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, 2003.
[ ] Transition Report to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Transition Period from _____________ to ___________.
000-28371
(Commission File Numbers)
ENDOVASC, INC.
(Exact name of registrant as specified in its charter)
NEVADA 76-0512500
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
550 Club Drive, Suite 440
Montgomery, Texas 77316
(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 September 30, 2003, 57,389,785 shares of Common Stock, par value
$.001 per share, of ENDOVASC, INC. were outstanding.
TABLE OF CONTENTS
PART I
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------------------------------
Balance Sheet as of September 30, 2003 and
June 30, 2003 F-2
Statement of Operations for the three months
ended September 30, 2003 and 2002, and for
the period from inception, June 10, 1996,
to September 30, 2003 F-3
Statement of Stockholders' Deficit for the
three months ended September 30, 2003 F-4
Statement of Cash Flows for the three months
ended September 30, 2003 and 2002, and for
the period from inception, June 10, 1996,
to September 30, 2003 F-5
Notes to Financial Statements F-6
F-1
ENDOVASC, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEET
SEPTEMBER 30, 2003 AND JUNE 30, 2003
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, JUNE 30,
2003 2003
ASSETS (UNAUDITED) (NOTE)
------ --------------- ----------
Current assets:
Cash and cash equivalents $ 264 $ 120
Accounts receivable 147 98
Other current assets 348 365
--------------- ----------
Total current assets 759 583
Property and equipment, net 159 175
Other assets, net 108 112
--------------- ----------
Total assets $ 1,026 $ 870
=============== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Current maturities of long-term debt $ 48 $ 41
Current portion of obligations under capital leases 46 47
Note payable to shareholder 264 680
Accounts payable 156 339
Accrued liabilities 13 17
--------------- ----------
Total current liabilities 527 1,124
Long-term debt, net of current maturities 31 29
Long-term obligations under capital leases 42 58
Convertible debentures 1 1
--------------- ----------
Total liabilities 601 1,212
--------------- ----------
Commitment and contingencies
Stockholders' deficit:
Common stock, $.001 par value, 200,000,000 shares
authorized:
Common stock-Endovasc Series, 57,389,785 and
50,933,138 shares issued and outstanding at
September 30, 2003 and June 30, 2003, respectively 57 51
Common stock-NDC Series, 14,152,710 and -0- shares
issued and outstanding at September 30, 2003 and
June 30, 2003, respectively 14 -
Preferred stock, $.001 par value, 20,000,000 shares
authorized, 208 and 330 shares of Series A 8%
cumulative convertible preferred stock issued and
outstanding at September 30, 2003 and June 30, 2003,
respectively, stated value $100 per share - -
Preferred stock, $0.001 par value, 3,000,000 shares
authorized, -0- shares of Series B convertible pre-
ferred stock issued and outstanding at September 30,
2003 and June 30, 2003 - -
Preferred stock, $0.001 par value, 370,000 shares
authorized, -0- shares of Series C convertible pre-
ferred stock issued and outstanding at September 30,
2003 and June 30, 2003 - -
Additional paid-in capital 22,088 20,521
Losses accumulated during the development stage (21,734) (20,914)
--------------- ----------
Total stockholders' deficit 425 (342)
--------------- ----------
Total liabilities and stockholders' deficit $ 1,026 $ 870
=============== ==========
Note: The balance sheet at June 30, 2003 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, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 AND
FOR THE PERIOD FROM INCEPTION, JUNE 10, 1996, TO SEPTEMBER 30, 2003
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED INCEPTION TO
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003
------------ ------------ ---------------
Income:
Revenue $ 49 $ 104 $ 1,105
Interest income - - 29
Other income - 1 47
------------ ------------ ---------------
Total income 49 105 1,181
------------ ------------ ---------------
Costs and expenses:
Operating, general and administrative
expenses 371 442 13,387
Research and development costs 494 396 8,304
Interest expense 3 33 630
Settlement with former employee - - 408
Loss from investment in joint venture 1 - 1
------------ ------------ ---------------
Total costs and expenses 869 871 22,730
------------ ------------ ---------------
Net loss before extraordinary item (820) (766) (21,549)
Extraordinary loss on extinguishment of
convertible debentures - - 127
------------ ------------ ---------------
Net loss $ (820) $ (766) $ (21,676)
============ ============ ===============
Basic and diluted net loss per common share $ (0.01) $ (0.02)
============ ============
Weighted average shares outstanding 68,894,520 39,662,098
============ ============
The accompanying notes are an integral
part of these financial statements.
F-3
ENDOVASC, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
LOSSES
COMMON STOCK COMMON STOCK SERIES A ACCUMULATED
ENDOVASC SERIES NDC SERIES PREFERRED STOCK ADDITIONAL DURING THE
--------------------- ------------------- ---------------- PAID-IN DEVELOPMENT
AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES CAPITAL STAGE TOTAL
--------- ---------- ------- ---------- ------- ------- ------------ ------------- -------
Balance at June 30, 2003 $ 51 50,933,138 $ - - $ - 330 $ 20,521 $ (20,914) $ (342)
Issue of common stock for
services 1 597,451 - - - - 205 - 206
Conversion of liabilities to
common stock - 85,535 - - - - 33 - 33
Conversion of note payable to
stockholder to common stock 1 1,500,000 - - - - 584 - 585
Issue of common stock for cash 4 4,218,143 - - - - 759 - 763
Conversion of preferred stock
to common stock - 55,518 - - - (122) - - -
4 to 1 stock dividend through
issuance of common stock-NDC
Series - - 14 14,152,710 - - (14) - -
Net loss - - - - - - - (820) (820)
--------- ---------- ------- ---------- ------- ------- ------------ ------------- -------
Balance at September 30, 2003 $ 57 57,389,785 $ 14 14,152,710 $ - 208 $ 22,088 $ (21,734) $ 425
========= ========== ======= ========== ======= ======= ============ ============= =======
The accompanying notes are an integral part of these financial statements.
F-4
ENDOVASC, INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONDENSED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002, AND
FOR THE PERIOD FROM INCEPTION, JUNE 10, 1996, TO SEPTEMBER 30, 2003
__________
(IN THOUSANDS)
THREE MONTHS ENDED
------------------------ INCEPTION TO
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003
----------- ----------- ---------------
Cash flows used in operating activities:
Net loss $ (820) $ (766) $ (21,676)
Adjustments to reconcile net loss to net
cash used in operating activities 40 724 13,884
----------- ----------- ---------------
Net cash used in operating activities (780) (42) (7,792)
----------- ----------- ---------------
Cash flows used in investing activities:
Capital expenditures - - (157)
Proceeds received from repayment of loan to
stockholder - - 72
----------- ----------- ---------------
Net cash used in investing activities - - (85)
----------- ----------- ---------------
Cash flows from financing activities:
Proceeds from sale of equity securities - - 337
Proceeds from sale of common stock 763 6 1,456
Proceeds from exercise of warrants - 39 648
Proceeds from sale of convertible debentures - - 1,437
Net proceeds from issuance of preferred stock - - 2,263
Issuance of notes payable 257 21 773
Repayment of notes payable (248) (18) (706)
Payments of obligations under capital leases (17) (8) (99)
Proceeds from advances from stockholders 197 20 2,258
Repayment of notes to stockholder (28) - (204)
Purchase of treasury stock - - (22)
----------- ----------- ---------------
Net cash provided by financing activities 924 60 8,141
----------- ----------- ---------------
Net increase in cash and cash equivalents 144 18 264
Cash and cash equivalents at beginning of period 120 1 -
----------- ----------- ---------------
Cash and cash equivalents at end of period $ 264 $ 19 $ 264
=========== =========== ===============
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ 3 $ 30
=========== ===========
Cash paid for income taxes $ - $ -
=========== ===========
The accompanying notes are an integral
part of these financial statements.
F-5
ENDOVASC, 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
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, Inc. (the "Company") included in
the Company's Annual Report on Form 10-KSB for the year ended June 30,
2003. 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, Inc. (the "Company") is incorporated under the laws of the State
of Nevada. 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.
Effective June 27, 2003, the Company's board of directors approved the
creation of a wholly-owned subsidiary named Nutraceutical Development
Corporation ("NDC") to manage its Nutraceutical product line. The
consolidated financial statements include the accounts of the Company and
its subsidiary. All intercompany accounts and transactions are eliminated
in consolidation.
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 three months ended September 30, 2003
and 2002, the Company incurred net losses (in thousands) of $(820) and
$(766), respectively, and negative cash flows from operations of $(780) and
$(42), respectively. These factors 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 plans additional private sales of debt
and common and preferred stock to qualified investors to fund its
current operations.
Continued
F-6
ENDOVASC, INC.
(A DEVELOPMENT STAGE CORPORATION)
SELECTED NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
3. GOING CONCERN CONSIDERATIONS, CONTINUED
------------------------------------------
- In the second quarter of the year ending June 30, 2004, the Company
anticipates the generation of approximately $500,000 in revenue from
its Nutraceutical product.
- 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. OTHER CURRENT ASSETS
----------------------
Other current assets at September 30, 2003 and June 30, 2003 consists of
the following (in thousands):
SEPTEMBER JUNE 30,
30, 2003 2003
---------- ---------
Other receivable $ 37 $ 29
Prepaid license 33 58
Prepaid supplies 278 278
---------- ---------
$ 348 $ 365
========== =========
5. INCOME TAXES
-------------
The difference between the 34% federal statutory income tax rate and
amounts shown in the accompanying interim financial statements is primarily
attributable to an increase in the valuation allowance applied against the
tax benefit from utilization of net operating loss carryforwards.
Continued
F-6
ENDOVASC, INC.
(A DEVELOPMENT STAGE CORPORATION)
SELECTED NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
6. LITIGATION
----------
The Company is subject to certain legal proceedings and claims which arose
in the ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not
materially affect the financial position, results of operations or cash
flows of the Company.
7. NOTE PAYABLE-SHAREHOLDER
-------------------------
During the three months ended September 30, 2003, the CEO of the Company
advanced $197 to the Company in the form of a note payable to stockholder.
The Company repaid $613 of the note through a $28 cash payment and issuance
of common stock with a value of $585. The balance of this note of $264 as
of September 30, 2003 is due on demand, non-interest bearing and is not
collateralized.
8. NON-CASH INVESTING AND FINANCING ACTIVITIES
-----------------------------------------------
THREE MONTHS ENDED
---------------------- INCEPTION TO
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003
---------- ---------- --------------
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 $ - $ - $ 1,697
========== ========== ==============
Common and preferred stock issued for
services and license and patent rights $ 206 $ 575 $ 2,840
========== ========== ==============
Common stock issued in settlement of
lawsuit and related liabilities $ - $ - $ 601
========== ========== ==============
Common stock issued for assets $ - $ - $ 197
========== ========== ==============
Warrants issued for services $ - $ - $ 162
========== ========== ==============
Conversion of note payable to shareholder
to common stock $ 585 $ - $ 2,088
========== ========== ==============
Conversion of dividends and other payable
to common stock $ 33 $ 24 $ 178
========== ========== ==============
Reduction of note payable to stockholder
and accrued liabilities through exercise
of stock options $ - $ - $ 275
========== ========== ==============
Issuance of notes payable for insurance $ - $ - $ 37
========== ========== ==============
Continued
F-8
ENDOVASC, INC.
(A DEVELOPMENT STAGE CORPORATION)
SELECTED NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
__________
(IN THOUSANDS, EXCEPT SHARE DATA)
8. NON-CASH INVESTING AND FINANCING ACTIVITIES, CONTINUED
-----------------------------------------------------------
THREE MONTHS ENDED
------------------------------ INCEPTION TO
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003
-------------- -------------- -------------
Issuance of notes payable for the purchase
of equipment $ - $ - $ 180
============== ============== =============
Dividends declared on preferred stock $ - $ 14 $ 143
============== ============== =============
Receipt of treasury stock for note payable
to stockholders $ - $ - $ 560
============== ============== =============
9. NDC SUBSIDIARY
---------------
Effective July 1, 2003, the Company's subsidiary, NDC, signed a product
licensing agreement with another company. This company has agreed to invest
up to $2.5 million to attempt to develop, commercialize and market certain
neutraceutical products. If successful, this company will pay NDC a 10%
royalty on all revenue generated.
During the three months ended September 30, 2003, the Company's board of
directors authorized the creation of a new class of common stock, called
Series NDC common stock, $0.001 par value per share, whose rights and
distributions would be based on the performance of NDC. During the three
months ended September 30, 2003, the Company issued a dividend of one share
of the Series NDC common stock for each four shares of the Company's common
stock. As of September 30, 2003, 14,152,710 shares of Endovasc Series NDC
common stock were issued and outstanding. Included in operating, general
and administrative expenses for the three months ended September 30, 2003
is $5 of expenses of NDC.
10. JOINT VENTURE AGREEMENT
-------------------------
Effective August 12, 2003, the Company entered into a joint venture
agreement with TissueGen, Inc. named Endovasc-TissueGen Research Sponsors,
L.L.C. (the "Partnership"). The purpose of the Partnership is to develop a
bioresorbable drug-eluting cardiovascular stent for the advanced treatment
of coronary artery disease. The Company and TissueGen agreed to co-license
certain intellectual property to the Partnership for a 49.9% and 51.1%
interest, respectively, in the Partnership. In addition to its license
contribution, Endovasc is required to purchase a convertible promissory
note from the joint venture in the maximum principal amount of $150,000.
The convertible promissory note is convertible at Endovasc's option into
Class B Membership interests in the Partnership. Included in the net loss
for the three months ended September 30, 2003 is $1 from loss from
investment in the Partnership, which reduced the Company's investment in
the Partnership to zero.
F-9
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 year ended June 30,
2003.
CRITICAL ACCOUNTING POLICIES
We believe that of the significant accounting policies used in the
preparation of our financial statements (See Note 1 to the financial
statements), the following are critical accounting policies, which may involve a
higher degree of judgment, complexity and estimates.
SIGNIFICANT ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of revenues and
expenses during the periods. Actual results could differ from estimates making
it reasonably possible that a change in the estimates could occur in the near
term.
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.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that potentially subject the Company to
concentration of credit risk consist principally of accounts receivable from a
sponsor under an external research agreement. Accounts receivable from this
sponsor represented 100% of the Company's accounts receivable outstanding at
September 30, 2003 and June 30, 2003. In addition, the sponsor under the
external research agreement represented 100% of the Company's revenues for the
quarter ended September 30, 2003.
RESULTS OF OPERATIONS
The Company is in the development stage and has had limited operating
revenues since its inception on June 10, 1996. From June 10, 1996 through
September 30, 2003 the Company had an accumulated deficit of $21,734M.
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 decided in March 2003 to do a limited number of human clinical studies.
Based on the information obtained from these studies, the Company will move
forward with Phase III as suggested by the FDA. 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. The company commenced a pilot trial at
Memorial Hermann Hospital in the third quarter of fiscal year ended June 30,
2003 to test the safety and efficacy of Liprostin as an adjunct therapy for PTA
and stenting.
In November 2000, the Company submitted an application for consideration of
a major research grant for animal studies of Nicotine Receptor Agonist. In
April 2001, the Company was notified of the grant approval for $512,000 with an
option to extend for an additional year. The option to extend this agreement
for an additional one year term was exercised. The extension increased the
maximum funding to $730,000. The agreement was verbally extended subsequent to
June 30, 2003 to allow the Company to receive the maximum funding allowed under
the agreement. The Company presented accumulated data on safety and efficacy at
the American College of Angioplasty annual meeting in October 2002 and the
grants of the research was identified as Philip Morris, USA, External Research
Group. During the fourth quarter of the fiscal year ended June 30, 2003 and
continuing the company instituted a second procine trial at Washington Hospital
Center, Washington DC to test a less invasive method of administering
Angiogenix. Progress continues on this project projected to complete during the
second quarter of fiscal year ending June 30, 2004.
The Company developed a Nutraceutical preparation for use in muscle
building and increase in strength and endurance. The product is owned by the
Company's wholly owned subsidiary, Nutraceutical Development Corporation, who
negotiated a license agreement with Basic Research, L.L.C. of Salt Lake City,
UT. Basic Research has begun the development of a mass market and expects to
begin sales in January 2004 of which NDC will receive royalties.
The Company submitted Phase I and animal data to the FDA in February 2002
on trials carried out at Stanford University and Columbia University; with its
nicotinic acetylcholine receptor (nAChR) agonist trademarked Angiogenix. After
review of the data, the FDA approved a phase III clinical trial. The Company
continues to make progress on both trials.
In August 2003, the company signed a Joint Venture agreement forming a
partnership with TissueGen, Inc. to create Endovasc-TissueGen Research Sponsors,
LLC. The purpose of this partnership is to develop a totally bioresorbable
drug-eluting cardiovascular stent for the advanced treatment of coronary artery
disease.
The terms of the agreement call for Endovasc to co-license its patented,
time-released prostaglandin E-1 (PGE-1) drug to the newly formed Joint Venture.
In addition, Endovasc will purchase a $150,000 convertible promissory note from
the Joint Venture. The majority of these proceeds will be used to fund the
development of a prototype stent. The parties contemplate that the Joint Venture
will seek to raise up to an additional $2.5 million from third party investors
in exchange for membership interests in the Joint Venture. This money will be
used to conduct clinical trials and bring the product to market.
During the quarter ended September 30, 2003, the Company's net revenues
decreased to $49M compared with revenues of $104M for the quarter ended
September 30, 2002. The decrease in revenue is the result of fewer billings
toward research grants.
During the quarter ending September 30, 2003, operating, general and
administrative expenses were $371M compared to $442 for the quarter ending
September 30, 2002. The decrease is primarily due to a decrease in stock based
compensation to third party consultants.
Cash flows used in operating activities for the quarter ending September
30, 2003 increased $738M to $780M, compared to $42M for the quarter ended
September 30, 2002, primarily due to the increase in cash used to pay accounts
payable vendors and a decrease in the issuance of common stock for services
during the quarter ended September 30, 2003, as compared to the corresponding
period in 2002.
Interest expense decreased $30M from $33M for the quarter ended September
30, 2002 to $3M for the quarter ended September 30, 2003. This was primarily
due to a decrease in amounts due under convertible debentures.
Research and development expenses totaled $494M during the quarter ending
September 30, 2003, an increase of $98M from $396M for the quarter ended
September 30, 2002. These expenses were related to the increased cost of new
materials and the ongoing research associated with the Company's two major
drugs.
LIQUIDITY AND CAPITAL RESOURCES
The Company had positive working capital of $232M on September 30, 2003
compared to a working capital deficit of $541M at June 30, 2003. This increase
was primarily due to an increase in cash received from financing activities not
yet spent by the Company and a decrease in the note payable to shareholder
through issuance of common stock.
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 marked introduction of Liprostin and Angiogenix and possibly adversely
affect the Company's operations. These events raise doubt as to our ability to
continue as a going concern. The report of our independent public accountants,
which accompanied our financial statements for the year ended June 30, 2003, was
qualified with respect to that risk. In order to continue as a going concern,
the Company must raise additional funds as noted above and ultimately achieve
profit from its operations.
OFF BALANCE SHEET ARRANGEMENTS
None.
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
- ------- ------------------
The Company is subject to certain legal proceedings and claims which arose
in the ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not materially
affect the financial position, results of operations or cash flows of the
Company.
ITEM 2. CHANGES IN SECURITIES
- ------- -----------------------
Recent Sale of Unregistered Securities. During the three months ended
September 30, 2003, the following transactions were effected by us in reliance
upon exemptions from registration under the Securities Act of 1933 as amended
(the "Act"). Unless stated otherwise, we believe that each of the persons who
received these unregistered securities had knowledge and experience in financial
and business matters which allowed them to evaluate the merits and risk of the
receipt of these securities, and that they were knowledgeable about our
operations and financial condition. No underwriter participated in, nor did we
pay any commissions or fees to any underwriter in connection with the
transactions. These transactions did not involve a public offering. Each
certificate issued for these unregistered securities contained a legend stating
that the securities have not been registered under the Act and setting forth the
restrictions on the transferability and the sale of the securities.
During the three month period ending September 30, 2003 we issued an
aggregate of 597,451 shares of common stock for services, which we valued at
prices ranging from $0.31 to $0.51 per share, with an aggregate value of $206M.
These transactions were exempt from registration pursuant to Section 4(2) of the
Act.
During the three month period ending September 30, 2003 we issued an
aggregate of 15,000 shares of common stock for cash at a price of $0.33 per
share, with an aggregate value of $5M. These transactions were exempt from
registration pursuant to Section 4(2) of the Act.
During the three month period ending September 30, 2003 we issued 1,585,535
shares of common stock for payment of liabilities at prices ranging from $0.35
to $0.39 per share and $618M in the aggregate. These transactions were exempt
from registration pursuant to Section 4(2) of the Act.
During the three month period ending September 30, 2003 we issued a total
of 55,518 shares of common stock upon the conversion of 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
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(a) Exhibits.
31.1 Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
- We filed a Form 8-K on July 16, 2003, reporting Item 5 - Other
Events with the related exhibit.
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.
ENDOVASC, INC.
Date: November 19, 2003 By: /s/ David P. Summers
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David P. Summers
Chief Executive Officer
Date: November 19, 2003 By: /s/ M. Dwight Cantrell
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M. Dwight Cantrell
Chief Financial Officer