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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-Q
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 for the quarterly period ended September 30, 2008.
 o
    
    Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 for the transition period from  to
 Commission file number 000-28440
 ENDOLOGIX, INC.
 (Exact name of Registrant as specified in its charter)
 Delaware
    
    68-0328265(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)
 11 Studebaker, Irvine, California 92618
(Address of principal executive offices)
 (949) 595-7200
(Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



ENDOLOGIX, INC.
 Form 10-Q
 September 30, 2008
 TABLE OF CONTENTS
 PagePart I. Financial InformationItem 1. Condensed Consolidated Financial Statements (Unaudited)Condensed consolidated balance sheets at September 30, 2008 and December 31, 2007
    
    
    3Condensed consolidated statements of operations for the three and nine months ended
September 30, 2008 and 2007
    
    
    4Condensed consolidated statements of cash flows for the nine months ended September 30,
2008 and 2007
    
    
    5Notes to condensed consolidated financial statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18Part II. Other Information
    
    
    19Item 1. Legal Proceedings
    
    
    19Item 6. Exhibits
    
    
    19Signatures
    
    
    20Exhibit Index
    
    
    21EX-31.1EX-31.2EX-32.1EX-32.2
  2




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ENDOLOGIX, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and par value amounts)
(Unaudited)
 September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,513
    
    
    $
    8,728Restricted cash equivalents
    
    
    500
    
    
    
    500Accounts receivable, net of allowance for
doubtful accounts of $45 and $100,
respectively
    
    
    5,323
    
    
    
    4,527Other receivables
    
    
    9
    
    
    
    234Inventories
    
    
    7,296
    
    
    
    8,054Other current assets
    
    
    468
    
    
    
    581Total current assets
    
    
    22,109
    
    
    
    22,624Property and equipment, net
    
    
    3,282
    
    
    
    3,771Goodwill
    
    
    4,631
    
    
    
    4,631Intangibles, net
    
    
    7,860
    
    
    
    8,913Other assets
    
    
    104
    
    
    
    104Total assets
    
    $
    37,986
    
    
    $
    40,043LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    5,329
    
    
    $
    4,259Short-term portion of debt
    
    
    310
    
    
    
    Total current liabilities
    
    
    5,639
    
    
    
    4,259Long term debt
    
    
    4,690
    
    
    
    Other long term liabilities
    
    
    1,061
    
    
    
    1,109Long term liabilities
    
    
    5,751
    
    
    
    1,109Total liabilities
    
    
    11,390
    
    
    
    5,368Commitments and contingencies (Note 12)Stockholders equity:Convertible preferred stock, $0.001 par
value; 5,000,000 shares authorized, no
shares issued and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value;
60,000,000 shares authorized, 44,149,000
and 43,453,000 shares issued,
respectively, and 43,654,000 and
42,958,000 shares outstanding,
respectively
    
    
    44
    
    
    
    43Additional paid-in capital
    
    
    169,321
    
    
    
    166,912Accumulated deficit
    
    
    (142,153
    )
    
    
    (131,738
    )Treasury stock, at cost, 495,000 shares
    
    
    (661
    )
    
    
    (661
    )Accumulated other comprehensive income
    
    
    45
    
    
    
    119Total stockholders equity
    
    
    26,596
    
    
    
    34,675Total liabilities and stockholders equity
    
    $
    37,986
    
    
    $
    40,043
  3




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ENDOLOGIX, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share amounts)
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue:Product
    
    $
    9,374
    
    
    $
    6,592
    
    
    $
    26,952
    
    
    $
    19,100License
    
    
    9
    
    
    
    560
    
    
    
    33
    
    
    
    678Total revenue
    
    
    9,383
    
    
    
    7,152
    
    
    
    26,985
    
    
    
    19,778Cost of product revenue
    
    
    2,460
    
    
    
    2,432
    
    
    
    7,545
    
    
    
    7,649Gross profit
    
    
    6,923
    
    
    
    4,720
    
    
    
    19,440
    
    
    
    12,129Operating expenses:Research, development and clinical
    
    
    1,412
    
    
    
    1,606
    
    
    
    4,708
    
    
    
    4,665Marketing and sales
    
    
    6,073
    
    
    
    4,788
    
    
    
    18,017
    
    
    
    14,666General and administrative
    
    
    2,399
    
    
    
    1,635
    
    
    
    7,270
    
    
    
    4,702Termination of supply agreement
    
    
    
    
    
    
    550
    
    
    
    
    
    
    
    550Total operating expenses
    
    
    9,884
    
    
    
    8,579
    
    
    
    29,995
    
    
    
    24,583Loss from operations
    
    
    (2,961
    )
    
    
    (3,859
    )
    
    
    (10,555
    )
    
    
    (12,454
    )Other income:Interest income, net
    
    
    19
    
    
    
    152
    
    
    
    59
    
    
    
    558Other income (expense)
    
    
    (20
    )
    
    
    313
    
    
    
    80
    
    
    
    349Total other income (expense)
    
    
    (1
    )
    
    
    465
    
    
    
    139
    
    
    
    907Net loss
    
    $
    (2,962
    )
    
    $
    (3,394
    )
    
    $
    (10,416
    )
    
    $
    (11,547
    )Basic and diluted net loss per share
    
    $
    (0.07
    )
    
    $
    (0.08
    )
    
    $
    (0.24
    )
    
    $
    (0.27
    )Shares used in computing basic and
diluted net loss per share
    
    
    43,124
    
    
    
    42,870
    
    
    
    43,018
    
    
    
    42,767
  4




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ENDOLOGIX, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
(Unaudited)
 Nine Months EndedSeptember 30,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (10,416
    )
    
    $
    (11,547
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    1,835
    
    
    
    1,624Stock-based compensation
    
    
    2,193
    
    
    
    1,857Realized gain on investments
    
    
    
    
    
    
    (314
    )Change in:Accounts receivable
    
    
    (796
    )
    
    
    (1,239
    )Inventories
    
    
    745
    
    
    
    442Other receivables and other assets
    
    
    338
    
    
    
    (645
    )Accounts payable and accrued expenses
    
    
    1,022
    
    
    
    (1,051
    )Net cash used in operating activities
    
    
    (5,079
    )
    
    
    (10,873
    )Cash flows provided by investing activities:Purchases of available-for-sale securities
    
    
    
    
    
    
    (1,850
    )Sales of available-for-sale securities
    
    
    
    
    
    
    15,255Cash paid for property and equipment
    
    
    (369
    )
    
    
    (344
    )Net cash provided by (used in) investing activities
    
    
    (369
    )
    
    
    13,061Cash flows provided by financing activities:Proceeds from sale of common stock under employee stock purchase plan
    
    
    277
    
    
    
    327Proceeds from exercise of common stock options
    
    
    30
    
    
    
    220Credit facility and term loan payable
    
    
    5,000
    
    
    
    Net cash provided by financing activities
    
    
    5,307
    
    
    
    547Effect of exchange rate changes on cash and cash equivalents
    
    
    (74
    )
    
    
    25Net increase/(decrease) in cash and cash equivalents
    
    
    (215
    )
    
    
    2,760Cash and cash equivalents, beginning of period
    
    
    8,728
    
    
    
    6,271Cash and cash equivalents, end of period
    
    $
    8,513
    
    
    $
    9,031
  5




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ENDOLOGIX, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT, AND NUMBER OF YEARS)
(Unaudited)
 1. Basis of Presentation
     2. Stock-Based Compensation
  6




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ENDOLOGIX, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT, AND NUMBER OF YEARS)
(Continued)
(Unaudited)
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007General and Administrative
    
    $
    392
    
    
    $
    300
    
    
    $
    1,043
    
    
    $
    729Marketing and Sales
    
    
    310
    
    
    
    227
    
    
    
    797
    
    
    
    602Research, Development, and Clinical
    
    
    62
    
    
    
    108
    
    
    
    173
    
    
    
    304Cost of Sales
    
    
    62
    
    
    
    17
    
    
    
    198
    
    
    
    154Total
    
    $
    826
    
    
    $
    652
    
    
    $
    2,211
    
    
    $
    1,789
    3. Net Loss Per Share
   7




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ENDOLOGIX, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT, AND NUMBER OF YEARS)
(Continued)
(Unaudited)
  4. Restricted Cash Equivalents
  5. Inventories
  September 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    2,553
    
    
    $
    2,760Work-in-process
    
    
    1,867
    
    
    
    2,125Finished goods
    
    
    2,876
    
    
    
    3,169$
    7,296
    
    
    $
    8,054
  6. Long Term Debt
  8




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ENDOLOGIX, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT, AND NUMBER OF YEARS)
(Continued)
(Unaudited)
 7. License Revenue
  8. Product Revenue by Geographic Region
  Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007United States
    
    $
    8,077
    
    
    $
    5,827
    
    
    $
    22,807
    
    
    $
    16,307Germany
    
    
    574
    
    
    
    302
    
    
    
    1,781
    
    
    
    1,431Japan
    
    
    340
    
    
    
    46
    
    
    
    789
    
    
    
    68Other European countries
    
    
    83
    
    
    
    182
    
    
    
    768
    
    
    
    743Latin America
    
    
    296
    
    
    
    204
    
    
    
    787
    
    
    
    507Other
    
    
    4
    
    
    
    31
    
    
    
    20
    
    
    
    44$
    9,374
    
    
    $
    6,592
    
    
    $
    26,952
    
    
    $
    19,100
  9. Concentrations of Credit Risk and Significant Customers
   10. Comprehensive Loss
  Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (2,962
    )
    
    $
    (3,394
    )
    
    $
    (10,416
    )
    
    $
    (11,547
    )Unrealized holding gain arising during the period, net
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    33Foreign currency translation adjustment
    
    
    (163
    )
    
    
    7
    
    
    
    74
    
    
    
    25Comprehensive loss
    
    $
    (3,125
    )
    
    $
    (3,351
    )
    
    $
    (10,342
    )
    
    $
    (11,489
    )
 9




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ENDOLOGIX, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT, AND NUMBER OF YEARS)
(Continued)
(Unaudited)
 11. Intangible Assets and Goodwill
  September 30,
    
    
    December 31,2008
    
    
    2007Developed technology (10 year life)
    
    $
    14,050
    
    
    $
    14,050Accumulated amortization
    
    
    (8,898
    )
    
    
    (7,845
    )Net developed technology
    
    
    5,152
    
    
    
    6,205Trademarks and trade names (Indefinite life)
    
    
    2,708
    
    
    
    2,708Intangible assets, net
    
    $
    7,860
    
    
    $
    8,913Goodwill, (Indefinite life)
    
    $
    4,631
    
    
    $
    4,631
   2008
    
    $
    3522009
    
    $
    1,4052010
    
    $
    1,4052011
    
    $
    1,4052012
    
    $
    585
 12. Commitments and Contingencies
 Legal Matters
    10




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ENDOLOGIX, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT, AND NUMBER OF YEARS)
(Continued)
(Unaudited)
 13. Recent Accounting Pronouncements
       11




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ENDOLOGIX, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT, AND NUMBER OF YEARS)
(Continued)
(Unaudited)
  12




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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 In addition to the historical financial information included herein, this Quarterly Report on Form
10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934 that are based on managements
beliefs, as well as on assumptions made by and information currently available to management. All
statements other than statements of historical fact included in this Quarterly Report on Form 10-Q,
including without limitation, statements under Managements Discussion and Analysis of Financial
Condition and Results of Operations and statements located elsewhere herein regarding our
financial position and business strategy, may constitute forward-looking statements. You generally
can identify forward-looking statements by the use of forward-looking terminology such as
believes, may, will, expects, intends, estimates, anticipates, plans, seeks, or
continues, or the negative thereof or variations thereon or similar terminology. Such
forward-looking statements involve known and unknown risks, including, but not limited to, market
acceptance of our sole technology, the Powerlink ® System, economic and market conditions, the
regulatory environment in which we operate, the availability of third party payor medical
reimbursements, competitive activities or other business conditions. Our actual results,
performance or achievements may differ materially from any future results, performance or
achievements expressed or implied from such forward-looking statements. Important factors that
could cause actual results to differ materially from our expectations are disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2007, including but not limited to those
factors discussed in Item 1A. Risk Factors. All subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf are expressly qualified in their
entirety by these cautionary statements. We do not undertake any obligation to update information
contained in any forward-looking statement.
 Overview
 Organizational History
  Our Business
 ®
   13




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Results of Operations
 Comparison of the Three Months Ended September 30, 2008 and 2007
 Product Revenue
   License Revenue.
 Cost of Product Revenue
  Research, Development and Clinical.
 14




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Marketing and Sales
 General and Administrative
  Termination of Supply Agreement.
 Other Income(Expense)
 Comparison of the Nine Months Ended September 30, 2008 and 2007
 Product Revenue.
  License Revenue.
 Cost of Product Revenue.
 15




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Research, Development and Clinical.
 Marketing and Sales.
 General and Administrative.
 Termination of Supply Agreement
 Other Income.
 Liquidity and Capital Resources
      16




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
    
    continued market acceptance of the Powerlink System;
    
    our ability to successfully expand our commercial marketing of the Powerlink System;
    
    the success of our research and development programs for future products;
    
    the clinical trial and regulatory approval processes for future products;
    
    the costs involved in intellectual property rights enforcement or other litigation;
    
    the level of hospital reimbursement for ELG procedures and other competitive factors;
    
    viability of our sole manufacturing facility through unforeseen natural or other
disasters;
    
    our ability to produce and/or purchase an adequate supply of ePTFE, the key raw
material for our Powerlink System;
    
    the establishment of collaborative relationships with other parties.
 17




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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
   
 Item 4. CONTROLS AND PROCEDURES.
   18




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Part II.
 OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
  
 Item 6. EXHIBITS
  Exhibit 10.1
    
    First Amendment to Loan and Security Agreement, dated as of
July 22, 2008, by and between Endologix and Silicon Valley
Bank (Incorporated by reference to Exhibit 10.1 to Endologix
Current Report on Form 8-K filed with the SEC on July 28,
2008).Exhibit 31.1
    
    Certification of Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.Exhibit 31.2
    
    Certification of Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.Exhibit 32.1
    
    Certification of Chief Executive Officer Pursuant to Rule
13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934
and 18 U.S.C. Section 1350.Exhibit 32.2
    
    Certification of Chief Financial Officer Pursuant to Rule
13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934
and 18 U.S.C. Section 1350.
 19




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SIGNATURES
  ENDOLOGIX, INC.Date: October 31, 2008
    /s/ John McDermottPresident and Chief Executive Officer(Principal Executive Officer)Date: October 31, 2008
    /s/ Robert J. KristChief Financial Officer and Secretary(Principal Financial and Accounting Officer) 20




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EXHIBIT INDEX
  Exhibit 10.1
    
    First Amendment to Loan and Security Agreement, dated as of
July 22, 2008, by and between Endologix and Silicon Valley
Bank (Incorporated by reference to Exhibit 10.1 to Endologix
Current Report on Form 8-K filed with the SEC on July 28,
2008).Exhibit 31.1
    
    Certification of Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.Exhibit 31.2
    
    Certification of Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.Exhibit 32.1
    
    Certification of Chief Executive Officer Pursuant to Rule
13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934
and 18 U.S.C. Section 1350.Exhibit 32.2
    
    Certification of Chief Financial Officer Pursuant to Rule
13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934
and 18 U.S.C. Section 1350.
 21