United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended September 30, 2002.
[ ] Transition Report to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Transition Period from _____________ to ___________.
000-28371
(Commission File Numbers)
ENDOVASC LTD., INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0512500
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
15001 Walden Road, Suite 108
Montgomery, Texas 77356
(Address of principal executive offices) (Zip Code)
(936) 448-2222
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 5, 2002, 34,115,208 shares of Common Stock, par value $.001
per share, of Endovasc Ltd., Inc. were outstanding.
TABLE OF CONTENTS
PART I
ITEM 1. FINANCIAL STATEMENTS
- ------ --------------------
Balance Sheet as of September 30, 2002 and
June 30, 2002 F-2
Statement of Operations for the three months
ended September 30, 2002 and 2001, and for
the period from inception, June 10, 1996,
to September 30, 2002 F-3
Statement of Stockholders' Deficit for the
three months ended September 30, 2002 F-4
Statement of Cash Flows for the three months
ended September 30, 2002 and 2001, and for
the period from inception, June 10, 1996,
to September 30, 2002 F-5
Notes to Financial Statements F-6
ITEM 2. Management's Discussion and Analysis of Financial
- ------ Condition and Results of Operations F-12
ITEM 3. Evaluation of Disclosure Controls and Procedures F-13
- ------
PART II
ITEM 1. Legal Proceedings F-14
- ------
ITEM 2. Changes in Securities F-14
- ------
ITEM 6. Exhibits and Reports on Form 8-K F-14
- ------
SIGNATURES F-15
F-1
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEET
SEPTEMBER 30, 2002 AND JUNE 30, 2002
_________________
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, JUNE 30,
2002 2002
ASSETS (UNAUDITED) (NOTE)
------ --------------- ----------
Current assets:
Cash and cash equivalents $ 19 $ 1
Accounts receivable 54 214
Other current assets 43 68
--------------- ----------
Total current assets 116 283
Property and equipment, net 155 168
Other assets, net 124 128
--------------- ----------
Total assets $ 395 $ 579
=============== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Current maturities of long-term debt $ 113 $ 91
Current portion of obligations under capital leases 29 37
Note payable to shareholder 78 58
Convertible debentures 173 -
Accounts payable 587 689
Accrued liabilities 147 144
--------------- ----------
Total current liabilities 1,127 1,019
Long-term debt, net of current maturities 12 33
Long-term obligations under capital leases 33 33
Convertible debentures, net of current portion - 171
--------------- ----------
Total liabilities 1,172 1,256
--------------- ----------
Commitment and contingencies
Stockholders' deficit:
Common stock, $.001 par value, 200,000,000 shares
authorized, 33,037,744 and 2,183,575 shares issued
and 33,037,744 and 2,131,450 shares outstanding at
September 30, 2002 and June 30, 2002, respectively 33 2
Preferred stock, $.001 par value, 20,000,000 shares
authorized, 6,489 and 7,869 shares of Series A 8%
cumulative convertible preferred stock issued and
outstanding at September 30, 2002 and June 30, 2002,
respectively, stated value $100 per share - -
Preferred stock, $0.001 par value, 3,000,000 shares
authorized, -0- and 2,400,855 shares of Series B
convertible preferred stock issued and outstanding
at September 30, 2002 and June 30, 2002, respectively - 2
Preferred stock, $0.001 par value, 370,000 shares
authorized, -0- and 350,000 shares of Series C
convertible preferred stock issued and outstanding
at September 30, 2002 and June 30, 2002, respectively - -
Additional paid-in capital 11,200 10,566
Losses accumulated during the development stage (12,010) (11,230)
Treasury stock, -0- and 52,125 shares at September
30, 2002 and June 30, 2002, respectively - (17)
--------------- ----------
Total stockholders' deficit (777) (677)
--------------- ----------
Total liabilities and stockholders' deficit $ 395 $ 579
=============== ==========
Note: The balance sheet at June 30, 2002 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.
F-2
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 AND
FOR THE PERIOD FROM INCEPTION, JUNE 10, 1996, TO SEPTEMBER 30, 2002
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED INCEPTION TO
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002
--------------- --------------- ---------------
Income:
Revenue $ 104 $ 241 $ 873
Interest income - 1 28
Other income 1 5 15
--------------- --------------- ---------------
Total income 105 247 916
--------------- --------------- ---------------
Costs and expenses:
Operating, general and administrative
expenses 442 384 6,357
Research and development costs 396 261 5,397
Interest expense 33 177 605
Settlement with former employee - - 408
--------------- --------------- ---------------
Total costs and expenses 871 822 12,767
--------------- --------------- ---------------
Net loss before extraordinary item (766) (575) (11,851)
Extraordinary loss on extinguishment of
convertible debentures - - 127
--------------- --------------- ---------------
Net loss $ (766) $ (575) $ (11,978)
=============== =============== ===============
Basic and diluted net loss per common share $ (0.03) $ (0.47)
=============== ===============
Weighted average shares outstanding 25,509,388 1,222,470
=============== ===============
The accompanying notes are an integral
part of these financial statements.
F-3
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
SERIES A SERIES B SERIES C
COMMON STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK ADDITIONAL
-------------------- ---------------- --------------------- ------------------ PAID-IN TREASURY
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES CAPITAL STOCK
------- ----------- ------- ------- -------- ----------- ------- --------- --------- -------
Balance at June 30, 2002 $ 2 2,183,575 $ - 7,869 $ 2 2,400,855 $ - 350,000 $ 10,566 $ (17)
Issue of common stock
for services and fin-
ancing costs 1 605,795 - - - - - - 574 -
Conversion of preferred
stock to treasury stock - 121,000 - - - (12,100) - - 5 (5)
Conversion of preferred
stock to common stock 30 29,901,750 - (1,380) (2) (2,388,755) - (350,000) (28) -
Dividends declared on pre-
ferred stock - - - - - - - - - -
Issue of common stock as
payment of dividends on
preferred stock - 48,374 - - - - - - 24 -
Conversion of other liabil-
ities to common stock - 43,500 - - - - - - 36 -
Issue of common stock for
exercise of warrants - 300,000 - - - - - - 39 -
Issue of common stock for
cash - 6,875 - - - - - - 6 -
Retirement of treasury
stock - (173,125) - - - - - - (22) 22
Net loss - - - - - - - - - -
------- ----------- ------- ------- -------- ----------- ------- --------- --------- -------
Balance at September 30,
2002 $ 33 33,037,744 $ - 6,489 $ - - $ - - $ 11,200 $ -
======= =========== ======= ======= ======== =========== ======= ========= ========= =======
LOSSES
ACCUMULATED
DURING THE
DEVELOPMENT
STAGE TOTAL
--------- ---------
Balance at June 30, 2002 $(11,230) $ (677)
Issue of common stock
for services and fin-
ancing costs - 575
Conversion of preferred
stock to treasury stock - -
Conversion of preferred
stock to common stock - -
Dividends declared on pre-
ferred stock (14) (14)
Issue of common stock as
payment of dividends on
preferred stock - 24
Conversion of other liabil-
ities to common stock - 36
Issue of common stock for
exercise of warrants - 39
Issue of common stock for
cash - 6
Retirement of treasury
stock - -
Net loss (766) (766)
--------- ---------
Balance at September 30,
2002 $(12,010) $ (777)
========= =========
The accompanying notes are an integral part of these financial statements.
F-4
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONDENSED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001, AND
FOR THE PERIOD FROM INCEPTION, JUNE 10, 1996, TO SEPTEMBER 30, 2002
__________
(IN THOUSANDS)
THREE MONTHS ENDED
-------------------------------- INCEPTION TO
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002
--------------- --------------- ---------------
Cash flows used in operating activities:
Net loss $ (766) $ (575) $ (11,978)
Adjustments to reconcile net loss to net
cash used in operating activities 724 23 6,402
--------------- --------------- ---------------
Net cash used in operating activities (42) (552) (5,576)
--------------- --------------- ---------------
Cash flows used in investing activities:
Capital expenditures - - (147)
Proceeds received from repayment of loan to
stockholder - - 72
--------------- --------------- ---------------
Net cash used in investing activities - - (75)
--------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from sale of equity securities - - 337
Proceeds from sale of common stock 6 - 252
Proceeds from exercise of warrants 39 - 74
Proceeds from sale of convertible debentures - 400 1,437
Net proceeds from issuance of preferred stock - - 2,263
Issuance of notes payable 21 47 250
Repayment of notes payable (18) (8) (135)
Payments of obligations under capital leases (8) (16) (69)
Proceeds from advances from stockholders 20 25 1,288
Repayments of notes to stockholder - - (5)
Purchase of treasury stock - (5) (22)
--------------- --------------- ---------------
Net cash provided by financing activities 60 443 5,670
--------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents 18 (109) 19
Cash and cash equivalents at beginning of period 1 117 -
--------------- --------------- ---------------
Cash and cash equivalents at end of period $ 19 $ 8 $ 19
=============== =============== ===============
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ 30 $ 6 $ 146
=============== =============== ===============
Cash paid for income taxes $ - $ - $ -
=============== =============== ===============
The accompanying notes are an integral
part of these financial statements.
F-5
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
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, 2002. 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, 2002 and 2001. 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. 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. The following information excludes the effect
of the 40 to 1 reverse stock split. The conversion features of all classes
of preferred stock were not subject to the effects of the split.
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. The actual proceeds received by the Company
were $1,040, 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, which is net
of related offering costs of $277. 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.
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.
Continued
F-6
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
3. PREFERRED STOCK, CONTINUED
----------------------------
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.
During the three months ended September 30, 2002, 1,380 shares of Series A
preferred stock were converted to 266,577 shares of common stock.
In May 2002, the Company's board of directors authorized the issuance of up
to 3,000,000 shares of Series B convertible preferred stock with a par
value of $0.001 per share. Each share of Series B preferred stock is
convertible into 10 shares of common stock at the option of the holder.
Upon the occurrence of a recapitalization of the Company, each share of
Series B preferred stock is automatically converted to 10 shares of the
Company's common stock. Each share of Series B preferred stock includes
voting rights equal to 500 shares of common stock. The shares of the Series
B preferred stock rank senior to the common stock both in payment of
dividends and liquidation preference.
As of June 30, 2002, the Company had entered into Exchange Agreements with
certain stockholders, whereby these stockholders exchanged 24,008,545
shares of the Company's common stock for 2,400,855 shares of Series B
convertible preferred stock. An additional 2,305,259 shares of the
Company's common stock were exchanged for 230,526 shares of Series B
convertible preferred stock during the three month period ended September
30, 2002.
In May 2002, the Company's board of directors authorized the issuance of up
to 370,000 shares of Series C convertible preferred stock with no par
value. Each share of Series C preferred stock is convertible into 10 shares
of common stock at the option of the holder. Upon the occurrence of an
increase in authorized common stock of the Company, each share of Series C
preferred stock is automatically converted into 10 shares of the Company's
common stock. Holders of the Series C preferred stock have voting rights,
dividend rights and liquidation preference equal to those of the common
stockholders. In May 2002, 350,000 shares of the Series C convertible
preferred stock were issued to two consultants for services performed for
the Company.
During the three months ended September 30, 2002, due to the
reincorporation of the Company (See Note 4), all shares of Series B and
Series C preferred stock were automatically converted back to the shares of
common stock originally exchanged and such conversion had a significant
dilutive effect on the owners of common stock.
Continued
F-7
ENDOVASC LTD., INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO THE FINANCIAL STATEMENTS
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
4. REINCORPORATION
---------------
Effective July 9, 2002, the Company's board of directors and holders of
shares representing a majority of the voting rights of the outstanding
shares of the Company's common stock and preferred stock approved a
reincorporation of the Company from the state of Nevada to the state of
Delaware. This reincorporation was accomplished by a merger of the Company
into a new Delaware corporation of the same name. Under the terms of the
merger, holders of the Company's common stock received one share of the new
Delaware corporation common stock in exchange for 40 shares of the
Company's common stock, resulting in a 40 to 1 reverse split for all common
stockholders. All holders of the outstanding shares of Series A, B and C
convertible preferred stock were not subject to the 40 to 1 reverse split,
because under the terms of the merger agreement, each share of preferred
stock was converted into one share of preferred stock in the new Delaware
corporation with identical conversion rights, which resulted in significant
dilution to all common stockholders.
As a result of this reincorporation, each share of Series B and Series C
convertible preferred stock was automatically converted to 10 shares of the
Company's new common stock resulting in the issuance of 29,813,804
post-split shares of common stock in the new Delaware corporation.
Accordingly, the reincorporation process resulted in a preferential stock
dividend of 29,068,459 shares of common stock issued to holders of Series B
and Series C convertible preferred stock in July 2002.
Each share of Series A convertible preferred stock was not automatically
converted to common stock upon reincorporation and was not subject to the
40 to 1 reverse split. Accordingly, holders of Series A convertible
preferred stock received a preferential dividend of 23,469,792 shares of
common stock based on the conversion rate on July 9, 2002.
This reincorporation resulted in an increase in authorized shares of the
Company's common stock to 200,000,000 shares with all other terms of the
common and preferred stock remaining the same except as otherwise noted.
The Company's treasury stock was cancelled and retired as a result of this
reincorporation and all shares held in treasury resumed the status of
authorized and unissued common stock.
The effect of the 40 to 1 reverse stock split was recognized retroactively
in the stockholders' equity accounts on the balance sheet at June 30, 2002,
with the exception of 2,247,628 shares which were recognized during the
three month period ended September 30, 2002. Stockholders' equity accounts
have been restated to reflect the reclassification of an amount equal to
the par value of the decrease in issued common shares from the common stock
account to the additional paid-in capital account.
During the three month period ended September 30, 2002 the board of
directors approved the purchase by the Company of up to 2% of the
outstanding shares of its common stock. No purchase of common stock of the
Company was made by the Company during the quarter ended September 30,
2002.
Continued
F-9
ENDOVASC LTD., INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO THE FINANCIAL STATEMENTS
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
5. RESEARCH AGREEMENT
------------------
Effective July 1, 2001, the Company entered into an External Research
Agreement with another company (the "Sponsor") whereby the Sponsor agreed
to assist in the funding of the Company's research and development related
to its Nicotine Receptor Agonist for one year with the option to extend the
agreement for an additional one year term. During the three month period
ended September 30, 2002, the grant was extended for another one year term.
Revenue generated from this grant of $49,000 was recorded in the
accompanying statement of operations for the three months ended September
30, 2002.
6. LITIGATION
----------
On September 11, 2002 the company filed a civil lawsuit styled Endovasc
Ltd., Inc v. J.P. Turner & Co. LLC et al, Number 02-CV-7313, in the United
States District Court, Southern District of New York. The complaint is for
damages as a result of an alleged fraud and stock manipulation. The company
is seeking monetary damages in excess of $200,000,000. In a related matter,
a show cause complaint was filed against the Company on September 19, 2002
styled Balmore SA etal v Endovasc Ltd., Inc. A hearing was held on
September 26, 2002 with the Judge issuing an unfavorable ruling against the
Company. The matter was settled through the issuance of 203,000 shares of
the Company's common stock. In another related matter, a show cause
complaint was filed against the Company on October 17, 2002 styled Laurus
Master Fund Ltd. et al v Endovasc Ltd, Inc., Number 02- CV-8317, in the
United States District Court, Southern District of New York. This suit
involves the issuance of 430,476 shares of stock. A hearing is to be held
in November 2002.
7. NON-CASH INVESTING AND FINANCING ACTIVITIES
-----------------------------------------------
THREE MONTHS ENDED
---------------------- INCEPTION TO
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002
---------- ---------- ----------
Non-cash investing and financing
activities:
Common stock issued in exchange for
equity securities $ - $ - $ 302
========== ========== ==========
Common and treasury stock issued upon
conversion of debentures and interest
on debentures $ - $ - $ 1,524
========== ========== ==========
Common and preferred stock issued for
services and license and patent rights $ 575 $ 91 $ 3,209
========== ========== ==========
Common stock issued in settlement of
lawsuit and related liabilities $ - $ 408 $ 601
========== ========== ==========
Warrants issued for services $ - $ - $ 162
========== ========== ==========
Continued
F-10
ENDOVASC LTD., INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO THE FINANCIAL STATEMENTS
__________
7. NON-CASH INVESTING AND FINANCING ACTIVITIES, CONTINUED
------------------------------------------------------
THREE MONTHS ENDED
---------------------- INCEPTION TO
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002
---------- ---------- ----------
Conversion of note payable to shareholder
to common stock $ - $ - $ 1,503
========== ========== ==========
Conversion of dividends payable to
common stock $ 24 $ 22 $ 155
========== ========== ==========
Reduction of note payable to stockholder
and accrued liabilities through exercise
of stock options $ - $ - $ 275
========== ========== ==========
Issuance of notes payable for insurance $ - $ - $ 37
========== ========== ==========
Issuance of notes payable for the purchase
of equipment $ - $ - $ 124
========== ========== ==========
Dividends declared on preferred stock $ 14 $ 28 $ 117
========== ========== ==========
Receipt of treasury stock for note payable
to stockholders $ - $ - $ 560
========== ========== ==========
F-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------ -----------------------------------------------------------------------
OF OPERATIONS
- --------------
The statements contained in this Form 10-QSB 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, 2002, the Company had an accumulated deficit of
$(12,010,000).
The Company presented pre-clinical data to the U.S. Food and Drug
Administration (FDA) in October 1999, in preparation of its Investigational New
Drug (IND) filing for Liprostin, its liposomal prostaglandin E-1 (PGE-1) drug
for indications of critical limb ischemia (CLI). The FDA reviewed the Company's
Phase I data and responded with a waiver of Phase II clinical trials, if the
Company elected to proceed directly to a Phase III trial for the product. The
Company determined to move forward with Phase III as suggested by the FDA.
After review of the successful report of the Phase I trials, the company
submitted on August 2, 2001 an IND submission and Phase III protocol which was
subsequently approved in February 2002. In that meeting the FDA approved a
second indication for peripheral obstructive artery disease, severe intermittent
claudication, which is pain that occurs while walking.
In November 2000, the Company submitted an application for consideration of
a major research grant for animal studies of Nicotine Receptor Agonist. In July
2001, the Company was notified of the grant approval for approximately $700,000
with an option to extend for an additional year. Monies from the grant did not
become available until after November 2001. Identity of the grantor was
requested to remain anonymous until such time as release of the results from the
studies. The Company anticipates to have publication of data released during
the second quarter of the Company's fiscal year ending June 30, 2003. The grant
was extended and additional funding was given in early 2003. The data was
presented at the American College of Angiology in October 2002 and the grantor
supporting the sponsored research was identified as Philip Morris, USA, External
Research Group.
At a special meeting of the Board of Directors held on September 21, 2002,
the Board considered the appointments of an Audit and Compensation Committee.
The Board unanimously appointed Judge Ken Reilly as Chairman of the Compensation
Advisory Board and Ken Beverly as Chairman of the Audit Advisory to Board of
Directors. Previously announced Beuttenmuller, Bagrier and Davidson, were made
prior to the Sarbanes/Oxley Act, and were rescinded by the Board until further
review by the respective Chairmen.
RESULTS OF OPERATIONS
- -----------------------
THREE MONTH PERIOD ENDED SEPTEMBER 30, 2002 AND 2001
- ------------------------------------------------------------
During the three month period ended September 30, 2002, the Company had
revenue of $105,000 compared with $247,000 of revenue for the three month period
ended September 30, 2001. The decrease of $142,000 is the result of a decline
in revenue received from an external research agreement with another company
entered into in July 2001 whereby the Company received assistance from the
company in funding its research and development costs related to its Nicotine
Receptor Agonist.
During the three month period ended September 30, 2002 and 2001,
administrative and operating expenses were $442,000 and $384,000, respectively.
The increase in costs and operating expenses is primarily due to an increase in
stock based compensation to third party consultants.
F-12
Research and development costs totaled $396,000 during the three month
period ended September 30, 2002, compared to $261,000 during the three month
period ended September 30, 2001. This increase of $135,000 was the result of an
increase in stock based compensation to third party consultants and patent
expenses incurred during the three month period ended September 30, 2002.
Interest expense decreased from $177,000 during the three month period
ended September 30, 2001 to $33,000 during the three month period ended
September 30, 2002. This decrease is a result of $171,000 of recognition of the
beneficial conversion feature and additional interest on convertible debentures
that were issued during the three months ended September 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------
The Company had a working capital deficit at September 30, 2002 of
$1,011,000, compared to a deficit of $359,000 at September 30, 2001. This
increase in the working capital deficit is primarily related to a decrease in
accounts receivable, an increase in accounts payable and $173,000 of convertible
debentures that were recorded as current at September 30, 2002.
The Company requires significant additional funds to enable it to continue
its Liprostin product development and to complete its Food and Drug
Administration required clinical trials, as well as research and development of
its licensed product nicotine receptor agonist (NRA) and its stent coating
technology.
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 introduction of Liprostin and possibly adversely affect the Company's
operations. In order to continue as a going concern, the Company must raise
additional funds as noted above and ultimately achieve profit from its
operations.
ITEM 3. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
- ------- -----------------------------------------------------
David P. Summers, Chief Executive Officer of the Company, has concluded
that our disclosure controls and procedures are appropriate and effective. He
has evaluated these controls and procedures as of a date within 90 days of the
filing date of this report on Form 10-QSB. There were no significant changes in
our internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
F-13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- ------------------
On September 11, 2002 the company filed a civil lawsuit styled
Endovasc Ltd., Inc v. J.P. Turner & Co. LLC et al, Number 02-CV-7313, in
the United States District Court, Southern District of New York. The
complaint is for damages as a result of an alleged fraud and stock
manipulation. The company is seeking monetary damages in excess of
$200,000,000. In a related matter, a show cause complaint was filed against
the Company on September 19, 2002 styled Balmore SA etal v Endovasc Ltd.,
Inc. A hearing was held on September 26, 2002 with the Judge issuing an
unfavorable ruling against the Company. The matter was settled through the
issuance of 203,000 shares of the Company's common stock. In another
related matter, a show cause complaint was filed against the Company on
October 17, 2002 styled Laurus Master Fund Ltd. et al v Endovasc Ltd, Inc.,
Number 02- CV-8317, in the United States District Court, Southern District
of New York. This suit involves the issuance of 430,476 shares of stock. A
hearing is to be held in November 2002.
ITEM 2. CHANGES IN SECURITIES
- ------- -----------------------
Recent Sale of Unregistered Securities. During the quarter ended
September 30, 2002, the following transactions were effected by us in
reliance upon exemptions from registration under the Securities Act of 1933
as amended (the "Act"). Unless stated otherwise, we believe that each of
the persons who received these unregistered securities had knowledge and
experience in financial and business matters which allowed them to evaluate
the merits and risk of the receipt of these securities, and that they were
knowledgeable about our operations and financial condition. No underwriter
participated in, nor did we pay any commissions or fees to any underwriter
in connection with the transactions. These transactions did not involve a
public offering. Each certificate issued for these unregistered securities
contained a legend stating that the securities have not been registered
under the Act and setting forth the restrictions on the transferability and
the sale of the securities.
In July, August and September of 2002, we issued an aggregate of
649,295 shares of common stock for services, which we valued at prices
ranging from $0.62 to $1.28 per share, with an aggregate value of $611,000.
These transactions were exempt from registration pursuant to Section 4(2)
of the Act.
In September 2002, we issued an aggregate of 6,875 shares of common
stock for cash at $0.82 and $0.95 per share, with an aggregate value of
$6,000. These transactions were exempt from registration pursuant to
Section 4(2) of the Act.
In August 2002, we issued 300,000 shares of common stock for exercise
of a warrant with an exercise price of $0.13 per share and $39,000 in the
aggregate. These transactions were exempt from registration pursuant to
Section 4(2) of the Act.
During July, August and September 2002, we issued a total of
30,128,755 shares of common stock upon the conversion of preferred stock
and dividends on preferred stock. We did not receive any proceeds from
these transaction. These transactions were exempt pursuant to Section 4(2)
of the Securites Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- -------------------------------------
(a) Exhibits -- None.
(b) Reports on Form 8-K.
- We filed a Form 8-K on July 9, 2002, reporting Item 5 - Other
Events.
- We filed a Form 8-K on September 23, 2002, reporting Item 5 -
Other Events.
F-14
SIGNATURES
In accordance with the requirements of Sections 13 and 15(d) of the
Exchange Act, the registrant has caused this report to be signed on its behalf
by the undersigned, thereto duly authorized.
ENDOVASC LTD., INC.
Date: November 19, 2002 By: /s/ David P. Summers
------------------------ -----------------------------
David P. Summers
Chief Executive Officer
Date: November 19, 2002 By: /s/ M. Dwight Cantrell
------------------------ ------------------------------
M. Dwight Cantrell
Chief Financial Officer
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
- -------------------------------------------------------------------------------
I, DAVID P. SUMMERS, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of ENDOVASC LTD,
INC.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: NOVEMBER 19, 2002
/S/ DAVID P. SUMMERS
- --------------------
DAVID P. SUMMERS
CHIEF EXECUTIVE OFFICER OF
ENDOVASC LTD., INC.
F-15
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
- -------------------------------------------------------------------------------
I, M. DWIGHT CANTRELL, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of ENDOVASC
LTD.,
INC.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: NOVEMBER 19, 2002
/S/ M. DWIGHT CANTRELL
- ----------------------
M. DWIGHT CANTRELL
CHIEF FINANCIAL OFFICER OF
ENDOVASC LTD., INC.
F-16
CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF ENDOVASC LTD., INC. PURSUANT TO
- --------------------------------------------------------------------------------
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 AND SECTION 1350 OF 18 U.S.C. 63.
- --------------------------------------------------------------------------------
I, DAVID P. SUMMERS, the Chief Executive Officer of ENDOVASC LTD., INC. hereby
certify that ENDOVASC LTD., INC.'S periodic report on Form 10QSB and the
financial statements contained therein fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or
78o(d) and that information contained in the periodic report on Form 10QSB and
the financial statements contained therein fairly represents, in all material
respects, the financial condition and results of the operations of ENDOVASC
LTD.,INC.
Date: NOVEMBER 19, 2002 /S/ DAVID P. SUMMERS
------------------------------
DAVID P. SUMMERS
CHIEF EXECUTIVE OFFICER OF
ENDOVASC LTD., INC.
CERTIFICATION OF CHIEF ACCOUNTING OFFICER OF ENDOVASC LTD., INC. PURSUANT TO
- --------------------------------------------------------------------------------
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 AND SECTION 1350 OF 18 U.S.C. 63.
- --------------------------------------------------------------------------------
I, M. DWIGHT CANTRELL, the Chief Financial Officer of ENDOVASC LTD., INC.
hereby certify that ENDOVASC LTD., INC.'S periodic report on Form 10QSB and
the financial statements contained therein fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(15 U.S.C. 78m or 78o(d) and that information contained in the periodic report
on Form 10QSB and the financial statements contained therein fairly represents,
in all material respects, the financial condition and results of the operations
of ENDOVASC LTD., INC.
Date: NOVEMBER 19, 2002 /S/ M. DWIGHT CANTRELL
------------------------------
M. DWIGHT CANTRELL
CHIEF FINANCIAL OFFICER OF
ENDOVASC LTD., INC.
F-17