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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 March 31, 2009.
 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
 o 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
 March 31, 2009
 TABLE OF CONTENTS
 PagePart I. Financial InformationItem 1. Condensed Consolidated Financial Statements (Unaudited)Condensed consolidated balance sheets at March 31, 2009 and December 31, 2008
    
    
    3Condensed consolidated statements of operations for the three months ended March 31, 2009 and 2008
    
    
    4Condensed consolidated statements of cash flows for the three months ended March 31, 2009 and 2008
    
    
    5Notes to condensed consolidated financial statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    16Item 4. Controls and Procedures
    
    
    16Part II. Other Information
    
    
    17Item 6. Exhibits
    
    
    17Signatures
    
    
    18Exhibit Index
    
    
    19EX-31.1EX-31.2EX-32.1EX-32.2
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ENDOLOGIX, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and par value amounts)
(Unaudited)
 March 31,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,847
    
    
    $
    7,611Restricted cash equivalents
    
    
    500
    
    
    
    500Accounts receivable, net of allowance for
doubtful accounts of $76 and $72,
respectively
    
    
    7,283
    
    
    
    6,371Other receivables
    
    
    34
    
    
    
    3Inventories
    
    
    7,393
    
    
    
    7,099Other current assets
    
    
    425
    
    
    
    443Total current assets
    
    
    22,482
    
    
    
    22,027Property and equipment, net
    
    
    2,770
    
    
    
    2,993Goodwill
    
    
    4,631
    
    
    
    4,631Intangibles, net
    
    
    7,157
    
    
    
    7,508Other assets
    
    
    97
    
    
    
    104Total assets
    
    $
    37,137
    
    
    $
    37,263LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    5,752
    
    
    $
    5,401Short-term portion of debt
    
    
    1,000
    
    
    
    750Total current liabilities
    
    
    6,752
    
    
    
    6,151Long term debt
    
    
    4,000
    
    
    
    4,250Other long term liabilities
    
    
    1,029
    
    
    
    1,045Long term liabilities
    
    
    5,029
    
    
    
    5,295Total liabilities
    
    
    11,781
    
    
    
    11,446Commitments and contingencies (Note 11)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, 44,365,000
and 44,365,000 shares issued,
respectively, and 43,870,000 and
43,870,000 shares outstanding,
respectively
    
    
    44
    
    
    
    44Additional paid-in capital
    
    
    170,989
    
    
    
    170,239Accumulated deficit
    
    
    (144,908
    )
    
    
    (143,730
    )Treasury stock, at cost, 495,000 shares
    
    
    (661
    )
    
    
    (661
    )Accumulated other comprehensive income
    
    
    (108
    )
    
    
    (75
    )Total stockholders equity
    
    
    25,356
    
    
    
    25,817Total liabilities and stockholders equity
    
    $
    37,137
    
    
    $
    37,263
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ENDOLOGIX, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share amounts)
(Unaudited)
 Three Months EndedMarch 31,2009
    
    
    2008Revenue:Product
    
    $
    11,834
    
    
    $
    8,317License
    
    
    
    
    
    
    12Total revenue
    
    
    11,834
    
    
    
    8,329Cost of product revenue
    
    
    2,905
    
    
    
    2,531Gross profit
    
    
    8,929
    
    
    
    5,798Operating expenses:Research, development and clinical
    
    
    1,355
    
    
    
    1,498Marketing and sales
    
    
    6,622
    
    
    
    5,800General and administrative
    
    
    2,068
    
    
    
    2,272Total operating expenses
    
    
    10,045
    
    
    
    9,570Loss from operations
    
    
    (1,116
    )
    
    
    (3,772
    )Other income:Interest income, net
    
    
    12
    
    
    
    80Interest expense, net
    
    
    (62
    )
    
    
    Other income (expense)
    
    
    (11
    )
    
    
    Total other income (expense)
    
    
    (61
    )
    
    
    80Net loss
    
    $
    (1,177
    )
    
    $
    (3,692
    )Basic and diluted net loss per share
    
    $
    (0.03
    )
    
    $
    (0.09
    )Shares used in computing basic and diluted net loss per share
    
    
    43,345
    
    
    
    42,953
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ENDOLOGIX, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
(Unaudited)
 Three Months EndedMarch 31,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (1,177
    )
    
    $
    (3,692
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    657
    
    
    
    623Stock-based compensation
    
    
    742
    
    
    
    568Change in:Accounts receivable
    
    
    (912
    )
    
    
    (258
    )Inventories
    
    
    (278
    )
    
    
    595Other receivables and other assets
    
    
    (6
    )
    
    
    298Accounts payable and accrued expenses
    
    
    335
    
    
    
    402Net cash used in operating activities
    
    
    (639
    )
    
    
    (1,464
    )Cash flows provided by investing activities:Cash paid for property and equipment
    
    
    (92
    )
    
    
    (60
    )Net cash used in investing activities
    
    
    (92
    )
    
    
    (60
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (33
    )
    
    
    106Net decrease in cash and cash equivalents
    
    
    (764
    )
    
    
    (1,418
    )Cash and cash equivalents, beginning of period
    
    
    7,611
    
    
    
    8,728Cash and cash equivalents, end of period
    
    $
    6,847
    
    
    $
    7,310Supplemental Disclosure of Cash Flow Activities:Cash paid during the year for interest
    
    $
    62
    
    
    $
    
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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
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Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31,
    
    
    March 31,2009
    
    
    2008General and Administrative
    
    $
    385
    
    
    $
    205Marketing and Sales
    
    
    238
    
    
    
    227Research, Development, and Clinical
    
    
    81
    
    
    
    59Cost of Sales
    
    
    38
    
    
    
    79Total
    
    $
    742
    
    
    $
    570
    3. Net Loss Per Share
   4. Restricted Cash Equivalents
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5. Inventories
  March 31,
    
    
    December 31,2009
    
    
    2008Raw materials
    
    $
    2,468
    
    
    $
    2,467Work-in-process
    
    
    2,162
    
    
    
    2,058Finished goods
    
    
    3,110
    
    
    
    3,3427,740
    
    
    
    7,867Less reserve for excess and obsolescence
    
    
    (347
    )
    
    
    (768
    )$
    7,393
    
    
    $
    7,099
 6. Long Term Liabilities
  March 31,
    
    
    December 31,2009
    
    
    2008Term loan
    
    $
    3,000
    
    
    $
    3,000Line of credit facility
    
    
    2,000
    
    
    
    2,000Deferred tax
    
    
    1,029
    
    
    
    1,029Deferred rent
    
    
    
    
    
    
    16Total long-term liabilities
    
    
    6,029
    
    
    
    6,045Current portion of long-term debt
    
    
    (1,000
    )
    
    
    (750
    )Long-term portion
    
    $
    5,029
    
    
    $
    5,295
     7. Product Revenue by Geographic Region
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Three MonthsEnded March 31,2009
    
    
    2008United States
    
    $
    10,176
    
    
    $
    6,849Japan
    
    
    802
    
    
    
    364Germany
    
    
    443
    
    
    
    620Other European countries
    
    
    224
    
    
    
    232Latin America
    
    
    189
    
    
    
    241Other
    
    
    
    
    
    
    11$
    11.834
    
    
    $
    8,317
  8. Concentrations of Credit Risk and Significant Customers
   9. Comprehensive Loss
  Three MonthsEnded March 31,2009
    
    
    2008Net loss
    
    $
    (1,177
    )
    
    $
    (3,692
    )Foreign currency translation adjustment
    
    
    (33
    )
    
    
    106Comprehensive loss
    
    $
    (1,210
    )
    
    $
    (3,586
    )
 10. Intangible Assets and Goodwill
  March 31,
    
    
    December 31,2009
    
    
    2008Developed technology (10 year life)
    
    $
    14,050
    
    
    $
    14,050Accumulated amortization
    
    
    (9,601
    )
    
    
    (9,250
    )Net developed technology
    
    
    4,449
    
    
    
    4,800Trademarks and trade names (Indefinite life)
    
    
    2,708
    
    
    
    2,708Intangible assets, net
    
    $
    7,157
    
    
    $
    7,508Goodwill, (Indefinite life)
    
    $
    4,631
    
    
    $
    4,631
   2009
    
    $
    1,0542010
    
    $
    1,4052011
    
    $
    1,4052012
    
    $
    585
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11. Commitments and Contingencies
 Legal Matters
  12. Related Party Transactions
  13. Recent Accounting Pronouncements
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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 although not all
forward-looking statements contain these words. Such forward-looking statements involve known and
unknown risks, including, but not limited to, market acceptance of our sole technology, the
Powerlink® System products, 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, 2008,
including but not limited to those factors discussed in Managements Discussion and Analysis of
Financial Condition and Results of Operations, Risk Factors, Consolidated Financial Statements
and Notes to Consolidated Financial Statements. 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 expressly disclaim any intent or obligation to update
information contained in any forward-looking statement after the date hereof to conform such
information to actual results or to changes in our opinions or expectations.
 Overview
 Organizational History
  Our Business
 ®
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Results of Operations
 Comparison of the Three Months Ended March 31, 2009 and 2008
 Product Revenue
   Cost of Product Revenue
  Research, Development and Clinical.
  Marketing and Sales
 
    
    marketing costs related to the launch of the IntuiTrak delivery system,
    
    expenses related to more intensive training of sales representatives, and
    
    higher commission expense on the 49% increase in domestic sales between those periods.
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General and Administrative
  Other Income(Expense)
 Liquidity and Capital Resources
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
    
    the rate of market acceptance of the Powerlink System;
    
    our requirements for additional manufacturing capacity;
    
    our requirements for additional IT infrastructure and systems;
    
    our requirements for additional facility space; and
    
    the need for additional capital to fund future development programs.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  Interest Rate and Market Risk.
  Foreign Currency Transaction Risk.
 
 Item 4. CONTROLS AND PROCEDURES.
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Part II.
 OTHER INFORMATION
 
 Item 6. EXHIBITS
  Exhibit 10.12.2
    
    Second Amendment to Loan and Security Agreement, dated as
of March 3, 2009, 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 March 5, 2009).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.
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SIGNATURES
  ENDOLOGIX, INC.Date: May 7, 2009
    /s/ John McDermottPresident and Chief Executive Officer(Principal Executive Officer) Date: May 7, 2009
    /s/ Robert J. KristChief Financial Officer and Secretary(Principal Financial and Accounting Officer) 18




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EXHIBIT INDEX
  Exhibit 10.12.2
    
    Second Amendment to Loan and Security Agreement, dated as
of March 3, 2009, 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 March 5, 2009).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