SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the Fiscal Year Ended June 30, 2000 Commission File No. 000-28371
------------- ---------
</TABLE>
Endovasc Ltd., Inc.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<CAPTION>
<S> <C>
Nevada 76-0512500
--------------------------------------- -------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
15001 Walden Road Suite 108 Montgomery, Texas 77356
----------------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(936) 448-2222
--------------
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act :
Common Stock, Par Value $0.001 Per Share
Check whether the Issuer: (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 []
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
The Company's revenues for its most recent fiscal year were $31,087.
The aggregate market value of the voting stock held by non-affiliates of
the Company was $6,918,268 as of September 25, 2000, based on the average bid
and asked price of $0.875 per share as of that date.
There were 12,718,370 shares of Common Stock, $.001 par value, outstanding
as of September 25, 2000. Additionally, there were 15,000 shares of Series A
Convertible Preferred Stock, $.001 par value per share, outstanding as of
September 25, 2000.
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS.
History
We incorporated as a biopharmaceutical company under the laws of the state
of Nevada on June 10, 1996, under the name Endovasc, Inc. Upon our initial
incorporation, we were authorized to issue an aggregate of 25,000 shares of
capital stock with a par value of $0.001 per share. On September 5, 1996, we
amended our articles of incorporation to increase our authorized shares to
100,000,000 shares of common stock, par value $0.001 per share. On May 28, 1997,
we amended our articles of incorporation to change our name to Endovasc Ltd.,
Inc. On June 2, 1997, we amended our articles of incorporation to authorize a
total of 120,000,000 shares of capital stock, par value $0.001 per share, of
which 100,000,000 shares are common shares and 20,000,000 shares are preferred
shares.
On or about October 8, 1999, we received preclinical approval to file an
Investigational New Drug application for Phase I and II clinical trials of our
Liprostin technology. On or about February 25, 1999, we obtained the exclusive
licensing rights to Nicotine Receptor Agonist technology from the University of
Stanford, in exchange for stock and cash. We have commenced preclinical trials
on the safety and efficacy of NRA in conjunction with Stanford University.
Pursuant to our agreement with Stanford University, we are financing their
staff's clinical trials and animal studies of NRA at their California
facilities.
The Company has not been subject to bankruptcy, receivership or any similar
proceeding.
Overview
We develop, market and license biopharmaceutical products, particularly
liposomal drug delivery methods, for the human healthcare industry. We develop
liposomes, which are microscopic cell-like spheres composed of a thin, durable
lipid membrane surrounding a hollow compartment. Liposomes entrap and protect
drugs from degradation in the blood stream and can be engineered to regulate the
transport of molecules across their outer membrane. Using this technology, we
are developing products that deliver drugs to their intended target and release
them with efficiency and control.
Currently, our product development is focused on two product lines -
Liprostin and Nicotine Receptor Agonist. Although we hold patents and patents
pending for products in the process of clinical testing, our products have not
been approved for general sales. Consequently, we have not generated any
revenues and have historically operated with significant losses. Although our
current development efforts focus on vascular (heart and lung) applications of
our products, we intend to develop our technologies for use in many medical
treatment applications. We believe that this unique and highly adaptable
technology will put our products at the forefront of the $2 billion drug market.
Liprostin Technology
Our Liprostin products provide targeted delivery of Prostaglandin E-1 to
blood vessels in connection with angioplasty procedures. Angioplasty is a common
medical procedure that utilizes a small balloon-like structure to expand and
clear blocked cardio-pulmonary blood vessels. Prostaglandin E1, a naturally
<PAGE>
occurring hormone, is used to prevent common secondary blockages from occurring
after angioplasty treatment; these blockages are known as restenosis. Restenosis
following balloon angioplasty or stent placement is the most common problem
occurring in the over 1,000,000 patients undergoing these procedures annually
worldwide, according to the American Heart Association. The incidence of
restenosis can be as high as 40-50%, according to the American Heart
Association, within six months of the procedure (slightly less with stents) and
most drugs tested have not yet been proven to reduce restenosis significantly in
clinical trials. Similarly, Prostaglandin E1's short lifespan in the blood
stream can render it ineffective in preventing restenosis. Liprostin delivery
system uses polymer coatings and emulsions to provide a longer and more
controlled release of Prostaglandin E1 and to improve therapeutic effectiveness
of the drug.
We are developing Lipostrin coated balloon catheters and stents for varied
vascular applications. As described above, balloon catheters are utilized to
physically expand and clear blocked blood vessels in vascular surgical
procedures. Conversely, stents are small structures used during and after
vascular surgery to support vessels and deliver agents that promote healing. We
intend to develop our Liprostin product lines further to treat conditions such
as restenosis, coronary arrest, occlusive disease, ischemic ulcers, CLI (limb
salvage), claudicants, liver disease and arthritis.
We are conducting clinical trial testing of Liprostin to obtain the Federal
Drug Administration approval of its sale in the United States. Phase I clinical
trials test product safety and tolerance levels using a small group of subjects,
as well as providing information about the product's effectiveness and dosage
levels. Phase II clinical trials test product efficacy, optional dosage levels
and potential contraindications or side effects using a larger patient group. We
intend to complete both phases of clinical trials by approximately December 31,
2002.
We have protected our proprietary rights to Liprostin technology through US
Patent 4,820,732, US Patent 4,955,878 and Notice of Allowance to US Patent
5,980,551 received on November 9, 1999, and Trademark Application Ser. No.
75/632,736 (Liprostin) and various patents pending.
Nicotine Receptor Agonist Technology
Our Nicotine Receptor Agonist technology promotes new growth of blood
vessels (known as angiogenesis or vasculogenesis), and has applications in the
treatment of heart disease, stroke, limb circulatory disease, and wound healing.
Researches at Stanford University discovered the technology during a 1999 study
funded by the Tobacco-Related Diseases Research Program of the University of
California, the American Heart Association, the National Institutes of Health
and the Deutsche Froschungsgemeinschkaft. While studying the damaging effects of
tobacco smoke, researchers discovered that smokers appeared less susceptible to
deaths due to infarction as compared to non-smokers. This counterintuitive
discovery suggested that low-dose (non-smoked) nicotine had extraordinary
angiogenic and vasculogenic growth factor potential. To develop technology based
on this unique discovery, we obtained a worldwide exclusive right to the patent
application for Nicotine Receptor Agonist in February 2000.
Further study of our Nicotine Receptor Agonist technology revealed more
conclusive results. Experiments have shown that nicotine promotes angiogenesis
and vasculogenesis in areas of the body that are deprived of proper blood
supply. Blockages of the arteries that feed an organ, often caused by build-up
of fatty material, cholesterol and plaques in arterial walls, may deprive the
tissue of proper blood supply. These blockage reduce the body's ability to
supply organs and surrounding tissue with nutrients, particularly oxygen, which
results in a condition called ischemia. Ischemia reduces cells' ability to
function and in severe cases causes rapid cell death. The body naturally defends
against ischemia by reducing the work required from the affected area and
attempting to grow new blood vessels into the ischemic area. Stanford
researchers found tobacco smokers had significantly more growth of new vessels
around such blockages than non-smokers, apparently due to the therapeutic
effects of nicotine. Upon further analysis, researchers determined that a
particular fraction of the nicotine molecule could provide a method of treating
and preventing a range of diseases and ailments involving angiogenesis. These
diseases, such as myocardial and cerebral infarction, mesenteric or limb
ischemia, common wounds, vascular occlusion, and vascular stenosis, commonly
called "hardening of the arteries", affect millions of persons every year in the
United States alone (American Heart Association).
<PAGE>
We estimate that the market for treatment of these diseases is over $5
billion. For example, we estimate that a course of treatment for coronary
ischemia utilizing Nicotine Receptor Agonist drugs would cost approximately
$10,000 to $15,000. This type of treatment would be significantly less expensive
and intensive than current alternatives of angioplasty and or open heart
surgery. We hope to market a commercially viable product using this Nicotine
Receptor Agonist technology within three years.
Distribution Methods
Upon receipt of necessary governmental regulatory consent, we intend to
distribute products utilizing our Liprostin and Nicotine Receptor Agonist
technologies worldwide. As previously described, we are developing Lipostrin
coated balloon catheters and stents for varied vascular applications. We also
intend to develop new products that use Liprostin to treat conditions such as
coronary arrest, occlusive disease, ischemic ulcers, CLI (limb salvage),
claudicants, liver disease and arthritis. Although we have not developed
specific product applications for our Nicotine Receptor Agonist technology, we
intend to develop and distribute products for treatment of myocardial and
cerebral infarction, mesenteric or limb ischemia, common wounds, vascular
occlusion and vascular stenosis.
In addition to peer review, seminars, journals and direct sales, we intend
to market and distribute our products in conjunction with business partners
experienced in marketing and distribution in the biopharmaceutical and medical
industries. If we are unable to reach an agreement with marketing and
distribution partners that is acceptable to us, we may raise the funds necessary
to create our own production, marketing and distribution infrastructure through
a public offering of our securities.
Patents and Proprietary Rights
We believe that adequate protection of our proprietary technology is a
vital aspect of our business operations. Consequently, we pursue patent
protection for our proprietary technology in the United States and in foreign
countries, as deemed necessary to protect development of our operations.
We have patent protection for several products and are pursuing patent and
trademark applications for additional products. In August 1996, Dr. Jackie R.
See transferred and assigned patent rights in the United States, Germany and
Canada for two of our products. The first patent, United States Patent No.
4,820,732, was issued on April 11, 1989, and protects our proprietary technology
regarding a "Method and Composition for Reducing Dysfunction in Angioplasty
Procedures." The second patent, United States Patent No. 4,955,878, was issued
on September 11, 1990, and protects our proprietary technology regarding a "Kit
for Treating Arterial Dysfunction Resulting from Angioplasty Procedures." We
have not maintained the application of this second patent and intend to let its
protections expire to the benefit of the public domain, except as limited by
patent applications described below.
<PAGE>
In addition to these assigned patents, we obtained a United States patent
for our proprietary technology regarding a "Composition and Method for Making a
Biodegradable Drug Delivery Stent," on November 9, 1999. Similarly, we have
filed a patent application for this technology under the Patent Cooperation
Treaty, as well as with the European Patent office and European Union. These
applications seek patent protection in France, Germany and the United Kingdom.
We have United States patent applications pending for several other
technologies. In June 1997, we filed a United States patent application for our
proprietary technology regarding a "Method and Apparatus for Treating Vascular
Disease with PGE-1 Bearing Liposomes." In May 1999, we filed a United States
patent application for our proprietary technology regarding "Prosthesis with
Biodegradable Surface Coating and Method for Making Same." The May 1999
application is a "continuation in part" of our patent application regarding
"Composition and Method for Making a Biodegradable Drug Delivery Stent," and, if
granted, will protect this technology's application in various medical products.
In June 1999, we filed a United States patent application for our proprietary
technology regarding "Sterically Stabilized Liposomes with Improvement of Blood
Retention Times and Targeting of Sites of Disease by Prostaglandins in
Particulate Drug Carriers."
We are seeking trademark protection for the name Liprostin(TM) under
Trademark Application Ser. No. 75/632,736. In May of 1999, the United States
Patent and Trademark Office notified us that our pending Patent US Ser. No.
09/309,949 would be allowed (Notice of Allowance). We also own rights to several
trademarks employed in our business, including our logo, the registered domain
name of www.endovasc.com, and other trade and service marks identifying our
products and services.
In February 2000, we obtained exclusive worldwide licensing rights to
develop, manufacture, use and sell products incorporating nicotine and nicotine
agonists for therapeutic angiogenesis. Pursuant to our acquisition of these
product rights from the Leland Stanford Junior University, we agreed to pay
royalties to the university on sales of any products incorporating the nicotine
agonist technology. Our licensing rights may be terminated in the event that we
default on payment of royalties, in addition to certain other circumstances.
It is important to note that other public and private institutions may have
obtained, or filed applications for, patents that we may need for development of
our products. We cannot know the scope or validity of such patents, the extent
that we may desire to acquire licenses under such patents, or the availability
of such licenses upon terms that are acceptable to us.
Governmental Regulation
United States and international governmental regulation of the
biopharmaceutical industry is a significant factor in our operations,
particularly our research and development activities. In the United States the
Food and Drug Administration oversees clinical testing, production and marketing
of our products for human therapeutic use through rigorous mandatory procedures
and safety.
The Food & Drug Administration requires satisfaction of several procedures
prior to approving marketing and distribution of pharmaceutical products in the
United States. These includes (i) preclinical tests, (ii) submission of an
application for an Investigational New Drug, which must become effective before
commencing human clinical trials, (iii) thoroughly documented and supervised
human clinical trials to determine drug safety and efficacy in its intended
application, (iv) submission and acceptance of an Investigational New Drug
Application, in the case of drugs, or a Product License Application, in the case
of biologics, and (v) approval of the Investigational New Drug Application or
Product License Application prior to commercial sale or shipment of the drug or
biologic. In addition to this process, each domestic drug manufacturing
establishment must be registered or licensed with the Food and Drug
Administration. Domestic manufacturing establishments are also subject to
inspections by the FDA and by other federal, state and local agencies and must
comply with Good Manufacturing Practices as required.
<PAGE>
Clinical trials are typically conducted in three sequential phases, which
may overlap. Phase I clinical studies test dosage and tolerance upon initial
introduction of the drug to humans. Phase II clinical studies document
evaluation of drug safety and efficacy. Phase III trials document large scale
evaluation of drug safety and efficacy and may utilize larger patient pools,
depending on the type of marketing approval that is sought.
Clinical testing and the Food and Drug Administration approval process for
a new product often involves significant time and resources. The Food and Drug
Administration may grant an unconditional approval of a drug for a particular
indication or may grant approval pending further post-marketing testing. In
addition, further clinical studies may be required to provide additional safety
data or to gain approval for an alternative product application than was
originally approved.
International biopharmaceutical product sales and distribution are subject
to widely varying regulatory requirements. Generally, the European Union has
coordinated its member states' common standards for clinical testing of new
drugs. Due to difference in regulatory restrictions in the European Union and
other foreign jurisdictions the time required to obtain regulatory approval from
a foreign country's regulatory agencies may be longer or shorter than that
required for Food and Drug Administration approval.
In addition to these regulations, our operation is subject to regulations
under state and federal law regarding occupational safety, laboratory practices,
the use and handling of radioisotopes, environmental protection and hazardous
substance control as well as other present and possible future local, state,
federal and foreign regulation.
Competition
Competition in the biopharmaceutical industry and the liposome and
lipid-based product area is intense. Factors such as product performance,
patient compliance, physician acceptance, ease of use, safety, price, marketing,
distribution and adaptability of administration are crucial to capturing market
position in our industry. Competition may also be based on other company's
development of alternative products and approaches aimed at the treatment,
diagnoses or prevention of the same diseases as our products.
Competition from other companies is based on scientific and technological
factors, the availability of patent protection, the ability to commercialize
technological developments, the ability to obtain government approval for
testing, manufacturing and marketing and the economic factors resulting from the
use of those products. Many companies, both public and private, including
well-known pharmaceutical and chemical companies, many of which have greater
capital resources than we do, are seeking to develop lipid and liposome based
products similar to our own. In addition, colleges, universities, and public and
private research institutions are similarly seeking to establish proprietary
rights to these product technologies.
We face established and well-funded competition from other companies
developing liposome based drug delivery systems. These competitors include Eli
Lilly, The Liposome Company and Schering-Plough. These companies generally use
liposome for the delivery of antitumor drugs, while our products are primarily
intended for use in vascular treatments. To our knowledge, current competition
in the vascular treatment area is limited to ReoPro(R) sold by Censtocor and
marketed by Eli Lilly, which is used in angioplasty.
<PAGE>
Research and Development
We maintain 1,400 square feet of lab space equipped with customary wet
laboratory equipment at our headquarters in Montgomery, Texas.
Our research and development efforts are focused on our core product -
Liprostin. We are conducting clinical trial testing of Liprostin to obtain the
Federal Drug Administration approval of its sale in the United States. Phase I
clinical trials test product safety and tolerance levels using a small group of
subjects, as well as providing information about the product's effectiveness and
dosage levels. Phase II clinical trials test product efficacy, optional dosage
levels and potential contraindications or side effects using a larger patient
group. We intend to complete both phases of clinical trials by approximately
December 31, 2002.
In addition, we are conducting feasibility studies with prospective
strategic partners to find practical collaborative products that incorporate
Liprostin with other technologies. We intend to develop new uses for our core
product Liprostin, including applications in hip or bone prostheses, cancer
treatment, inflammatory disease, liver disease and other diseases that have
responded well to prostaglandin treatment.
We are monitoring and assisting Stanford University's research and
development of our Nicotine Receptor Agonist technology and have commenced
preclinical trials, in conjunction with the university, on the safety and
efficacy of this technology. Pursuant to our agreement with Stanford University,
we are financing their staff's clinical trials and animal studies of Nicotine
Receptor Agonist, conducted at their California facilities. We are currently
developing this technology for use in treatment of peripheral occlusive arterial
disease, in addition to other applications.
To date, all of our research and development has been carried out without
the need of additional plant and equipment. Although we cannot assure the
adequacy of our current plant and equipment for future operations, we do not
intend to obtain additional plant or equipment at this time.
Employees
As of June 30, 2000, we employed fourteen employees, including five
management and nine support staff employees. In addition, we employ twelve
part-time consultants. None of our employees or independent contractors is
subject to a collective bargaining agreement and we believe that our relations
with our employees are good.
Legal Proceedings
We are not involved in any material litigation or legal proceedings and are
not aware of any potential material litigation or proceeding threatened against
us.
<PAGE>
Item 2. DESCRIPTION OF PROPERTY.
We maintain our executive offices and research and development facilities
at 15001 Walden Road, Suites 108, 234 and 235, Montgomery, Texas 77356. We lease
these 3,550 square foot facilities at an aggregate monthly rental rate of
$2,750.
We believe that our facilities are adequate for our current levels of
operations.
Item 3. LEGAL PROCEEDINGS
In July 2000, Mr. David Miller, a former employee of the Company, filed a
complaint against the Company in Superior Court of the State of California in
and for the County of Los Angeles. The complaint alleges defamation,
interference with contract and economic advantage, and conversion. With regard
to Mr. Miller's defamation claim, he alleges that the Company made certain
untrue statements regarding his conduct while employed by the Company, and he
seeks damages in excess of $2,000,000. With regard to Mr. Miller's claim for
interference of contract and economic advantage and claim for conversion, he
alleges that the Company converted certain equity interests to which he was
entitled. Mr. Miller seeks damages in excess of $7,000,000 on his interference
of contract and economic claim and seeks damages in excess of $5,000,000 on his
conversion claim. The Company intends to defend itself vigorously with regard to
each of the aforementioned claims.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
Not Applicable.
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock trades on the Nasdaq Over the Counter Bulletin
Board under the symbol "ENDV." The following table sets forth for the quarters
indicated the range of high and low closing prices of the Company's Common Stock
as reported by Nasdaq and the Electronic Bulletin Board but does not include
retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
Fiscal Quarter Ending: Common Stock Price
(rounded to nearest penny)
High Low
<S> <C> <C> <C> <C>
June 30, 2000 4.00 1.20
March 31, 2000 (through March 21, 2000) 15.00 0.10
December 31, 1999. 0.30 0.06
September 30, 1999 0.63 0.13
June 30, 1999 0.88 0.38
March 31, 1999 1.00 0.19
December 31, 1998 1.50 0.38
September 30, 1998 6.00 0.38
</TABLE>
As of June 30, 2000, the Company had approximately 93 record and beneficial
stockholders.
Dividend Policy
The Company has never paid cash dividends on its Common Stock and intends
to retain earnings, if any, for use in the operation and expansion of its
business. The amount of future dividends, if any, will be determined by the
Board of Directors based upon the Company's earnings, financial condition,
capital requirements and other conditions.
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The statements contained in this prospectus 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 prospectus 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 elsewhere in this prospectus.
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 June
30, 2000, the Company had an accumulated deficit of $5,752,064. During its
fiscal year ended June 30, 2000, the Company entered into an exclusive worldwide
license agreement with Stanford University for the patent rights to a patent
application SUN-142-PRV, a novel use of nicotine as an agent for promoting
growth of new blood vessels (angiogenesis) into areas of blood-starved tissue, a
condition called ischemia. Pursuant to the license agreement, the Company
obtained a 10 - year exclusive right of novel use of nicotine in angiogenesis.
Stanford will continue research and development for the Company's research
products under the licensing agreement, subject to pending agreements.
Management anticipates this action will result in the Company saving
approximately $500,000 in initial research cost due to Stanford's allocation of
research facility and investigational scientists. As a result of the Company's
decision in February 2000 to enter into the Stanford agreement and research
alliance with Stanford, we believe the Company's technology portfolio was
significantly enhanced.
In October 1999, the Company presented pre-clinical data to the U.S.
Food and Drug Administration (FDA) 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
data and responded with a waiver of Phase I & II clinical trials, if the Company
elected to proceed directly to a Phase III trial for the product. The Company
will determine whether or not this waiver will be accepted or whether it will
proceed on a conventional Phase I study, which it as prepared to do prior to the
FDA's pre-submission IND meeting. In addition, the Company completed its
FDA-required certified good manufacturing practice ("cGMP") development of
Liprostin at the Collaborative BioAlliance manufacturing facility in Stoney
Brook, New York. Clinical trial production levels of Liprostin are expected to
be in place by the end of the third quarter 2000 as the Company's clinical
studies begin.
During the fiscal year ended June 30, 2000, the Company's net revenues
increased to $24,312 compared with revenues of $5,000 for the previous fiscal
year ended June 30, 1999. All revenues during this period were from sales of
research and development services provided by the Company to third parties. The
Company had agreements with two device manufacturers for original research and
development of the proprietary use of Liprostin in the treatment of various
vascular diseases by application of medicinal coatings to vascular stents for
elimination or reduction of new tissue growth in and around the stents, a
condition known as restenosis.
During the fiscal year ending June 30, 2000 and 1999, costs and
operating expenses were $2,879,039 and $801,543, respectively. The increase in
costs and operating expenses for the year is primarily due to an increase in
the cost of research and development, scientific consulting, facilities, and
overhead.
<PAGE>
Cash flows used in operating activities for the fiscal year ending June
30, 2000 increased $1,189,204 to $1,566,576, compared to $377,372 for the
previous fiscal year ending June 30, 1999, primarily due to the increased cost
of scientific consultants, materials and prototype manufacturing.
Interest expense decreased for the fiscal year ending June 30, 2000 by
$66,614 or 34%. This was largely due to a significant reduction in the period
of time the convertible debentures were outstanding during the fiscal year ended
June 30, 2000.
Research and development expenses totaled $976,798 during the fiscal
year ending June 30, 2000, an increase of $765,520 from $211,278 for the fiscal
year ended June 30, 1999. These expenses were related to the cost of new
equipment, materials, labor and travel connected to the production scale-up for
the Liprostin product under contract with Collaborative BioAlliance, Inc. in
Stoney Brook, New York and the ongoing, in-house projects for medicinally coated
vascular stents.
Liquidity and Capital Resources
The Company had a working capital deficit on June 30, 2000, of
$137,563, compared to a deficit of $461,280 in the previous fiscal year ending
June 30, 1999. This decrease was primarily due to the proceeds received from the
issuance of stock in the fiscal year ended June 30, 2000.
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). In May 2000, the Company
completed a $4.5 million financing commitment related to the private placement
and sale of its convertible preferred stock in three (3) $1.5 million traunches.
Pursuant to the commitment, the Company received $1.5 million on May 10, 2000,
with $3 million remaining in the "take-down", however, there can be no assurance
that the Company will receive any funds from the remaining traunches.
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 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
operation.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is set forth at the end of this report.
<PAGE>
PART III
Item 8. CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS
None.
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Our executive officers, directors and key employees and their ages and
positions with us as of June 30, 2000, are as follows:
<TABLE>
<CAPTION>
Period Served As
Name Age Position Officer/Director/Key Employee
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
David P. Summers 61 Chief Executive Officer Inception (1996) to
and Chairman Present
Danilo D. Lasic 47 Chief Scientific Officer June 1997 to Present
Diane Dottavio 49 Director of Research and March 2000 to Present
Development
Barbara J. Richardson 53 Vice President of Operations, January 2000 to Present
Secretary and Director
Roy A. Robertson 42 Vice President of March 2000 to Present
Business Development
M. Dwight Cantrell 54 Chief Financial Officer, January 1997 to Present
Treasurer and Director
Gary R. Ball 40 Director July 1996 to Present
Claudio R. Roman 42 Director January 1997 to Present
</TABLE>
Set forth below is a brief background of the executive officers, Directors and
key employees of the Company, based on information supplied by them.
Dr. David P. Summers serves as our Chief Executive Officer and Chairman.
Dr. Summers has served in this capacity on a full-time basis since our inception
and is primarily responsible for our operations as a whole. Prior to working
with Endovasc, Dr. Summers founded American BioMed, Inc. and served as its
President and Chief Executive Officer from 1984 to 1995. Dr. Summers is a Fellow
in the American College of Angiology, a Fellow in the International Society for
Endovascular Surgery, as well as the inventor of several medical devices used to
treat cardiovascular diseases. He is the author of 18 issued patents and has 8
patents pending. Prior to founding American BioMed, Dr. Summers assisted with
the management of several corporations, including C.R. Bard, Inc., a manufacture
and distributor of cardiovascular medical products, Karl Stortz Endoscopy, an
endoscopic instrument company, and Pall Corporation, a manufacturer and
distributor of blood filtration products. Dr. Summers holds an M.B.A. degree
from Pepperdine University as well as a Ph.D. in International Economics from
Kennedy-Western University. He is also a member of the New York Academy of
Sciences, the American Association of Advancement of Science, the Houston
Inventors Association, the European Vascular Society and the Society of Plastic
Engineers.
<PAGE>
Danilo D. Lasic, Ph.D. serves as our Chief Scientific Officer. Prior to
joining us in June 1997, Dr. Lasic served as a genetic and drug delivery
consultant with Liposome Consultations, Inc. for a year, and as a Director of
Lipid Research with MegaBios, Inc., from 1994 to 1996. Dr. Lasic is a
solid-state physicist specialized in drug delivery liposomes. Dr. Lasic holds a
B.S. and M.S. in Chemistry from the University of Ljubljana, as well as a Ph.D.
in Physics from the University of Ljubljana.
Diane Dottavio serves as our Director of Research and Development. Prior to
joining us in March of this year, Ms. Dottavio served as Senior Scientist with
Leukosite, Inc., from 1994 to 1996, and as Director of Laboratory Instruction
and Research at the University of Houston, from 1997 to this year. Ms. Dottavio
holds a B.S. in Biology and a M.S. in Organic Chemistry from the University of
New Mexico, as well as a Ph.D. in Biochemistry from the University of Texas.
Barbara J. Richardson serves as our Vice President of Operations, Secretary
and Director. Ms. Richardson has more than 8 years experience in small business
management and marketing. Prior to joining us in January of this year, Ms.
Richardson served as Senior Administrative Coordinator for Baylor College of
Medicine, from 1994 to this year.
Roy A. Robertson serves as our Vice President of Business Development. Mr.
Robertson is a Candidate in the International Business Masters Program at
Heriot-Watt University, The Edinburgh Business School in Edinburgh, Scotland and
has studied business administration at the University of Maryland, College Park,
Maryland. Mr. Robertson has 25 years of business development and marketing
experience. Prior to joining us in March 2000, Mr. Robertson served as Vice
President of Sales and Marketing with Millar Instruments, Inc., from 1995 to
1997, and as President of Pacific Biosystems, from 1998 to 1999. Mr. Robertson
holds a B.A. in Anthropology from the University of Maryland.
M. Dwight Cantrell serves as our Chief Financial Officer, Treasurer and
Director, on a part-time basis. Mr. Cantrell has maintained, and continues to
maintain, a public accounting practice in the state of Texas since 1976. Mr.
Cantrell is a public accountant, and holds a B.S. in accounting from Southern
Ohio University.
Gary R. Ball serves as our Director and is one of our co-founders. Prior to
co-founding us in July 1996, Mr. Ball served as a mechanical engineer with
American BioMed, Inc., from 1991 to 1996. Mr. Ball is a co-inventor of two U.S.
patents and is experienced in prototype design, research, and development, as
well as reliability testing and patent research and filing.
Claudio R. Roman serves as our Director. Mr. Roman is a practicing attorney
in the State of Texas. Mr. Roman has maintained, and continues to maintain, a
private law practice in the state of Texas since 1985. Mr. Roman holds a J.D.
degree from the University of Houston School of Law.
Our Directors hold office until the next annual meeting of our stockholders
and until their successors have been elected and duly qualified. Executive
officers are elected by our Board of Directors annually and serve at the
discretion of the Board.
<PAGE>
Non-employee Directors receive no salary for their services and receive no
fee from the Company for their participation in meetings, although all Directors
are reimbursed for reasonable travel and other out-of-pocket expenses incurred
in attending meetings of the Board.
Item 10. EXECUTIVE COMPENSATION.
The following table sets forth certain summary information with respect to
the compensation paid to the our executive officers for services rendered to us,
in all capacities, for the fiscal years ended June 30, 1999, 1998, and 1997.
Other than as listed below, we had no executive officers whose total annual
salary and bonus exceeded $100,000 for that fiscal year:
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
Other Securities
Annual Restricted Under- Other
Name and Compen- Stock Lying LTIP Compen-
Principal Salary Bonus sation Awards Options/ Payouts sation
Position Year ($) ($) ($) ($) ($) ($) SARs(#)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David P. Summers 2000 66,500 - - - - - -
CEO and Director 1999 75,000 - - - 1,000,000 $0.25 -
1998 60,000 - - - - - -
</TABLE>
Directors of the Company receive no compensation for their services as
Directors.
Employment and Other Agreements
We have entered into employment agreements with Dr. David Summers and Ms.
Barbara Richardson. We entered into a three-year employment contract with Dr.
Summers in 1996, providing for annual compensation of $150,000 in cash and
equity interests. The original term of this contract has expired, but the term
has been renewed for a one-year period each June since its original expiration.
We also have a one-year automatically renewable employment contract with
Ms. Richardson, providing for annual compensation of $60,000 in cash and equity
interests.
In addition, we have a six-month consulting agreement with Mr. Roy
Robertson, providing for monthly compensation of $5,000. We intend to enter into
full-time employment agreements with Mr. Robertson and Mr. Danilo Lasic in the
near future.
<PAGE>
Stock Option Plans
We intend to propose a stock option plan (the "2000 Plan") to our
shareholders for approval, pursuant to which 2,000,000 shares of common stock
are reserved for issuance. The following is a description of the 2000 Plan as it
is currently envisioned:
The 2000 Plan will be administered by the Board of Directors, or by a
committee with at least two Directors as delegated by the Board of Directors who
determine among other things, those individuals who shall receive options, the
time period during which the options may be partially or fully exercised, the
number of shares of common stock issuable upon the exercise of the options and
the option exercise price.
The 2000 Plan will be for a period of ten years. Options under the 2000
Plan must be issued within ten years from the effective date of the 2000 Plan.
Options may be granted to officers, Directors, consultants, key employees,
advisors and similar parties who provide their skills and expertise to us.
Options granted under the 2000 Plan may be exercisable for up to ten years, may
require vesting, and shall be at an exercise price all as determined by the
Board of Directors. Options will be non-transferable except to an option
holder's personal holding company or registered retirement savings plan and
except by the laws of descent and distribution or a change in our control, as
defined in the 2000 Plan, and are exercisable only by the participant during his
or her lifetime. Change in control includes (i) the sale of substantially all of
our assets and merger or consolidation with another, or (ii) a majority of the
Board of Directors changes other than by election by the shareholders pursuant
to a Board of Directors' solicitation or by vacancies filled by the Board of
Directors caused by death or resignation of such person.
If a participant ceases affiliation with us by reason of death, permanent
disability or the retirement of an optionee either pursuant to a pension or
retirement plan we adopted on the normal retirement date prescribed by us from
time to time, the option remains exercisable for three months from such
occurrence but not beyond the option's expiration date. Other termination gives
the participant three months to exercise, except for termination for cause that
results in immediate termination of the option.
Options granted under the 2000 Plan, at the discretion of the compensation
committee or the Board of Directors, may be exercised either with cash, by
certified check or bank cashier's check, common stock having a fair market equal
to the cash exercise price, the participant's promissory note, or with an
assignment to us of sufficient proceeds from the sale of the common stock
acquired upon exercise of the Options with an authorization to the broker or
selling agent to pay that amount to us, or any combination of the above.
The exercise price of an option may not be less than the fair market value
per share of common stock on the date that the option is granted in order to
receive certain tax benefits under the Income Tax Act of United States (the
"ITA"). The exercise price of all future options will be at least 100% of the
fair market value of the common stock on the date of grant of the options. A
benefit equal to the amount by which the fair market value of the shares at the
time the employee acquires them exceeds the total of the amount paid for the
shares or the amount paid for the right to acquire the shares shall be deemed to
be received by the employee in the year the shares are acquired pursuant to
paragraph 7(1) of the ITA. Where the exercise price of the option is equal to
the fair market value of the shares at the time the option is granted, paragraph
110(1)(d) of the ITA allows a deduction from income equal to one quarter of the
benefit as calculated above. If the exercise price of the option is less than
the fair market value at the time it is granted, no deduction under paragraph
110(1)(d) is permitted. Options granted to any non-employees, whether Directors
or consultants or otherwise will confer a tax benefit in contemplation of the
person becoming a shareholder pursuant to subsection 15(1) of the ITA.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by us become available again for issuance under the 2000
Plan.
<PAGE>
The 2000 Plan may be terminated or amended at any time by the Board of
Directors, except that the number of shares of common stock reserved for
issuance upon the exercise of options granted under the 2000 Plan may not be
increased without the consent of our shareholders.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of June 30, 2000,
with respect to the number of shares of each class of voting stock beneficially
owned by (i) those persons known to the Company to be the owners of more than
five percent of any such class of voting stock of the Company, (ii) each
director of the Company and (iii) all directors and executive officers of the
Company as a group. Unless otherwise indicated, each of the listed persons has
sole voting and investment power with respect to the shares beneficially owned
by such shareholder.
<TABLE>
<CAPTION>
Percentage of
Name and Address of Amount of Beneficial
Beneficial Owner (1) Beneficial Ownership
Ownership(2)(3)
<S> <C> <C>
David P. Summers 3,032,278 (4) 28.12
Danilo D. Lasic 10,000 0.08
Barbara J. Richardson 53,695 0.41
Roy Robertson 25,000 0.20
M. Dwight Cantrell 50,000 0.79
Gary R. Ball 993,500 (5) 7.80
Claudio R. Roman 50,000 0.39
Celeste Trust Reg. 1,075,179 (6) 7.78 (7)
Balmore Funds 1,218,536 (6) 8.73 (7)
Keshet L.P. 788,465 (6) 5.83 (7)
All Directors and Executive Officers as a Group 4,811,778 0.38
(7 persons)
----------------------
Less than 1%.
</TABLE>
(1) Except as otherwise noted, the address of the beneficial owners
described in this table shall be c/o Endovasc Ltd., Inc., 15001 Walden Road,
Suite 108, Montgomery, Texas 77356.
(2) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in the rules
and regulations promulgated under the Securities Exchange Act of 1934, as
amended, and accordingly, may include securities owned by and for, among others,
the spouse and/or minor children of an individual and any other relative who has
the same home as such individual, as well as other securities as to which the
individual has or shares voting or investment power or which such person has the
right to acquire within 60 days after the Record Date pursuant to the conversion
of convertible equity, exercise of options, or otherwise. Beneficial ownership
may be disclaimed as to certain of the securities.
(3) Based upon 468,370 shares of common stock outstanding as of June 30,
2000, assuming no other changes in the beneficial ownership of our securities,
except as noted in note (7) hereto.
<PAGE>
(4) Dr. Summer's beneficially owned shares include approximately 243,000
shares beneficially owned by his wife, Dorothy Summers. Dr. Summers exercises no
investment or voting power over any of the shares owned by his wife, and
disclaims beneficial ownership of those shares.
(5) Mr. Ball's beneficially owned shares include approximately 5,000 shares
beneficially owned by his wife, Sherry Ball. Mr. Ball exercises no investment or
voting power over any of the shares owned by his wife, and disclaims beneficial
ownership of those shares.
(6) Represents shares of common stock issuable upon the conversion of
Series A Preferred Stock which have been, or may be, issued.
(7) Based upon the shares of common stock outstanding assuming conversion,
as of June 30, 2000, of Series A Preferred Stock which have been, or may be,
issued to this beneficial holder.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As of the June 30, 2000, we have not entered into a transaction during the
past two years with a value in excess of $60,000 with a Director, officer, or
beneficial owner of 5% or more of our capital stock, or members of their
immediate families that had, or is to have, a direct or indirect material
interest in us, except as follows:
Effective December 9, 1997, we entered into a stock option agreement with
Gary R. Ball. Under this agreement, Mr. Ball is granted an option to purchase up
to 600,000 shares of our common stock at a purchase price below the prevailing
market price. The option is for a three year period expiring December 8, 2000.
During the fiscal year ended June 30, 1998, we also entered into an
agreement with M. Dwight Cantrell under the terms of which he was compensated
for past services as our Director. Under the terms of this agreement, Mr.
Cantrell was granted an option to purchase 100,000 shares of our common stock at
a purchase price of $0.25 per share for a term of three years.
During the fiscal year ended June 30, 1998, we entered into an agreement to
purchase the rights to patent number 4,820,732 and patent number 955,878 from
Francis Pizzulli. The purchase price was $125,000, $50,000 of which was payable
upon execution and $75,000 of which was due by December 31, 1997. The agreement
also called for the issuance of 200,000 shares of our common stock. We made the
initial $50,000 payment and issued the 200,000 shares of stock, pursuant to the
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended. However, we did not make the $75,000 payment as scheduled. The
agreement indicated that if the final payment was not made within seven months
from the execution of the agreement that the final payment would be increased to
$150,000 plus the issuance an additional 200,000 shares of stock. We issued a
total of 300,000 shares in final settlement of the agreement, in February 2000.
Between March 1998 and December 1999, David Summers, our Chairman of the
Board of Directors and Chief Executive Office, made two advances to us in the
amounts of $123,000 and $25,000, respectively. These advances were made on an
unsecured basis, with no interest accrual, and were due and payable on June 30,
2000. During December 1999, we issued 1,250,000 shares of common stock, valued
at $0.10 to $0.12 per share as of the date of the issuance, in full and final
repayment of the aforementioned advances.
During the fiscal year ended June 30, 1998, we entered into an agreement
with Claudio Roman, Esq., pursuant to which he was compensated for past services
as our legal counsel. Under the terms of this agreement, Mr. Roman was granted
an option to purchase 50,000 shares of our common stock at a purchase price of
$0.25 per share for a term of three years.
<PAGE>
During fiscal year ending June 30, 1998, we entered into a stock option
agreement with Dr. David P. Summers. Under this agreement, Dr. Summers is
granted an option to purchase up to 1,000,000 shares of our common stock at a
purchase price of $0.25 per share exercisable for a period of three years.
The Company believes that all transactions between the Company and its
officers, directors and employees described above are on terms no less favorable
to the Company than could have been obtained from unaffiliated parties under
similar circumstances.
Item 13. EXHIBITS, LIST, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) INDEX TO EXHIBITS
Exhibit No. Exhibit
<S> <C>
3.1 Articles of Incorporation of the Company **
3.2 Bylaws of the Company **
4.1 Form of 8% Series A Senior Subordinated Convertible Redeemable Debenture **
4.2 Form of 8% Series B Senior Subordinated Convertible Redeemable Debenture **
4.3 Specimen Stock Certificate of the Company **
10.1 Form of Employment Agreement with Dr. David Summers, dated December 18, 1996 ***
10.2 Form of Employment Agreement with Ms. Barbara Richardson, dated June 1, 2000 ***
10.3 Form of Consulting Services Agreement with Mr. Roy Robertson, dated March 1, 2000 ***
10.4 Form of Subscription Agreement for Purchase of Series A 8% Cumulative Convertible Preferred Stock*
10.5 Certificate to Set Forth Designations, Voting Powers, Preferences, Limitations, Restrictions and
Relative Rights of Series A 8% Cumulative Convertible Preferred Stock*
10.6 Form of Common Stock Purchase Warrant*
10.7 Lease of Company's Facility at 15001 Walden Road, Suite 108, Montgomery, Texas 77356 ***
10.8 Lease of Company's Facility at 15001 Walden Road, Suites 234 and 235, Montgomery, Texas 77356 ***
16.1 Letter on change in certifying accountant **
27.1 Financial Data Schedule
</TABLE>
* Incorporated by reference from the Registrant's Form SB-2, filed on June
30, 2000.
** Incorporated by reference from the Registrant's Form 10-SB, filed on
December 3, 1999.
*** Incorporated by reference from the Registrant's Form SB-2/A, filed on
July 20, 2000.
(b) Reports on Form 8-K:
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ENDOVASC LTD., INC.
By:/s/ David P. Summers
David P. Summers, Chief Executive Officer
By:/s/ Barbara J. Richardson
Barbara J. Richardson, Secretary
Dated: September 28, 2000
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: September 28, 2000 /s/ David P. Summers
David P. Summers, Chairman of the Board
Date: September 28, 2000 /s/ M. Dwight Cantrell
M. Dwight Cantrell, Director
Date: September 28, 2000 /s/ Gary R. Ball
Gary R. Ball, Director
Date: September 28, 2000 /s/ Claudio R. Roman
Claudio R. Roman, Director
Date: September 28, 2000 /s/ Barbara J. Richardson
Barbara J. Richardson, Director
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
----------
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT
ACCOUNTANTS as of June 30, 2000 and for the
years ended June 30, 2000 and 1999,
and for the period from inception, June 10, 1996,
to June 30, 2000
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
TABLE OF CONTENTS
----------
<TABLE>
<CAPTION>
Page(s)
<S> <C>
Report of Independent Accountants F-2
Financial Statements:
Balance Sheet as of June 30, 2000 F-4
Statement of Operations for the years ended
June 30, 2000 and 1999, and for the period from
inception, June 10, 1996, to June 30, 2000 F-5
Statement of Stockholders' Deficit for the years
ended June 30, 2000 and 1999, and for the period
from inception, June 10, 1996, to June 30, 2000 F-6
Statement of Cash Flows for the years ended
June 30, 2000 and 1999, and for the period from
inception, June 10, 1996, to June 30, 2000 F-8
Notes to Financial Statements F-9
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Stockholders of
Endovasc Ltd., Inc.
We have audited the accompanying balance sheet of Endovasc Ltd., Inc. (a
development stage enterprise) as of June 30, 2000, and the related statements of
operations, stockholders' equity and cash flows for the years ended June 30,
2000 and 1999, and for the period from inception, June 10, 1996, to June 30,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based upon our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Endovasc Ltd., Inc. as of June
30, 2000, and the results of its operations and its cash flows for the years
ended June 30, 2000 and 1999, and for the period from inception, June 10, 1996,
to June 30, 2000, in conformity with generally accepted accounting principles.
Continued
F-2
<PAGE>
Endovasc Ltd., Inc.
Page 2
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements
and discussed in Note 9, the Company has incurred significant recurring losses
from operations since inception, is in a negative working capital and
accumulated deficit position at June 30, 2000, and is dependent on outside
sources of financing for the continuation of its operations. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans with regard to this matter are also discussed in Note 9.
These financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Houston, Texas
September 19, 2000
F-3
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEET
June 30, 2000
----------
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents $ 926,121
----------
Total current assets 926,121
Property and equipment, net 43,244
Other assets, net 160,271
----------
Total assets $1,129,636
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 37,387
Note payable to shareholder 795,748
Accounts payable 196,375
Accrued liabilities 34,174
----------
Total current liabilities 1,063,684
Long-term debt, net of current maturities 22,858
----------
Total liabilities 1,086,542
----------
Commitment and contingencies
Stockholders' equity:
Common stock, $.001 par value, 100,000,000
shares authorized, 14,553,370 shares issued
and 12,468,370 shares outstanding 14,553
Preferred stock, $.001 par value, 20,000,000
shares authorized, 15,000 shares of Series A 8% cumulative convertible
preferred stock issued and outstanding, stated value $100
per share 15
Additional paid-in capital 5,797,501
Losses accumulated during the development
stage (5,752,064)
Treasury stock (16,911)
----------
Total stockholders' equity 43,094
----------
Total liabilities and stockholders'
equity $1,129,636
==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-4
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF OPERATIONS
for the years ended June 30, 2000 and 1999 and
for the period from inception, June 10, 1996, to June 30, 2000
----------
<TABLE>
<CAPTION>
Year Ended Year Ended Inception
June 30, June 30, to June 30,
2000 1999 2000
----------------------------------------------------
Income:
<S> <C> <C> <C>
Sales $ 24,312 $ 5,000 $ 29,312
Interest income 6,775 - 7,428
Other income - - 3,618
----------- ---------- -----------
Total income 31,087 5,000 40,358
----------- ---------- -----------
Costs and expenses:
Operating, general and administrative
expenses 1,775,044 396,454 3,159,247
Research and development costs 976,798 211,278 2,176,130
Interest expense 127,197 193,811 329,670
----------- ---------- -----------
Total costs and expenses 2,879,039 801,543 5,665,047
----------- ---------- -----------
Net loss before extraordinary item $(2,847,952) $ (796,543) $(5,624,689)
Extraordinary loss on extinguishment
of convertible debentures 127,375 - 127,375
----------- ---------- -----------
Net loss $(2,975,327) $ (796,543) $(5,752,064)
=========== ========== ===========
Weighted average shares outstanding 9,575,153 7,217,096
=========== ==========
Basic and diluted net loss per common Share:
Before extraordinary item $ (0.30) $ (0.11)
Extraordinary item (0.01) -
----------- ----------
Net loss per common share $ (0.31) $ (0.11)
=========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' DEFICIT
for the years ended June 30, 2000 and 1999, and
for the period from inception, June 10, 1996 to June 30, 2000
----------
<TABLE>
<CAPTION>
Losses
Accumulated
Additional During the
Common Stock Preferred Stock Paid-In Treasury Development
Amount Shares Amount Shares Capital Stock Stage Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at inception, June 10,
1996 $ -- -- $- - $ -- $ -- $ -- $ --
Stock issued for equity secur-
ities in 1996 ................. 2,332 2,332,000 -- - 300,000 -- -- 302,332
Stock issued for purchase of
patent rights in 1996 ......... 2,188 2,188,000 -- - 282,252 -- -- 284,440
Stock issued for services in
1997 1,702 1,702,000 -- - 354,198 -- -- 355,900
Stock issued for cash in 1997 ... 305 304,571 -- - 205,196 -- -- 205,501
Stock issued for purchase of
patent rights in September
1997 200 200,000 -- - 199,800 -- -- 200,000
Stock issued for services in 1998 77 77,380 - -- 55,516 -- 55,593
Stock subject to rescission ..... -- -- -- - -- (16,911) -- (16,911)
Losses accumulated during the
period from inception, June 10,
1996, to June 30, 1998 ........ -- -- -- - -- -- (1,980,194) (1,980,194)
----------- ----------- ---- - ----------- ----------- ----------- -----------
Balance at June 30, 1998 ........ 6,804 6,803,951 -- - 1,396,962 (16,911) (1,980,194) (593,339)
</TABLE>
The accompanying notes are an integral
part of these financial statements.
Continued
F-6
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' DEFICIT, Continued
for the years ended June 30, 2000 and 1999, and
for the period from inception, June 10, 1996 to June 30, 2000
----------
<TABLE>
<CAPTION>
Losses
Accumulated
Additional During the
Common Stock Preferred Stock Paid-In Treasury Development
Amount Shares Amount Shares Capital Stock Stage Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Conversion of debentures to
common stock .............. 1,208 1,208,077 -- -- 443,792 -- -- 445,000
Stock issued for services ... 362 362,462 -- -- 284,705 -- -- 285,067
Net loss accumulated in 1999 -- -- -- -- -- -- (796,543) (796,543)
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30,1999 ..... 8,374 8,374,490 -- -- 2,125,459 (16,911) (2,776,737) (659,815)
Conversion of debentures to
common stock .............. 2,570 2,569,546 -- -- 841,555 -- -- 844,125
Stock issued for services ... 1,869 1,869,334 -- -- 1,388,241 -- -- 1,390,110
Conversion of note payable to
shareholder to common stock 1,250 1,250,000 -- -- 146,750 -- -- 148,000
Issue of common stock in con-
nection with license agree-
ment ...................... 190 190,000 -- -- 62,511 -- -- 62,701
Issue of common stock in set-
tlement of lawsuit ........ 300 300,000 -- -- 192,700 -- -- 193,000
Issuance of preferred stock . -- -- 15 15,000 1,040,285 -- -- 1,040,300
Net loss accumulated in 2000 -- -- -- -- -- -- (2,975,327) (2,975,327)
---------- ---------- ---------- ---------- ---------- ---------- ----------- -----------
Balance at June 30, 2000 $14,553 14,553,370 $ 15 15,000 $5,797,501 $ (16,911) $(5,752,064) $ 43,094
========== ========== ========== ========== ========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-7
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
for the years ended June 30, 2000 and 1999, and
for the period from inception, June 10, 1996, to June 30, 2000
----------
<TABLE>
<CAPTION>
Year Ended Year Ended Inception
June 30, June 30, to June 30,
2000 1999 2000
----------- ----------- -------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $(2,975,327) $ (796,543) $(5,752,064)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Common stock and stock options
issued as compensation for services 1,390,110 285,067 2,286,670
Extaordinary loss 127,375 - 127,375
Write down of long-lived assets to
fair value - - 284,440
Depreciation and amortization expense 11,774 3,242 21,286
Deferred income tax expense - - 7,994
Amortization of discount on con-
vertible debentures 125,000 125,000 250,000
Changes in operating assets and
liabilities:
(Increase) decrease in other assets (94,670) 22,336 (102,584)
Increase (decrease) in accounts
payable and accrued liabilities (150,838) (16,474) 216,936
----------- ---------- -----------
Net cash used in operating
activities (1,566,576) (377,372) (2,659,947)
----------- ---------- -----------
Cash flows from investing activities:
Capital expenditures (38,756) (3,198) (57,751)
Proceeds received from repayment of
loan to stockholder - - 71,854
----------- ---------- -----------
Net cash provided by (used in)
investing activities (38,756) (3,198) 14,103
----------- ---------- -----------
Cash flows from financing activities:
Proceeds from sale of equity securities - - 302,332
Proceeds from sale of common stock - - 205,501
Proceeds from sale of convertible
debenture and related conversion
feature 536,750 500,000 1,036,750
Net proceeds from issuance of preferred
stock 1,040,300 - 1,040,300
Issuance of notes payable 8,965 - 105,755
Repayment of notes payable (33,120) (12,390) (45,510)
Proceeds from advances from
stockholders 858,500 10,100 943,748
Purchase of treasury stock - - (16,911)
----------- ---------- -----------
Net cash provided by financing
activities 2,411,395 497,710 3,571,965
----------- ---------- -----------
Net increase in cash and cash equivalents 806,063 117,140 926,121
Cash and cash equivalents at beginning
of period 120,058 2,918 -
----------- ---------- -----------
Cash and cash equivalents at end of
period $ 926,121 $ 120,058 $ 926,121
=========== ========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ 7,903 $ 63,105 $ 79,670
=========== ========== ===========
Cash paid for income taxes $ - $ - $ -
=========== ========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-8
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
----------
1. Organization and Summary of Significant Accounting Policies
Endovasc, Ltd., Inc. (the "Company") was incorporated under the laws of
the State of Nevada on June 10, 1996. The Company's principal business is
the production of various drugs that can be administered using an
advanced drug delivery system. The Company believes that its drug
delivery system will ultimately be widely used by cardiologists,
interventional radiologists and vascular surgeons. The Company is
considered a development stage enterprise because it has not yet
generated significant revenue from sale of its products and has devoted
substantially all of its efforts in raising capital.
Significant Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the periods. Actual results could differ from estimates making it
reasonably possible that a change in the estimates could occur in the
near term.
Cash and Cash Equivalents
The Company considers all highly liquid short-term investments with an
original maturity of three months or less when purchased to be cash
equivalents.
The Company maintains cash deposits in banks which may occasionally
exceed the amount of federal deposit insurance available. Management
periodically assesses the financial condition of the institutions and
believes that any possible deposit loss is minimal.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided on
the straight-line method over the estimated useful lives of the assets,
which range from five to seven years. Expenditures for major renewals and
betterments that extend the original estimated economic useful lives of
the applicable assets are capitalized. Expenditures for normal repairs
and maintenance are charged to expense as incurred. The cost and related
accumulated depreciation of assets sold or otherwise disposed of are
removed from the accounts, and any gain or loss is included in
operations.
Continued
F-9
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, Continued
----------
1. Organization and Summary of Significant Accounting Policies, continued
Issuance Costs
Debt issuance costs are deferred and recognized, using the interest
method, over the term of the related debt.
Income Taxes
The Company uses the liability method of accounting for income taxes.
Under this method, deferred income taxes are recorded to reflect the tax
consequences on future years of temporary differences between the tax
basis of assets and liabilities and their financial amounts at year-end.
The Company provides a valuation allowance to reduce deferred tax assets
to their net realizable value.
Research and Development
Research and development costs are expensed as incurred. These costs
consist of direct and indirect costs associated with specific projects.
Stock-Based Compensation
Stock-based compensation is accounted for using the intrinsic value
method prescribed in Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees", rather than applying the fair
value method prescribed in SFAS No. 123, "Accounting for Stock-Based
Compensation".
Loss Per Share
Basic and diluted loss per share is computed on the basis of the weighted
average number of shares of common stock outstanding during each period.
Common equivalent shares from common stock options and warrants are
excluded from the computation as their effect would dilute the loss per
share for all periods presented.
Fair Value of Financial Instruments
The Company includes fair value information in the notes to financial
statements when the fair value of its financial instruments is different
from the book value. When the book value approximates fair value, no
additional disclosure is made.
Continued
F-10
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, Continued
----------
1. Organization and Summary of Significant Accounting Policies, continued
Impairment of Long-Lived Assets
In the event facts and circumstances indicate the carrying value of a
long-lived asset, including associated intangibles, may be impaired, an
evaluation of recoverability is performed by comparing the estimated
future undiscounted cash flows associated with the asset to the asset's
carrying amount to determine if a write-down to market value or
discounted cash flow is required.
2. License Agreement
In February 2000 the Company entered into an exclusive license agreement
with Stanford University to assist in the development of the Nicotine
Receptor Agonist technology. For the exclusive rights to this license,
the Company paid a non-refundable license fee of $100,000 plus 190,000
shares of the Company's common stock to Stanford University and the
inventors of the technology. The term of the agreement is for 10 years or
five years from the first commercial sale of a licensed product by the
Company, whichever occurs first. The Company is also required to pay an
annual royalty of $100,000 beginning February 1, 2001 and each year
thereafter and a 6% royalty on net sales of any licensed product. The
Company is required to pay to Stanford an additional $100,000 upon FDA
approval of Phase I clinical trials, $300,000 upon FDA approval of Phase
III clinical trials and $500,000 within six months after FDA marketing
approval.
The costs of obtaining the license of $162,701 were capitalized and
included in other assets in the accompanying balance sheet. These costs
are being amortized on a straight line basis over the term of the
agreement.
Continued
F-11
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, Continued
----------
3. Property and Equipment
<TABLE>
<CAPTION>
<S> <C>
Property and equipment at June 30, 2000 consists of the following:
Office furniture, fixtures and equipment $ 57,751
Less accumulated depreciation (14,507)
----------
$ 43,244
==========
</TABLE>
Depreciation expense during the year ended June 30, 2000 was $4,995.
4. Notes Payable and Convertible Debentures
Notes payable at June 30, 2000 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Notes payable to a bank, bearing int- erest of prime (9.00% at June 30,
2000) plus 1% per year and due in individual monthly installments of up
to $1,238, including interest, through November 2002. These notes are
uncollateralized but are guaranteed by two stockholders
of the Company. $ 60,245
Notes payable to stockholders, non- interest bearing and due on demand.
These notes are uncollateralized. 795 798
----------
Total notes payable 856,043
Less current maturities (833,185)
----------
$ 22,858
==========
</TABLE>
Continued
F-12
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, Continued
----------
4. Notes Payable and Convertible Debentures, continued
At June 30, 1999, the Company owed amounts under convertible debentures
totaling $180,000 and received additional proceeds from convertible
debentures of $536,750 during the year ended June 30, 2000. The
debentures bore interest at a stated rate of 8% per year, payable at
maturity in common stock of the Company. These debentures, originally
scheduled to mature in July 2001, were convertible to shares of the
Company's common stock at a conversion price per share equal to 75% of
the average closing bid price of the common stock for the three days
immediately preceding the date of conversion. Accordingly, the actual
weighted average interest rate on these debentures, including the effect
of the cost of the discounted conversion feature, is approximately 33%.
During the fiscal year ended June 30, 2000 all of the outstanding
debentures were converted to common stock through a settlement in which
the Company issued additional common stock, which resulted in an
additional cost to the Company of $127,375.
Future annual maturities of notes payable at June 30, 2000 are as
follows:
<TABLE>
<CAPTION>
Year Ended
June 30, Amount
<S> <C> <C>
2001 $ 833,185
2002 18,276
2003 4,582
----------
$ 856,043
==========
</TABLE>
5. Income Tax
The composition of deferred tax assets and the related tax effects at
June 30, 2000 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Benefit from carryforward of net
operating losses $ 942,456
Less valuation allowance (942,456)
----------
Net deferred tax asset $ -
==========
</TABLE>
Continued
F-13
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, Continued
----------
5. Income Tax, continued
The difference between the income tax benefit in the accompanying
statement of operations and the amount that would result if the U.S.
Federal statutory rate of 34% were applied to pre-tax loss is as follows:
<TABLE>
<CAPTION>
2000 1999
-----------------------------------------------------------
Percentage Percentage
of Pre-Tax of Pre-Tax
Amount Loss Amount Loss
<S> <C> <C> <C> <C>
Benefit for income tax at
federal statutory rate $1,011,611 34.0% $ 270,825 34.0%
Non-deductible expenses (473,145) (15.9) (17,096) (2.1)
Increase in valuation
allowance (538,466) (18.1) (253,729) (31.9)
---------- ----- ---------- -----
Total $ - - % $ - - %
========== ===== ========== =====
</TABLE>
The non-deductible expenses shown above related primarily to the issuance
of common stock for services using different valuation methods for
financial and tax reporting purposes.
At June 30, 2000, for federal income tax and alternative minimum tax
reporting purposes, the Company has approximately $2,800,000 of unused
net operating losses available for carryforward to future years. The
benefit from carryforward of such net operating losses will expire in
various years between 2016 and 2020 and could be subject to severe
limitations if significant ownership changes occur in the Company.
6. Stock Options and Warrants
The Company periodically issues incentive stock options and warrants to
key employees, officers, directors and outside consultants to provide
additional incentives to promote the success of the Company's business
and to enhance the ability to attract and retain the services of
qualified persons. The issuance of such options are approved by the Board
of Directors. The exercise price of an option granted is determined
by the fair market value of the stock on the date of grant.
Effective December 9, 1997, the Company entered into a stock option
agreement with an employee that granted the employee an option to
purchase up to 600,000 shares of the Company's restricted common stock at
a below market purchase price. The option is for a three year period
expiring December 8, 2000. According to the agreement the employee vests
in these options as follows:
<TABLE>
<CAPTION>
Date Vested Amount
<S> <C> <C>
December 9, 1998 $ 200,000
December 9, 1999 200,000
December 9, 2000 200,000
----------
$ 600,000
==========
</TABLE>
Continued
F-14
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, Continued
----------
6. Stock Options and Warrants, continued
The Company recognized compensation expense with respect to these stock
options in the amount of $50,000. During the year ended June 30, 2000 the
employee terminated his employment with the Company and by approval of
the Board of Directors became fully vested in his stock options which
were all subsequently exercised.
During the year ended June 30, 1998, the Company also granted stock
options to acquire upto 1,350,000 shares of the Company's restricted
common stock at $0.25 per share, which approximates market value, for
terms of three years.
During the year ended June 30, 1999, the Company granted stock options to
acquire up to 250,000 shares of the Company's restricted common stock.
These stock options have a three year term and exercise prices of $0.40
to $0.75 per share, which approximated market value at date of grant.
During the year ended June 30, 2000 the Company issued stock warrants to
acquire 332,778 shares of the Company's common stock to certain companies
for their role in the completion of the Company's preferred stock
offering. These warrants have a three year term and an exercise price of
$1.89 per share, which approximated market value at the date of grant.
The Company also issued stock warrants to acquire 500,000 shares of the
Company's common stock to a company as a finder's fee for the placement
of the preferred stock offering. The warrants have a five year term and
an exercise price of $0.10 per share. The costs associated with these
stock warrants do not effect the Company's statement of operations as all
costs would be offset against the offering proceeds and recorded through
stockholders' equity.
Continued
F-15
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, Continued
----------
6. Stock Options, continued
The Company has issued stock options to employees and non-employee
consultants as follows:
<TABLE>
<CAPTION>
Weighted
Number of Shares Average
Non- Exercis- Exercise Exercise
Employee Employee Total able Price Price
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
at June 30, 1998 1,600,000 350,000 1,950,000 1,200,000 $0.10-$0.75 $0.29
Options granted - 250,000 250,000 100,000 $0.25-$0.75 $0.61
-------- ------- --------- ---------
Options outstanding
at June 30, 1999 1,600,000 600,000 2,200,000 1,550,000 $0.10-$0.75 $0.23
Options granted - - - -
Options exercised (600,000) - (600,000) - $0.10 $0.10
-------- ------- --------- ---------
Options outstanding
at June 30,2000 - 600,000 1,600,000 1,550,000 $0.25-$0.75 $0.68
======== ======= ========= =========
</TABLE>
Following is a summary of outstanding options at June 30, 2000:
<TABLE>
<CAPTION>
Number of Shares Vested Expiration Date Exercise Price
<S> <C> <C> <C> <C>
1,000,000 1,000,000 June 30, 2001 $0.25
1,100,000 1,100,000 June 30, 2004 $0.25
200,000 150,000 June 17, 2001 0.75
50,000 50,000 May, 2001 0.75
100,000 100,000 June, 2001 0.40
150,000 150,000 October, 2001 0.75
------- -------
500,000 450,000
====================================
</TABLE>
During the year ended June 30, 2000, for the first time, the Company has
issued stock warrants to certain companies in payment of stock offering
costs as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercis- Exercise Exercise
Shares able Price Price
<S> <C> <C> <C> <C> <C>
Warrants issued 832,778 832,778 $0.10-$1.89 $0.82
Warrants cancelled - - - -
Warrants exercised - - - -
--------- ------- ----------- -----
Warrants outstanding at June 30, 2000 832,778 832,778 $0.10-$1.89 $0.82
========= ======= =========== =====
</TABLE>
Continued
F-16
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, Continued
----------
6. Stock Options, continued
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation",
requires use of option valuation models that were not developed for use
in valuing employee stock options.
Proforma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
that Statement. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1999: risk-free interest rate
of 6%; no dividend yield; weighted average volatility factor of the
expected market price of the Company's common stock of 0.70; and a
weighted-average expected life of the options of 3 years. There were no
new options granted in the fiscal year ended June 30, 2000.
The Black-Scholes option valuation model was developed for use in
estimating fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
Continued
F-17
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, Continued
----------
6. Stock Options, continued
For purposes of proforma disclosures, the estimated fair value of the
options is included in expense at the date of issuance because the
options may be fully exercised at that date. The Company's proforma
information follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------------------------------------------------------------
<S> <C> <C> <C>
Net loss available to common
stockholders $(2,975,327) $ (796,543) $(1,032,834)
Proforma net loss available to
common stockholders $(2,975,327) $ (886,943) $(1,048,334)
Proforma basic and dilutive
loss per share $ (0.31) $ (0.12) $ (0.16)
</TABLE>
7. Preferred Stock
The Company's articles of incorporation authorize the issuance of up to
20,000,000 shares of preferred stock with characteristics determined by
the Company's board of directors. Effective May 5, 2000, the board of
directors authorized the issuance and sale of up to 55,000 shares of
Series A 8% convertible preferred stock.
On May 9, 2000, the Company issued 15,000 shares of $0.001 par value and
$100 per share stated and liquidation value Series A 8% non-voting
convertible preferred stock for $1,500,000. The actual proceeds received
by the Company were $1,040,300, which are net of related offering costs.
The Series A convertible preferred stock can be converted to common stock
at any time at the option of the holder. The conversion rate is the
stated value per share plus any accrued and unpaid dividends divided by
85% of the average of the three lowest closing bid prices of the
Company's common stock for the thirty trading days immediately preceding
May 9, 2000, or 70% of the average of the three lowest closing bid prices
for the thirty days immediately preceding the conversion date of
the respective preferred stock.
In addition, the Series A preferred stockholders were originally
obligated to purchase an additional 30,000 shares 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 the 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 stated value per share.
Continued
F-18
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, Continued
----------
8. Commitments and Contingencies
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.
The Company has entered into a one-year lease agreement for office space
which is accounted for as an operating lease. Rent expense for the years
ended June 30, 2000 and 1999 was $17,250 and $15,606, respectively.
9. Going Concern Considerations
Since its inception, as a development stage enterprise, the Company has
not generated significant revenue and has been dependent on debt and
equity raised from individual investors to sustain its operations. The
Company has conserved cash by issuing its common stock to satisfy
obligations, to compensate individuals and vendors and to settle disputes
that have arisen. However, during the years ended June 30, 2000 and 1999,
the Company incurred net losses of $(2,975,327) and ($796,543),
respectively, and negative cash flows from operations of ($1,566,576) and
($377,372), respectively. These factors along with a ($137,563) negative
working capital position at June 30, 2000 raise substantial doubt about
the Company's ability to continue as a going concern.
Management plans to take specific steps to address its difficult
financial situation as follows:
o In the near term the Company plans additional private sales of
debt and common and preferred stock to qualified investors to fund
its current operations.
o In the intermediate term, the Company plans a public registration
of its common stock under the Securities and Exchange Act of 1933
to provide a means of expanding the market for its common stock
and to provide a means of obtaining the funds necessary to bring
its products to the commercial market.
o In the long-term, the Company believes that cash flows from
commercialization of its products will provide the resources for
continued operations.
Continued
F-19
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, Continued
----------
9. Going Concern Considerations, continued
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:
o The Company's ability to obtain adequate sources of debt or equity
funding to meet current commitments and fund the commercialization
of its products.
o The ability of the Company to obtain positive test results of its
products in clinical trials.
o The ability of the Company to ultimately achieve adequate
profitability and cash flows to sustain its operations.
10. Non-Cash Investing and Financing Activities
During the years ended June 30, 2000 and 1999, and for the period of
inception, June 10, 1996 to June 30, 2000) the Company engaged in certain
non-cash investing and financing activities as follows:
<TABLE>
<CAPTION>
Inception
2000 1999 to Date
-------------------------------------------------
Common stock issued in exchange
<S> <C> <C> <C>
for equity securities $ - $ - $ 302,332
========== ========== ==========
Common stock issued upon conver-
sion of debentures $ 841,555 $ 320,000 $ -
========== ========== ==========
Common stock issued for purchase
of patent rights $ - $ - $ 484,440
========== ========== ==========
Common stock issued in settlement
of lawsuit and related liabil-
ities $ 193,000 $ - $ -
========== ========== ==========
Common stock issued in connection
with license agreement $ 62,701 $ - $ -
========== ========== ==========
Conversion of note payable to
shareholder to common stock $ 148,000 $ - $ -
========== ========== ==========
</TABLE>
F-20
