Endovasc, Inc. (the "Company") is incorporated under the laws of the State of Nevada. The Company's principal business is the production of various drugs that can be administered using an advanced drug delivery system. The Company believes that its drug delivery system will ultimately be widely used by cardiologists, interventional radiologists and vascular surgeons. The Company is considered a development stage enterprise because it has not yet generated significant revenue from sale of its products and has devoted substantially all of its efforts in raising capital.

Effective June 27, 2003, the Company's board of directors approved the creation of a wholly-owned subsidiary named Nutraceutical Development Corporation ("NDC") to manage its Nutraceutical product line (Note 20). In addition, during the year ended June 30, 2004, the Company acquired a controlling interest in two joint ventures that have been consolidated in the accompanying financial statements (Note 21). The consolidated financial statements include the accounts of the Company, its subsidiary and its majority owned joint venture investments. All intercompany accounts and transactions are eliminated in consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the periods. Actual results could differ from estimates making it reasonably possible that a change in the estimates could occur in the near term.

The Company considers all highly liquid short-term investments with an original maturity of three months or less when purchased to be cash equivalents.

The Company maintains cash deposits in banks which may occasionally exceed the amount of federal deposit insurance available. Management periodically assesses the financial condition of the institutions and believes that any possible deposit loss is minimal.

Property and equipment 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.

Debt issuance costs are deferred and recognized, using the interest method, over the term of the related debt.

Continued

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 costs are expensed as incurred. These costs consist of direct and indirect costs associated with specific projects.

The Company accounts for employee stock options using the intrinsic value method in accordance with Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and has adopted the disclosure-only alternative of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure. Under the intrinsic value method, the Company has only recorded stock-based compensation resulting from options granted at below fair market value.

Basic and diluted loss per share is computed on the basis of the weighted average number of shares of common stock outstanding during each period. Common equivalent shares from common stock options and warrants and Series A, B and C convertible preferred stock are excluded from the computation (See Note 14) as their effect would dilute the loss per share for all periods presented.

If the Company had reported net income for the years ended June 30, 2004 or 2003, the calculation of diluted net income per share would not have included any additional common equivalent shares.

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.

The Company reviews property and equipment and certain identifiable intangibles, excluding goodwill, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of its carrying amounts to future undiscounted cash flows the assets are expected to generate. If property and equipment and certain identifiable intangibles are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value. There was no impairment of long-lived assets in the years ended June 30, 2004 and 2003.

Continued

The Company has adopted SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually or sooner whenever events or changes in circumstances indicate that they may be impaired. The Company was not affected by this requirement as it does not have any goodwill or intangible assets with indefinite useful lives as of June 30, 2004 or 2003.

SFAS No. 142 also requires that intangible assets with definite lives be amortized over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate an asset's carrying value may not be recoverable in accordance with SFAS No. 144. The Company is currently amortizing its acquired intangible assets with definite lives over periods ranging from 1 to 10 years. The Company believes no events or changes in circumstances have occurred that would require an impairment test for these assets during the years ended June 30, 2004 and 2003.

The Company's financial instruments that potentially subject the Company to concentration of credit risk consist principally of accounts receivable from a sponsor under an external research agreement. Accounts receivable from this sponsor represented 100% of the Company's accounts receivable outstanding at June 30, 2004 and June 30, 2003. In addition, the sponsor under the external research agreement represented 100% of the Company's revenues for the year ended June 30, 2004.

In February 2000 the Company entered into an exclusive license agreement with Stanford University to assist in the development of the Nicotine Receptor Agonist technology. For the exclusive rights to this license, the Company paid a non-refundable license fee of $100 plus 190,000 shares of the Company's common stock to Stanford University and the inventors of the technology. The term of the agreement is for 10 years or five years from the first commercial sale of a licensed product by the Company, whichever occurs first. The Company is also required to pay an annual royalty of $100 beginning February 1, 2001 and each year thereafter and a 6% royalty on net sales of any licensed product. The Company is required to pay to Stanford an additional $100 upon FDA approval of Phase I clinical trials, $300 upon FDA approval of Phase III clinical trials and $500 within six months after FDA marketing approval.

The costs of obtaining the license of $163 were capitalized and included in other assets in the accompanying balance sheet. These costs are being amortized on a straight line basis over the term of the agreement. Amortization expense during each of the years ended June 30, 2004 and 2003 was $15.

Continued

In May 2002 the Company entered into a perpetual agreement with another company ("Licensee") whereby the Company granted the Licensee an exclusive world-wide license to manufacture, market and distribute various products using the Company's stent coating technology. In consideration for this license, the Company received a non-refundable initial fee of $200, of which $50 was used by the Licensee to purchase 1,000,000 shares of the Company's common stock. The Company was also to receive an additional $2,000, payable to the Company by the Licensee, at the sole and absolute discretion of the Licensee in cash or common stock of the Licensee with $1,000 due within 12 months and $1,000 due within 24 months from the execution date of the agreement with the provision that at least $300 of each $1,000 payment must be payable in cash. In addition, the Company was to receive the greater of a royalty fee of 8% of all gross product sales or an additional $2,000 payable in cash for each 10-year period the agreement remains in effect. During the year ended June 30, 2002, the Company collected $50 in cash, $50 upon the sale of 1,000,000 shares of the Company's common stock and recorded $100 in accounts receivable, which was collected during the year ended June 30, 2003. During the year ended June 30, 2003, $140 of revenue was recognized under the agreement. No additional amounts have been recognized due to the Licensee exercising its rights to cancel this agreement prior to the payment of the initial $1,000 payment on May 13, 2003.

Effective July 1, 2001, the Company entered into an External Research Agreement with another company (the "Sponsor") whereby the Sponsor agreed to assist in the funding of the Company's research and development related to its Nicotine Receptor Agonist technology for one year with the option to extend the agreement for an additional one year term. The Sponsor agreed to fund $512 which was recorded as revenue in the statement of operations for the year ended June 30, 2002. The option to extend this agreement for an additional one year term was exercised. The extension increased the funding to $730 and resulted in $147 of revenue for the year ended June 30, 2003. The agreement was verbally extended subsequent to July 1, 2003 to extend the time allowed to receive the maximum funding, resulting in additional revenue of $71 during the year ended June 30, 2004.

                                                           2004   2003
                                                           -----  -----

Other receivable                                           $  30  $  29
Prepaid license                                               58     58
Prepaid supplies                                             278    278
Prepaid insurance                                              9      -
                                                           -----  -----

                                                           $ 375  $ 365
                                                           =====  =====

Continued

                                                     2004    2003
                                                    ------  ------
Office furniture, fixtures and equipment            $ 319   $ 321

Less accumulated depreciation                        (205)   (146)
                                                    ------  ------

                                                    $ 114   $ 175
                                                    ======  ======

Depreciation expense during the years ended June 30, 2004 and 2003 was $62 and $59, respectively. Included in property and equipment at June 30, 2004 and 2003 is equipment under capital leases of $182.

During the year ended June 30, 2002, the Company issued $400 in convertible debentures. The debentures bear interest at 8% per year payable quarterly in arrears. The debentures mature in September 2004 and are convertible, at the option of the holder, to shares of the Company's common stock at a conversion price per share equal to the lower of (i) 85% of the average of the three lowest closing prices for the common stock for the thirty days prior to the closing date of the debentures; or (ii) 70% of the average of the three lowest closing prices for the common stock for the thirty days prior to the conversion date. Accordingly, the actual weighted average interest rate on these debentures, including the effect of the cost of the beneficial conversion feature is approximately 23%.

During the year ended June 30, 2003, 363,900 shares of common stock were issued upon the conversion of $170 of the convertible debentures and 6,100 shares of common stock were issued as payment of $3 of interest owed on the convertible debentures.

During the year ended June 30, 2002, 8,045,870 shares of common stock (including treasury stock) were issued upon the conversion of $229 of the convertible debentures and 317,433 shares of common stock were issued as payment of $9 of interest owed on the convertible debentures.

                                                           2004    2003
                                                          ------  ------
Note payable to a financial institution, bearing
  interest at prime (4% at June 30, 2004) with
  interest due monthly and principal due on demand.
  Note is uncollateralized but is guaranteed by two
  stockholders of the Company.                            $  46   $  56

Note payable to a financial institution, bearing
  interest at prime (4% at June 30, 2004) plus
  1.5% or an annual rate of 6%, whichever is higher,
  principal and interest due on demand, with monthly
  interest payments due until demand is made or at
  maturity on November 7, 2003.  This note is
  collateralized by personal property of a stockholder
  of the Company.                                             -      14

Note payable to a financial institution, bearing
  interest at rates ranging from 16% to 18%
  and due in 9 monthly installments of $924.                  6       -
  Notes are uncollateralized.

Notes payable to stockholders, non-interest bearing
  and due on demand.  These notes are uncollateralized.     290     680
                                                          ------  ------

    Total notes payable                                     342     750

Less current maturities                                    (342)   (721)
                                                          ------  ------

                                                          $   -   $  29
                                                          ======  ======

                                                       2004   2003
                                                       -----  -----
Accrued payroll and related taxes                      $  20  $   6
Dividends payable                                          7      7
Other accrued expenses                                     -      4
                                                       -----  -----

                                                       $  27  $  17
                                                       =====  =====

Continued

                                                     2004      2003
                                                   --------  --------
Benefit from carryforward of net operating losses  $ 4,803   $ 3,925

Less valuation allowance                            (4,803)   (3,925)
                                                   --------  --------

  Net deferred tax asset                           $     -   $     -
                                                   ========  ========

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 (in thousands):

                                     2004                   2003
                           ---------------------  ---------------------
                            PERCENTAGE             PERCENTAGE
                            OF PRE-TAX             OF PRE-TAX
                              AMOUNT      LOSS       AMOUNT       LOSS
                           ------------  -------  ------------  --------

Benefit for income tax at
  federal statutory rate   $     1,591     34.0%  $     3,279      34.0%
Non-deductible expenses           (713)  (15.2%)       (1,559)    (16.2)
Increase in valuation
  allowance                       (878)  (18.8%)       (1,720)    (17.8)
                           ------------  -------  ------------  --------

  Total                    $         -        -%  $         -         -%
                           ============  =======  ============  ========

The non-deductible expenses relate primarily to the issuance of common stock for services using different valuation methods for financial and tax reporting purposes.

At June 30, 2004, for federal income tax and alternative minimum tax reporting purposes, the Company has approximately $14,140 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 2024 and could be subject to severe limitations if significant ownership changes occur in the Company.

During the year ended June 30, 2003, the board of directors approved the purchase by the Company of up to 2% of the outstanding shares of its common stock. No purchase of common stock of the Company was made by the Company during the years ended June 30, 2004 or 2003.

Continued

The Company periodically issues incentive stock options and warrants to key employees, officers, directors and outside consultants to provide additional incentives to promote the success of the Company's business and to enhance the ability to attract and retain the services of qualified persons. The issuance of such options are approved by the Board of Directors. The exercise price of an option or warrant granted is determined by the fair market value of the stock on the date of grant. All of the following have been adjusted for the effect of the 5 to 6 forward stock split and the 40 to 1 reverse stock split (See Note 13), unless otherwise noted.

During the year ended June 30, 2000, the Company issued stock warrants to acquire 8,320 shares of the Company's common stock to certain companies for their role in the completion of the Company's preferred stock offering. These warrants have a three year term and an exercise price of $75.60 per share, which approximated market value at the date of grant. During the years ended June 30, 2000 and 2001, the Company also issued stock warrants to acquire 12,500 and 25,000 shares, respectively, of the Company's common stock to a company as a finder's fee for the placement of the preferred stock offering. The warrants have a five year term and an exercise price of $4.00 and $0.40 per share, respectively. The costs associated with these stock warrants did not effect the Company's statement of operations as all costs were offset against the offering proceeds and recorded through stockholders' equity.

During the year ended June 30, 2001, the Company granted options to various consultants and employees, with a term of 3 years, to purchase 39,766 shares of the Company's common stock at a price ranging from $13.33 to $33.33 per share, which was greater than the market price of the stock at the grant date.

In May 2002, the Company adopted the 2002 Directors, Officers and Consultants Stock Option, Stock Warrant and Stock Award Plan (the "Plan"). The purpose of the Plan is to maintain the ability of the Company to attract and retain highly qualified and experienced directors, employees and consultants and to give such directors, employees and consultants a continued proprietary interest in the success of the Company. In addition, the Plan is intended to encourage ownership of common stock of the Company by the directors, employees and consultants of the Company and to provide increased incentive for such persons to render services and to exert maximum effort for the success of the Company's business. Subject to adjustment so that the total number of shares issuable under the Plan will equal 15% of the total number of issued and outstanding common stock of the Company, the aggregate number of shares of common stock that may be optioned, subject to conversion or issued under the Plan is 18,750,000 which has not been adjusted for the 40 to 1 reverse split of the Company's common stock (See Note 13).

Continued

The maximum term of options granted under this Plan is ten years. The aggregate fair market value of the stock with respect to which incentive stock options are first exercisable in any calendar year may not exceed $1,000,000. The exercise price of incentive stock options must be equal or greater than the fair market value of common stock on the date of grant. The exercise price of incentive stock options granted to any person who at the time of grant owns stock possessing more than 10% of the total combined voting power of all classes of stock must be at least 110% of the fair market value of such stock on the date of grant, and the term of these options cannot exceed five years.

Non-qualified stock options or warrants, restricted common stock and/or convertible preferred stock may be granted under the Plan. The terms of these issuances are determined based on the sole discretion of the Company's Compensation Committee.

During the year ended June 30, 2002, the Company issued stock warrants, which were subject to the 40 to 1 reverse stock split, to acquire 58,750 shares of the Company's common stock to various consultants for services provided to the Company. Of these warrants, 56,250 have a 6 month term and exercise prices ranging from $5.20 to $20.00 per share, which was greater than market value at the date of grant. The remaining 2,500 of warrants have a 5 year term and an exercise price of $2.40 per share, which approximated market value at the date of grant.

During November 2002, the Company entered into an agreement with a warrant holder to exclude their warrants from the effects of the 40 to 1 reverse stock split. This resulted in a change in the number of warrants granted by 2.2 million warrants with an exercise price of $0.13 to $0.50. This change in the terms of these warrants resulted in an additional expense to the Company of $3,549, which was recorded in operating, general and administrative expenses in the accompanying statement of operations for the year ended June 30, 2003.

During the year ended June 30, 2003, the Company issued stock warrants to acquire 816,490 shares of the Company's common stock. Of these warrants, 316,490 (379,788 after the 6 to 5 forward stock split) of them were to individuals purchasing stock as an incentive for the purchase and have an exercise price of $1.50 per share ($1.80 after the 6 to 5 forward split) and expiration dates ranging from one to three years from the issuance date. The costs associated with these stock warrants did not effect the Company's statement of operations as the value of $61 as determined by the Black-Scholes valuation model was offset against the offering proceeds and recorded through stockholders' equity. The remaining 500,000 warrants were issued to a consultant for services provided to the Company and have an exercise price of 70% of the stock price on the date of exercise and expire two months from issuance. The cost of these warrants of $133 has been included in the accompanying statement of operations for the year ended June 30, 2003.

Continued

In May 2003, the Company adopted the 2003 Stock Compensation Plan (the "Plan") in order to attract and retain highly qualified and experienced directors, employees and consultants and to give such directors, employees and consultants a continued proprietary interest in the success of the Company. Under the Plan, the Company may award up to 10,000,000 shares of its common stock or options to purchase its common stock to the directors, employees and consultants of the Company. All terms of the common stock, stock options or warrants granted under the Plan are at the discretion of the board of directors but will expire not more than ten years from the date of grant. During the year ended June 30, 2004, the Company issued stock options and warrants to two consultants to acquire 2,850,758 shares of the Company's common stock at prices ranging from $0.15-$0.29, all of which were exercised during the year.

The Company has issued stock options to employees and non-employee consultants as follows:

                         NUMBER OF SHARES                                             WEIGHTED
                     ----------------------                                           AVERAGE
                                   NON-                    EXERCIS-       EXERCISE    EXERCISE
                     EMPLOYEE    EMPLOYEE       TOTAL        ABLE          PRICE       PRICE
                     ---------  -----------  -----------  -----------  -------------  --------
Options outstanding
  at June 30, 2002     10,516       29,250       39,766       39,766   $13.33-$33.33  $  14.00

Options expired             -            -            -            -
                     ---------  -----------  -----------  -----------

Options outstanding
  at June 30, 2003     10,516       29,250       39,766       39,766   $13.33-$33.33  $  14.00

Options expired       (10,516)     (29,250)     (39,766)     (39,766)  $13.33-$33.00  $  14.00

Options issued              -    1,850,758    1,850,758    1,850,758   $  0.17-$0.29  $   0.22

Options exercised           -   (1,850,758)  (1,850,758)  (1,850,758)  $  0.17-$0.29  $   0.22
                     ---------  -----------  -----------  -----------
Options outstanding
  at June 30, 2004          -            -            -            -
                     =========  ===========  ===========  ===========

During the year ended June 30, 2004 and 2003, the Company issued stock warrants to certain companies in payment of stock offering costs and for consulting services, some of which were subsequently exercised, as follows:

Continued

                                                                        WEIGHTED
                                                                         AVERAGE
                              NUMBER OF                    EXERCISE     EXERCISE
                               SHARES     EXERCISABLE       PRICE         PRICE
                             -----------  ------------  --------------  ---------
Warrants outstanding at
  June 30, 2002                  73,325        73,325   $  2.40-$75.60  $   16.00

Effect of change in warrant
  agreement                   2,193,750     2,193,750   $   0.13-$0.50  $    0.23

Warrants issued                 816,490       816,490    70% of market  $    0.96
                                                          price-$1.50

Warrants exercised           (2,579,562)   (2,579,562)  $   0.13-$0.39  $    0.24

Warrants expired               (178,763)     (178,763)  $  0.50-$75.60  $    3.99

Effect of 6:5 stock split        65,048        65,048   $   1.25-$3.33  $    1.30
                             -----------  ------------

Warrants outstanding at
  June 30, 2003                 390,288       390,288   $   1.25-$3.33  $    1.30

Warrants issued               1,000,000     1,000,000   $   0.15-$0.20  $    0.17

Warrants exercised           (1,000,000)   (1,000,000)  $   0.15-$0.20  $    0.17

Warrants expired                (51,036)      (51,036)  $         1.25  $    1.25
                             -----------  ------------
Warrants outstanding at
  June 30, 2004                 339,252       339,252   $   1.25-$3.33  $    1.30
                             ===========  ============

Following is a summary of outstanding warrants at June 30, 2004:

NUMBER OF SHARES  VESTED   EXPIRATION DATE  EXERCISE PRICE
----------------  -------  ---------------  ---------------

           7,500    7,500  May 2005         $          3.33
           9,600    9,600  October 2005     $          1.25
         319,152  319,152  January 2006     $          1.25
           3,000    3,000  August 2006      $          2.00
----------------  -------

         339,252  339,252
================  =======

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.

Continued

                                      2004      2003
                                    ---------  -------

Risk-free interest rate                 3.75%    5.00%
Dividend yield                             -        -
Volatility                               190%      50%
Weighted average and expected life  2 months   1 year

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 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 stock options.

For purposes of proforma disclosures, the estimated fair value of the options is included in expense at the date of issuance. The Company's proforma information is as follows (in thousands, except per share data):

                                                      2004      2003
                                                    --------  --------

Net loss available to common stockholders           $(4,679)  $(9,644)

Proforma net loss available to common stockholders  $(4,679)  $(9,644)

Proforma basic and dilutive loss per share          $ (0.06)  $ (0.26)

The Company's articles of incorporation authorize the issuance of up to 20,000,000 shares of preferred stock with characteristics determined by the Company's board of directors. Effective May 5, 2000, the board of directors authorized the issuance and sale of up to 55,000 shares of Series A 8% convertible preferred stock. The following information excludes the effect of the 40 to 1 reverse stock split. The conversion features of all classes of preferred stock were not subject to the effects of the split.

Continued

On May 9, 2000, the Company issued 15,000 shares of $0.001 par value and $100 per share liquidation value Series A 8% non-voting convertible preferred stock for $1,500. The actual proceeds received by the Company were $1,040, which are net of related offering costs. During the year ended June 30, 2001, the Company issued an additional 15,000 shares of the Series A preferred stock for cash proceeds to the Company of $1,223, which is net of related offering costs of $277. In addition, the Company issued as a finders fee, warrants to purchase 1,000,000 shares of common stock at $0.01 per share, which resulted in additional offering costs of $162.

The Series A convertible preferred stock can be converted to common stock at any time at the option of the holder. The conversion rate is the stated value per share plus any accrued and unpaid dividends divided by 85% of the average of the three lowest closing bid prices of the Company's common stock for the thirty trading days immediately preceding May 9, 2000, or 70% of the average of the three lowest closing bid prices for the thirty days immediately preceding the conversion date of the respective preferred stock. During the years ended June 30, 2004, 2003, 2002 and 2001, 122, 7,594, 7,651 and 14,240 shares of preferred stock were converted to 55,518, 1,737,798, 26,546,674 and 16,501,251 shares of common stock, respectively. In addition, in 2002, 1,000,000 shares of treasury stock were issued for the conversion of 240 shares of preferred stock. The preferred stock shares outstanding increased by 55 during the year ended June 30, 2003 as a result of the forward stock split.

In addition, the Series A preferred stockholders were originally obligated to purchase an additional 30,000 shares (of which 15,000 shares were purchased during the year ended June 30, 2001) of Series A 8% convertible preferred stock at the option of the Company subject to the Company's compliance with various covenants. The Company has violated certain of these covenants but the stockholders retain the right to waive any violations. The purchase price of additional shares is $100 per share. If the conversion price is lower than the initial price at the date of issue, the Company has the right to redeem the shares of Series A preferred stock at 130% of its liquidation value per share.

In May 2002, the Company's board of directors authorized the issuance of up to 3,000,000 shares of Series B convertible preferred stock with a par value of $0.001 per share. Each share of Series B preferred stock is convertible into 10 shares of common stock at the option of the holder. Upon the occurrence of a recapitalization of the Company, each share of Series B preferred stock is automatically converted to 10 shares of the Company's common stock. Each share of Series B preferred stock includes voting rights equal to 500 shares of common stock. The shares of the Series B preferred stock rank senior to the common stock both in payment of dividends and liquidation preference.

As of June 30, 2002, the Company had entered into Exchange Agreements with certain stockholders, whereby these stockholders exchanged 24,008,545 shares of the Company's common stock for 2,400,855 shares of Series B convertible preferred stock. An additional 2,305,259 shares of the Company's common stock were exchanged for 230,526 shares of Series B convertible preferred stock during the year ended June 30, 2003.

Continued

In May 2002, the Company's board of directors authorized the issuance of up to 370,000 shares of Series C convertible preferred stock with no par value. Each share of Series C preferred stock is convertible into 10 shares of common stock at the option of the holder. Upon the occurrence of an increase in authorized common stock of the Company, each share of Series C preferred stock is automatically converted into 10 shares of the Company's common stock. Holders of the Series C preferred stock have voting rights, dividend rights and liquidation preference equal to those of the common stockholders.

In May 2002, 350,000 shares of the Series C convertible preferred stock were issued to two consultants for services performed for the Company. The cost associated with the issuance of these shares was $210.

During the year ended June 30, 2003, all shares of Series B and Series C preferred stock were automatically converted back to the shares of common stock originally exchanged and such conversion had a significant dilutive effect on the owners of common stock (See Note 13).

Effective July 9, 2002, the Company's board of directors and holders of shares representing a majority of the voting rights of the outstanding shares of the Company's common stock and preferred stock approved a reincorporation of the Company from the State of Nevada to the State of Delaware. This reincorporation was accomplished by a merger of the Company into a new Delaware corporation of the same name. Under the terms of the merger, holders of the Company's common stock received one share of the new Delaware corporation common stock in exchange for 40 shares of the Company's common stock, resulting in a 40 to 1 reverse split for all common stockholders. All holders of the outstanding shares of Series A, B and C convertible preferred stock were not subject to the 40 to 1 reverse split, because under the terms of the merger agreement, each share of preferred stock was converted into one share of preferred stock in the new Delaware corporation with identical conversion rights, which resulted in significant dilution to all common stockholders.

As a result of this reincorporation, each share of Series B and Series C convertible preferred stock was automatically converted to 10 shares of the Company's new common stock (See Note 12) resulting in the issuance of 29,813,804 post-split shares of common stock in the new Delaware corporation. Accordingly, the reincorporation process resulted in a preferential stock dividend of 29,068,459 shares of common stock issued to holders of Series B and Series C convertible preferred stock in July 2002.

Continued

Each share of Series A convertible preferred stock was not automatically converted to common stock upon reincorporation and was not subject to the 40 to 1 reverse split. Accordingly, holders of Series A convertible preferred stock received a preferential dividend of 23,469,792 shares of common stock based on the conversion rate on July 9, 2002.

This reincorporation resulted in an increase in authorized shares of the Company's common stock to 200,000,000 shares with all other terms of the common and preferred stock remaining the same except as otherwise noted.

The Company's treasury stock was cancelled and retired as a result of this reincorporation and all shares held in treasury resumed the status of authorized and unissued common stock.

The effect of the 40 to 1 reverse stock split has been recognized retroactively in the stockholders' equity accounts on the balance sheet at June 30, 2002, with the exception of 2,247,628 shares which were recognized during the year ended June 30, 2003, and in all share and per share data in the accompanying financial statements and notes to the financial statements unless otherwise noted. Stockholders' equity accounts have been restated to reflect the reclassification of an amount equal to the par value of the decrease in issued common shares from the common stock account to the additional paid-in capital account.

Effective March 31, 2003, the Company's board of directors and holders of shares representing a majority of the voting rights of the outstanding shares of the Company's common stock and preferred stock approved a reversal of the previous reincorporation in Delaware and a new reincorporation from the State of Delaware back into the State of Nevada. This new reincorporation was accomplished by a merger of the Company into Endovasc, Inc., a new Nevada corporation. Under the terms of the merger, holders of the Company's common and preferred stock received 1.20 shares of Endovasc, Inc. common and preferred stock in exchange for one share of the Company's common and preferred stock resulting in a 6 to 5 forward stock split. The effect of the 6 to 5 forward stock split was recognized retroactively in the stockholders' equity accounts. Stockholders' equity accounts have been restated to reflect the reclassification of an amount equal to the par value of the decrease in issued common shares from the common and preferred stock account to the additional paid-in capital account.

                                                  2004      2003
                                                --------  --------
Basic and diluted loss per common share:
  Net loss before extraordinary item            $(4,679)  $(9,644)
  Preferred stock dividends                           -       (40)
                                                --------  --------

    Net loss available for common shareholders  $(4,679)  $(9,684)
                                                ========  ========

Continued

In March 2003, Francis C. Pizzulli ("Pizzulli") filed a lawsuit against the Company and others in the Los Angeles Superior Court Case No. BC291463 seeking damages for alleged breach of contract, damages for alleged misrepresentations, and to invalidate a merger/reverse stock split of the Company. The Company denied any and all liability in the lawsuit. Without the admission of any liability by either Pizzulli or the Company, in February 2004, the Company agreed to issue to Pizzulli 500,000 shares of common stock of the Company valued at $125 to settle the lawsuit. The common stock was issued during the year ended June 30, 2004.

On August 28, 2003, Cause No. 03-08-0681-CV, "The Dow Chemical Company vs. Endovasc LTD., Inc.," was filed against the Company in the District Court of Montgomery County, Texas, 359th Judicial District. Dow Chemical Company ("Dow") filed a complaint against the Company for breach of contract and damages. The amount of damages sought is approximately $230,000. This case is being vigorously defended against the allegations made by Dow. The Company has also filed its own counter-claim against Dow for breach of contract and damages. On June 30, 2004, a prediction cannot be made as to the final outcome of the complaint and damages allegedly owed to Dow or to the Company. However, management believes it will prevail and accordingly, no amounts have been accrued for this contingency.

On November 7, 2003, Cause No. 03-11-08112-CV, "Greg Creekmore vs. Endovasc, Inc. and Endovasc, LTD., Inc.," was filed against the Company in the District Court of Montgomery County, Texas, 284th Judicial District. Greg Creekmore ("Creekmore") filed a complaint against the Company for breach of an employment contract between the parties. Creekmore seeks payment of $114,000 plus interest, one million shares of the Company's common stock and reimbursement of court costs including reasonable attorneys' fees allowed by law. This case is being vigorously defended against the allegations made by Creekmore. On June 30, 2004, a prediction cannot be made as to the final outcome of the complaint and damages allegedly owed to Creekmore. However, management believes it will prevail and accordingly, no amounts have been accrued for this contingency.

On January 13, 2004, Case No. H-03-5226, "Lorenz M. Hofmann, Ph.D. and LMH Associates, Inc. vs. Endovasc, LTD., Inc., Endovasc, Inc., David P. Summers, Ph.D. and M. Dwight Cantrell" was filed against the Company in the United States District Court for the Southern District of Texas, Houston Division. Lorenz M. Hofmann, Ph.D. and LMH Associates, Inc. ("LMH") filed a complaint against the Company for breach of contract and damages. LMH seeks payment of $91,859. This case is being vigorously defended against the allegations made by LMH. The Company has also filed its own counter-claim against LMH for breach of contract and damages. On June 30, 2004, a prediction cannot be made as to the final outcome of the complaint and damages allegedly owed to LMH. However, management believes it will prevail and accordingly, no amounts have been accrued for this contingency.

During the year ended December 31, 2004, a counterclaim under Cause No. 03-04-02939-CV (AAA Arbitration No. 79-181-00037-03TMS), "Marco D. Carnevale vs. Endovasc Corporation" was filed against the Company in the 359th Judicial District Court of Montgomery County, Texas. Carnevale filed a complaint against the Company for alleged breach of contract and damages. Without the admission of any liability, subsequent to June 30, 2004, the Company agreed to issue to Carnevale $33 of cash or shares of common stock of the Company valued at $33 to settle the claim.

Continued

The Company is a defendant in an arbitration proceeding entitled vFinance Investments and vFinance Capital and Endovasc, Ltd., Inc., AAA No. 32 M 181 0011602. vFinance claims an entitlement to certain fees and an unspecified amount of damages for the value of the warrants to which they claim entitlement. This matter was scheduled for mediation on September 27, 2004. The Company intends to defend its position vigorously as it believes it will prevail and, accordingly, has not accrued any liability associated with this case in the accompanying financial statements.

The Company has entered into a five year lease agreement for office space which is accounted for as an operating lease. Lease payments of $11 are due monthly until May 2008. Rent expense for the years ended June 30, 2004 and 2003 was $144 and $50, respectively. In addition, the Company leases equipment under capital leases which expire at various dates through 2007. Future minimum lease payments having initial or noncancellable lease terms in excess of one year are as follows:

                                                         OPERATING    CAPITAL
                                                           LEASE       LEASES
                                                         ----------  ---------

     2005                                                $      137  $     39
     2006                                                       137        28
     2007                                                       137         1
     2008                                                       125         -
                                                         ----------  ---------

     Total payments                                      $      536  $     68
                                                         ==========

     Less amount representing interest                                    (10)
                                                                     ---------

     Present value of minimum lease payments                               58

     Less current portion                                                 (30)
                                                                     ---------

Obligations under capital lease, net of current portion             $       28
                                                                    ==========

Since its inception as a development stage enterprise, the Company has not generated significant revenue and has been dependent on debt and equity raised from individual investors to sustain its operations. The Company has conserved cash by issuing its common stock and preferred stock to satisfy obligations, to compensate individuals and vendors and to settle disputes that have arisen. However, during the years ended June 30, 2004 and 2003, the Company incurred net losses (in thousands) of $(4,679) and $(9,644), respectively, and negative cash flows from operations of $(1,987) and $(1,478), respectively. These factors, along with a $(425) negative working capital position at June 30, 2004, raise substantial doubt about the Company's ability to continue as a going concern.

Management plans to take specific steps to address its difficult financial situation as follows:

- In the near term the Company plans additional private sales of debt and common and preferred stock to qualified investors to fund its current operations.

Continued

- The Company originally anticipated the generation of approximately $500 in revenue from its Nutraceutical product in the third and fourth quarters of the year ending June 30, 2004. The anticipated revenue to be generated by the launch of the Nutraceutical product line has been delayed pending certain problems with formulation. The Company has made the required changes and anticipates launching the product during the year ending June 30, 2005.

- In the long-term, the Company believes that cash flows from commercialization of its products will provide the resources for continued operations.

There can be no assurance that the Company's planned private sales of debt and equity securities or its planned public registration of common stock will be successful or that the Company will have the ability to commercialize its products and ultimately attain profitability. The Company's long-term viability as a going concern is dependent upon three key factors, as follows:

- The Company's ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the commercialization of its products.

- The ability of the Company to obtain positive test results of its products in clinical trials.

- The ability of the Company to ultimately achieve adequate profitability and cash flows to sustain its operations.

                                                           INCEPTION
                                             2004   2003    TO DATE
                                             -----  -----  ----------

Common stock issued in exchange for
  equity securities                          $   -  $   -  $      302
                                             =====  =====  ==========

Common and treasury stock issued upon
  conversion of debentures and interest on
  debentures                                 $   -  $ 173  $    1,697
                                             =====  =====  ==========

Common and preferred stock issued for ser-
  vices and license and patent rights        $   -  $   -  $    2,634
                                             =====  =====  ==========

Common stock issued in settlement of
  lawsuit and related liabilities            $   -  $   -  $      601
                                             =====  =====  ==========

Common stock issued for payment of accounts
  payable and accrued liabilities            $ 163  $ 724  $      887
                                             =====  =====  ==========

Common stock issued for assets               $   -  $ 197  $      197
                                             =====  =====  ==========

Conversion of note payable to shareholder
  to common stock                            $ 687  $   -  $    2,190
                                             =====  =====  ==========

Conversion of dividends payable to
  common stock                               $   -  $  47  $      178
                                             =====  =====  ==========

Continued

Reduction of note payable to stockholder
  and accrued liabilities through exercise
  of stock options                          $    -  $    -  $275
                                            ======  ======  ====

Issuance of notes payable for insurance     $    -  $    -  $ 37
                                            ======  ======  ====

Issuance of notes payable for the purchase
  of equipment                              $    -  $   56  $180
                                            ======  ======  ====

Dividends declared on preferred stock       $    -  $   40  $143
                                            ======  ======  ====

Receipt of treasury stock for note payable
  to stockholders                           $    -  $    -  $560
                                            ======  ======  ====

Issuance of common stock for receivable     $   30  $    -  $ 30
                                            ======  ======  ====

The Endovasc, Inc. 401(k) Plan (the "Plan"), which was implemented in June 2001 was terminated in November of 2003. The Plan covered all of the Company's employees who are United States citizens, at least 21 years of age and have completed at least six months of service with the Company. Pursuant to the Plan, employees could elect to reduce their current compensation by up to the statutorily prescribed annual limit and have the amount of such reduction contributed to the Plan. The Plan provided for the Company to make discretionary contributions as authorized by the board of directors; however, no Company contributions were made in the years ended June 30, 2004 and 2003.

During the year ended June 30, 2003, the former Chief Executive Officer of the Company advanced $793 to the Company in the form of a note payable to stockholder and received $171 for partial repayment of this note payable to stockholder. During the year ended June 30, 2004, the former Chief Executive Officer of the Company advanced an additional $205 to the Company under the existing note payable which had a balance of $680 as of June 30, 2003. During the year ended June 30, 2004, the Company repaid $885 of the note through a $49 cash payment to the shareholder, payments totaling $149 on behalf of the shareholder to third parties, and through issuance of common stock with a value of $687. The balance of this note of $-0- and $680 as of June 30, 2004 and 2003, respectively, is due on demand, non-interest bearing and is not collateralized.

During the year ended June 30, 2004, the current Chief Executive Officer and the Chief Financial Officer of the Company advanced the Company $55 and $50, respectively. The balances of the notes of $55 and $50 as of June 30, 2004 are due on demand, non-interest bearing and are not collateralized.

During the year ended June 30, 2004, a stockholder of the Company advanced the Company $185. The balance outstanding at June 30, 2004 of $185 is due on demand, non-interest bearing and is not collateralized.

Continued

During the year ended June 30, 2004, the Company's board of directors authorized the creation of a new class of common stock, called Series NDC common stock, $0.001 par value per share, whose rights and distributions would be based on the performance of NDC. During the year ended June 30, 2004, the Company issued a dividend of one share of the Series NDC common stock for each four shares of the Company's common stock. As of June 30, 2004, 14,158,593 shares of Endovasc Series NDC common stock were issued and outstanding. Included in operating, general and administrative expenses for the year ended June 30, 2004 is $33 of expenses of NDC.

Effective August 12, 2003, the Company entered into a joint venture agreement with TissueGen, Inc. named Endovasc-TissueGen Research Sponsors, L.L.C. (the "Partnership"). The purpose of the Partnership is to develop a bioresorbable drug-eluting cardiovascular stent for the advanced treatment of coronary artery disease. The Company and TissueGen agreed to co-license certain intellectual property to the Partnership for an initial 49.9% and 51.1% interest, respectively, in the Partnership. In addition to its license contribution, Endovasc is required to purchase a convertible promissory note from the Partnership in the maximum principal amount of $150. The convertible promissory note is convertible at Endovasc's option into Class B Membership interests in the Partnership. As of June 30, 2004, the Company has not purchased the promissory note. The Company has a 56% controlling interest in the Partnership as the result of additional contributions to the Partnership; as a result, the activity of the Partnership has been consolidated in the accompanying financial statements for the period from August 12, 2003 to June 30, 2004. The activity that was consolidated includes $129 of costs and expenses and $64 of current liabilities.

In November 2003, the Company entered into a joint venture agreement with TissueGen, Inc. and Dr. Nathan Blumberg named Endovasc-TissueGen-Blumberg Research Sponsors, L.L.C. (the "Joint Venture"). The purpose of the Joint Venture is to develop biodegradable stents for ureteral and prostate applications. The Company and TissueGen agreed to co-license certain intellectual property to the Joint Venture for an initial 39.9% and 50.1% interest, respectively, in the Joint Venture. Dr. Blumberg owns the remaining 10% interest. In addition to its license contribution, the Company is required to purchase a convertible promissory note from the Joint Venture in the principal amount of approximately $137. The convertible promissory note is convertible at Endovasc's option into Class B membership interests in the Joint Venture. As of June 30, 2004, the Company has not purchased the promissory note. The Company has a 63% controlling interest in the Joint Venture as the result of additional contributions to the Joint Venture; as a result, the activity of the Partnership has been consolidated in the accompanying financial statements for the period from November 2003 to June 2004. The activity that was consolidated includes $221 of costs and expenses, $2 of cash and $186 of current liabilities.

On September 17, 2004, the Company made the election to become a business development company. As part of this election, the Company has certified that it will be operated for the purpose of making investments in securities described in sections 55(a) (1) through (3) of the Investment Company Act of 1940 and that it will make available significant managerial assistance with respect to issuers of such securities to the extent required by the Act.