------- ----------- --------------
Laurus Master Fund, 7,182,927(13) 10.9% Up to 3,073,970 4.99%(6)
Ltd.(14) $294,500
worth of
common stock
- ----------------------- ---------------- ----------- --------------- ----------- -------------- ----------- --------------
<FN>
* Less than one percent.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholder has sole or shared voting power or investment power and
also any shares which the selling stockholder has the right to acquire within 60
days. The actual number of shares of common stock issuable upon the conversion
of the debentures and exercise of the debenture warrants is subject to
adjustment depending on, among other factors, the future market price of the
common stock, and could be materially less or more than the number estimated in
the table.
(1) Assumes that all securities registered will be sold.
(2) Represents shares of common stock issuable upon conversion of preferred
stock at an assumed conversion price of $0.028 per share. Because the
number of shares of common stock issuable upon conversion of the preferred
stock is dependent in part upon the market price of the common stock prior
to a conversion, the actual number of shares of common stock that will be
28
issued upon conversion will fluctuate daily and cannot be determined at
this time. However, the selling shareholder has contractually agreed to
restrict its ability to convert its preferred stock and receive shares of
our common stock such that the number of shares of common stock held by it
and its affiliates after such conversion exceed 4.99% of the then issued
and outstanding shares of common stock following such conversion or
exercise.
(3) Represents shares of common stock issuable upon conversion of preferred
stock at an assumed conversion price of $0.063 per share. Because the
number of shares of common stock issuable upon conversion of the preferred
stock is dependent in part upon the market price of the common stock prior
to a conversion, the actual number of shares of common stock that will be
issued upon conversion will fluctuate daily and cannot be determined at
this time. However, the selling shareholder has contractually agreed to
restrict its ability to convert its preferred stock and receive shares of
our common stock such that the number of shares of common stock held by it
and its affiliates after such conversion exceed 9.99% of the then issued
and outstanding shares of common stock following such conversion or
exercise.
(4) Includes 200% of the shares issuable on conversion of the preferred stock,
based on an assumed conversion price of $0.028 per share. The number of
shares of common stock issuable upon conversion of the preferred stock is
dependent in part upon the market price of the common stock prior to a
conversion, the actual number of shares of common stock that will be issued
in respect of such conversions and, consequently, offered for sale under
this registration statement, cannot be determined at this time.
(5) Represents shares of common stock issuable upon the exercise of warrants to
purchase common stock
(6) Represents shares of common stock issuable upon conversion of debentures or
exercise of warrants of the selling shareholder. However, the selling
shareholder has contractually agreed to restrict its ability to convert its
debentures or exercise its warrants and receive shares of our common stock
such that the number of shares of common stock held by it and its
affiliates after such conversion or exercise exceed 4.99% of the then
issued and outstanding shares of common stock following such conversion or
exercise. This restriction may not be waived.
(7) Represents shares of common stock issuable upon conversion of debentures or
exercise of warrants of the selling shareholder. However, the selling
shareholder has contractually agreed to restrict its ability to convert its
debentures or exercise its warrants and receive shares of our common stock
such that the number of shares of common stock held by it and its
affiliates after such conversion or exercise exceed 9.99% of the then
issued and outstanding shares of common stock following such conversion or
exercise.
(8) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
John Clark may be deemed a control person of the shares owned by such
entity. The selling shareholder is deemed an "underwriter" within the
meaning of Section 2(11) of the Securities Act of 1933. Keshet LP, Keshet
Fund LP, Talbiya B. Investments Ltd. and Nesher Ltd. are under common
control and all shares registered hereunder may be deemed to be
beneficially owned by such control person. All such selling stockholders
may be deemed to be a purchasing group for purposes of Rule 13d, but are
not required to file a Form 13d because of the limitation of their
beneficial ownership to 4.99%, as a group.
(9) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Gisela Kindle may be deemed a control person of the shares owned by such
entity. The selling shareholder is deemed an "underwriter" within the
meaning of Section 2(11) of the Securities Act of 1933.
(10) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Thomas Hackl may be deemed a control person of the shares owned by such
entity. The selling shareholder is deemed an "underwriter" within the
meaning of Section 2(11) of the Securities Act of 1933.
(11) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Shmuel Elmakis may be deemed a control person of the shares owned by such
entity. The selling shareholder is deemed an "underwriter" within the
meaning of Section 2(11) of the Securities Act of 1933.
29
(12) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Seymour Braun may be deemed a control person of the shares owned by such
entity. The selling shareholder is deemed an "underwriter" within the
meaning of Section 2(11) of the Securities Act of 1933.
(13) Assumes a conversion price of $0.041. Includes 100,000 shares underlying
warrants that are currently exercisable at an exercise price of $0.0612 per
share.
30
PLAN OF DISTRIBUTION
The selling stockholder may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market, or trading facility on
which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. There is no assurance that the selling stockholder
will sell any or all of the common stock in this offering. The selling
stockholder may use any one or more of the following methods when selling
shares:
- Ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers.
- Block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction.
- An exchange distribution following the rules of the applicable
exchange
- Privately negotiated transactions
- Short sales or sales of shares not previously owned by the seller
- A combination of any such methods of sale any other lawful method
The selling stockholder may also engage in:
- Short selling against the box, which is making a short sale when
the seller already owns the shares.
- Other transactions in our securities or in derivatives of our
securities and the subsequent sale or delivery of shares by the
stockholder.
- Pledging shares to their brokers under the margin provisions of
customer agreements. If a selling stockholder defaults on a
margin loan, the broker may, from time to time, offer to sell the
pledged shares.
Broker-dealers engaged by the selling stockholder may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from selling stockholder in amounts to be negotiated. If any
broker-dealer acts as agent for the purchaser of shares, the broker-dealer may
receive commission from the purchaser in amounts to be negotiated. The selling
stockholder do not expect these commissions and discounts to exceed what is
customary in the types of transactions involved.
The selling stockholder and any broker-dealers or agents that are involved
in selling the shares may be considered to be "underwriters" within the meaning
of the Securities Act for such sales. An underwriter is a person who has
purchased shares from an issuer with a view towards distributing the shares to
the public. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
considered to be underwriting commissions or discounts under the Securities Act.
31
Because the following selling shareholders are deemed "underwriters" within
the meaning of Section 2(11) of the Securities Act, they will be subject to the
prospectus delivery requirements:
The Keshet Fund
Keshet, L.P.
Balmore S.A.
Celeste Trust Reg.
Nesher Ltd.
Talbiya B. Investments Ltd.
Alon Enterprises Ltd.
We are required to pay all fees and expenses incident to the registration
of the shares in this offering. However, we will not pay any commissions or any
other fees in connection with the resale of the common stock in this offering.
We have agreed to indemnify the selling shareholders and their officers,
directors, employees and agents, and each person who controls any selling
shareholder, in certain circumstances against certain liabilities, including
liabilities arising under the Securities Act. Each selling shareholder has
agreed to indemnify us and our directors and officers in certain circumstances
against certain liabilities, including liabilities arising under the Securities
Act.
If the selling stockholder notifies us that they have a material
arrangement with a broker-dealer for the resale of the common stock, then we
would be required to amend the registration statement of which this prospectus
is a part, and file a prospectus supplement to describe the agreements between
the selling stockholder and the broker-dealer.
EXPERTS
Our financial statements as of June 30, 2001 and for the years ended June
30, 2001 and 2000, and for the period from inception, June 10, 1996, to June 30,
2001 (Audited), have been included herein and in the registration statement in
reliance upon the reports of Ham, Langston & Brezina, LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of such
firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed upon
for us by our United States securities counsel, Sichenzia, Ross & Friedman LLP
135 West 50th Street, 20th Floor, New York, New York, 10020. Certain members of
Sichenzia, Ross & Friedman LLP are the beneficial owners of an aggregate 54,000
shares of our common stock.
OTHER AVAILABLE INFORMATION
We are subject to the reporting requirements of the Securities and Exchange
Commission. We file periodic reports, proxy statements and other information
with the commission under the Securities Exchange Act of 1934. We will provide
without charge to each person who receives a copy of this prospectus, upon
written or oral request, a copy of any information that is incorporated by
reference in this prospectus (not including exhibits to the information that is
incorporated by reference unless the exhibits are themselves specifically
incorporated by reference).
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933 Act with the Commission in connection with the securities offered by
this prospectus. This prospectus does not contain all of the information that is
the registration statement, you may inspect without charge, and copy our
filings, at the public reference room maintained by the Commission at 450 Fifth
Street, N.W. Washington, D.C. 20549. Copies of this material may also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W. Washington, D.C. 20549, at prescribe rates. Information about the
public reference room is available from the commission by calling
1-800-SEC-0330.
32
The commission maintains a web site on the Internet that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the commission. The address of the site is www.sec.gov.
Visitors to the site may access such information by searching the EDGAR
archives on this web site.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with any information that is
different.
The selling security holders are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where such offers and sales
are permitted.
The information contained in this prospectus is accurate only as of the
date of this prospectus.
33
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
TABLE OF CONTENTS
__________
PAGE(S)
-------
Report of Independent Accountants F-2
Financial Statements:
Balance Sheet as of June 30, 2001 F-3
Statement of Operations for the years
ended June 30, 2001 and 2000, and for
the period from inception, June 10, 1996,
to June 30, 2001 F-4
Statement of Stockholders' Deficit for
the years ended June 30, 2001 and 2000,
and for the period from inception, June 10,
1996, to June 30, 2001 F-5
Statement of Cash Flows for the years
ended June 30, 2001 and 2000, and for
the period from inception, June 10, 1996,
to June 30, 2001 F-8
Notes to Financial Statements F-9
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Stockholders of
Endovasc Ltd., Inc.
We have audited the accompanying balance sheet of Endovasc Ltd., Inc. (a
development stage enterprise) as of June 30, 2001, and the related statements of
operations, stockholders' deficit and cash flows for the years ended June 30,
2001 and 2000, and for the period from inception, June 10, 1996, to June 30,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based upon our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Endovasc Ltd., Inc. as of June
30, 2001, and the results of its operations and its cash flows for the years
ended June 30, 2001 and 2000, and for the period from inception, June 10, 1996,
to June 30, 2001, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements
and discussed in Note 11, the Company has incurred significant recurring losses
from operations since inception, is in a negative working capital and
accumulated deficit position at June 30, 2001, and is dependent on outside
sources of financing for the continuation of its operations. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans with regard to this matter are also discussed in
Note 11. These financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Ham, Langston & Brezina, L.L.P.
------------------------------------
Ham, Langston & Brezina, L.L.P.
Houston, Texas
September 19, 2001
F-2
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEET
JUNE 30, 2001
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
------
Current assets:
Cash and cash equivalents $ 117
Other current assets 47
--------
Total current assets 164
Property and equipment, net 214
Other assets, net 144
--------
Total assets $ 522
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Current maturities of long-term debt $ 43
Current portion of obligations under capital leases 35
Note payable to shareholder 99
Accounts payable 296
Accrued liabilities 532
--------
Total current liabilities 1,005
Long-term debt, net of current maturities 28
Long-term obligations under capital leases 74
--------
Total liabilities 1,107
--------
Commitment and contingencies
Stockholders' deficit:
Common stock, $.001 par value, 100,000,000 shares
authorized, 40,253,331 shares issued and
38,168,331 shares outstanding 40
Preferred stock, $.001 par value, 20,000,000 shares
authorized, 15,760 shares of Series A 8% cumula-
tive convertible preferred stock issued and out-
standing, stated value $100 per share -
Additional paid-in capital 8,121
Losses accumulated during the development stage (8,729)
Treasury stock (17)
--------
Total stockholders' deficit (585)
--------
Total liabilities and stockholders' deficit $ 522
========
The accompanying notes are an integral
part of these financial statements.
F-3
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2001 AND 2000 AND
FOR THE PERIOD FROM INCEPTION, JUNE 10, 1996, TO JUNE 30, 2001
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED
------------------------- INCEPTION
JUNE 30, JUNE 30, TO JUNE 30,
2001 2000 2001
------------ ----------- -------------
Income:
Sales $ 75 $ 24 $ 104
Interest income 20 7 27
Other income 5 - 9
------------ ----------- -------------
Total income 100 31 140
------------ ----------- -------------
Costs and expenses:
Operating, general and administrative
expenses 1,168 1,775 4,327
Research and development costs 1,348 977 3,524
Interest expense 18 127 348
Settlement with former employee 408 - 408
------------ ----------- -------------
Total costs and expenses 2,942 2,879 8,607
------------ ----------- -------------
Net loss before extraordinary item (2,842) (2,848) (8,467)
Extraordinary loss on extinguishment
of convertible debentures - 127 127
------------ ----------- -------------
Net loss $ (2,842) $ (2,975) $ (8,594)
============ =========== =============
Weighted average shares outstanding 17,269,229 9,575,153
============ ===========
Basic net loss per common share $ (0.17) $ (0.31)
============ ===========
Diluted net loss per common share $ (0.16) $ (0.31)
============ ===========
The accompanying notes are an integral
part of these financial statements.
F-4
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 2001 AND 2000, AND
FOR THE PERIOD FROM INCEPTION, JUNE 10, 1996 TO JUNE 30, 2001
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
LOSSES
ACCUMULATED
COMMON STOCK PREFERRED STOCK ADDITIONAL DURING THE
------- --------- ------- ------ PAID-IN TREASURY DEVELOPMENT
AMOUNT SHARES AMOUNT SHARES CAPITAL STOCK STAGE TOTAL
------- --------- ------- ------ ----------- ---------- ------------ ---------
Balance at inception, June 10,
1996 $ - - $ - - $ - $ - $ - $ -
Stock issued for equity secur-
ities in 1996 2 2,332,000 - - 300 - - 302
Stock issued for purchase of
patent rights in 1996 2 2,188,000 - - 282 - - 284
Stock issued for services in
1997 2 1,702,000 - - 354 - - 356
Stock issued for cash in 1997 1 304,571 - - 205 - - 206
Stock issued for purchase of
patent rights in September
1997 - 200,000 - - 200 - - 200
Stock issued for services in
1998 - 77,380 - - 56 - - 56
Stock subject to rescission - - - - - (17) - (17)
Conversion of debentures to
common stock 1 1,208,077 - - 444 - - 445
Stock issued for services - 362,462 - - 285 - - 285
The accompanying notes are an integral
part of these financial statements.
Continued
F-5
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED
FOR THE YEARS ENDED JUNE 30, 2001 AND 2000, AND
FOR THE PERIOD FROM INCEPTION, JUNE 10, 1996 TO JUNE 30, 2001
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
LOSSES
ACCUMULATED
COMMON STOCK PREFERRED STOCK ADDITIONAL DURING THE
----------------- --------------- PAID-IN TREASURY DEVELOPMENT
AMOUNT SHARES AMOUNT SHARES CAPITAL STOCK STAGE TOTAL
------ --------- ------- ------ ----------- ---------- ------------ ---------
Losses accumulated during the
period from inception,
June 10, 1996, to June 30,
1999 - - - - - - (2,777) (2,777)
------ ---------- ------ ------ ---------- --------- ------------ --------
Balance at June 30,1999 8 8,374,490 - - 2,126 (17) (2,777) (660)
Conversion of debentures to
common stock 3 2,569,546 - - 841 - - 844
Stock issued for services 2 1,869,334 - - 1,388 - - 1,390
Conversion of note payable to
shareholder to common stock 1 1,250,000 - - 147 - - 148
Issue of common stock in connec-
tion with license agreement - 190,000 - - 63 - - 63
Issue of common stock in set-
tlement of lawsuit 1 300,000 - - 192 - - 193
Issuance of preferred stock - - - 15,000 1,040 - - 1,040
Net loss accumulated in 2000 - - - - - - (2,975) (2,975)
------ ---------- ------ ------ ---------- --------- ------------ --------
Balance at June 30, 2000 15 14,553,370 - 15,000 5,797 (17) (5,752) 43
The accompanying notes are an integral
part of these financial statements.
Continued
F-6
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED
FOR THE YEARS ENDED JUNE 30, 2001 AND 2000, AND
FOR THE PERIOD FROM INCEPTION, JUNE 10, 1996 TO JUNE 30, 2001
_________
(IN THOUSANDS, EXCEPT SHARE DATA)
LOSSES
ACCUMULATED
COMMON STOCK PREFERRED STOCK ADDITIONAL DURING THE
------------------- ----------------- PAID-IN TREASURY DEVELOPMENT
AMOUNT SHARES AMOUNT SHARES CAPITAL STOCK STAGE TOTAL
------- ---------- ------- -------- ------------ ---------- ------------- ---------
Issue of common stock upon
exercise of warrants 1 1,250,000 - - 34 - - 35
Issue of common stock upon
exercise of options 1 1,100,000 - - 274 - - 275
Issue of common stock for
services 2 1,770,301 - - 300 - - 302
Issue of warrants for services - - - - 162 - - 162
Issue of preferred stock - - - 15,000 1,061 - - 1,061
Conversion of preferred stock
to common stock 16 16,501,251 - (14,240) (16) - - -
Dividends declared on preferred
stock - - - - - - (135) (135)
Issue of common stock as payment
of dividends on preferred
stock 1 840,383 - - 64 - - 65
Conversion of note payable to
shareholder to common stock 4 4,210,526 - - 439 - - 443
Issue of common stock for cash - 27,500 - - 6 - - 6
Net loss accumulated in 2001 - - - - - - (2,842) (2,842)
------- ---------- ------- -------- ------------ ---------- ------------- ---------
Balance at June 30, 2001 $ 40 40,253,331 $ - 15,760 $ 8,121 $ (17) $ (8,729) $ (585)
======= ========== ======= ======== ============ ========== ============= =========
The accompanying notes are an integral
part of these financial statements.
F-7
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2001 AND 2000, AND
FOR THE PERIOD FROM INCEPTION, JUNE 10, 1996, TO JUNE 30, 2001
__________
(IN THOUSANDS)
YEAR ENDED
------------------ INCEPTION
JUNE 30, JUNE 30, TO JUNE 30,
2001 2000 2001
-------- -------- --------------
Cash flows from operating activities:
Net loss $(2,842) $(2,975) $ (8,594)
Adjustments to reconcile net loss to net
cash used in operating activities:
Common stock and stock options issued
as compensation for services 302 1,390 2,589
Extraordinary loss - 127 127
Write down of long-lived assets to fair
value - - 285
Depreciation and amortization expense 54 12 75
Deferred income tax expense - - 8
Amortization of discount on convertible
debentures - 125 250
Changes in operating assets and liabilities:
(Increase) decrease in other assets (11) (95) (114)
Increase (decrease) in accounts payable
and accrued liabilities 554 (151) 771
-------- -------- --------------
Net cash used in operating activities (1,943) (1,567) (4,603)
-------- -------- --------------
Cash flows from investing activities:
Capital expenditures (84) (39) (142)
Proceeds received from repayment of loan to
stockholder - - 72
-------- -------- --------------
Net cash used in investing activities (84) (39) (70)
-------- -------- --------------
Cash flows from financing activities:
Proceeds from sale of equity securities - - 337
Proceeds from sale of common stock 6 - 212
Proceeds from exercise of warrants 35 - -
Proceeds from sale of convertible debenture
and related conversion feature - 537 1,037
Net proceeds from issuance of preferred
stock 1,223 1,040 2,263
Issuance of notes payable - 9 106
Repayment of notes payable (18) (33) (64)
Payments of obligations under capital leases (23) - (23)
Proceeds from advances from stockholders - 859 944
Repayments of notes to stockholder (5) - (5)
Purchase of treasury stock - - (17)
-------- -------- --------------
Net cash provided by financing
activities 1,218 2,412 4,790
-------- -------- --------------
Net increase (decrease) in cash and cash
equivalents (809) 806 117
Cash and cash equivalents at beginning of
period 926 120 -
-------- -------- --------------
Cash and cash equivalents at end of period $ 117 $ 926 $ 117
======== ======== ==============
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ 18 $ 8 $ 98
======== ======== ==============
Cash paid for income taxes - $ - $ - _
======== ======== ==============
The accompanying notes are an integral
part of these financial statements.
F-8
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
__________
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------------
Endovasc, Ltd., Inc. (the "Company") was incorporated under the laws of the
State of Nevada on June 10, 1996. The Company's principal business is the
production of various drugs that can be administered using an advanced drug
delivery system. The Company believes that its drug delivery system will
ultimately be widely used by cardiologists, interventional radiologists and
vascular surgeons. The Company is considered a development stage enterprise
because it has not yet generated significant revenue from sale of its
products and has devoted substantially all of its efforts in raising
capital.
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
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.
CASH AND CASH EQUIVALENTS
----------------------------
The Company considers all highly liquid short-term investments with an
original maturity of three months or less when purchased to be cash
equivalents.
The Company maintains cash deposits in banks which may occasionally exceed
the amount of federal deposit insurance available. Management periodically
assesses the financial condition of the institutions and believes that any
possible deposit loss is minimal.
PROPERTY AND EQUIPMENT
------------------------
Property and equipment are recorded at cost. Depreciation is provided on
the straight-line method over the estimated useful lives of the assets,
which range from five to seven years. Expenditures for major renewals and
betterments that extend the original estimated economic useful lives of the
applicable assets are capitalized. Expenditures for normal repairs and
maintenance are charged to expense as incurred. The cost and related
accumulated depreciation of assets sold or otherwise disposed of are
removed from the accounts, and any gain or loss is included in operations.
DEBT ISSUANCE COSTS
---------------------
Debt issuance costs are deferred and recognized, using the interest method,
over the term of the related debt.
Continued
F-9
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
----------------------------------------------------------------------
INCOME TAXES
-------------
The Company uses the liability method of accounting for income taxes. Under
this method, deferred income taxes are recorded to reflect the tax
consequences on future years of temporary differences between the tax basis
of assets and liabilities and their financial amounts at year-end. The
Company provides a valuation allowance to reduce deferred tax assets to
their net realizable value.
RESEARCH AND DEVELOPMENT
--------------------------
Research and development costs are expensed as incurred. These costs
consist of direct and indirect costs associated with specific projects.
STOCK-BASED COMPENSATION
-------------------------
Stock-based compensation is accounted for using the intrinsic value method
prescribed in Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees", rather than applying the fair
value method prescribed in SFAS No. 123, "Accounting for Stock-Based
Compensation".
LOSS PER SHARE
----------------
Basic and diluted loss per share is computed on the basis of the weighted
average number of shares of common stock outstanding during each period.
Common equivalent shares from common stock options and warrants are
excluded from the computation (See Note 9) as their effect would dilute the
loss per share for all periods presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS
---------------------------------------
The Company includes fair value information in the notes to financial
statements when the fair value of its financial instruments is different
from the book value. When the book value approximates fair value, no
additional disclosure is made.
IMPAIRMENT OF LONG-LIVED ASSETS
----------------------------------
In the event facts and circumstances indicate the carrying value of a
long-lived asset, including associated intangibles, may be impaired, an
evaluation of recoverability is performed by comparing the estimated future
undiscounted cash flows associated with the asset to the asset's carrying
amount to determine if a write-down to market value or discounted cash flow
is required.
Continued
F-10
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
-------------------------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS
----------------------------------
In December 1999, the staff of the Securities and Exchange Commission
released Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition", to provide guidance on the recognition, presentation and
disclosure of revenues in financial statements. The Company believes that
its revenue recognition practices are in conformity with the guidelines in
SAB 101, and therefore this pronouncement has no impact on its financial
statements.
In March 2000, the FASB released Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation: An Interpretation of APB
Opinion No. 25". Interpretation No. 44 provides clarification of certain
issues, such as the determination of who is an employee, the criteria for
determining whether a plan qualifies as a non-compensatory plan, the
accounting consequence of various modifications to the terms of a
previously fixed stock option or award and the accounting for an exchange
of stock compensation awards in a business combination. The Company
believes that its practices are in conformity with this guidance, and
therefore Interpretation No. 44 has no impact on its financial statements.
In June 2001, the FASB issued Statement of Financial Accounting Standards
("SFAS") 141, "Business Combinations", and SFAS 142, "Goodwill and Other
Intangible Assets". SFAS 141 requires business combinations initiated after
June 30, 2001 to be accounted for using the purchase method of accounting.
It also specifies the types of acquired intangible assets that are required
to be recognized and reported separately from goodwill. SFAS 142 will
require that goodwill and certain intangibles no longer be amortized, but
instead be tested for impairment at least annually. SFAS 142 is required to
be applied starting with fiscal years beginning after December 15, 2001,
with early application permitted in certain circumstances. The Company does
not expect these new statements to have any impact on its financial
statements.
Continued
F-11
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
2. LICENSE AGREEMENT
------------------
In February 2000 the Company entered into an exclusive license agreement
with Stanford University to assist in the development of the Nicotine
Receptor Agonist technology. For the exclusive rights to this license, the
Company paid a non-refundable license fee of $100,000 plus 190,000 shares
of the Company's common stock to Stanford University and the inventors of
the technology. The term of the agreement is for 10 years or five years
from the first commercial sale of a licensed product by the Company,
whichever occurs first. The Company is also required to pay an annual
royalty of $100,000 beginning February 1, 2001 and each year thereafter and
a 6% royalty on net sales of any licensed product. The Company is required
to pay to Stanford an additional $100,000 upon FDA approval of Phase I
clinical trials, $300,000 upon FDA approval of Phase III clinical trials
and $500,000 within six months after FDA marketing approval.
The costs of obtaining the license of $162,701 were capitalized and
included in other assets in the accompanying balance sheet. These costs are
being amortized on a straight line basis over the term of the agreement.
Amortization expense during the year ended June 30, 2001 was $17,269.
3. PROPERTY AND EQUIPMENT
------------------------
Property and equipment at June 30, 2001 consists of the following (in
thousands):
Office furniture, fixtures and equipment $ 265
Less accumulated depreciation (51)
--------
$ 214
========
Depreciation expense during the year ended June 30, 2001 was $37,069.
Included in property and equipment at June 30, 2001 is equipment under
capital leases of $123,490.
4. NOTES PAYABLE
--------------
Notes payable at June 30, 2001 consist of the following (in thousands):
Note payable to a bank, bearing interest of 8%
and due in monthly installments of $1,391,
including interest, through 2004. This note
is uncollateralized but is guaranteed by two
stockholders of the Company. $ 42
Continued
F-12
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
4. NOTES PAYABLE, CONTINUED
--------------------------
Notes payable to financial institutions, bearing
interest of 9% to 11% and due in individual
monthly installments of up to $4,056, through
November 2001 and April 2002. These notes are
uncollateralized but are guaranteed by a stock-
holder of the Company. 29
Note payable to stockholder, non-interest
bearing and due on demand. This note is
uncollateralized. 99
-------
Total notes payable 170
Less current maturities (142)
-------
$ 28
=======
Future annual maturities of notes payable at June 30, 2001 are as follows
(in thousands):
YEAR ENDED
JUNE 30, AMOUNT
--------- ------
2002 $ 142
2003 15
2004 13
------
$ 170
======
5. ACCRUED LIABILITIES
-------------------
Accrued liabilities at June 30, 2001 consist of the following (in
thousands):
Accrued payroll and related taxes $ 19
Dividends payable 70
Other accrued expenses 35
Accrued legal settlement (Note 10) 408
-------
$ 532
=======
Continued
F-13
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
6. INCOME TAX
-----------
The composition of deferred tax assets and the related tax effects at June
30, 2001 are as follows (in thousands):
Benefit from carryforward of net
operating losses $ 1,666
Less valuation allowance (1,666)
---------
Net deferred tax asset $ -
=========
The difference between the income tax benefit in the accompanying statement
of operations and the amount that would result if the U.S. Federal
statutory rate of 34% were applied to pre-tax loss is as follows (in
thousands):
2001 2000
---------------------- ---------------------
PERCENTAGE PERCENTAGE
OF PRE-TAX OF PRE-TAX
AMOUNT LOSS AMOUNT LOSS
-------- ------------ -------- -----------
Benefit for income tax at
federal statutory rate $ 966 34.0% $ 1,012 34.0%
Non-deductible expenses (243) (8.6) (473) (15.9)
Increase in valuation
allowance (723) (25.4) (539) (18.1)
-------- ------------ -------- -----------
Total $ - $ -% $ - -%
======== ============ ======== ===========
The non-deductible expenses relate primarily to the issuance of common
stock for services using different valuation methods for financial and tax
reporting purposes.
At June 30, 2001, for federal income tax and alternative minimum tax
reporting purposes, the Company has approximately $4,900,000 of unused net
operating losses available for carryforward to future years. The benefit
from carryforward of such net operating losses will expire in various years
between 2016 and 2020 and could be subject to severe limitations if
significant ownership changes occur in the Company.
Continued
F-14
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
7. STOCK OPTIONS AND WARRANTS
-----------------------------
The Company periodically issues incentive stock options and warrants to key
employees, officers, directors and outside consultants to provide
additional incentives to promote the success of the Company's business and
to enhance the ability to attract and retain the services of qualified
persons. The issuance of such options are approved by the Board of
Directors. The exercise price of an option or warrant granted is determined
by the fair market value of the stock on the date of grant.
During the year ended June 30, 1998, the Company granted stock options,
with a term of three years, to acquire up to 1,350,000 shares of the
Company's restricted common stock at $0.25 to $0.75 per share, which
approximated market value at the date of grant.
During the year ended June 30, 1999, the Company granted stock options to
acquire up to 250,000 shares of the Company's restricted common stock.
These stock options have a three year term and exercise prices of $0.40 to
$0.75 per share, which approximated market value at date of grant.
During the year ended June 30, 2000, the Company issued stock warrants to
acquire 332,778 shares of the Company's common stock to certain companies
for their role in the completion of the Company's preferred stock offering.
These warrants have a three year term and an exercise price of $1.89 per
share, which approximated market value at the date of grant. During the
years ended June 30, 2000 and 2001, the Company also issued stock warrants
to acquire 500,000 and 1,000,000 shares, respectively, of the Company's
common stock to a company as a finder's fee for the placement of the
preferred stock offering. The warrants have a five year term and an
exercise price of $0.10 and $0.01 per share, respectively. The costs
associated with these stock warrants did not effect the Company's statement
of operations as all costs were offset against the offering proceeds and
recorded through stockholders' equity.
To provide incentives to consultants and employees, on December 13, 2000,
the Company granted options, with a term of 3 years, to purchase 1,325,500
shares of the Company's common stock at a price ranging from $0.40 to $1.00
per share, which was greater than the market price of the stock at the
grant date.
During the year ended June 30, 2001, 1,250,000 shares of the Company's
common stock were issued due to the exercise of warrants. In addition,
1,100,000 shares of common stock were issued due to the exercise of stock
options, of which 1,000,000 of the shares was paid for through the
reduction in the note payable to stockholder.
Continued
F-15
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
7. STOCK OPTIONS AND WARRANTS, CONTINUED
-----------------------------------------
The Company has issued stock options to employees and non-employee
consultants as follows (in thousands, except for per share data):
NUMBER OF SHARES WEIGHTED
-------------------- AVERAGE
NON- EXERCIS- EXERCISE EXERCISE
EMPLOYEE EMPLOYEE TOTAL ABLE PRICE PRICE
--------- --------- ------- --------- ----------- ---------
Options outstanding
at June 30, 1999 1,600 600 2,200 1,550 $0.10-$0.75 $ 0.30
Options granted - - - -
Options exercised (600) - (600) - $ 0.10 $ 0.10
--------- --------- ------- ---------
Options outstanding
at June 30,2000 1,000 600 1,600 1,550 $0.25-$0.75 $ 0.38
Options granted 351 975 1,326 - $0.40-$1.00 $ 0.42
Options exercised (1,000) (100) (1,100) (1,100) $0.25-$0.40 $ 0.26
Options expired - (350) (350) (300) $0.40-$0.75 $ 0.61
--------- --------- ------- ---------
Options outstanding
at June 30, 2001 351 1,125 1,476 150 $0.40-$1.00 $ 0.46
========= ========= ======= =========
Following is a summary of outstanding options at June 30, 2001:
NUMBER OF SHARES VESTED EXPIRATION DATE EXERCISE PRICE
---------------- ---------------- ---------------- --------------
150 150 October, 2001 $ 0.75
1,276 - December, 2003 0.40
50 - December, 2003 1.00
----- -----
1,476 150
===== =====
Continued
F-16
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
7. STOCK OPTIONS AND WARRANTS, CONTINUED
-----------------------------------------
During the year ended June 30, 2001 and 2000, the Company issued stock
warrants to certain companies in payment of stock offering costs, some of
which were subsequently exercised, as follows (in thousands):
WEIGHTED
AVERAGE
NUMBER OF EXERCIS- EXERCISE EXERCISE
SHARES ABLE PRICE PRICE
---------- --------- ----------- ------
Warrants issued 833 833 $0.10-$1.89 $ 0.82
Warrants cancelled - - - -
Warrants exercised - - - -
---------- ---------
Warrants outstanding at
June 30, 2000 833 833 $0.10-$1.89 $ 0.82
Warrants issued 1,000 1,000 $0.01 $ 0.01
Warrants cancelled - - - -
Warrants exercised (1,250) (1,250) $0.01-$0.10 $ 0.03
---------- ---------
Warrants outstanding at
June 30, 2001 583 583 $0.10-$1.89 $ 1.12
========== =========
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation", requires
use of option valuation models that were not developed for use in valuing
employee stock options.
Proforma information regarding net income and earnings per share is
required by Statement No. 123, and has been determined as if the Company
had accounted for its employee stock options under the fair value method of
that Statement. The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 2001 and 2000: risk-free interest rate of
5%; no dividend yield; weighted average volatility factor of the expected
market price of the Company's common stock of 0.70; and a weighted-average
expected life of the options of 3 years.
Continued
F-17
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
7. STOCK OPTIONS AND WARRANTS, CONTINUED
-----------------------------------------
The Black-Scholes option valuation model was developed for use in
estimating fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require
the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes
in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its stock options.
For purposes of proforma disclosures, the estimated fair value of the
options is included in expense at the date of issuance. The Company's
proforma information is as follows (in thousands, except per share data):
2001 2000
-------- --------
Net loss available to common stockholders $(2,842) $(2,975)
Proforma net loss available to common
stockholders $(2,992) $(2,975)
Proforma basic and dilutive loss per share $ (0.17) $ (0.31)
8. PREFERRED STOCK
----------------
The Company's articles of incorporation authorize the issuance of up to
20,000,000 shares of preferred stock with characteristics determined by the
Company's board of directors. Effective May 5, 2000, the board of directors
authorized the issuance and sale of up to 55,000 shares of Series A 8%
convertible preferred stock.
On May 9, 2000, the Company issued 15,000 shares of $0.001 par value and
$100 per share liquidation value Series A 8% non-voting convertible
preferred stock for $1,500,000. The actual proceeds received by the Company
were $1,040,300, which are net of related offering costs. During the year
ended June 30, 2001, the Company issued an additional 15,000 shares of the
Series A preferred stock for cash proceeds to the Company of $1,223,247,
which is net of related offering costs of $276,753. In addition, the
Company issued as a finders fee, warrants to purchase 1,000,000 shares of
common stock at $0.01 per share, which resulted in additional offering
costs of $162,000.
Continued
F-18
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
8. PREFERRED STOCK, CONTINUED
----------------------------
The Series A convertible preferred stock can be converted to common stock
at any time at the option of the holder. The conversion rate is the stated
value per share plus any accrued and unpaid dividends divided by 85% of the
average of the three lowest closing bid prices of the Company's common
stock for the thirty trading days immediately preceding May 9, 2000, or 70%
of the average of the three lowest closing bid prices for the thirty days
immediately preceding the conversion date of the respective preferred
stock. During the year ended June 30, 2001, 14,240 shares of preferred
stock were converted to 16,501,251 shares of common stock.
In addition, the Series A preferred stockholders were originally obligated
to purchase an additional 30,000 shares, of which 15,000 shares were
purchased during the year ended June 30, 2001, of Series A 8% convertible
preferred stock at the option of the Company subject to the Company's
compliance with various covenants. The Company has violated certain of
these covenants but the stockholders retain the right to waive any
violations. The purchase price of additional shares is $100 per share.
If the conversion price is lower than the initial price at the date of
issue, the Company has the right to redeem the shares of Series A preferred
stock at 130% of its liquidation value per share.
9. LOSS PER COMMON SHARE
------------------------
The following table sets forth the computation of basic and diluted net
loss per common share (in thousands, except share data):
2001 2000
------------ -----------
Basic loss per common share:
Net loss before extraordinary item $ (2,842) $ (2,848)
Extraordinary item - (127)
Preferred stock dividends (135) - _
------------ -----------
Net loss available for common shareholders $ (2,977) $ (2,975)
============ ===========
Weighted average common shares outstanding 17,269,229 9,575,153
============ ===========
Basic net loss per common share before
extraordinary item $ (0.17) $ (0.30)
Extraordinary item - _ (0.01)
------------ -----------
Basic net loss per common share $ (0.17) $ (0.31)
============ ===========
Continued
F-19
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
9. LOSS PER COMMON SHARE
------------------------
Diluted loss per common share:
Net loss before extraordinary item $ (2,842) $ (2,848)
Extraordinary item - _ (127)
------------ -----------
Net loss available to common shareholders $ (2,842) $ (2,975)
============ ===========
Weighted average shares outstanding 17,269,229 9,575,153
============ ===========
Fully diluted net loss per common share
before extraordinary item $ (0.16) $ (0.30)
Extraordinary item - (0.01)
------------ -----------
Fully diluted net loss per common share $ (0.16) $ (0.31)
============ ===========
10. COMMITMENTS AND CONTINGENCIES
------------------------------
The Company was named as a defendant in a civil lawsuit styled David F.
Miller v. Endovasc Ltd., Inc. The plaintiff claimed damages as a result of
an alleged breach of a consulting contract with the Company. A bench trial
was held on May 14, 2001. On June 15, 2001, a judgment was entered against
the Company in the amount of $3,240,000 plus pre- and post-judgment
interest. The Company filed a motion for a new trial, and the parties
participated in mediation prior to a ruling on the Company's motion for a
new trial. The mediation resulted in a settlement, which was entered into
the Court records on August 10, 2001. As a result of the settlement, the
Company issued 8,000,000 free-trading shares of the Company's common stock
in the name of the plaintiff, based on an exemption from registration
provided by Section 3(a)(10) of the Securities Act of 1933 as amended. The
settlement terminated all disputes of any kind between the parties, and
also terminated a related matter styled David F. Miller v. Gary Ball. A
liability, based on the fair market value of the 8,000,000 shares of common
stock issued, of $408,000 is included in accrued liabilities at June 30,
2001.
The Company is subject to certain other legal proceedings and claims which
arose in the ordinary course of its business. In the opinion of management,
the amount of ultimate liability with respect to these actions will not
materially affect the financial position, results of operations or cash
flows of the Company.
The Company has entered into a one-year lease agreement for office space
which is accounted for as an operating lease. Rent expense for the years
ended June 30, 2001 and 2000 was $21,000 and $17,250, respectively. In
addition, the Company leases equipment under capital leases which expire at
various dates through 2006. Future minimum lease payments having initial or
noncancellable lease terms in excess of one year are as follows:
Continued
F-20
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
10. COMMITMENTS AND CONTINGENCIES, CONTINUED
-------------------------------------------
CAPITAL
LEASES_
---------
2002 $ 58
2003 54
2004 25
2005 9
2006 5
---------
Total payments 151
Less amount representing interest (42)
---------
Present value of minimum lease payments 109
Less current portion (35)
---------
Obligations under capital lease, net of
current portion $ 74
=========
11. GOING CONCERN CONSIDERATIONS
------------------------------
Since its inception, as a development stage enterprise, 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 to satisfy obligations, to
compensate individuals and vendors and to settle disputes that have arisen.
However, during the years ended June 30, 2001 and 2000, the Company
incurred net losses (in thousands) of $(2,842) and $(2,975), respectively,
and negative cash flows from operations of $(1,943) and $(1,567),
respectively. These factors along with a $(841) negative working capital
position at June 30, 2001 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:
1. In the near term, the Company plans to receive a sum total not to
exceed $512,000 from a third-party sponsor for the purpose of
agreed-upon research.
- In the near term the Company plans additional private sales of debt
and common and preferred stock to qualified investors to fund its
current operations.
- In the intermediate term, the Company plans a public registration of
its common stock under the Securities and Exchange Act of 1933 to
provide a means of expanding the market for its common stock and to
provide a means of obtaining the funds necessary to bring its products
to the commercial market.
Continued
F-21
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
11. GOING CONCERN CONSIDERATIONS, CONTINUED
------------------------------------------
- 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 three
key factors, as follows:
- The Company's ability to obtain adequate sources of debt or equity
funding to meet current commitments and fund the commercialization of
its products.
- The ability of the Company to obtain positive test results of its
products in clinical trials.
- The ability of the Company to ultimately achieve adequate
profitability and cash flows to sustain its operations.
12. NON-CASH INVESTING AND FINANCING ACTIVITIES
-----------------------------------------------
During the years ended June 30, 2001 and 2000, and for the period of
inception, June 10, 1996 to June 30, 2001 the Company engaged in certain
non-cash investing and financing activities as follows (in thousands):
INCEPTION
2001 2000 TO DATE
---------- ---------- ---------
Common stock issued in exchange for
equity securities $ - $ - $ 302
========== ========== =========
Common stock issued upon conversion
of debentures $ - $ 842 $ 1,289
========== ========== =========
Common stock issued for services and
license and patent rights $ 302 $ 63 $ 2,936
========== ========== =========
Common stock issued in settlement of
lawsuit and related liabilities $ - $ 193 $ 193
========== ========== =========
Warrants issued for services $ 162 $ - _ $ 162
========== ========== =========
Continued
F-22
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
12. NON-CASH INVESTING AND FINANCING ACTIVITIES, CONTINUED
------------------------------------------------------
Conversion of note payable to share-
holder to common stock $443 $148 $591
==== ==== ====
Conversion of dividends payable to
common stock $ 65 $ - $ 65
==== ==== ====
Reduction of note payable to stock-
holder and accrued liabilities
through exercise of stock options $275 $ - $275
==== ==== ====
Issuance of notes payable for
insurance $ 37 $ - $ 37
==== ==== ====
Issuance of notes payable for the
purchase of equipment $124 $ - $124
==== ==== ====
13. 401(K) PLAN
------------
The Endovasc Ltd., Inc. 401(k) Plan (the "Plan"), which was implemented in
June 2001, covers all of the Company's employees who are United States
citizens, at least 21 years of age and have completed at least six months
of service with the Company. Pursuant to the Plan, employees may elect to
reduce their current compensation by up to the statutorily prescribed
annual limit and have the amount of such reduction contributed to the Plan.
The Plan provides for the Company to make discretionary contributions as
authorized by the board of directors; however, no Company contributions
have been made as of June 30, 2001.
14. SUBSEQUENT EVENTS
------------------
The Company entered into an agreement to acquire Intermed 2000, Inc., a
life science company with headquarters in Israel. The potential acquisition
is subject to a number of conditions, including a due diligence review by
both companies.
Subsequent to June 30, 2001, the board of directors approved the purchase
by the Company of up to 1,400,000 shares of its common stock.
ITEM 1. FINANCIAL STATEMENTS
- ------- ---------------------
Balance Sheet as of September 30, 2001
Statement of Operations for the three months
ended September 30, 2001 and 2000, and for
the period from inception, June 10, 1996,
to September 30, 2001
Statement of Stockholders' Deficit for
the three months ended September 30, 2001
and 2000, and for the period from inception,
June 10, 1996, to September 30, 2001
Statement of Cash Flows for the three months
ended September 30, 2001 and 2000, and for
the period from inception, June 10, 1996,
to September 30, 2001
Notes to Financial Statements
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEET
SEPTEMBER 30, 2001 AND JUNE 30, 2001
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, JUNE 30,
2001 2001
ASSETS (UNAUDITED) (NOTE)
------ --------------- ---------------
Current assets:
Cash and cash equivalents $ 8 $ 117
Accounts receivable 241 -
Other current assets 28 47
--------------- ---------------
Total current assets 277 164
Property and equipment, net 201 214
Other assets, net 140 144
--------------- ---------------
Total assets $ 618 $ 522
=============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Current maturities of long-term debt $ 85 $ 43
Current portion of obligations under capital leases 35 35
Note payable to shareholder 124 99
Accounts payable 279 296
Accrued liabilities 113 532
--------------- ---------------
Total current liabilities 636 1,005
Long-term debt, net of current maturities 25 28
Long-term obligations under capital leases 58 74
Convertible debentures 400 - _
--------------- ---------------
Total liabilities 1,119 1,107
--------------- ---------------
Commitment and contingencies
Stockholders' deficit:
Common stock, $.001 par value, 100,000,000 shares
authorized, 61,783,831 shares issued and
40,253,331 shares outstanding 62 40
Preferred stock, $.001 par value, 20,000,000 shares
authorized, 12,693 + 15,760 shares of Series A 8%
cumulative convertible preferred stock issued and
outstanding, stated value $100 per share - -
Additional paid-in capital 8,791 8,121
Losses accumulated during the development stage (9,332) (8,729)
Treasury stock (22) (17)
--------------- ---------------
Total stockholders' deficit (501) (585)
--------------- ---------------
Total liabilities and stockholders' deficit $ 618 $ 522
=============== ===============
Note: The balance sheet at June 30, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying notes are an integral
part of these financial statements.
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 AND
FOR THE PERIOD FROM INCEPTION, JUNE 10, 1996, TO SEPTEMBER 30, 2001
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED
-------------------------------- INCEPTION TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001
--------------- --------------- ---------------
Income:
Sales $ - $ - $ 104
Interest income 1 - 28
Other income 246 - _ 255
--------------- --------------- ---------------
Total income 247 - 387
Costs and expenses:
Operating, general and adminis-
trative expenses 384 237 4,711
Research and development costs 261 319 3,785
Interest expense 177 30 525
Settlement with former employee - _ - _ 408
--------------- --------------- ---------------
Total costs and expenses 822 586 9,429
--------------- --------------- ---------------
Net loss before extraordinary item (575) (586) (9,042)
Extraordinary loss on extinguishment
of convertible debentures - _ - _ (127)
--------------- --------------- ---------------
Net loss $ (575) $ (586) $ (9,169)
=============== =============== ===============
Weighted average shares outstanding 48,898,796 12,714,918
=============== ===============
Basic and diluted net loss per
common share $ (0.01) $ (0.05)
=============== ===============
The accompanying notes are an integral
part of these financial statements.
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
LOSSES
ACCUMULATED
COMMON STOCK PREFERRED STOCK ADDITIONAL DURING THE
------------------- ----------------- PAID-IN TREASURY DEVELOPMENT
AMOUNT SHARES AMOUNT SHARES CAPITAL STOCK STAGE TOTAL
------- ---------- ------- ------- ------------ ---------- ------------- ---------
Balance at June 30, 2001 $ 40 40,253,331 $ - 15,760 $ 8,121 $ (17) $ (8,729) $ (585)
Stock issued for services 3 2,750,000 - - 88 - - 91
Stock issued in settlement of
lawsuit 8 8,000,000 - - 400 - - 408
Purchase of treasury stock - - - - - (5) - (5)
Dividends declared on preferred
stock - - - - - - (28) (28)
Conversion of preferred stock
to common stock 10 10,178,382 - (3,067) (10) - - -
Stock issued as payment of
dividends on preferred stock 1 602,118 - - 21 - - 22
Effect of the beneficial con-
version feature of the con-
vertible debentures - - - - 171 - - 171
Net loss - _ - _ - _ - _ - _ - _ (575) (575)
------- ---------- ------- ------- ------------ ---------- ------------- ---------
Balance at September 30, 2001 $ 62 61,783,831 $ - _ 12,693 $ 8,791 $ (22) $ (9,332) $ (501)
======= ========== ======= ======= ============ ========== ============= =========
The accompanying notes are an integral
part of these financial statements.
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONDENSED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000, AND
FOR THE PERIOD FROM INCEPTION, JUNE 10, 1996, TO SEPTEMBER 30, 2001
__________
(IN THOUSANDS)
THREE MONTHS ENDED
-------------------------------- INCEPTION TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 _
--------------- --------------- ---------------
Cash flows from operating activities:
Net loss $ (575) $ (586) $ (9,169)
Adjustments to reconcile net loss to net
cash used in operating activities:
Common stock and stock options issued
as compensation for services 91 - 2,680
Extraordinary loss - - 127
Write down of long-lived assets to fair
value - - 285
Depreciation and amortization expense 17 7 92
Deferred income tax expense - - 8
Amortization of discount on convertible
debentures 171 - 421
Changes in operating assets and liabilities:
(Increase) decrease in other assets (222) - (336)
Increase (decrease) in accounts payable
and accrued liabilities (34) 129 737
--------------- --------------- ---------------
Net cash used in operating activities (552) (450) (5,155)
--------------- --------------- ---------------
Cash flows from investing activities:
Capital expenditures - (65) (142)
Proceeds received from repayment of loan to
stockholder - _ - _ 72
--------------- --------------- ---------------
Net cash used in investing activities - _ (65) (70)
--------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from sale of equity securities - - 337
Proceeds from sale of common stock - 25 212
Proceeds from sale of convertible debentures 400 - 1,437
Net proceeds from issuance of preferred
stock - - 2,263
Issuance of notes payable 47 5 153
Repayment of notes payable (8) - (72)
Payments of obligations under capital leases (16) - (39)
Proceeds from advances from stockholders 25 - 969
Repayments of notes to stockholder - (5) (5)
Purchase of treasury stock (5) - _ (22)
--------------- --------------- ---------------
Net cash provided by financing
activities 443 25 5,233
--------------- --------------- ---------------
Net increase (decrease) in cash and cash
equivalents (109) (490) 8
Cash and cash equivalents at beginning of
period 117 926 - _
--------------- --------------- ---------------
Cash and cash equivalents at end of period $ 8 $ 436 $ 8
=============== =============== ===============
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ 6 $ - $ 104
=============== =============== ===============
Cash paid for income taxes $ - _ $ - _ $ - _
=============== =============== ===============
The accompanying notes are an integral
part of these financial statements.
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
__________
1. INTERIM FINANCIAL STATEMENTS
------------------------------
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles and the rules
of the U.S. Securities and Exchange Commission, and should be read in
conjunction with the audited financial statements and notes thereto for the
year ended June 30, 2001. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of financial position and the results of operations for the
interim periods presented have been included. Operating results for the
interim periods are not necessarily indicative of the results that may be
expected for the respective full year.
A summary of the Company's significant accounting policies and other
information necessary to understand the interim financial statements is
presented in the Company's audited financial statements for the years ended
June 30, 2001 and 2000. Accordingly the Company's audited financial
statements should be read in connection with these financial statements.
2. INCOME TAXES
-------------
The difference between the 34% federal statutory income tax rate and
amounts shown in the accompanying interim financial statement is primarily
attributable to an increase in the valuation allowance applied against the
tax benefit from utilization of net operating loss carryforwards.
3. CONVERTIBLE DEBENTURES
-----------------------
During the three months ended September 30, 2001, the Company issued
$400,000 in convertible debentures. The debentures bear interest at 8% per
year payable quarterly in arrears. The debentures mature in September 2003
and are convertible, at the option of the holder, to shares of the
Company's common stock at a conversion price per share equal to the lower
of (i) 85% of the average of the three lowest closing prices for the common
stock for the thirty days prior to the closing date of the debentures; or
(ii) 70% of the average of the three lowest closing prices for the common
stock for the thirty days prior to the conversion date. Accordingly, the
actual weighted average interest rate on these debentures, including the
effect of the cost of the beneficial conversion feature, is approximately
23%.
ENDOVASC LTD., INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO THE FINANCIAL STATEMENTS
__________
4. PREFERRED STOCK
----------------
The Company's articles of incorporation authorize the issuance of up to
20,000,000 shares of preferred stock with characteristics determined by the
Company's board of directors. Effective May 5, 2000, the board of directors
authorized the issuance and sale of up to 55,000 shares of Series A 8%
convertible preferred stock.
On May 9, 2000, the Company issued 15,000 shares of $0.001 par value and
$100 per share stated and liquidation value Series A 8% non-voting
convertible preferred stock for $1,500,000. The actual proceeds received by
the Company were $1,040,300, which are net of related offering costs. The
Series A convertible preferred stock can be converted to common stock at
any time at the option of the holder. The conversion rate is the stated
value per share plus any accrued and unpaid dividends divided by 85% of the
average of the three lowest closing bid prices of the Company's common
stock for the thirty trading days immediately preceding May 9, 2000, or 70%
of the average of the three lowest closing bid prices for the thirty days
immediately preceding the conversion of the respective preferred stock.
During the three months ended September 30, 2001, 3,067 shares of preferred
stock were converted to 10,178,382 shares of common stock.
In addition, the Series A preferred stockholders are obligated to purchase
an additional 30,000 shares of Series A 8% convertible preferred stock
("Put Stock") at the option of the Company subject to the Company being in
compliance with various covenants. The Company is currently not in
compliance with these covenants but the stockholders maintain a right to
waive any violations. The purchase price of the additional shares is $100
per share, which is its stated and liquidation value. During November 2000,
the Company issued an additional 7,500 shares of this Series A preferred
stock for proceeds to the Company of $569,757, which is net of related
offering costs.
If the conversion price is lower than the initial price on the date of
issue, the Company has the right to redeem the shares of Series A 8%
convertible preferred stock at 130% of its stated value per share.
5. RESEARCH AGREEMENT
-------------------
Effective July 1, 2001, the Company entered into an External Research
Agreement with another company (the "Sponsor") whereby the Sponsor has
agreed to assist in the funding of the Company's research and development
related to its Nicotine Receptor Agonist. The Sponsor has agreed to fund a
maximum of $511,829, of which $240,680 was recorded as other income in the
accompanying statement of operations for the three months ended September
30, 2001.
================================================================================
UP TO $589,000 WORTH OF
COMMON STOCK
AND
26,565,592 SHARES OF
COMMON STOCK
ENDOVASC LTD., INC.
-----------------
PROSPECTUS
-----------------
THE DATE OF THIS PROSPECTUS IS [ ]
================================================================================
II - 1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.751 of the Nevada General Corporation Law allows us to indemnify
any person who was or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by reason of the fact that he or
she is or was our Director, officer, employee or agent, or is or was serving at
our request as a Director, officer, employee or agent of any corporation,
partnership, joint venture, trust or other enterprise. We may advance expenses
in connection with defending any such proceeding, provided the indemnitee
undertakes to pay any such amounts if it is later determined that such person
was not entitled to be indemnified by us.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our Directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the securities offered hereby.
SEC registration fee. . . . . . . . . . . . $ 148.00
Accountant's fees and expenses. . . . . . . 500.00
Legal fees. . . . . . . . . . . . . . . . . 25,000.00
Total . . . . . . . . . . . . . . . . . $ 25,648.00
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of recent sales of unregistered securities that we
have accounted for prior to the end of our third operating quarter, ended March
31, 2000.
1. On or about July 25, 1997, we issued at total of 300,000 of our common
stock pursuant to the exemption for registration provided by Regulation D.
We relied on such exemption from registration based upon the fact that
issuance of these shares complied with the requirements of Regulation D and
that we made the required informational filing pursuant to Regulation D.
The total consideration paid the shares was $300,000, or $1.00 per share.
Such shares were issued to the following individuals in the following
amounts:
Name Shares
---- -------
Ronald & Judy Neddings 15,000
Paul & Helen Jones 30,000
Rafael and Ana Moreno 30,000
Drexal Global Fund 100,000
Ebensfeld Corporation 125,000
2. On or about September 26, 1997, we issued 382,571 shares of our common
stock for a total consideration of $500,000, or $1.30 per share. Such
shares were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended. Such shares were
issued to the following individuals in the following amounts:
II - 2
Name Shares
---- -------
Richard M. Johnson & Assoc. 300,000
James Mundt 3,571
Claudio R. Roman 20,000
M. Dwight Cantrell 25,000
Nick Nichols 10,000
Lester Summers 1,000
Dorothy Summers 1,000
Allan Burns 5,000
Dan Halman 2,000
Eric Gilles 10,000
Charles Siedel 5,000
Susan Cohen, Esq. 2,044
3. On or about November 13, 1997, we issued 200,000 shares to Geothermica, in
consideration of certain patent rights. Such shares were valued at $4.00
per share and were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended.
4. On or about June 16, 1998, we issued 100,000 shares of our common stock to
Alexander H. Walker Jr., in consideration for legal services rendered to
us. Such shares were valued at $1.00 per share and were issued pursuant to
the exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
5. On or about June 16, 1998, we issued 300,000 shares of our common stock to
Dorothy Summers,in exchange for services. Such shares were valued at $1.00
per share and were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended.
6. On or about June 30, 1998, we issued 50,000 shares of our common stock to
Danilo D. Lasic,in exchange for technical advisement services rendered to
us. Such shares were valued at $1.00 per share and were issued pursuant to
the exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
7. On or about September 23, 1998, we issued 18,987 shares of our common stock
to Nick A. Nichols Jr., in exchange for patent counsel and filing services.
Such shares were valued at $1.00 per share and were issued pursuant to the
exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
8. On or about September 24, 1998, we issued 25,000 shares of our common stock
to M. Dwight Cantrell, in exchange for services. Such shares were valued at
$1.00 per share and were issued pursuant to the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended.
9. On or about September 28, 1998, we issued 1,416 shares of our common stock
to Janet S. Clark, in exchange for services. Such shares were valued at
$1.00 per share and were issued pursuant to the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended.
10. On or about September 28, 1998, we issued 1,190 shares of our common stock
to James Mundt, in exchange for dividends. Such shares were valued at $1.00
per share and were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended.
11. On or about October 19, 1998, we issued 2,083 shares of our common stock to
Alenka Lasic, in exchange for services rendered in connection with
designing our brochures and website. Such shares were valued at $1.00 per
share and were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended.
12. On or about November 19, 1998, we issued 14,380 shares of our common stock
to Susan Cohen, in consideration for legal services rendered to us. Such
shares were valued at $1.00 per share and were issued pursuant to the
exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
13. On or about November 30, 1998, we issued 50,000 shares of our common stock
to James D. Regan, in exchange for technical advisement services rendered
to us. Such shares were valued at $1.00 per share and were issued pursuant
to the exemption from registration under Section 4(2) of the Securities Act
of 1933, as amended.
14. On or about November 30, 1998, we issued 10,416 shares of our common stock
to Alenka Lasic, in exchange for services rendered in connection with
designing Company brochures and designing our website. Such shares were
valued at $1.00 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
II - 3
15. On or about December 29, 1998, we issued 650,000 shares of our common stock
to Edward H. Burnbaum, in exchange for escrow. Such shares were valued at
$1.00 per share and were issued pursuant to the exemption from registration
under Rule 504 of Regulation D. We relied on such exemption from
registration based upon the fact that issuance of these shares complied
with the requirements of Regulation D and we made the required
informational filing pursuant to Regulation D.
16. On or about January 8, 1999, we issued 35,556 shares of our common stock to
Amram Rothman, in exchange for purchase. Such shares were valued at $1.00
per share and were issued pursuant to the exemption from registration under
Rule 504 of Regulation D. We relied on such exemption from registration
based upon the fact that issuance of these shares complied with the
requirements of Regulation D and we made the required informational filing
pursuant to Regulation D.
17. On or about January 14, 1999, we issued 20,000 shares of our common stock
to Phoenix Investment Group, in exchange for services. Such shares were
valued at $1.00 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
18. On or about January 14, 1999, we issued 5,200 shares of our common stock to
James Regan, in exchange for technical advisement services rendered to us.
Such shares were valued at $1.00 per share and were issued pursuant to the
exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
19. On or about January 22, 1999, we issued 10,116 shares of our common stock
to Alenka Lasic, in exchange for services rendered in connection with
designing Company brochures and designing our website. Such shares were
valued at $1.00 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
20. On or about January 28, 1999, we issued 80,000 shares of our common stock
to Amram Rothman, in exchange for purchase. Such shares were valued at
$1.00 per share and were issued pursuant to the exemption from registration
under Rule 504 of Regulation D. We relied on such exemption from
registration based upon the fact that issuance of these shares complied
with the requirements of Regulation D and we made the required
informational filing pursuant to Regulation D.
21. On or about February 3, 1999, we issued 2,000 shares of our common stock to
John G. Charles, in exchange for services. Such shares were valued at $1.00
per share and were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended.
22. On or about February 3, 1999, we issued 5,200 shares of our common stock to
James D. Regan, in exchange for technical advisement services rendered to
us. Such shares were valued at $1.00 per share and were issued pursuant to
the exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
23. On or about February 18, 1999, we issued 106,667 shares of our common stock
to Amram Rothman, in exchange for purchase. Such shares were valued at
$1.00 per share and were issued pursuant to the exemption from registration
under Rule 504 of Regulation D. We relied on such exemption from
registration based upon the fact that issuance of these shares complied
with the requirements of Regulation D and we made the required
informational filing pursuant to Regulation D.
24. On or about February 23, 1999, we issued 100,000 shares of our common stock
to Patrick M. Rost, in exchange for services. Such shares were valued at
$1.00 per share and were issued pursuant to the exemption from registration
under Rule 504 of Regulation D. We relied on such exemption from
registration based upon the fact that issuance of these shares complied
with the requirements of Regulation D and we made the required
informational filing pursuant to Regulation D.
25. On or about February 23, 1999, we issued 5,000 shares of our common stock
to Shawn F. Hackman in exchange for services. Such shares were valued at
$1.00 per share and were issued pursuant to the exemption from registration
under Rule 504 of Regulation D. Mr. Hackman returned these shares to us on
or about September 1, 1999. We relied on such exemption from registration
based upon the fact that issuance of these shares complied with the
requirements of Regulation D and we made the required informational filing
pursuant to Regulation D.
26. On or about March 9, 1999, we issued 248,889 shares of our common stock to
Amram Rothman, in exchange for purchase. Such shares were valued at $1.00
per share and were issued pursuant to the exemption from registration under
Rule 504 of Regulation D. We relied on such exemption from registration
based upon the fact that issuance of these shares complied with the
requirements of Regulation D and we made the required informational filing
pursuant to Regulation D.
27. On or about March 23, 1999, we issued 13,201 shares of our common stock to
Hiroko Yoshida, in exchange for technical advisement services rendered to
us. Such shares were valued at $1.00 per share and were issued pursuant to
the exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
II - 4
28. On or about April 6, 1999, we issued 127,348 shares of our common stock to
Amram Rothman, in exchange for services. Such shares were valued at $1.00
per share and were issued pursuant to the exemption from registration under
Rule 504 of Regulation D. We relied on such exemption from registration
based upon the fact that issuance of these shares complied with the
requirements of Regulation D and we made the required informational filing
pursuant to Regulation D.
29. On or about April 13, 1999, we issued 5,166 shares of our common stock to
Alenka Lasic, in exchange for services rendered in connection with
designing Company brochures and designing our website. Such shares were
valued at $1.00 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
30. On or about April 19, 1999, we issued 187,324 shares of our common stock to
Mr. Amram Rothman, in debt conversion. Such shares were valued at $0.3203
and were issued pursuant to the exemption from registration under Rule 504
of Regulation D. We relied on such exemption from registration based upon
the fact that issuance of these shares complied with the requirements of
Regulation D and we made the required informational filing pursuant to
Regulation D.
31. On or about April 29, 1999, we issued 139,132 shares of our common stock to
Mr. Amram Rothman, in debt conversion. Such shares were valued at $0.35937
per share and were issued pursuant to the exemption from registration under
Rule 504 of Regulation D. We relied on such exemption from registration
based upon the fact that issuance of these shares complied with the
requirements of Regulation D and we made the required informational filing
pursuant to Regulation D.
32. On or about May 20, 1999, we issued 65,308 shares of our common stock to
Amram Rothman, in exchange for purchase. Such shares were valued at $1.00
per share and were issued pursuant to the exemption from registration under
Rule 504 of Regulation D. We relied on such exemption from registration
based upon the fact that issuance of these shares complied with the
requirements of Regulation D and we made the required informational filing
pursuant to Regulation D.
33. On or about May 27, 1999, we issued 1,000 shares of our common stock to
Janet S. Clark, in exchange for services. Such shares were valued at
$0.3828 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
34. On or about June 8, 1999, we issued 16,487 shares of our common stock to
Hiroko Yoshida, in exchange for services. Such shares were valued at $1.00
per share and were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended.
35. On or about June 24, 1999, we issued 124,444 shares of our common stock to
Amram Rothman, in exchange for purchase. Such shares were valued at
$0.28125 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
36. On or about July 8, 1999, we issued 10,000 shares of our common stock to
John G. Charles, in exchange for services. Such shares were valued at $1.00
per share and were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended.
37. On or about July 27, 1999, we issued 5,000 shares of our common stock to
Sherry R. Ball, in exchange for corporate video design and development
services. Such shares were valued at $1.00 per share and were issued
pursuant to the exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended.
38. On or about July 26, 1999, we issued 98,467 shares of our common stock to
Amram Rothman, in exchange for purchase. Such shares were valued at
$0.30467 per share and were issued pursuant to the exemption from
registration under Rule 504 of Regulation D. We relied on such exemption
from registration based upon the fact that issuance of these shares
complied with the requirements of Regulation D and we made the required
informational filing pursuant to Regulation D.
39. On or about July 29, 1999, we issued 18,577 shares of our common stock to
Hiroko Yoshida, in exchange for scientific and product development services
rendered to us. Such shares were valued at $1.00 per share and were issued
pursuant to the exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended.
40. On or about August 6, 1999, we issued 9,883 shares of our common stock to
Hiroko Yoshida, in exchange for scientific and product development services
rendered to us. Such shares were valued at $1.00per share and were issued
pursuant to the exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended.
41. On or about August 6, 1999, we issued 50,000 shares of our common stock to
Danilo Lasic, in exchange for scientific, laboratory, and technical advice
rendered to us. Such shares were valued at $1.00 per share and were issued
pursuant to the exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended.
II - 5
42. On or about September 27, 1999, we issued 200,000 shares of our common
stock to Francis Pizzuli, in connection with a settlement reach in
litigation. Such shares were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
43. On or about September 27, 1999, we issued 237,079 shares of our common
stock to Amram Rothman, in connection with the conversion of convertible
debentures owned by Mr. Rothman. Such shares were issued pursuant to the
exemption from registration under Rule 504 of Regulation D. We relied on
such exemption from registration based upon the fact that issuance of these
shares complied with the requirements of Regulation D and we made the
required informational filing pursuant to Regulation D.
44. On or about October 4, 1999, we issued 4,000 shares of our common stock to
John G. Charles, in exchange for sales and marketing services. Such shares
were valued at $1.00 per share and were issued pursuant to the exemption
from registration under Section 4(2) of the Securities Act of 1933, as
amended.
45. On or about October 13, 1999, we issued 384,000 shares of our common stock
to Amram Rothman, in debt conversion. Such shares were valued at $0.09375
per share and were issued pursuant to the exemption from registration under
Rule 504 of Regulation D. We relied on such exemption from registration
based upon the fact that issuance of these shares complied with the
requirements of Regulation D and we made the required informational filing
pursuant to Regulation D.
46. On or about October 18, 1999, we issued 100,000 shares of our common stock
to Amram Rothman, in debt conversion. Such shares were valued at $0.09 per
share and were issued pursuant to the exemption from registration under
Rule 504 or Regulation D. We relied on such exemption from registration
based upon the fact that issuance of these shares complied with the
requirements of Regulation D and we made the required informational filing
pursuant to Regulation D.
47. On or about October 18, 1999, we issued 70,880 shares of our common stock
to Hermes Bioscience, Inc., in exchange for research and development
laboratory services. Such shares were valued at $1.00 per share and were
issued pursuant to the exemption from registration under Section 4(2) of
the Securities Act of 1933, as amended.
48. On or about October 18, 1999, we issued 5,000 shares of our common stock to
each of Dr. Charles Seidel and Dr. Alan Burns, in exchange for services.
Such shares were valued at $1.00 per share and were issued pursuant to the
exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
49. On or about October 28, 1999, we issued 500,000 shares of our common stock
to Amram Rothman, in debt conversion. Such shares were valued at $0.08 per
share and were issued pursuant to the exemption from registration under
Rule 504 or Regulation D. We relied on such exemption from registration
based upon the fact that issuance of these shares complied with the
requirements of Regulation D and we made the required informational filing
pursuant to Regulation D.
50. On or about October 28, 1999, we issued 70,880 shares of our common stock
to Hermes Bioscience, Inc., in exchange for research and development
laboratory services. Such shares were valued at $0.05 per share and were
issued pursuant to the exemption from registration under Section 4(2) of
the Securities Act of 1933, as amended.
51. On or about November 10, 1999, we issued 4,000 shares of our common stock
to John Charles, in exchange for services. Such shares were valued at $1.00
per share and were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended.
52. On or about December 8, 1999, we issued 1,000,000 shares of our common
stock to Southwest Securities, Inc., in exchange for services. Such shares
were valued at $0.46 per share and were issued pursuant to the exemption
from registration under Section 4(2) of the Securities Act of 1933, as
amended.
53. On or about December 20, 1999, we issued 1,250,000 shares of our common
stock to Dr. David Summers, our Chairman and Chief Executive Officer, in
debt conversion. Such shares were valued at $0.12 per share and were issued
pursuant to the exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended.
54. On or about December 20, 1999, we issued 600,000 shares of our common stock
to Gary Ball, in lieu of payment of salary. Such shares were valued at
$0.10 per share and were issued pursuant to the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended.
55. On or about December 20, 1999, we issued 50,000 shares of our common stock
to Dwight Cantrell, in exchange for financial services. Such shares were
valued at $0.50 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
II - 6
56. On or about December 20, 1999, we issued 50,000 shares of our common stock
to Roman Claudio, in exchange for legal services. Such shares were valued
at $0.50 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
57. On or about January 19, 2000, we issued 200,325 shares of our common stock
to Nick Nichols, in exchange for legal and patent services. Such shares
were valued at $0.10 per share and were issued pursuant to the exemption
from registration under Section 4(2) of the Securities Act of 1933, as
amended.
58. On or about February 2, 2000, we issued 24,000 shares of our common stock
to Barbara Richardson, in lieu of payment of salary and bonuses. Such
shares were valued at $0.01 per share and were issued pursuant to the
exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
59. On or about February 2, 2000, we issued 50,000 shares of our common stock
to Collaborative, Inc., in exchange for research and development services.
Such shares were valued at $0.20 per share and were issued pursuant to the
exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
60. On or about February 2, 2000, we issued 25,000 shares of our common stock
to Janet Greeson, in exchange for consulting services. Such shares were
valued at $0.40 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
61. On or about February 2, 2000, we issued 10,000 shares of our common stock
to Dr. Representacoes Ltd., in exchange for legal and consulting services.
Such shares were valued at $0.50 per share and were issued pursuant to the
exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
62. On or about February 2, 2000, we issued 10,000 shares of our common stock
to William Lamar, in exchange for services. Such shares were valued at
$0.40 per share and were issued pursuant to the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended.
63. On or about February 9, 2000, we issued 10,000 shares of our common stock
to each of Richard Smalling and Michel Henry, in exchange for research and
development consulting services. Such shares were valued at $0.10 per share
and were issued pursuant to the exemption from registration under Section
4(2) of the Securities Act of 1933, as amended.
64. On or about February 18, 2000, we issued 1,820 shares of our common stock
to James Regan, in exchange for consulting services. Such shares were
valued at $1.00 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
65. On or about February 18, 2000, we issued 33,933 shares of our common stock
to Hiroko Yoshida, in exchange for scientific and product development
services rendered to us. Such shares were valued at $1.00 per share and
were issued pursuant to the exemption from registration under Section 4(2)
of the Securities Act of 1933, as amended.
66. On or about February 18, 2000, we issued 136,173 shares of our common stock
to Board of Trustees of Leland and 13,457 shares of our common stock to
each of John Cooke, Christopher Heeschen, Phillip Tsao, and James Jang, in
exchange for scientific and product development services rendered to us.
Such shares were valued at $1.00 per share and were issued pursuant to the
exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
67. On or about February 19, 2000, we issued 300,000 shares of our common stock
to Geotermica, Ltd., in debt conversion. Such shares were valued at $0.50
per share and were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended.
68. On or about March 2, 2000, we issued 14,000 shares of our common stock to
Barbara Richardson, in lieu of payment of salary. Such shares were valued
at $4.80 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
69. On or about March 2, 2000, we issued 50,000 shares of our common stock to
John Charles and 25,000 shares of our common stock to Roy Robertson, in
exchange for consulting services. Mr. Charles' shares were valued at $0.30
per share and Mr. Robertson's shares were valued at $7.25 per share. These
shares were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended.
70. On or about March 3, 2000, we issued 14,000 shares of our common stock to
Barbara Richardson, in lieu of payment of salary. Such shares were valued
at $7.25 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
II - 7
71. On or about March 7, 2000, we issued 1,000 shares of our common stock to
each of John Sorsi Jr. and Gary Parker, in exchange for promotional
services. Such shares were valued at $1.00 per share and were issued
pursuant to the exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended.
72. On or about March 13, 2000, we issued 20,000 shares of our common stock to
Curtis Wenger, Esq. and 25,000 shares of our common stock to each of
Alexander Walker III, Esq. and Alexander Walker Jr., in exchange for legal
services. Mr. Wenger's shares were valued at $0.35 per share, Mr. Walker
and Mr. Walker Jr.'s shares were each valued at $6.00 per share. These
shares were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended.
73. On or about March 13, 2000, we issued 25,000 shares of our common stock to
Incubud, Inc., in exchange for promotional services. Such shares were
valued at $0.25 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
74. On or about March 13, 2000, we issued 12,000 shares of our common stock to
Sichenzia, Ross & Friedman LLP, in exchange for legal services. Such shares
were valued at $6.00 per share and were issued pursuant to the exemption
from registration under Section 4(2) of the Securities Act of 1933, as
amended.
In addition to the foregoing, the following is a description of a recently
concluded private placement of our securities:
- - In May 2000, we issued an aggregate of $1,500,000 of Series A 8% Cumulative
Convertible Preferred Stock in a private placement to six investors
pursuant to a Subscription Agreement in which the investors originally
agreed to purchase an aggregate of $4.5million of convertible preferred
stock, in three (3) $1.5 million tranches. The conversion price for the
convertible preferred stock shall be the lesser of (a) 85% of the average
of the three lowest closing bid prices for the thirty (30) trading days
immediately preceding the issue date of the convertible preferred stock, or
(b) 70% of the average of the three (3) lowest closing bid prices for the
thirty (30) days immediately preceding the conversion of the shares of
convertible preferred stock. In connection with such transactions, the
placement agents received cash fees of $300,000, and warrants to purchase
an aggregate of approximately 333,333 shares.
- - In November 2000, we issued an additional $750,000 of Series A 8%
Cumulative Convertible Preferred Stock to four investors. In connection
with such transactions, the placement agents received cash fees of
$150,000, and warrants to purchase an aggregate of approximately 166,667
shares.
- - In April 2001, we issued an additional $750,000 of Series A 8% Cumulative
Convertible Preferred Stock to two investors. In connection with such
transactions, the placement agents received cash fees of $75,000, and
warrants to purchase an aggregate of approximately 166,667 shares.
- - In August 2001, we issued a $200,000 8% Convertible Note to an accredited
investor. In connection with such transaction, we also issued warrants to
purchase an aggregate of approximately 100,000 shares.
- - In September 2001, we issued a $200,000 8% Convertible Note to an
accredited investor.
II - 8
ITEM 27. INDEX TO EXHIBITS
Exhibit No. Exhibit
- ---------- -------
3.1 Articles of Incorporation of the Company **
3.2 Bylaws of the Company **
4.1 Form of 8% Series A Senior Subordinated Convertible Redeemable
Debenture **
4.2 Form of 8% Series B Senior Subordinated Convertible Redeemable
Debenture **
4.3 Specimen Stock Certificate of the Company **
4.4 Form of 8% Convertible Note
4.5 Form of Warrant
5.1 Opinion of Sichenzia, Ross, Friedman & Ference LLP
10.1 Form of Employment Agreement with Dr. David Summers, dated
December 18, 1996*
10.2 Form of Employment Agreement with Ms. Barbara Richardson, dated
June 1, 2000*
10.3 Form of Consulting Services Agreement with Mr. Roy Robertson,
dated March 1, 2000*
10.4 Form of Subscription Agreement for Purchase of Series A 8%
Cumulative Convertible Preferred Stock*
10.5 Certificate to Set Forth Designations, Voting Powers,
Preferences, Limitations, Restrictions and Relative Rights of
Series A 8% Cumulative Convertible Preferred Stock*
10.6 Form of Common Stock Purchase Warrant*
10.7 Lease of Company's Facility at 15001 Walden Road, Suite 108,
Montgomery, Texas 77356*
10.8 Lease of Company's Facility at 15001 Walden Road, Suites 234 and
235, Montgomery, Texas 77356*
10.9 8% Convertible Note Subscription Agreement
16.1 Letter on change in certifying accountant **
23.1 Consent of Ham, Langston & Brezina, LLP
23.2 Consent of Sichenzia, Ross, Friedman & Ference LLP (included in
Exhibit 5.1)
* Incorporated by reference to the Registrant's Registration Statement, as
amended, on Form SB-2, originally filed on June 30, 2000.
** Incorporated by reference from the Registrant's Form 10-SB, filed on
December 3, 1999.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file a post-effective amendment to this Registration Statement during
any period in which offers or sales are being made:
(i) to include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually, or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) ((S)230.424(b) of this Chapter) if,
in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement of
any material change to such information in the Registration Statement.
(2) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of this
offering.
(3) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
II - 9
(4) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and this offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(5) That, insofar as indemnification for liabilities arising from the
Securities Act may be permitted to Directors, officers, and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(6) That, for purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
II - 10
SIGNATURES
Pursuant to the requirements of the Act, the Company certifies that it
has reasonable grounds to believe that it meets all of the requirement for
filing on Form SB-2 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the State of
Texas, on November 14, 2001.
Signature Title Date
--------- ----- ----
/s/David P. Summers Chief Executive Officer and November 14, 2001
___________________________ Chairman
David P. Summers
/s/Barbara J. Richardson Secretary and Director November 14, 2001
____________________________
Barbara J. Richardson
/s/M. Dwight Cantrell Chief Financial Officer, November 14, 2001
____________________________ Treasurer and Director
M. Dwight Cantrell
/s/Gary R. Ball Director November 14, 2001
____________________________
Gary R. Ball
/s/Claudio R. Roman Director November 14, 2001
____________________________
Claudio R. Roman
II - 11