UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDED FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g)
of the Securities Exchange Act of 1934
ENDOVASC LTD., INC.
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(Name of Small Business Issuer in its Charter)
Nevada 76-0512500
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(State of other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
15001 Walden Road, Suite 108, Montgomery, TX 77356
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(Address of principal executive offices) (Zip Code)
Issuer's Telephone number: (409) 448-2222
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Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.001 Per Share
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(Title of Class)
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ITEM 1. DESCRIPTION OF BUSINESS
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(a) Business Development
Endovasc Ltd., Inc., (the "Company" or the "Registrant" ) is a Nevada
corporation which was originally incorporated on June 10, 1996 under the name of
Endovasc. The Company was authorized to issue an aggregate of 25,000 shares of
capital stock with a par value of $0.001 per share. The Company filed a
Certificate of Amendment to the Articles of Incorporation on September 5, 1996
increasing the authorized shares to 100,000,000 shares of common stock, par
value $0.001 per share. On May 28, 1997, the Company filed a Certificate of
Amendment of Articles of Incorporation changing the name of the Company to
Endovasc Ltd., Inc. On June 2, 1997, the Company filed a Certificate of
Amendment of Articles of Incorporation increasing the authorized shares to
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.
The Company has not been subject to bankruptcy, receivership or any
similar proceeding.
The Company maintains offices at 15001 Walden Road, Suite 108,
Montgomery, Texas 77356. As of October 13, 1999, 7,296,496 shares of the
Company's authorized shares of common stock were issued and outstanding. No
shares of preferred stock have been issued.
The Company has generated no revenue from the sales of its products. As
described below, the Company's products are in the process of clinical testing
and have not been approved for general sales. Accordingly, the Company has
historically operated with significant losses. Also, the Company does not
anticipate generating revenues from the sale of products during the next twelve
months. As a result, it is possible that the Company will not be able to
continue as a going concern.
(b) Business of the Registrant
(1) Principal Products and Services
The Company develops biotechnology products for marketing or licensing
in the human health care industry. In this regard, the Company has focused on
developing products related to the treatment of patients who have undergone
angioplasty treatment for vessel blockages.
Patients who become critically ill due to vessel blockage are treated
with bypass or medical therapy or in many cases are treated with an angioplasty
procedure. The angioplasty procedure uses a small balloon like structure to open
blocked blood vessels. Quite often angioplasty patients develop new blockages
after treatment. The Company has focused on developing products to reduce the
occurrence of new blockages after angioplasty procedures.
The Company has found that a naturally occurring hormone called
prostaglandin E1 may prevent secondary blockages from occurring if it can be
used at the same time that an angioplasty is preformed. Unfortunately,
prostaglandin E1 has a short life in the blood stream, not quite long enough to
produce the effect needed to prevent the reclosure. The Company is developing a
method of delivering prostaglandin over a long period of time thereby increasing
the therapeutic effect of the hormone.
In this regard, the Company is using methods described in two patents
transferred to the Company to create an effective delivery system for
prostaglandin. The Company's technology has been developed around its US Patents
No. 4,820,732, "Method and Compositions for Reducing Dysfunction in Angioplasty
Procedures," and No. 4,955,878, "Kit for Treating Arterial Dysfunction Resulting
from Angioplasty Procedures".
The products created by the Company using the methods described in the
patents consist of putting prostaglandin into tiny "artificial cells" called
liposomes. Liposomes are extremely small cell-like structures composed of a
thin, but durable, membrane that surrounds a hollow compartment containing an
active drug, protecting the drug from the outside environment. The liposome is
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capable of regulating the transport of molecules in and out of the enclosed
compartment. The, liposomes may be used to control the passage if drugs through
the membrane and to the intended body site for absorption or action.
The Company's products use liposomes filled with prostaglandin to
penetrate the area of the angioplasty-treated blood vessel wall. Once in place
these liposomes slowly dissolve and continuously release prostaglandin over a
specific period of time. The prostaglandin can thereby treat the effected area
over a longer period of time than it could without the liposomes. The Company's
liposome/prostaglandin products are protected by US Patent 4,820,732, US Patent
4,955,878 and Notice of Allowance to US Ser. No. 07/797,743 received on March 1,
1999, and Trademark Application Ser. No. 75/632,736' (LiprostinTM) and various
patents pending.
The Company's lead product is called Liprostin(TM). The Company intends
to use Liprostin(TM) to coat surgical stents. Such stents are used in vascular
surgical procedures such as angioplasty and in the treatment of critical limb
salvage. Stents are small structures used in vascular surgery to support vessel
healing and instilling agents that promote the healing process. The Company is
in the clinical trial testing procedure necessary to obtain the Federal Drug
Administration's approval for the sale of Liprostin(TM) in the Untied States.
The Company intends to commence Phase I/II testing by January 1, 2000. Phase I
clinical trials consist of testing for the safety and tolerance of the product
with a small group of subjects and may also yield preliminary information about
the effectiveness and dosage levels of the product. Phase II clinical trials
involve testing for efficacy, determination of optional dosage and
identification of possible side effects in a larger patient group.
(2) Distribution Methods
Once the Company has completed clinical testing of Liprostin(TM) and
obtained FDA approval for the sale of the drug, Liprostin(TM) will be sold alone
or in a kit containing a delivery catheter and a stent or other components. The
Company intends to promote the product through peer review, seminars, journals
and direct sales. The Company intends to market its Liprostin(TM) coated
surgical stents via marketing partners with experience in the marketing and
distribution of medial products. If no suitable partner is found the Company
likely will use either a public or private offering of its securities, either
equity or debt, to raise funds necessary to create the production, marketing and
distribution infrastructure necessary to bring its products to market.
(3) Status of Publicly Announced New Products or Services
At the time of the filing of this Amended Form 10-SB, the Company's
primary product, Liprostin(TM), has received preclinical approval to file a
Investigational New Drug application ("IND") for Phase I/II of its clinical
trials. The Company estimates that both phases of clinical trial will be
complete by approximately December 31, 2000.
(4) Competition
The Company faces well established and well funded competition from
other companies using liposomes for drug delivery. These include Eli Lilly, The
Liposome Company and Schering-Plough. These companies generally use liposome for
the delivery of antitumor drugs. While the Company's stents coated in
Liprostin(TM) can be use in antitumor treatment, the Company primarily intends
to market Liprostin(TM) in connection with angioplasty treatments.
Competition in this area is limited at present as only ReoPro sold by
Censtocor and marketed by Eli Lilly is being used in angioplasty and no product
is available to treat critical limb ischemia (cli), the Company's first
indication for approval. CLI is a medical condition were a limb does not receive
a sufficient supply of blood.
(5) Raw Materials and Principal Suppliers
At the time of the filing of this Amended Form 10-SB, the Company is
still in the process of test its products in clinical trials. Commercial
production of production of products had not begun.
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(6) Dependence on Major Customers
As indicated throughout this Item 1, the Company is in the
organizational stage and is in the process of developing, manufacturing and
distributing its biopharmaceutical products. At this point in time, the Company
has no sales and accordingly, no major customers.
(7) Patents, Trademarks, Licenses, Copyrights, etc.
The Company owns two patents: US Patents No. 4,820,732, "Method and
Compositions for Reducing Dysfunction in Angioplasty Procedures," and No.
4,955,878, "Kit for Treating Arterial Dysfunction Resulting from Angioplasty
Procedures".
The Company also has applied for 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 ("USPTO") notified the Company
that its pending Patent US Ser. No. 09/309,949 would be allowed (Notice of
Allowance).
(8) Governmental Approval, Effect of Governmental Regulations and Costs and
Effects of Compliance with Environmental Laws
The Company anticipates that governmental regulation will significantly
impact upon the time in which the Company can market its biopharmaceutical
products in the United States. Initially, the Company must comply with FDA
procedures to gain approval for its products. Such approval process involves
clinical testing which occurs in three phases to demonstrate safety and efficacy
of the product. Phase I clinical trials consist of testing for the safety and
tolerance of the product with a small group of subjects and may also yield
preliminary information about the effectiveness and dosage levels of the
product. Phase II clinical trials involve testing for efficacy, determination of
optional dosage and identification of possible side effects in a larger patient
group. Phase III clinical trials consist of additional testing for efficacy and
safety with an expanded patent group. After the product has been approved for
marketing, Phase IV post-marketing surveillance studies may be required to
provide additional data to the FDA for longer term follow-up concerns.
Upon successful completion of Phase III testing, either a New Drug
Application (NDA) or Product License Application (PLS) can be filed, depending
upon whether the product is designated as a drug or a biological, respectively.
Either approval requires a review of detailed data of the results of clinical
studies, the composition of the drug or biological, the labeling that will be
used, information on manufacturing methods, and samples of the products. After
the FDA completes its review of the application, the product is typically
reviewed by a panel of medical experts, and the applicant required to answer
questions on its safety and efficacy. At the recommendation of the panel, an NDA
or PLA may be granted and the product may then be marketed.
The Company anticipates that even after FDA approval, the Company's
products will be subject to FDA regulation.
(9) Research and Development in the Last Two Years
During the last two years, the Company has been primarily involved in
developing its anti-restenosis stent coatings and its liposomes for treating
vascular disease (Restenosis refers to the medical condition were a blood vessel
develops a new blockage after treatment for an initial blockage). Both projects
are developed and, in the Company's opinion, are ready for human clinical
trials. The Company has collaboration with outside partners on its stent
coatings, but is at present taking its LiprostinTM liposome to market without
corporate alliances.
(10) Employees
As of October, 1999, the Company had five (5) full-time employees.
Three of the officers and directors of the Company also perform services on
behalf of the Company but do so on a non-exclusive basis. None of the Company's
employees or independent contractors are subject to a collective bargaining
agreement and the Company believes its relations with its employees and
independent contractors are good.
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(c) Reports to Security Holders
Prior to filing this Amended Form 10-SB, the Company has not been
required to deliver annual reports. To the extent that the Company is required
to deliver annual reports to security holders through its status as a reporting
company, the Company shall deliver annual reports. Also, to the extent the
Company is required to deliver annual reports by the rules or regulations of any
exchange upon which the Company's shares are traded, the Company shall deliver
annual reports. If the Company is not required to deliver annual reports, the
Company will not go the expense of producing and delivering such reports. If the
Company is required to deliver annual reports, they will contain audited
financial statements as required.
Prior to the filing of its Form 10-SB in December of 1999, the Company
has not filed reports with the Securities and Exchange Commission. Once the
Company becomes a reporting company, management anticipates that Forms 3, 4, 5,
10K-SB, 10Q-SB, 8-K and Schedules 13D along with appropriate proxy materials
will have to be filed as they come due. If the Company issues additional shares,
the Company may file additional registration statements for those shares.
The public may read and copy any materials the Company files with the
Securities and Exchange Commission at the Commission's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by call the Commission
at 1-800-SEC-0330. The Commission maintains an Internet site that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the Commission. The Internet address of
the Commission's site is (http://www.sec.gov).
(d) Year 2000 Disclosure
State of Readiness
The Company does not anticipate any problems in dealing with year 2000
issues. All of the Company's computer systems have been acquired within the last
year and are year 2000 compliant. All such systems have computer processors
capable of properly recognizing dates past 1999. The Company's computer systems
are used primarily for word processing, bookkeeping and Internet communications.
The Company keeps current with all updates and revisions of all software used in
connection with the Company's business. The Company's current word processing
accounting and Internet communications software is year 2000 compliant. From an
internal standpoint, the Company is year 2000 ready. Operations since January 1,
2000 have show no problems which could be attributed to the year 2000 computer
issue.
The Company's business may be impacted by the year 2000 readiness of
third parties with whom the Company has a material relationship. Such parties
include banks, telephone companies, attorneys, accountants and transfer agents.
The Company has made inquiry of its transfer agent, Nevada Agency and Trust
Company, its attorneys and its accountant regarding their year 2000 readiness.
All of the Company's attorneys, its accountant and its transfer agent are year
2000 compliant. Larger vendors, such as banks and telecommunications companies,
have represented themselves as year 2000 compliant. Since January 1, 2000, the
Company has experience no problems in connection with third parties which could
be attributed to the Year 2000 issue.
Costs of Year 2000 Issues
The Company's costs of remediating any year 2000 issues has been
inconsequential. Such costs total no more than a few thousand dollars. Indeed,
the general need to upgrade and replace computer systems was more of a factor in
recent computer hardware and software acquisitions than the year 2000 was in
connection with the computer systems the Company uses.
Year 2000 Issues, Risks and Contingency Plans
The most reasonable worst case scenario the Company faces as a result
of year 2000 issues is the failure of third party service providers, such as
banks or telecommunications companies, failing as a result of their failure to
properly remediate any year 2000 problem they may have. If that happens, the
Company will deal with service providers who have not failed to remediate their
year 2000 issues. Management does not anticipate that the costs of changing such
third party service providers will be significant. As stated above, since
January 1, 2000, the Company has experienced no Year 2000 problems either
internally or with third parties.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
OR PLAN OF OPERATION
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PLAN OF OPERATION
As was indicated in the notes to the financial statements, the Company
is primarily a developer and marketer of proprietary biopharmaceutics for the
human healthcare industry. The products are delivered in very small micro
spheres called liposomes which can range in size from 50 nm to 10,000 nm or
more, or in conjugated compounds containing the drug on the surface of various
prosthesis. These products are protected by US Patent 4,820,732, US Patent
4,955,878 and Notice of Allowance to US Ser. No. 07/797,743 received on March 1,
1999, and Trademark Application Ser. No. 75/632,736 (LiprostinTM) and various
patents pending.
Liquidity and Cash Requirements
For a complete understanding, this Plan of Operations should be read in
conjunction with Part I Item 1. Description of Business and Part F/S - Financial
Statements to this Form 10-SB.
During the period from inception, June 10, 1996 to June 30, 1999, the
Company has not generated any revenue from the sale of products and does not
expect to generate any material revenue from sale of products for at least the
following twelve months. Also, the Company has historically operated with
significant losses. The Company's lack of revenue may result in the Company's
inability to continue as a going concern.
However, during the next 12 months, management of the Company will
attempt to generate revenue by enhancing its ongoing research and development
services. In July 1999, the Company established one such program with C. R.
Bard, Inc. ("Bard") of Murray Hill, New Jersey. The Company and Bard are
collaborating on the development of new coatings for vascular stents, which may
inhibit or prevent restenosis and premature closure of Bard's peripheral stent
and graft prosthesis. A peripheral stent is a medical device used in the
arteries of limbs to maintain open blood flow. A graft prosthesis is an
artificial vein or artery. The above agreement also called for a "standstill"
and "quiet period" for six months while Bard carried out certain due diligence
on both the current research and development and the Company's core
technologies. The terms "standstill" and "quiet period" refer to the Company's
contractual obligation to refrain from the types of activities covered by the
agreement with Bard for a period of six months while Bard conducted its due
diligence. The term "due diligence refers to Bard's obligation to conduct an
investigation it deems necessary regarding the status of the research and
development of the Company's core products. Although there can be no assurances,
the Company is hopeful that this collaboration may result in a license or
similar agreement some time during the next 12 months, which may alleviate the
Company's cash flow needs and its complete reliance on the need to secure funds
through small private placements of its debt and equity securities and its
dependency on personal loans from Dr. Summers.
As discussed above, research and development services are being sought
in order to generate revenues to assist in the cost of operations as opposed to
solely relying on the sale of equity or debt securities. However, these services
and revenues are dependent upon the ability of the Company primarily through its
founder, Dr. David Summers, to continue to be actively involved in the
development of new and novel technologies, which are of interest to potential
outside company collaborators and partners. Should Dr. Summers not be able to
continue to provide such services, the Company would be forced to recruit and
employ personnel capable of performing similar services and there is no
assurance that such persons could be recruited and employed to provide these
services, thus exposing the Company to potential loss of revenues tied to the
services.
In addition, the Company's projected income for the coming 12 months is
dependent on the timely acceptance of the Company's request for Food and Drug
Agency ("FDA") approval of its Phase I and Phase II clinical trials of its main
product Liprostin(TM), for treatment of critical limb salvage. Critical limb
salvage refers to medical treatment during which attempts are made to increase
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blood circulation to a limb in order to prevent amputation. There is no
assurance that the FDA will approve the Company's submission as submitted. It is
possible that undue delays by the FDA will present opportunities for other
treatments to become available from larger companies with greater financial and
logistical resources. It also is possible that the FDA will not approve
Liprostin(TM).
Either of the two events described above, the failure of the Company's
research and development efforts and the FDA's failure to approve the Company's
products, could have an adverse impact on the Company's ability to continue
operations. At this point, the Company has no other sources of producing
revenue. Without revenues from sales of FDA approved products or from research
and development operations, it is likely the Company will fail as a going
concern.
Also, if the Company is unable to sell more of its securities to raise
operating funds or otherwise obtain such funds from establishing lines of credit
or selling its technologies, it is likely that the Company will fail as a going
concern. At this point, the Company has not plans to establish a line of credit,
sell its technologies or engage in a public offering of its shares in order to
generate operating capital.
Other than discussed above, the Company knows of no other trends,
events or uncertainties that have or are reasonably likely to have a material
impact on the Company's short-term or long-term liquidity.
As of June 30, 1999, the Company had an accumulated deficit of
($2,776,737) funded primarily by paid-in capital. During the years ended June
30, 1999 and 1998, the Company had losses from operations of ($796,543) and
($1,032,834), respectively. The Company expects that losses from operations will
continue until such time as product sales or research and development services
generate sufficient revenues to fund its continuing operations, as to which
there can be no assurance.
In December 1998, the Company offered to sell certain securities under
a Regulation D, Rule 504 exemption, which became fully prescribed in August 1999
for a combined total of $1,000,000. The Company intends to continue to raise
capital as needed via private placement of its securities, will seek lines of
credit and will solicit the sale of licenses and/or sale of its potential
technologies if so required.
Research and Development
The Company will continue to attempt to develop new uses for its core
product LiprostinTM, which may enable it to avoid serious impact from the
uncertainties of (1) continued collaboration with Bard, or (2) the inability to
recruit other partners, collaborations or licensees for its technologies by
developing new uses for its prostaglandin coatings, such as use in hip or bone
prosthesis to promote rapid bone growth, use of prostaglandin and other
therapeutic agents for treatment of cancer, inflammatory disease, liver disease
and other diseases which prostaglandin has demonstrated safety and efficacy.
1. The Company has begun testing its first product, a liposomal
encapsulation of a natural occurring hormone, prostaglandin E-1 ("PGE-1") in
laboratory and animal models and is at present awaiting response from the US
Food and Drug Agency for approval to commence Phase I/II human trials. Although
the submission is planned for during the first quarter of the year 2000 and
should be reviewed and responded to by the FDA within the statutory 45 days,
there can be no assurance that this will be the case. It could be delayed if the
FDA requires additional information or tests which may necessitate resources
and/or financial outlays beyond the Company's capabilities. Consequently, this
may substantially impact the Company to the point that the Company may be
required to (a) cease operations, (b) out-license the product to a third party,
or (c) drop the product entirely.
2. The Company continues to devote the majority of its funds and
revenues on (a) its core product LiprostinTM, and (b) its collaborations and
potential licensing agreements.
3. To date, all of the Company's research and development has been
carried out without the need of additional plant and equipment other than what
the Company purchased during its first year of operation. Although there can be
no assurances that our collaborations or research and development agreements may
required additional plant and equipment, the Company has no plans for such
outlays.
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Employees will be added as needed by the size and complexity of the
Company's business.
Going Concern Issue
The report from the Company's independent accountants includes an
explanatory paragraph which describes substantial doubt concerning the ability
of the Company to continue as a going concern, without continuing additional
contributions to capital. The Company may incur losses for the foreseeable
future due to the significant costs associated with research and development
activities and operation expenses which will be necessary for further
development of applications for the Company's products and its research and
development services. See "Financial Statements - Report of Independent
Accountants" and Note 9 - Going Concern Considerations.
Costs of Filing Periodic Reports
The filing of the Company's Form 10-SB in December of 1999, subjects
the Company to certain requirements of the Exchange Act of 1934. These
requirements include the filing of an annual report on the Company's business,
which must include audited financial statements; quarterly reports, which must
include unaudited interim financial statements; and periodic reports of certain
material events of which investors should be made aware. Legal and accounting
expertise are required to prepare these reports. The annual auditor's services
must be paid for in cash. Should cash not be available to pay for the auditor's
services, the Company will have to borrow the needed funds from sources not yet
identified.
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ITEM 3. DESCRIPTION OF PROPERTY
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The Company incorporates herein by this reference the text of Item 3
contained in its Form 10-SB filed on December 3, 1999.
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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The Company incorporates herein by this reference the text of Item 4
contained in its Form 10-SB filed on December 3, 1999.
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TEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
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(a) Directors and Executive Officers
As of February, 2000, the directors and executive officers of the
Company, their ages, positions in the Company, the dates of their initial
election or appointment as director or executive officer, and the expiration of
the terms as directors are as follows:
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<TABLE>
<CAPTION>
Period Served As
Name Age Position Officer/Director*
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<S> <C> <C> <C>
David P. Summers 61 Chief Executive Officer, Inception to Present
and a Director
Gary R. Ball 39 Chief Operations Officer, Inception to Present
Vice President of Research and
Development, treasurer
and a Director
M. Dwight Cantrell 54 Chief Financial Officer Jan. 1997 to Present
and a Director
Claudio R. Roman 42 Director Jan. 1997 to Present
</TABLE>
*The Company's directors are elected at the annual meeting of stockholders and
hold office until their successors are elected and qualified. The Company's
officers are appointed annually by the Board of Directors and serve at the
pleasure of the Board.
(b) Business Experience:
Dr. David P. Summers, age 61, is the Chief Executive Officer of
Endovasc and serves as a director as well. Dr. Summers has worked in this
capacity since the Company's inception and devotes his full time to the
Company's operations and is primarily responsible for the Company's operations
has a whole. Prior to founding Endovasc, Dr. Summers founded American BioMed,
Inc. in 1984 and served as its President and CEO until June of 1995. Dr. Summers
is a Fellow in the American College of Angiology and an engineer/inventor of a
number of medical devices used primarily to treat cardiovascular diseases. He is
the author of 18 issued patents and has 8 patents pending. Prior to Founding
American BioMed, he was employed in marketing and management with C.R. Bard,
Inc., a manufacture and distributor of cardiovascular medical products, Karl
Stortz Endoscopy, and endoscopic instrument company, and Pall Corporation, a
manufacture and distributor of blood filtration products for medical use. Dr.
Summers received a M.B.A. degree from Pepperdine University in 1989 and received
a doctorate in 1992 in International Economics and Kennedy-Western University.
He holds membership in the New York Academy of Sciences, American Association of
Advancement of Science, Houston Inventors Association, International Society for
Endovascular Surgery, European Vascular Society and is a Senior Member of the
Society of Plastic Engineers.
Gary R. Ball, age 39, is the Chief Operations Officer, Vice President
of Research and Development, treasurer and a Director of the Company. Mr. Ball
also devotes his full time to the Company's operations. With Dr. Summers, Mr.
Ball oversees the general operations of the Company, with particular attention
to the Company's research and development efforts. Mr. Ball has degree in
electrical and mechanical engineering has experience in micro processor
technology and research and development. His is a co-inventor of two U.S.
patents, including a spinal dissector and vascular stent. Mr. Ball has developed
these products from inception into devices for spinal procedures and devices for
supporting blood vessels. He is experienced in designing, researching and
developing prototypes, reliability testing and patent research and filing. Mr.
Ball has designed animal protocols for testing and has been responsible for
human clinical studies and regulatory approvals.
M. Dwight Cantrell, age 54, is the acting Chief Financial Officer and a
Director of the Company. He works for the Company on a part time basis and
devotes whatever time is requited of him in connection with the Company's
financial books and records. Mr. Cantrell graduated from Southern Ohio
University in 1967 and is a public accountant with 31 years of experience. He
was formerly CFO for a $100 million electrical supply company and has been
self-employed as a private consultant to several Houston area banks for over 30
years.
Claudio R. Roman, age 42, serves as a Director of the Company. Mr.
Roman is a practicing attorney, who received his law degree from University of
Houston School of Law in 1984. Given his legal background, from time to time Mr.
Roman provides the Company with legal advice.
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While Dr. Summers and Mr. Ball work on a full-time basis, they do so on
a non-exclusive basis. That is, they are free to pursue other opportunities. The
Company has seen no conflict of interest from the any of the activities of
management outside of their duties to the Company.
(c) Directors of Other Reporting Companies:
None of the Company's officers and directors are officers or directors
of any other reporting company.
(d) Employees:
The Company employs five (5) full time employees. The officers and
directors who are identified above are also significant employees of the
Company.
(e) Family Relationships:
Gary R. Ball, Vice President of Research and Development, Treasurer and
a Director of the Company, is the son-in-law of David P. Summers, Chief
Executive Officer and a Director of the Company.
(f) Involvement in Certain Legal Proceedings:
Except as noted below, none of the officers, directors, promoters or
control persons of the Company have been involved in the past five (5) years in
any of the following:
(1) Any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer
either at the time of the bankruptcy or within two years prior
to that time;
(2) Any conviction in a criminal proceedings or being subject to a
pending criminal proceeding (excluding traffic violations and
other minor offenses);
(3) Being subject to any order, judgment or decree, not
subsequently reversed, suspended or vacated, or any Court of
competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in
any type of business, securities or banking activities; or
(4) Being found by a court of competent jurisdiction (in a civil
action), the Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities laws
or commodities law, and the judgment has not been reversed,
suspended, or vacated.
David R. Miller, a former officer of the Company, was charged and
indicted for grand theft from the Company. The matter is pending in the District
Court for the State of Texas. A trial date was set for September 13, 1999, but
Mr. Miller failed to appear forfeiting his bond.
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ITEM 6. EXECUTIVE COMPENSATION
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The Company incorporates herein by this reference the text of Item 6
contained in its Form 10-SB filed on December 3, 1999.
10
<PAGE>
- --------------------------------------------------------------------------------
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
During the past two (2) years, the Company has not entered into a
transaction with a value in excess of $60,000 with a director, officer or
beneficial owner of 5% or more of the Company's capital stock, or members of
their immediate families had, or is to have, a direct or indirect material
interest, except as follows:
Effective October 1, 1999, the Company 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 the Company's common
stock at a purchase price below the prevailing market price. The option is for a
five year period ending October 31, 2004.
Effective December 9, 1997, the Company 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 the Company's 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, the Company also entered
into an agreement with M. Dwight Cantrell under the terms of which he was
compensated for past services as a director of the Company. Under the terms of
this agreement, Mr. Cantrell was granted an option to purchase 50,000 shares of
the Company's common stock at a purchase price of $0.75 per share for a term of
three years.
During the fiscal year ended June 30, 1999, the Company entered into an
agreement with Claudio Roman, Esq., under the terms of which he was compensated
for past services as legal counsel for the Company. Under the terms of this
agreement, Mr. Roman was granted an option to purchase 50,000 shares of the
Company's 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, the Company 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 the Company's
common stock. The Company made the initial $50,000 payment and issued the
200,000 shares of stock. The stock was issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
However, the Company 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. The Company
has not made its final payment to Mr. Pizzulli and remains obligated to him
under the term of the settlement agreement between the parties. The Company has
discussed the matter of payment with Mr. Pizzulli and the Company believes that
current arrangements pursuant to the settlement agreement are satisfactory to
both Mr. Pizzulli and the Company.
- --------------------------------------------------------------------------------
ITEM 8. LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The Company incorporates herein by this reference the text of Item 8
contained in its Form 10-SB filed on December 3, 1999.
- --------------------------------------------------------------------------------
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON
EQUITY AND RELATED SHAREHOLDER MATTERS
- --------------------------------------------------------------------------------
The Company incorporates herein by this reference the text of Item 9
contained in its Form 10-SB filed on December 3, 1999 and adds the following to
the information contained therein:
The Company will request a resumption of quotation privileges on the
OTC bulletin board should no NASD-member market maker do so.
11
<PAGE>
- --------------------------------------------------------------------------------
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
- --------------------------------------------------------------------------------
All of the following issuances of the Company's shares which involve
the Company's reliance on the exemption from registration afforded bu Section
4(2) of the Securities Act of 1933, as amended, were made because each such
issuance was part of a private transaction between the Company and the
individuals involved. Such issuance dealt with special circumstance between the
Company and the particular individuals are were not part of general solicitation
for the sale of the Company's shares.
On or about July 25, 1997, the Company issued at total of 300,000 of
its common stock pursuant to the exemption for registration provided by
Regulation D. The Company relied on such exemption from registration based upon
the fact that issuance of these shares complied with the requirements of
Regulation D and the Company made the required informational filing pursuant to
Regulation D. The total consideration paid the shares was $300,000, or $1.00 per
share. Such shares were issued to the following individuals in the following
amounts:
Name Shares
---- ------
Ronald & Judy Neddings 15,000
Paul & Helen Jones 30,000
Rafael and Ana Moreno 30,000
Drexal Global Fund 100,000
Ebensfeld Corporation 125,000
On or about September 26, 1997, the Company issued 382,571 shares of
its common stock for a total consideration of $500,000, or $1.30 per share. Such
shares were issued pursuant to the exemption from registration under Section
4(2) of the Securities Act of 1933, as amended. Such shares were issued to the
following individuals in the following amounts:
Name Shares
---- ------
Richard M. Johnson & Assoc. 300,000
James Mundt 3,571
Claudio R. Roman 20,000
M. Dwight Cantrell 25,000
Nick Nichols 10,000
Lester Summers 1,000
Dorothy Summers 1,000
Allan Burns 5,000
Dan Halman 2,000
Eric Gilles 10,000
Charles Siedel 5,000
Susan Cohen, Esq. 2,044
On or about November 13, 1997, the Company issued 200,000 shares to
Geothermica in consideration of certain patent rights. Such shares were valued
at $4.00 per share and were issued pursuant to the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended.
On or about June 16, 1998, the Company issued 100,000 shares of its
common stock to Alexander H. Walker, Jr. in consideration for legal services
rendered to the Company. Such shares were valued at $1.00 per share and were
issued pursuant to the exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended.
On or about June 16, 1998, the Company issued 300,000 shares of its
common stock to Dorothy Summers in exchange for services. Such shares were
valued at $1.00 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
12
<PAGE>
On or about June 30, 1998, the Company issued 50,000 shares of its
common stock to Danilo D. Lasic in exchange for technical advisement services
rendered to the Company. Such shares were valued at $1.00 per share and were
issued pursuant to the exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended.
On or about September 23, 1998, the Company issued 18,987 shares of its
common stock to Nick A. Nichols, Jr. in exchange for patent counsel and filing
services. Such shares were valued at $1.00 per share and were issued pursuant to
the exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
On or about September 24, 1998, the Company issued 25,000 shares of its
common stock to M. Dwight Cantrell in exchange for services. Such shares were
valued at $1.00 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
On or about September 28, 1998, the Company issued 1,416 shares of its
common stock to Janet S. Clark in exchange for services. Such shares were valued
at $1.00 per share and were issued pursuant to the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended.
On or about September 28, 1998, the Company issued 1,190 shares of its
common stock to James Mundt in exchange for dividends. Such shares were valued
at $1.00 per share and were issued pursuant to the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended.
On or about October 19, 1998, the Company issued 2,083 shares of its
common stock to Alenka Lasic in exchange for services rendered in connection
with designing the Company's brochures and designing the Company's website. Such
shares were valued at $1.00 per share and were issued pursuant to the exemption
from registration under Section 4(2) of the Securities Act of 1933, as amended.
On or about November 19, 1998, the Company issued 14,380 shares of its
common stock to Susan Cohen in consideration for legal services rendered to the
Company. Such shares were valued at $1.00 per share and were issued pursuant to
the exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
On or about November 30, 1998, the Company issued 50,000 shares of its
common stock to James D. Regan in exchange for technical advisement services
rendered to the Company. Such shares were valued at $1.00 per share and were
issued pursuant to the exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended.
On or about November 30, 1998, the Company issued 10,416 shares of its
common stock to Alenka Lasic in exchange for services rendered in connection
with designing Company brochures and designing the Company's website. Such
shares were valued at $1.00 per share and were issued pursuant to the exemption
from registration under Section 4(2) of the Securities Act of 1933, as amended.
On or about December 29, 1998, the Company issued 650,000 shares of its
common stock to Edward H. Burnbaum in exchange for escrow. Such shares were
valued at $1.00 per share and were issued pursuant to the exemption from
registration under Rule 504 of Regulation D. The Company relied on such
exemption from registration based upon the fact that issuance of these shares
complied with the requirements of Regulation D and the Company made the required
informational filing pursuant to Regulation D.
On or about January 8, 1999, the Company issued 35,556 shares of its
common stock to Amram Rothman in connection with the conversion of convertible
debentures owned by Mr. Rothman. Such shares were valued at $0.28125 per share
and were issued pursuant to the exemption from registration under Rule 504 of
Regulation D. The Company relied on such exemption from registration based upon
the fact that issuance of these shares complied with the requirements of
Regulation D and the Company made the required informational filing pursuant to
Regulation D.
On or about January 14, 1999, the Company issued 20,000 shares of its
common stock to Phoenix Investment Group in exchange for services. Such shares
were valued at $1.00 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
13
<PAGE>
On or about January 14, 1999, the Company issued 5,200 shares of its
common stock to James Regan in exchange for technical advisement services
rendered to the Company. Such shares were valued at $1.00 per share and were
issued pursuant to the exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended.
On or about January 22, 1999, the Company issued 10,116 shares of its
common stock to Alenka Lasic in exchange for services rendered in connection
with designing Company brochures and designing the Company's website. Such
shares were valued at $1.00 per share and were issued pursuant to the exemption
from registration under Section 4(2) of the Securities Act of 1933, as amended.
On or about January 28, 1999, the Company issued 80,000 shares of its
common stock to Amram Rothman in connection with the conversion of convertible
debentures owned by Mr. Rothman. Such shares were valued at $0.18750 per share
and were issued pursuant to the exemption from registration under Rule 504 of
Regulation D. The Company relied on such exemption from registration based upon
the fact that issuance of these shares complied with the requirements of
Regulation D and the Company made the required informational filing pursuant to
Regulation D.
On or about February 3, 1999, the Company issued 2,000 shares of its
common stock to John G. Charles in exchange for services. Such shares were
valued at $1.00 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
On or about February 3, 1999, the Company issued 5,200 shares of its
common stock to James D. Regan in exchange for technical advisement services
rendered to the Company. Such shares were valued at $1.00 per share and were
issued pursuant to the exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended.
On or about February 18, 1999, the Company issued 106,667 shares of its
common stock to Amram Rothman in connection with the conversion of convertible
debentures owned by Mr. Rothman. Such shares were valued at $0.140625 per share
and were issued pursuant to the exemption from registration under Rule 504 of
Regulation D. The Company relied on such exemption from registration based upon
the fact that issuance of these shares complied with the requirements of
Regulation D and the Company made the required informational filing pursuant to
Regulation D.
On or about February 23, 1999, the Company issued 100,000 shares of its
common stock to Patrick M. Rost in exchange for shareholder relations services.
Such shares were valued at $1.00 per share and were issued pursuant to the
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended.
On or about February 23, 1999, the Company issued 5,000 shares of its
common stock to Shawn F. Hackman in exchange for services. Such shares were
valued at $1.00 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
On or about March 9, 1999, the Company issued 248,889 shares of its
common stock to Amram Rothman in connection with the conversion of convertible
debentures owned by Mr. Rothman. Such shares were valued at $0.140625 per share
and were issued pursuant to the exemption from registration under Rule 504 of
Regulation D. The Company relied on such exemption from registration based upon
the fact that issuance of these shares complied with the requirements of
Regulation D and the Company made the required informational filing pursuant to
Regulation D.
On or about March 23, 1999, the Company issued 13,201 shares of its
common stock to Hiroko Yoshida in exchange for technical advisement services
rendered to the Company. Such shares were valued at $1.00 per share and were
issued pursuant to the exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended.
On or about April 6, 1999, the Company issued 127,348 shares of its
common stock to Amram Rothman in connection with the conversion of convertible
debentures owned by Mr. Rothman. Such shares were valued at $0.38281 per share
and were issued pursuant to the exemption from registration under Rule 504 of
Regulation D. The Company relied on such exemption from registration based upon
the fact that issuance of these shares complied with the requirements of
Regulation D and the Company made the required informational filing pursuant to
Regulation D.
14
<PAGE>
On or about April 13, 1999, the Company issued 5,166 shares of its
common stock to Alenka Lasic in exchange for services rendered in connection
with designing Company brochures and designing the Company's website. Such
shares were valued at $1.00 per share and were issued pursuant to the exemption
from registration under Section 4(2) of the Securities Act of 1933, as amended.
On or about April 19, 1999, the Company issued 187,324 shares of its
common stock to Mr. Amram Rothman in connection with the conversion of
convertible debentures owned by Mr. Rothman. Such shares were valued at $0.3203
and were issued pursuant to the exemption from registration under Rule 504 of
Regulation D. The Company relied on such exemption from registration based upon
the fact that issuance of these shares complied with the requirements of
Regulation D and the Company made the required informational filing pursuant to
Regulation D.
On or about April 22, 1999, the Company issued 93,409 shares of its
common stock to Mr. Amram Rothman in connection with the conversion of
convertible debentures owned by Mr. Rothman. Such shares were valued at $0.28905
and were issued pursuant to the exemption from registration under Rule 504 of
Regulation D. The Company relied on such exemption from registration based upon
the fact that issuance of these shares complied with the requirements of
Regulation D and the Company made the required informational filing pursuant to
Regulation D.
On or about April 29, 1999, the Company issued 139,132 shares of its
common stock to Mr. Amram Rothman in connection with the conversion of
convertible debentures owned by Mr. Rothman. Such shares were valued at $0.35937
per share and were issued pursuant to the exemption from registration under Rule
504 of Regulation D. The Company relied on such exemption from registration
based upon the fact that issuance of these shares complied with the requirements
of Regulation D and the Company made the required informational filing pursuant
to Regulation D.
On or about May 20, 1999 the Company issued 65,308 shares of its common
stock to Amram Rothman in connection with the conversion of convertible
debentures owned by Mr. Rothman. Such shares were valued at $0.3828 per share
and were issued pursuant to the exemption from registration under Rule 504 of
Regulation D. The Company relied on such exemption from registration based upon
the fact that issuance of these shares complied with the requirements of
Regulation D and the Company made the required informational filing pursuant to
Regulation D.
On or about May 27, 1999, the Company issued 1,000 shares of its common
stock to Janet S. Clark in exchange for services. Such shares were valued at
$0.3828 per share and were issued pursuant to the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended.
On or about June 8, 1999, the Company issued 16,487 shares of its
common stock to Hiroko Yoshida in exchange for services. Such shares were valued
at $1.00 per share and were issued pursuant to the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended.
On or about June 24, 1999, the Company issued 124,444 shares of its
common stock to Amram Rothman in connection with the conversion of convertible
debentures owned by Mr. Rothman. Such shares were valued at $0.3203 and were
issued pursuant to the exemption from registration under Rule 504 of Regulation
D. The Company relied on such exemption from registration based upon the fact
that issuance of these shares complied with the requirements of Regulation D and
the Company made the required informational filing pursuant to Regulation D.
On or about July 8, 1999, the Company issued 10,000 shares of its
common stock to John G. Charles in exchange for services. Such shares were
valued at $1.00 per share and were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
On or about July 27, 1999, the Company issued 5,000 shares of its
common stock to Sherry R. Ball in exchange for corporate video design and
development services. Such shares were valued at $1.00 per share and were issued
pursuant to the exemption from registration under Section 4(2) of the Securities
Act of 1933, as amended.
15
<PAGE>
On or about July 26, 1999 the Company issued 98,467 shares of its
common stock to Amram Rothman in connection with the conversion of convertible
debentures owned by Mr. Rothman. Such shares were valued at $0.30467 per share
and were issued pursuant to the exemption from registration under Rule 504 of
Regulation D. The Company relied on such exemption from registration based upon
the fact that issuance of these shares complied with the requirements of
Regulation D and the Company made the required informational filing pursuant to
Regulation D.
On or about July 29, 1999, the Company issued 18,577 shares of its
common stock to Hiroko Yoshida in exchange for scientific and product
development services rendered to the Company. Such shares were valued at $1.00
per share and were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended.
On or about August 6, 1999, the Company issued 9,883 shares of its
common stock to Hiroko Yoshida in exchange for scientific and product
development services rendered to the Company. Such shares were valued at $1.00
per share and were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended.
On or about August 6, 1999, the Company issued 50,000 shares of its
common stock to Danilo Lasic in exchange for scientific, laboratory, and
technical advice rendered to the Company. Such shares were valued at $1.00 per
share and were issued pursuant to the exemption from registration under Section
4(2) of the Securities Act of 1933, as amended.
On or about September 27, 1999, the Company issued 200,000 shares of
its common stock to Francis Pizzuli in connection with a settlement reach in
litigation. Such shares were issued pursuant to the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended.
On or about September 27, 1999, the Company issued 237,079 shares of
its common stock to Amram Rothman in connection with the conversion of
convertible debentures owned by Mr. Rothman. Such shares were valued at $0.2109
per share and were issued pursuant to the exemption from registration under Rule
504 of Regulation D. The Company relied on such exemption from registration
based upon the fact that issuance of these shares complied with the requirements
of Regulation D and the Company made the required informational filing pursuant
to Regulation D.
On or about October 4, 1999, the Company issued 4,000 shares of its
common stock to John G. Charles in exchange for sales and marketing services.
Such shares were valued at $1.00 per share and were issued pursuant to the
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended.
On or about October 13, 1999 the Company issued 384,000 shares of its
common stock to Amram Rothman in connection with the conversion of convertible
debentures owned by Mr. Rothman. Such shares were valued at $0.09375 per share
and were issued pursuant to the exemption from registration under Rule 504 of
Regulation D. The Company relied on such exemption from registration based upon
the fact that issuance of these shares complied with the requirements of
Regulation D and the Company made the required informational filing pursuant to
Regulation D.
On or about October 28, 1999 the Company issued 500,000 shares of its
common stock to Amram Rothman in connection with the conversion of convertible
debentures owned by Mr. Rothman. Such shares were valued at $0.20 per share and
were issued pursuant to the exemption from registration under Rule 504 or
Regulation D. The Company relied on such exemption from registration based upon
the fact that issuance of these shares complied with the requirements of
Regulation D and the Company made the required informational filing pursuant to
Regulation D.
16
<PAGE>
- --------------------------------------------------------------------------------
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
- --------------------------------------------------------------------------------
The Company incorporates herein by this reference the text of Item 11
contained in its Form 10-SB filed on December 3, 1999.
- --------------------------------------------------------------------------------
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
The Company incorporates herein by this reference the text of Item 12
contained in its Form 10-SB filed on December 3, 1999.
- --------------------------------------------------------------------------------
ITEM 13. Financial Statements
- --------------------------------------------------------------------------------
The following Financial Statements are filed as exhibits to this
amended Form 10SB: Finanacial Statements as of June 30, 1999 and for the years
ended June 30, 1999 and 1998, and for the period from inception, June 10, 1996,
to June 30, 1999 and Fianancial Statements for the three months ended September
30, 1999 and 1998 (Unadited)
- --------------------------------------------------------------------------------
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
- --------------------------------------------------------------------------------
On July 29, 1999, the Company engaged Ham, Langston & Brezina, L.L.P.
("HL&B") as its independent accountant and terminated the services of Ken
Beverly & Associates, P.C. The decision to engaged HL&B as the Company's
independent accountant was recommended by the Company's Chief Executive Officer.
The decision to change accountants was approved by the Company's Board of
Directors.
The principal accountant's reports on the Company's financial
statements for the past two (2) years did not contain an adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles.
During the Registrant's two (2) most recent fiscal years, including any
subsequent interim period preceding the change in accountants, there have been
no disagreement with the Company's former accountant on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which disagreements, if not resolved to the satisfaction of the former
accountant, would have caused it to make a reference to the subject matter of
the disagreements in connection with its reports.
During the Registrant's two (2) most recent fiscal years, the
Registrant's accountant has not advised the Registrant that the internal
controls necessary for the Registrant to develop reliable financial statements
do not exist.
During the Registrant's two (2) most recent fiscal years, the
Registrant's accountant has not advised the Registrant that information has come
to the accountant's attention that has led it to no longer be able to rely on
management's representations, or that it has made it unwilling to be associated
with the financial statements prepared by management.
During the Registrant's two (2) most recent fiscal years, the
Registrant's accountant has not advised the Registrant of the need to expand
significantly the scope of its audit, or that information has come to the
accountant's attention during the Registrant's two (2) most recent fiscal years
that if further investigated may (i) materially impact the fairness or
reliability of: a previously issued audit report or the underlying financial
statements, or the financial statements issued or to be issued covering the
fiscal period subsequent to the date of the most recent financial statements
covered by an audit report (including information that may prevent it from
rendering an unqualified audit report on those financial statements), or (ii)
caused it to be unwilling to rely on management's representations or be
associated with the Registrant's financial statements, and due to the
accountant's resignation (due to audit scope limitations or otherwise), or
dismissal, or for any other reason, the accountant did not so expand the scope
of its audit or conduct such further investigations.
17
<PAGE>
During the Registrant's two (2) most recent fiscal years, the
Registrant's accountant has not advised the Registrant that information has come
to the accountant's attention that it has concluded materially impacts the
fairness or reliability of a previously issued audit report or the underlying
financial statements, or the financial statements issued or to be issued
covering a fiscal period subsequent to the date of the most recent financial
statements covered by an audit report (including information that, unless
resolved to the accountant's satisfaction, would prevent it from rendering an
unqualified audit report on those financial statements), and due to the
accountant's resignation, dismissal or declination to stand for re-election, or
for any other reason, the issue has not been resolved to the accountant's
satisfaction prior to its resignation, dismissal or declination to stand for
re-election.
During the Registrant's two (2) most recent fiscal years and during any
subsequent interim period, neither the Registrant nor anyone on its behalf has
consulted the Registrant's newly engaged accountant regarding either the
application of accounting principles to a specific transaction, either completed
or proposed; or the type of audit opinion that might be rendered on the
Registrant's financial statements, and other a written report was provided to
the Registrant or oral advice was provided that the new accountant concluded was
an important factor considered by the Registrant in reaching a decision as to
the accounting, auditing or financial reporting issue. Nor during the time
period in question was the Company's new accountant consulted by the Registrant
or anyone on its behalf on any matter that was either the subject of a
disagreement or a reportable event as defined in Item 304 of Regulation S-K.
The Company's former accountant has been requested to furnish the
Registrant with a letter addressed to other Commission stating whether the
accountant agrees or disagrees with the statements made by the Registrant under
this item. The former accountant's letter is filed as an exhibit to this Amended
Form 10-SB.
- --------------------------------------------------------------------------------
ITEM 15. Financial Statements and Exhibits
- --------------------------------------------------------------------------------
The Company incorporates herein by this reference the text and exhibits
of Item 15 contained in its Form 10-SB filed on December 3, 1999 and supplements
such exhibits with the following:
Assigned Number Description
- --------------- -----------
(16) Letter on change in certifying accountant
18
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
----------
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT ACCOUNTANTS
as of June 30, 1999 and for the years ended June
30, 1999 and 1998, and for the period from
inception, June 10, 1996,
to June 30, 1999
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
TABLE OF CONTENTS
----------
Page(s)
-------
Report of Independent Accountants F-2
Financial Statements:
Balance Sheet as of June 30, 1999 F-4
Statement of Operations for the years ended
June 30, 1999 and 1998, and for the period from
inception, June 10, 1996, to June 30, 1999 F-5
Statement of Stockholders' Deficit for the years
ended June 30, 1999 and 1998, and for the period
from inception, June 10, 1996, to June 30, 1999 F-6
Statement of Cash Flows for the years ended
June 30, 1999 and 1998, and for the period from
inception, June 10, 1996, to June 30, 1999 F-8
Notes to Financial Statements F-9
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, 1999, and the related statements of
operations, stockholders' deficit and cash flows for the year then ended, and
for the period from inception, June 10, 1996, to June 30, 1999. 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 audit provides 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, 1999, and the results of its operations and its cash flows for the year then
ended, and for the period from inception, June 10, 1996, to June 30, 1999, in
conformity with generally accepted accounting principles.
Continued
F-2
<PAGE>
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
stockholders' deficit position at June 30, 1999, and is dependent on outside
sources of financing for 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 13.
These financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Houston, Texas
September 2, 1999
F-3
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEET
June 30, 1999
----------
ASSETS
------
Current assets:
Cash and cash equivalents $ 120,058
Prepaid expenses 5,014
----------
Total current assets 125,072
Property and equipment, net 9,483
Deposits 2,900
----------
Total assets $ 137,455
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Current maturities of long-term debt $ 53,482
Note payable to shareholder 85,248
Accounts payable 85,666
Accrued liabilities 361,956
----------
Total current liabilities 586,352
Long-term debt, net of current maturities 30,918
Convertible debentures 180,000
----------
Total liabilities 797,270
----------
Commitment and contingencies
Stockholders' deficit:
Common stock, $.001 par value, 100,000,000
shares, authorized, 8,374,490 shares
issued and 5,639,490 shares outstanding 8,374
Additional paid-in capital 2,125,459
Losses accumulated during the development
stage (2,776,737)
Treasury stock (16,911)
----------
Total stockholders' deficit (659,815)
----------
Total liabilities and stockholders'
deficit $ 137,455
==========
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, 1999 and 1998 and
for the period from inception, June 10, 1996, to June 30, 1999
----------
<TABLE>
<CAPTION>
Year Ended
June 30,
Year Ended 1998 Inception
June 30, As Restated to June 30,
1999 (See Note 2) 1999
---------- ------------ -------
<S> <C> <C> <C>
Income:
Sales $ 5,000 $ - $ 5,000
Interest income - - 653
Other income - - 3,618
---------- ----------- -----------
Total income 5,000 - 9,271
---------- ----------- -----------
Costs and expenses:
Operating, general and adminis-
trative expenses 396,454 418,056 1,384,203
Research and development costs 211,278 607,384 1,199,332
Interest expense 193,811 7,394 202,473
---------- ----------- -----------
Total costs and expenses 801,543 1,032,834 2,786,008
---------- ----------- -----------
Net loss $ (796,543) $(1,032,834) $(2,776,737)
========== =========== ===========
Weighted average shares outstanding 7,217,096 6,757,534
========== ===========
Basic and diluted net loss per
common share $ (0.11) $ (0.15)
========== ===========
</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, 1999 and 1998, and
for the period from inception, June 10, 1996 to June 30, 1999
----------
<TABLE>
<CAPTION>
Losses
Accumulated
Additional During the
Common Stock Paid-In Treasury Development
Amount Shares Capital Stock Stage Total
------ ------ ------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at inception, June 10, 1996 $ - - $ - $ - $ - $ -
Stock issued for equity securities
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 June 1997 305 304,571 205,196 - - 205,501
Losses accumulated during the
period from inception, June 10,
1996, to June 30, 1997 - - - - (947,360) (947,360)
------ --------- ---------- ---------- ------------ ----------
Balance at June 30, 1997 6,527 6,526,571 1,141,646 - (947,360) 200,813
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)
Net loss accumulated in 1998 - - - - (1,032,834) (1,032,834)
------ --------- ---------- ---------- ----------- ----------
Balance at June 30, 1998 6,804 6,803,951 1,396,962 (16,911) (1,980,194) (593,339)
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)
====== ========= ========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-6
<PAGE>
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
for the years ended June 30, 1999 and 1998, and
for the period from inception, June 10, 1996, to June 30, 1999
----------
<TABLE>
<CAPTION>
Year Ended Year Ended Inception
June 30, June 30, to June 30,
1999 1998 1999
---------- ----------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (796,543) $(1,032,834) $(2,776,737)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Common stock and stock options
issued as compensation for services 285,067 55,593 896,560
Write down of long-lived assets to
fair value - 200,000 284,440
Depreciation expense 3,242 3,150 9,512
Deferred income tax expense - - 7,994
Amortization of discount on con-
vertible debentures 125,000 - 125,000
Changes in operating assets and
liabilities:
(Increase) decrease in prepaid
expenses and deposits 22,336 76,403 (7,914)
Increase (decrease) in accounts
payable and accrued liabilities (16,474) 448,330 439,628
---------- ----------- -----------
Net cash used in operating
activities (377,372) (249,358) (1,021,517)
---------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (3,198) - (18,995)
Proceeds received from repayment of
loan to stockholder - 71,854 -
---------- ----------- -----------
Net cash used in investing
activities (3,198) 71,854 (18,995)
---------- ----------- -----------
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 500,000 - 500,000
Issuance (repayment) of notes payable (12,390) 72,474 84,400
Proceeds from advances from
stockholders 10,100 75,148 85,248
Purchase of treasury stock - (16,911) (16,911)
---------- ----------- -----------
Net cash provided by financing
activities 497,710 130,711 1,160,570
---------- ----------- -----------
Net increase in cash and cash equivalents 117,140 (46,793) 120,058
Cash and cash equivalents at beginning
of period 2,918 49,711 -
---------- ----------- -----------
Cash and cash equivalents at end of
period $ 120,058 $ 2,918 $ 120,058
========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ 63,105 $ 7,394 $ 71,767
========== =========== ===========
Cash paid for income taxes $ - $ - $ -
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<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 the
liposomal 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.
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.
F-8
<PAGE>
Continued
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 Expenses
---------------------------------
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.
F-9
<PAGE>
Continued
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, Continued
----------
1. Organization and Summary of Significant Accounting Policies,
------------------------------------------------------------
continued
---------
Comprehensive Income
--------------------
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, Reporting Comprehensive Income, which requires a
company to display an amount representing comprehensive income as part of
the Company's basic financial statements. Comprehensive income includes
such items as unrealized gains or losses on certain investment securities
and certain foreign currency translation adjustments. The Company's
financial statements include none of the additional elements that affect
comprehensive income. Accordingly, comprehensive income and net income
are identical.
2. Prior Period Adjustments
------------------------
During the period from inception, June 10, 1996, to June 30, 1997, and
during the year ended June 30, 1998, the Company issued common stock to
compensate key employees, consultants and certain vendors and to purchase
the rights to use specific patents. The issuance of such stock was not
afforded consistent accounting treatment but was generally recorded at
par value or some other nominal value in the Company's financial
statements. Generally accepted accounting principles require that common
stock issuances be recorded at the estimated fair value of the stock
issued or at the fair value of consideration received or services
provided if such value is more readily determinable.
During the year ended June 30, 1998 the Company entered into an agreement
to purchase the rights to a specific patent. The purchase price was
$125,000 (payable at $50,000 upon execution of the agreement and $75,000
by December 31, 1997) and 200,000 shares of the Company's common stock.
The Company issued the stock and made the $50,000 payment. However, the
Company has yet to make the final $75,000 payment. Per the agreement, if
the final payment is not made within seven months of the execution of the
agreement, the final payment is increased to $150,000 plus the issuance
of an additional 200,000 shares of the Company's common stock. Although
this matter is currently being disputed, generally accepted accounting
principles requires these additional amounts to be accrued in the period
they became due. Accordingly, these amounts have been accrued in the
financial statements for the year ended June 30, 1998.
F-10
<PAGE>
Continued
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, Continued
----------
2. Prior Period Adjustments, continued
-----------------------------------
The Company also capitalized the costs of purchasing and protecting
patent rights during the year ended June 30, 1998. Generally accepted
accounting principles require all long-lived assets to be reviewed for
impairment and written down to their estimated fair value based on
expected future cash flows generated by the asset. Since it is unknown
whether this patent will ever generate cash flow for the Company, all
costs associated with the patent have been recorded as research and
development expense during the year ended June 30, 1998.
The effect of correcting these errors in application of generally
accepted accounting principles on the Company's financial statements at
June 30, 1998 and 1997 is as follows:
June 30, June 30,
1998 1997
---------- ---------
Decrease in total assets $ (321,815) $ -
========== =========
Increase in total liabilities $ (209,000) $ -
========== =========
Increase in additional paid-in
capital $ 36,317 $ 488,569
========== =========
Increase in accumulated deficit $ (567,132) $(488,569)
========== =========
Increase in net loss for the
year ended June 30, 1998 $ (567,132)
==========
Increase in net loss per common
share for the year ended
June 30, 1998 $ (0.08)
==========
F-11
<PAGE>
Continued
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, Continued
----------
3. Property and Equipment
----------------------
Property and equipment at June 30, 1999 consists of the following:
Office furniture, fixtures and
equipment $ 18,995
Less accumulated depreciation (9,512)
----------
$ 9,483
==========
Depreciation expense during the year ended June 30, 1999 was $3,242.
4. Notes Payable and Convertible Debentures
----------------------------------------
Notes payable at June 30, 1999 consist of the following:
Notes payable to a bank, bearing int- erest of prime (8.25% at June 30,
1999) plus 1% per year and due in monthly installments of up to $1,238,
includ- ing interest, through November 2002. These notes are
uncollateralized but are guaranteed by two stockholders of the Company.
$ 65,689
Notes payable to a company, bearing
interest of 6%, with principal and
interest due on demand. These notes
are uncollateralized. 18,711
Notes payable to stockholders, bearing
interest of 10% per year and due on
demand. These notes are uncollater-
alized. 85,248
----------
Total notes payable 169,648
Less current maturities (138,730)
----------
$ 30,918
==========
F-12
<PAGE>
Continued
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. The debentures bear interest at a stated rate of 8%
per year, payable at maturity in common stock of the Company. These
debentures mature in July 2001 and are 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. During the fiscal year
ended June 30, 1999 $320,000 of the original $500,000 debenture was
converted to common stock. Subsequent to June 30, 1999 an additional
$80,000 of the convertible debentures were converted to common stock.
Future annual maturities of notes payable and convertible debentures at
June 30, 1999 are as follows:
Year Ended
June 30, Amount
-------- ------
2000 $ 138,730
2001 12,578
2002 193,758
2003 4,582
----------
$ 349,648
==========
5. Income Tax
----------
The composition of deferred tax assets and the related tax effects at
June 30, 1999 are as follows:
Benefit from carryforward of net
operating losses $ 406,769
Less valuation allowance (406,769)
----------
Net deferred tax asset $ -
==========
F-13
<PAGE>
Continued
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>
1999 1998
----------------------- ------------------------
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 $ 270,825 34.0% $ 351,164 34.0%
Non-deductible expenses (17,096) (2.1) (198,124) (19.2)
Increase in valuation
allowance (253,729) (31.9) (153,040) (14.8)
---------- ----- ---------- -----
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, 1999, for federal income tax and alternative minimum tax
reporting purposes, the Company has approximately $1,200,000 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 2019 and could be subject to severe
limitations if significant ownership changes occur in the Company.
6. Stock Options
-------------
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:
Date Vested Amount
----------- ------
December 9, 1998 $ 200,000
December 9, 1999 200,000
December 9, 2000 200,000
----------
$ 600,000
==========
F-14
<PAGE>
Continued
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, Continued
----------
6. Stock Options, continued
------------------------
The Company recognized compensation expense with respect to these stock
options in the amount of $50,000.
During the year ended June 30, 1998, the Company also executed an
agreement with a former director of the Company under which the Company
compensated the former director for past services by grant of options to
acquire 50,000 shares of the Company's restricted common stock at $0.75
per share, which approximates market value, for a term of three years.
During the year ended June 30, 1999, the Company also 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 an exercise
price of $0.40 - $0.75 per share, which approximated market value at date
of grant.
The Company periodically issues incentive stock options 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.
The Company has issued stock options to employees and non-employee
consultants as follows:
<TABLE>
<CAPTION>
Number of Shares
----------------
Employee Non-employee Total Exercisable Exercise Price
-------- ------------ ----- ----------- --------------
<S> <C> <C> <C> <C> <C>
Options outstand-
ing at June 30,
1997 - - - -
Options granted 600,000 50,000 650,000 50,000 $0.10-$0.75
------- ------ ------- ------ -----------
Options outstand-
ing at June 30,
1998 600,000 50,000 650,000 50,000 $0.10-$0.75
Options granted - 250,000 250,000 100,000 $0.40-$0.75
------- ------ ------- ------ -----------
Options outstand-
ing at June 30,
1999 600,000 300,000 900,000 350,000 $0.10-$0.75
======= ======= ======= ======= ===========
</TABLE>
F-15
<PAGE>
Continued
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, Continued
----------
6. Stock Options, continued
------------------------
Following is a summary of outstanding options at June 30, 1999:
Number of Shares Vested Expiration Date Exercise Price
---------------- ------ --------------- --------------
600,000 200,000 December, 2000 $0.10
50,000 50,000 May, 2001 0.75
100,000 100,000 June, 2001 0.40
150,000 - October, 2001 0.75
------- -------
900,000 350,000
======= =======
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 and 1998: 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.
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.
F-16
<PAGE>
Continued
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:
1999 1998
---------- -------
Net loss available to common
stockholders $ (796,543) $(1,032,834)
Proforma net loss available to
common stockholders $ (886,943) $(1,048,334)
Proforma basic and dilutive
loss per share $ (0.12) $ (0.16)
7. Commitments and Contingencies
-----------------------------
Lease Commitments
-----------------
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, 1999 and 1998 was $15,606 and $11,981, respectively.
Impact of Year 2000
-------------------
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of
the Company's computer programs that have time sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculation causing a
disruption of business activities.
The Company has performed a complete assessment of the Year 2000 issue
and believes that no significant modifications to its existing computer
software will be required and that its existing computer systems will
function properly with respect to dates in the year 2000 and thereafter.
The Company also believes that costs related to the Year 2000 issue will
not be significant because the Company's systems have been designed to be
Year 2000 compliant.
Based on the Company's assessment of its relationships with significant
suppliers and major customers to understand the extent to which the
Company is vulnerable to any failure by third parties to remedy their own
Year 2000 issues, management believes that the Company does not have
significant exposure with respect to third parties.
F-17
<PAGE>
Continued
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, Continued
----------
8. 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, 1999 and 1998,
the Company incurred net losses of ($796,543) and ($1,032,834),
respectively, and negative cash flows from operations of ($377,372) and
($272,761), respectively. These factors along with a ($461,280) negative
working capital position at June 30, 1999 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 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.
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.
F-18
<PAGE>
Continued
ENDOVASC LTD., INC.
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS, Continued
----------
9. Non-Cash Investing and Financing Activities
-------------------------------------------
During the years ended June 30, 1999, 1998 and 1997, the Company engaged
in certain non-cash investing and financing activities as follows:
1999 1998 1997
-------- -------- ------
Common stock issued in exchange
for equity securities $ - $ - $302,332
======== ======== ========
Common stock issued upon conver-
sion of debentures $320,000 $ - $ -
======== ======== ========
Common stock issued for purchase
of patent rights $ - $200,000 $284,440
======== ======== ========
F-19
<PAGE>
ENDOVASC LTD., INC.
(A DEVELOPMENT STAGE CORPORATION)
FINANCIAL STATEMENTS
for the three months ended September 30, 1999 and 1998
(Unaudited)
<PAGE>
ENDOVASC LTD., INC.
(A DEVELOPMENT STAGE CORPORATION)
BALANCE SHEET
September 30 , 1999 and June 30, 1999
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
Assets (Unaudited) (Note)
------ ----------- ------
<S> <C> <C>
Current assets:
Cash $ 18,519 $ 120,058
Prepaid expenses 2,094 5,014
---------- ----------
Total current assets 20,613 125,072
Property and equipment-net 9,911 9,483
Deposits 2,900 2,900
---------- ----------
Total assets $ 33,424 $ 137,455
========== ==========
Liabilities and Stockholders' Deficit
Current liabilities:
Current maturities of long-term debt $ 72,807 $ 53,482
Note payable shareholder 85,248 85,248
Accounts payable 138,543 85,666
Accrued liabilities 397,527 361,956
---------- ----------
Total current liabilities 694,125 586,352
Long term debt, net of current maturities 8,400 30,918
Convertible debentures 230,500 180,000
---------- ----------
Total liabilities 933,025 797,270
---------- ----------
Stockholders' deficit:
Common stock, $.001 par value, 100,000,000 shares authorized, 8,713,496 and
8,374,490 shares issued and 6,054,604 and 5,639,490 shares outstanding at
September 30,1999 and
June 30, 1999, respectively 8,713 8,374
Additional paid in capital 2,208,580 2,125,459
Losses accumulated during the development
stage (3,099,983) (2,776,737)
Treasury stock (16,911) (16,911)
---------- ----------
Total stockholders' deficit (899,601) (659,815)
---------- ----------
Total liabilities and stockholders'
deficit $ 33,424 $ 137,455
========== ==========
</TABLE>
Note: The balance sheet at June 30, 1999 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. See accompanying notes.
<PAGE>
ENDOVASC LTD., INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF OPERATIONS
for the three months ended September 30, 1999 and 1998 and
for the period from inception, June 10, 1996, to September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Inception to
September 30, September 30, September 30,
1999 1998 1999
------------- ------------- ------------
<S> <C> <C> <C>
Revenue $ 14,283 $ 5,000 $ 23,554
---------- ---------- ----------
Operating expenses:
Research and development costs 229,912 55,718 1,429,244
Operating, general and administrative
expenses 84,628 37,919 1,468,831
Interest expense 22,989 12,337 225,462
---------- ---------- ----------
Total costs and expenses 337,529 105,974 3,123,537
---------- ---------- ----------
Net loss $ (323,246) $ (100,974) $3,099,983
========== ========== ==========
Basic and dilutive net loss per common
share $ (0.04) $ (0.01)
========== ==========
Weighted average shares outstanding 8,426,773 6,817,694
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
ENDOVASC LTD., INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF CHANGES IN STOCKHOLDERS'
DEFICIT for the three months ended
September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Number of Dollar Paid-In Treasury Accumulated
Shares Amount Capital Stock Deficit
------ ------ ------- ----- -------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1999 8,374,490 $ 8,374 $2,125,459 $ (16,911) $(2,776,737)
Issue of common stock for
services 93,460 93 93,367 - -
Conversion of debentures to
common stock 335,546 336 79,664 - -
Cancellation of common stock
issued for services not
performed (90,000) (90) (89,910) - -
Net loss - - - - (323,246)
--------- ---------- ---------- ---------- -----------
Balance at September 30, 1999 8,713,496 $ 8,713 $2,208,580 $ (16,911) $(3,099,983)
========= ========== ========== ========== ===========
</TABLE>
See accompanying notes.
<PAGE>
ENDOVASC LTD., INC.
(A DEVELOPMENT STAGE CORPORATION)
CONDENSED STATEMENT OF CASH FLOWS
for the three months ended September 30, 1999
and 1998 and for the period from inception, June 10,
1996, to September 30, 1999
<TABLE>
<CAPTION>
Inception to
September 30, September 30, September 30,
1999 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows used in operating
activities: $ (227,544) $ (85,859) $(1,249,061)
---------- ---------- -----------
Cash flows used in investing
activities: (1,302) - (20,297)
---------- ---------- -----------
Cash flows from financing activities:
Proceeds from sale of equity
securities - - 302,332
Proceeds from sale of common stock - - 205,501
Purchase of treasury stock - - (16,911)
Proceeds from sale of convertible
debt 130,500 70,000 630,500
Issuance (repayment) of notes
payable (3,193) - 81,207
Proceeds from advances from
stockholder - 20,100 85,248
---------- ---------- -----------
Net cash provided by financing
activities 127,307 90,100 1,287,814
---------- ---------- -----------
Increase (decrease) in cash and cash
equivalents (101,539) 4,241 18,519
Cash and cash equivalents, beginning
of period 120,058 2,918 -
---------- ---------- -----------
Cash and cash equivalents, end of
period $ 18,519 $ 7,159 $ 18,519
========== ========== ===========
Non-cash investing and financing
activities:
Common stock issued upon conversion
of debentures $ 80,000 $ - $ 400,000
========== ========== ===========
Common stock issued for services
and patent rights $ 93,460 $ 68,586 $ 1,202,791
========== ========== ===========
Common stock issued for equity
securities $ - $ - $ 302,332
========== ========== ===========
</TABLE>
See accompanying notes.
<PAGE>
ENDOVASC LTD., INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1999
Note 1 - Interim Financial Statements
----------------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-B instructions. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principals for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three- month period September
30, 1999 and 1998 are not necessarily indicative of the results that
may be expected for the respective full year.
A summary of the Company's significant accounting policies and other
information necessary to understand the interim financial statement is
presented in the Company's audited financial statement for the years
ended June 30, 1999 and 1998. Accordingly the Company's audited
financial statements should be read in connection with these financial
statements.
Note 2 - Income Taxes
------------
The difference between the 34% federal statutory income tax rate and
amounts shown in the accompanying interim financial statement is
primarily attributable to an increase in the valuation allowance
applied against the tax benefit from utilization of net operating loss
carryforwards.
Note 3 - Stockholders' Deficit
---------------------
During the quarter ended September 30, 1999 the Company had common
stock activity as follows:
<TABLE>
<CAPTION>
Common Paid-In
Stock Capital Total
----- ------- -----
<S> <C> <C> <C>
Common stock issued upon conversion
of debentures $ 336 $ 79,664 $ 80,000
Common stock issued as payment for
services 93 93,367 93,460
Cancellation of common stock issued
for services not performed (90) (89,910) (90,000)
----------- --------- ---------
$ 339 $ 83,121 $ 83,460
=========== ========= =========
</TABLE>
Note 4 - Convertible Debentures
----------------------
At September 30, 1999 the Company owed amounts under a Series B
convertible debenture totaling $130,500. These debentures bear
interest at a stated rate of 8% per year. These debentures mature in
July 2001 and are 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.
<PAGE>
- --------------------------------------------------------------------------------
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 3, 2000.
ENDOVASC LTD, INC.
By: /S/ David P. Summers
---------------------
David P. Summers
Chairman and Chief Executive Officer
19
KEN BEVERLY & ASSOCIATES, P.C.
- -------------------------------------------------------------------
Certified Public Accountants
13231 Champion Forest Dr., Suite 102
Houston, Texas 77069
(281) 444-8297 - FAX (281) 444-1315
Board of Directors
Endovasc Ltd., Inc.
Montgomery, Texas
RE: Exhibit for Amended Form 10-SB
There was no difference in opinion between Endovasc Ltd., Inc. and Ken Beverly &
Associates, P.C. (Former accountant's) regarding accounting principles and the
change in accountants made by Endovasc Ltd., Inc. was amicable.
/s/ Ken Beverly & Associates, P.C.
----------------------------------
Ken Beverly & Associates, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
February 4, 2000
Houston, Texas
CPA
The CPA, Never Underestimate the Value*
MEMBERS AMERICAN INSTITUTE CERTIFIED PUBLIC ACCOUNTANTS
