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 December 31, 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 February 18, 2003, 39,912,815 shares of Common Stock, par value $.001
per share, of Endovasc Ltd., Inc. were outstanding.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- ---------------------
Balance Sheet as of December 31, 2002 and June 30, 2002 F-2
Statement of Operations for the three months and six
months ended December 31, 2002 and 2001, and for the
period from inception, June 10, 1996, to December 31,
2002 F-3
Statement of Stockholders' Deficit for the six months
ended December 31, 2002, and for the period from
inception, June 10, 1996, to December 31, 2002 F-4
Statement of Cash Flows for the six months ended
December 31, 2002 and 2001, and for the period from
inception, June 10, 1996, to December 31, 2002 F-6
Notes to Financial Statements F-7
F-1
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEET
DECEMBER 31, 2002 AND JUNE 30, 2002
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER JUNE 30,
31, 2002 2002
ASSETS (UNAUDITED) (NOTE)
- --------------------------------------------------------- ------------ ----------
Current assets:
Cash and cash equivalents $ 214 $ 1
Accounts receivable 59 214
Other current assets 8 68
------------ ----------
Total current assets 281 283
Property and equipment, net 143 168
Other assets, net 120 128
------------ ----------
Total assets $ 544 $ 579
============ ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- ---------------------------------------------------------
Current liabilities:
Current maturities of long-term debt $ 73 $ 91
Current portion of obligations under capital leases 29 37
Note payable to shareholder 157 58
Accounts payable 350 689
Accrued liabilities 87 144
------------ ----------
Total current liabilities 696 1,019
Long-term debt, net of current maturities 10 33
Long-term obligations under capital leases 23 33
Convertible debentures 4 171
------------ ----------
Total liabilities 733 1,256
------------ ----------
Commitment and contingencies
Stockholders' deficit:
Common stock, $.001 par value, 200,000,000 shares
authorized, 39,109,125 and 2,183,575 shares issued
and 39,109,125 and 2,131,450 shares outstanding at
December 31, 2002 and June 30, 2002, respectively 39 2
Preferred stock, $.001 par value, 20,000,000 shares
authorized, 275 and 7,869 shares of Series A 8%
cumulative convertible preferred stock issued and
outstanding at December 31, 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 December 31, 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 December 31, 2002 and June 30, 2002, respectively - -
Additional paid-in capital 14,971 10,566
Losses accumulated during the development stage (15,199) (11,230)
Treasury stock, -0- and 52,125 shares at December 31,
2002 and June 30, 2002, respectively - (17)
------------ ----------
Total stockholders' deficit (189) (677)
------------ ----------
Total liabilities and stockholders' deficit $ 544 $ 579
============ ==========
<FN>
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 AND SIX MONTHS ENDED DECEMBER 31, 2002 AND 2001 AND
FOR THE PERIOD FROM INCEPTION, JUNE 10, 1996, TO DECEMBER 31, 2002
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
THREE MON THS ENDED SIX MONTHS ENDED
------------------------- -------------------------- INCEPTION
DECEMBER DECEMBER DECEMBER DECEMBER TO DECEMBER
31, 2002 31, 2001 31, 2002 31, 2001 31, 2002
------------ ----------- ------------ ------------- -------------
Income:
Revenue $ 95 $ - $ 199 $ - $ 968
Interest income - - - 1 28
Other income - - _ 1 246 15
------------ ----------- ------------ ------------- -------------
Total income 95 - 200 247 1,011
------------ ----------- ------------ ------------- -------------
Costs and expenses:
Operating, general and
administrative expenses 2,337 280 2,779 664 8,694
Research and development
costs 910 478 1,306 739 6,307
Interest expense 14 16 47 193 619
Settlement with former
employee - - _ - - _ 408
------------ ----------- ------------ ------------- -------------
Total costs and expenses 3,261 774 4,132 1,596 16,028
------------ ----------- ------------ ------------- -------------
Net loss (3,166) (774) (3,932) (1,349) (15,017)
Extraordinary loss on extin-
guishment of convertible
debentures - - _ - - _ (127)
------------ ----------- ------------ ------------- -------------
Net loss $ (3,166) $ (774) $ (3,932) $ (1,349) $ (15,144)
============ =========== ============ ============= =============
Weighted average shares
outstanding 36,153,457 1,765,083 31,620,974 1,352,984
============ =========== ============ =============
Basic and diluted net loss
per common share $ (0.09) $ (0.44) $ (0.12) $ (1.00)
============ =========== ============ =============
<FN>
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 SIX MONTHS ENDED DECEMBER 31, 2002
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
SERIES A SERIES B SERIES C
COMMON STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
-------------------- --------------------- --------------------- ----------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES CAPITAL
------- ----------- ---------- --------- ---------- ----------- -------- ----------- ---------
Balance at June 30, 2002 $ 2 2,183,575 $ - 7,869 $ 2 2,400,855 $ - 350,000 $ 10,566
Issue of common stock
for services and fin-
ancing costs 4 2,757,893 - - - - - - 3,366
Conversion of preferred
stock to treasury stock - 121,000 - - - (12,100) - - 5
Conversion of preferred
stock to common stock 31 31,320,592 - (7,594) (2) (2,388,755) - (350,000) (29)
Dividends declared on pre-
ferred stock - - - - - - - - -
Issue of common stock as
payment of dividends on
preferred stock - 100,753 - - - - - - 47
Conversion of convertible
debentures to common
stock - 363,900 - - - - - - 169
Conversion of liabilities
to common stock - 336,100 - - - - - - 346
Issue of common stock for
exercise of warrants 2 2,079,562 - - - - - - 507
Issue of common stock for
cash - 18,875 - - - - - - 16
Retirement of treasury
stock - (173,125) - - - - - - (22)
Net loss - - - - - - - - -
------- ----------- ---------- --------- ---------- ----------- -------- ----------- ---------
Balance at December 31,
2002, unaudited 39 39,109,125 $ - 275 $ - - $ - - $ 14,971
======= =========== ========== ========= ========== =========== ======== =========== =========
LOSSE
ACCUMULATED
ADDITIONAL DURING THE
PAID-IN TREASURY DEVELOPMENT
STOCK STAGE TOTAL _
---------- ------------- ---------
Balance at June 30, 2002 $ (17) $ (11,230) $ (677)
Issue of common stock
for services and fin-
ancing costs - - 3,370
Conversion of preferred
stock to treasury stock (5) - -
Conversion of preferred
stock to common stock - - -
Dividends declared on pre-
ferred stock - (37) (37)
Issue of common stock as
payment of dividends on
preferred stock - - 47
Conversion of convertible
debentures to common
stock - - 169
Conversion of liabilities
to common stock - - 346
Issue of common stock for
exercise of warrants - - 509
Issue of common stock for
cash - - 16
Retirement of treasury
stock 22 - -
Net loss - (3,932) (3,932)
---------- ------------- ---------
Balance at December 31,
2002, unaudited $ - $ (15,199) $ (189)
========== ============= =========
<FN>
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 SIX MONTHS ENDED DECEMBER 31, 2002 AND 2001, AND
FOR THE PERIOD FROM INCEPTION, JUNE 10, 1996, TO DECEMBER 31, 2002
__________
(IN THOUSANDS)
SIX MONTHS ENDED
---------------------- INCEPTION TO
DECEMBER 31, DECEMBER 31,
2002 2001 2002
--------- ----------- --------------
Cash flows used in operating activities:
Net loss $ (3,932) $ (1,349) $ (15,144)
Adjustments to reconcile net loss to net
cash used in operating activities 3,534 747 9,212
--------- ----------- --------------
Net cash used in operating activities (398) (602) (5,932)
--------- ----------- --------------
Cash flows used in investing activities:
Capital expenditures - (6) (147)
Proceeds received from repayment of loan to
stockholder - - _ 72
--------- ----------- --------------
Net cash used in investing activities - (6) (75)
--------- ----------- --------------
Cash flows from financing activities:
Proceeds from sale of equity securities - - 337
Proceeds from sale of common stock 16 - 262
Proceeds from sale of convertible debentures - 400 1,437
Proceeds from exercise of warrants 509 - 544
Net proceeds from issuance of preferred stock - - 2,263
Issuance of notes payable 21 113 250
Repayment of notes payable (62) (26) (179)
Payments of obligations under capital leases (18) (15) (79)
Proceeds from advances from stockholders 145 25 1,413
Repayments of notes to stockholder - - (5)
Purchase of treasury stock - (5) (22)
--------- ----------- --------------
Net cash provided by financing activities 611 492 6,221
--------- ----------- --------------
Net increase (decrease) in cash and cash
equivalents 213 (116) 214
Cash and cash equivalents at beginning of period 1 117 -
--------- ----------- --------------
Cash and cash equivalents at end of period $ 214 $ 1 $ 214
========= =========== ==============
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ 75 $ 16 $ 191
========= =========== ==============
Cash paid for income taxes $ - $ - _ $ -
========= =========== ==============
<FN>
The accompanying notes are an integral
part of these financial statements.
F-5
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
__________
1. INTERIM FINANCIAL STATEMENTS
------------------------------
The accompanying unaudited interim financial statements have been prepared
without audit pursuant to the rules and regulations of the U.S. Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
pursuant to such rules and regulations. These unaudited condensed financial
statements should be read in conjunction with the audited financial
statements and notes thereto of Endovasc, Ltd., Inc. (the "Company")
included in the Company's Annual Report on Form 10-KSB for the year ended
June 30, 2002. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation
of financial position, results of operations and cash flows 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.
2. ORGANIZATION
------------
Endovasc, Ltd., Inc. was incorporated under the laws of the State of Nevada
on June 10, 1996 and reincorporated in the State of Delaware on July 9,
2002 (See Note 6). 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.
3. 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 and preferred stock to satisfy
obligations, to compensate individuals and vendors and to settle disputes
that have arisen. However, during the six months ended December 31, 2002
and 2001, the Company incurred net losses (in thousands) of $(3,932) and
$(1,349), respectively, and negative cash flows from operations of $(398)
and $(602), respectively. These factors along with a $(415) negative
working capital position at December 31, 2002 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:
- In the near term, the Company received an extension of its Research
Agreement whereby the Company expects 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.
Continued
F-6
ENDOVASC LTD., INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
__________
3. 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.
4. INCOME TAXES
-------------
The difference between the 34% federal statutory income tax rate and
amounts shown in the accompanying interim financial statements is primarily
attributable to an increase in the valuation allowance applied against the
tax benefit from utilization of net operating loss carryforwards.
5. 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 UNAUDITED CONDENSED FINANCIAL STATEMENTS
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
5. 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 six months ended December 31, 2002, 7,594 shares of Series A
preferred stock were converted to 1,737,798 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 six month period ended December 31,
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 six months ended December 31, 2002, due to the reincorporation
of the Company (See Note 6), 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 UNAUDITED CONDENSED FINANCIAL STATEMENTS
__________
6. 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 six
month period ended December 31, 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 six month period ended December 31, 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 six months ended December 31, 2002.
Continued
F-8
ENDOVASC LTD., INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
__________
7. 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 six month period
ended December 31, 2002, the grant was extended for another one year term.
Revenue generated from this grant of $98 was recorded in the accompanying
statement of operations for the six months ended December 31, 2002.
8. 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 et al 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. This matter was settled
through the issuance of the Company's common stock to retire Series A
Preferred Convertible stock. In another related matter the Company has
become a defendant in arbitration styled V Finance v. Endovasc Ltd., Inc.
This matter relates to performance under a Funding Agreement. The Company
intends to defend its position vigorously as it believes it will prevail
and, accordingly, has not accrued any liability associated with this case
in the accompanying unaudited condensed financial statements.
9. JOINT VENTURE
--------------
In November 2002, the Company entered into an incorporated joint venture
agreement with MIV Therapeutics, Inc. ("MIV"). This 50/50 joint venture,
called Stentgenix, Inc., was created to primarily develop a therapeutic
coating for vascular stents.
Under the terms of the agreement the Company receives 2,500,000 shares of
Class A common stock of the joint venture in consideration for contributing
all of its rights, entitlement and interests in and to any and all coatings
for any applications, products and medical devices utilizing the Company's
Angiogenix technology. MIV receives 2,500,000 shares of Class A common
stock of the joint venture for cash consideration of $2,500,000 payable
over a three-year period, with $300,000 payable in the first year. If MIV
fails to make the required payments, one Class A share of common stock will
be returned to treasury of the joint venture for each dollar not paid.
Continued
F-9
ENDOVASC LTD., INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
__________
10. NOTE PAYABLE-SHAREHOLDER
-------------------------
During the six months ended December 31, 2002, the CEO of the Company
advanced $145 to the Company in the form of a note payable to stockholder
and received 25,000 shares of common stock as repayment of $46 of this note
payable to stockholder. The balance of this note of $157 as of December 31,
2002 is due on demand, non-interest bearing and is not collateralized.
11. NON-CASH INVESTING AND FINANCING ACTIVITIES
-----------------------------------------------
SIX MONTHS ENDED
---------------------------- INCEPTION TO
DECEMBER 31, DECEMBER 31,
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 $ 169 $ - $ 1,693
============= ============= =========
Common and preferred stock issued for
services and license and patent rights $ 3,370 $ 91 $ 6,004
============= ============= =========
Common stock issued in settlement of
lawsuit and other liabilities $ 346 $ 408 $ 947
============= ============= =========
Warrants issued for services $ - $ - $ 162
============= ============= =========
Conversion of note payable to shareholder
to common stock $ 46 $ - $ 1,549
============= ============= =========
Conversion of dividends payable to
common stock $ 47 $ 22 $ 178
============= ============= =========
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 $ 37 $ 28 $ 140
============= ============= =========
Receipt of treasury stock for note payable
to stockholders $ - $ - $ 560
============= ============= =========
F-10
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, 2002.
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 December 31, 2002, the Company had an accumulated deficit of
$(15,199,000).
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 Committee to
the 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 Chairman. On November 18, 2002, the
annual shareholders meeting took place at the Del Lago Hotel and Resort,
Montgomery, Texas, with all issues placed before the shareholders approved for
the coming year. In November and December 2002, the Company awarded contracts
to two (2) certified good manufacturing (cGMP) contract laboratories to
manufacture and validate both of the Company's pending Phase III drugs. Upon
completion and validation of each of the drugs for FDA requirements, an initial
new drug application (IND) will be filed with FDA for Phase III clinical trials.
Both filings are expected to be completed during the first quarter of 2003.
F-11
RESULTS OF OPERATIONS
- -----------------------
THREE MONTH PERIOD ENDED DECEMBER 31, 2002 AND 2001
- -----------------------------------------------------------
During the three months ended December 31, 2002, the Company had $95,000 in
revenue compared with no revenue for the three months ended December 31, 2001.
The revenue during the three months ended December 31, 2002 was a result of a
research agreement with another company, relating to the Company's Nicotine
Receptor Agonist.
During the three months ended December 31, 2002 and 2001, administrative
and operating expenses were $2,337,000 and $280,000, respectively. The increase
in costs and operating expenses is primarily due to an increase in stock based
compensation to third party consultants and attorneys representing the company
in its lawsuits during the three months ended December 31, 2002.
Research and development costs totaled $910,000 during the three months
ended December 31, 2002, compared to $478,000 during the three months ended
December 31, 2001. This increase of $432,000 was related to the increased cost
of materials, labor and travel associated with the preparation for Phase III
clinical studies with Liprostin(TM) and the ongoing, in-house projects for
medicinally coated vascular stents and a biodegradable resorbable stent.
Interest expense decreased from $16,000 during the three months ended
December 31, 2001 to $14,000 during the three months ended December 31, 2002.
This decrease is a result of a lower average debt balance and lower interest
rates.
SIX MONTH PERIOD ENDED DECEMBER 31, 2002 AND 2001
- ---------------------------------------------------------
During the six months ended December 31, 2002, the Company had total
revenues of $199,000 compared with $247,000 of revenues for the six months ended
December 31, 2001. The decrease primarily relates to less revenue received from
an external research agreement with another company entered into in July 2001
whereby the Company received assistance from this company in funding its
research and development costs related to its Nicotine Receptor Agonist.
During the six months ended December 31, 2002 and 2001, administrative and
operating expenses were $2,779,000 and $664,000, respectively. The increase in
costs and operating expenses is primarily due to an increase in facilities cost,
personnel, including stock based compensation paid to third party consultants
and attorneys, and overhead as rent and other costs increased.
Research and development costs totaled $1,306,000 during the six months
ended December 31, 2002, compared to $739,000 during the six months ended
December 31, 2001. This increase of $567,000 was related to the increased cost
of materials, labor and travel related to the preparation for Phase III clinical
studies with Liprostin(TM) and the ongoing, in-house projects for medicinally
coated vascular stents and a biodegradable resorbable stent.
Interest expense decreased from $193,000 during the six months ended
December 31, 2001 to $47,000 during the six months ended December 31, 2002.
This decrease is primarily a result of the cost of the beneficial conversion
feature related to the convertible debentures recorded during the six months
ended December 31, 2001 of $171,000.
LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------
The Company had a working capital deficit at December 31, 2002 of
$(415,000), compared to a deficit of $(1,036,000) at December 31, 2001. This
decrease in the working capital deficit is primarily related to the decrease in
accounts payable resulting from the issuance of $346,000 of common stock for
payment of accounts payable during the six months ended December 31, 2002.
The Company requires significant additional funds to enable it to proceed
with its Phase II/III Liprostin clinical trials, as well as research and
development of its licensed product Nicotine Receptor Agonist and its stent
coating technology.
F-12
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(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.
CRITICAL ACCOUNTING POLICIES
- ------------------------------
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 and Series A, B and C
convertible preferred stock are excluded from the computation as their effect
would dilute the loss per share for all periods presented.
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.
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. This
matter was settled through the issuance of the Company's common stock to retire
Series A Preferred Convertible stock. In another related matter the Company has
become a defendant in arbitration styled V Finance v. Endovasc Ltd., Inc. This
matter relates to performance under a Funding Agreement. The Company intends to
defend its position vigorously as it believes it will prevail and, accordingly,
has not accrued any liability associated with this case in the accompanying
unaudited condensed financial statements.
F-13
ITEM 2. CHANGES IN SECURITIES
- ------- -----------------------
Recent Sale of Unregistered Securities. During the six months ended
December 31, 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.
We issued an aggregate of 2,757,893 shares of common stock for services,
which we valued at prices ranging from $0.62 to $2.19 per share, with an
aggregate value of $3,370,000. These transactions were exempt from registration
pursuant to Section 4(2) of the Act.
We issued an aggregate of 18,875 shares of common stock for cash at $0.82
and $0.95 per share, with an aggregate value of $16,000. These transactions
were exempt from registration pursuant to Section 4(2) of the Act.
We issued 2,079,562 shares of common stock for exercise of warrants with an
average exercise price of $0.24 per share and $509,000 in the aggregate. These
transactions were exempt from registration pursuant to Section 4(2) of the Act.
We issued a total of 31,542,345 shares of common stock upon the conversion
of preferred stock and dividends on preferred stock. We did not receive any
proceeds from these transactions. These transactions were exempt from
registration pursuant to Section 4(2) of the Securities 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.
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: February 19, 2003 By: /s/ David P. Summers
-------------------------- -----------------------------
David P. Summers
Chief Executive Officer
Date: February 19, 2003 By: /s/ M. Dwight Cantrell
-------------------------- ------------------------------
M. Dwight Cantrell
Chief Financial Officer
F-14
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: FEBRUARY 19, 2003
/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: FEBRUARY 19, 2003
/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: FEBRUARY 19, 2003 /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: FEBRUARY 19, 2003 /S/ M. DWIGHT CANTRELL
-----------------------------
M. DWIGHT CANTRELL
CHIEF FINANCIAL OFFICER OF
ENDOVASC LTD., INC.
F-17