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 June 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




---



##### 



ENDOLOGIX, INC.
 Form 10-Q
 June 30, 2008
 TABLE OF CONTENTS
 PagePart I. Financial InformationItem 1. Condensed Consolidated Financial Statements (Unaudited)Condensed consolidated balance sheets at June 30, 2008 and December 31, 2007
    
    3Condensed consolidated statements of operations for the three and six months ended June 30, 2008 and 2007
    
    4Condensed consolidated statements of cash flows for the six months ended June 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 4. Submission of Matters to a Vote of Security Holders
    
    19Item 6. Exhibits
    
    20Signatures
    
    21Exhibit Index
    
    22
  2




---



##### 



ENDOLOGIX, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and par value amounts)
(Unaudited)
 June 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,602
    
    
    $
    8,728Restricted cash equivalents
    
    
    500
    
    
    
    500Accounts receivable, net of allowance for doubtful accounts of $137 and $100, respectively
    
    
    4,967
    
    
    
    4,527Other receivables
    
    
    11
    
    
    
    234Inventories
    
    
    7,179
    
    
    
    8,054Other current assets
    
    
    308
    
    
    
    581Total current assets
    
    
    18,567
    
    
    
    22,624Property and equipment, net
    
    
    3,487
    
    
    
    3,771Goodwill
    
    
    4,631
    
    
    
    4,631Intangibles, net
    
    
    8,211
    
    
    
    8,913Other assets
    
    
    104
    
    
    
    104Total assets
    
    $
    35,000
    
    
    $
    40,043LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    5,006
    
    
    $
    4,259Total current liabilities
    
    
    5,006
    
    
    
    4,259Long term liabilities
    
    
    1,077
    
    
    
    1,109Total liabilities
    
    
    6,083
    
    
    
    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, 44,124,000 and 43,453,000 shares issued,
respectively, and 43,629,000 and 42,958,000 shares outstanding, respectively
    
    
    44
    
    
    
    43Additional paid-in capital
    
    
    168,518
    
    
    
    166,912Accumulated deficit
    
    
    (139,192
    )
    
    
    (131,738
    )Treasury stock, at cost, 495,000 shares
    
    
    (661
    )
    
    
    (661
    )Accumulated other comprehensive income
    
    
    208
    
    
    
    119Total stockholders equity
    
    
    28,917
    
    
    
    34,675Total liabilities and stockholders equity
    
    $
    35,000
    
    
    $
    40,043
  3




---



##### 



ENDOLOGIX, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share amounts)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue:Product
    
    $
    9,261
    
    
    $
    6,258
    
    
    $
    17,578
    
    
    $
    12,508License
    
    
    12
    
    
    
    60
    
    
    
    24
    
    
    
    118Total revenue
    
    
    9,273
    
    
    
    6,318
    
    
    
    17,602
    
    
    
    12,626Cost of product revenue
    
    
    2,554
    
    
    
    2,638
    
    
    
    5,085
    
    
    
    5,217Gross profit
    
    
    6,719
    
    
    
    3,680
    
    
    
    12,517
    
    
    
    7,409Operating expenses:Research, development and clinical
    
    
    1,798
    
    
    
    1,455
    
    
    
    3,296
    
    
    
    3,059Marketing and sales
    
    
    6,144
    
    
    
    4,686
    
    
    
    11,944
    
    
    
    9,878General and administrative
    
    
    2,599
    
    
    
    1,446
    
    
    
    4,871
    
    
    
    3,067Total operating expenses
    
    
    10,541
    
    
    
    7,587
    
    
    
    20,111
    
    
    
    16,004Loss from operations
    
    
    (3,822
    )
    
    
    (3,907
    )
    
    
    (7,594
    )
    
    
    (8,595
    )Other income:Interest income
    
    
    60
    
    
    
    194
    
    
    
    140
    
    
    
    442Total other income
    
    
    60
    
    
    
    194
    
    
    
    140
    
    
    
    442Net loss
    
    $
    (3,762
    )
    
    $
    (3,713
    )
    
    $
    (7,454
    )
    
    $
    (8,153
    )Basic and diluted net loss per share
    
    $
    (0.09
    )
    
    $
    (0.09
    )
    
    $
    (0.17
    )
    
    $
    (0.19
    )Shares used in computing basic and diluted net loss per share
    
    
    42,976
    
    
    
    42,728
    
    
    
    42,964
    
    
    
    42,716
  4




---



##### 



ENDOLOGIX, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Six Months EndedJune 30,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (7,454
    )
    
    $
    (8,153
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    1,201
    
    
    
    1,077Stock-based compensation
    
    
    1,368
    
    
    
    1,191Change in:Accounts receivable
    
    
    (440
    )
    
    
    (1,407
    )Inventories
    
    
    844
    
    
    
    179Other receivables and other assets
    
    
    496
    
    
    
    411Accounts payable, accrued expenses and long term liabilities
    
    
    715
    
    
    
    (935
    )Net cash used in operating activities
    
    
    (3,270
    )
    
    
    (7,637
    )Cash flows provided by investing activities:Purchases of available-for-sale securities
    
    
    
    
    
    
    (1,850
    )Sales of available-for-sale securities
    
    
    
    
    
    
    14,064Cash paid for property and equipment
    
    
    (252
    )
    
    
    (273
    )Net cash provided by (used in) investing activities
    
    
    (252
    )
    
    
    11,941Cash 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
    
    
    
    177Net cash provided by financing activities
    
    
    307
    
    
    
    504Effect of exchange rate changes on cash and cash equivalents
    
    
    89
    
    
    
    18Net increase/(decrease) in cash and cash equivalents
    
    
    (3,126
    )
    
    
    4,826Cash and cash equivalents, beginning of period
    
    
    8,728
    
    
    
    6,271Cash and cash equivalents, end of period
    
    $
    5,602
    
    
    $
    11,097
  5




---



##### 



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




---



##### 



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
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007General and Administrative
    
    $
    349
    
    
    $
    237
    
    
    $
    554
    
    
    $
    429Marketing and Sales
    
    
    260
    
    
    
    202
    
    
    
    487
    
    
    
    375Research, Development, and Clinical
    
    
    52
    
    
    
    101
    
    
    
    111
    
    
    
    196Cost of Sales
    
    
    57
    
    
    
    84
    
    
    
    136
    
    
    
    137Total
    
    $
    718
    
    
    $
    624
    
    
    $
    1,288
    
    
    $
    1,137
   3. Net Loss Per Share
 7




---



##### 



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
  June 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    2,556
    
    
    $
    2,760Work-in-process
    
    
    1,636
    
    
    
    2,125Finished goods
    
    
    2,987
    
    
    
    3,169$
    7,179
    
    
    $
    8,054
  6. Line of Credit
  8




---



##### 



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
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007United States
    
    $
    7,881
    
    
    $
    5,363
    
    
    $
    14,730
    
    
    $
    10,480Germany
    
    
    587
    
    
    
    464
    
    
    
    1,207
    
    
    
    1,129Japan
    
    
    85
    
    
    
    
    
    
    
    449
    
    
    
    22Other European countries
    
    
    453
    
    
    
    212
    
    
    
    685
    
    
    
    561Latin America
    
    
    250
    
    
    
    208
    
    
    
    491
    
    
    
    303Other
    
    
    5
    
    
    
    11
    
    
    
    16
    
    
    
    13$
    9,261
    
    
    $
    6,258
    
    
    $
    17,578
    
    
    $
    12,508
  9




---



##### 



ENDOLOGIX, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT, AND NUMBER OF YEARS)
(Continued)
(Unaudited)
 9. Concentrations of Credit Risk and Significant Customers
   10. Comprehensive Loss
  Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (3,762
    )
    
    $
    (3,713
    )
    
    $
    (7,454
    )
    
    $
    (8,153
    )Unrealized holding gain arising during the period, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Foreign currency translation adjustment
    
    
    (17
    )
    
    
    13
    
    
    
    89
    
    
    
    18Comprehensive loss
    
    $
    (3,779
    )
    
    $
    (3,700
    )
    
    $
    (7,365
    )
    
    $
    (8,138
    )
 11. Intangible Assets and Goodwill
  June 30,
    
    
    December 31,2008
    
    
    2007Developed technology (10 year life)
    
    $
    14,050
    
    
    $
    14,050Accumulated amortization
    
    
    (8,547
    )
    
    
    (7,845
    )Net developed technology
    
    
    5,503
    
    
    
    6,205Trademarks and trade names (Indefinite life)
    
    
    2,708
    
    
    
    2,708Intangible assets, net
    
    $
    8,211
    
    
    $
    8,913Goodwill, (Indefinite life)
    
    $
    4,631
    
    
    $
    4,631
  10




---



##### 



ENDOLOGIX, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT, AND NUMBER OF YEARS)
(Continued)
(Unaudited)
  2008
    
    $
    7032009
    
    $
    1,4052010
    
    $
    1,4052011
    
    $
    1,4052012
    
    $
    585
 12. Commitments and Contingencies
 Legal Matters
  13. Subsequent Events
  14. Recent Accounting Pronouncements
   11




---



##### 



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




---



##### 



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




---



##### 



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




---



##### 



Marketing and Sales
 General and Administrative
  Other Income
 Comparison of the Six Months Ended June 30, 2008 and 2007
 Product Revenue.
  License
Revenue.
 Cost of Product Revenue.
 Research, Development and Clinical.
 Marketing and Sales.
 15




---



##### 



General and Administrative.
 Other Income.
 Liquidity and Capital Resources
          16




---



##### 




    
    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 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




---



##### 



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




---



##### 



Part II.
 OTHER INFORMATION
 
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  1.
    
    Election of Directors:
 Number of SharesName
    
    For
    
    WithheldJeffrey F. ODonnell
    
    
    28,332,885
    
    
    
    777,402
  2.
    
    Amendment to the 2006 Employee Stock Purchase Plan to increase the total number of
            shares purchasable thereunder from 308,734 shares to 558,734 shares:
 Number of SharesFor
    
    Against
    
    Abstain
    
    Broker Non Votes17,870,891
    
    264,692
    
    8,358
    
    
 3.
    
    Amendment to the 2006 Stock Incentive Plan to increase the total number of shares
issuable thereunder from 2,814,478 shares to 5,814,478 shares:
 Number of SharesFor
    
    Against
    
    Abstain
    
    Broker Non Votes15,415,312
    
    2,482,171
    
    246,458
    
    
 4.
    
    Ratification of PricewaterhouseCoopers LLP as independent registered public accounting
firm for the fiscal year ending December 31, 2008:
 Number of SharesFor
    
    Against
    
    Abstain
    
    Broker Non Votes27,903,891
    
    1,206,336
    
    60
    
    
 19




---



##### 



Item 6. EXHIBITS
  Exhibit 10.1
    
    Offer Letter, dated April 28, 2008, between Endologix and
John McDermott (Incorporated by reference to Exhibit 10.1 to
Endologix Current Report on Form 8-K filed with the SEC on
May 16, 2008).Exhibit 10.2
    
    Severance Agreement and General Release, effective May 12,
2008, between Endologix and Paul McCormick (Incorporated by
reference to Exhibit 10.1 to Endologix Current Report on Form
8-K filed with the SEC on May 16, 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.
 20




---



##### 



SIGNATURES
  ENDOLOGIX, INC.Date: August 1, 2008
    /s/ John McDermottPresident and Chief Executive Officer(Principal Executive Officer)Date: August 1, 2008
    /s/ Robert J. KristChief Financial Officer and Secretary(Principal Financial and Accounting Officer) 21




---



##### 



EXHIBIT INDEX
  Exhibit 10.1
    
    Offer Letter, dated April 28, 2008, between Endologix and
John McDermott (Incorporated by reference to Exhibit 10.1 to
Endologix Current Report on Form 8-K filed with the SEC on
May 16, 2008).Exhibit 10.2
    
    Severance Agreement and General Release, effective May 12,
2008, between Endologix and Paul McCormick (Incorporated by
reference to Exhibit 10.1 to Endologix Current Report on Form
8-K filed with the SEC on May 16, 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.
 22