UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2009.
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number 000-28440
ENDOLOGIX, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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68-0328265
(I.R.S. Employer
Identification Number)
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11 Studebaker, Irvine, California 92618
(Address of principal executive offices)
(949) 595-7200
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o
No
þ
On July 22, 2009, there were 44,402,048 shares of the registrants only class of common stock
outstanding.
ENDOLOGIX, INC.
Form 10-Q
June 30, 2009
TABLE OF CONTENTS
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Page
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Part I. Financial Information
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Item 1. Condensed Consolidated Financial Statements (Unaudited)
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3
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4
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5
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6
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12
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19
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20
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21
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21
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26
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27
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28
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29
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EX-3.1
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EX-31.1
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EX-31.2
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EX-32.1
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EX-32.2
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2
ENDOLOGIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)
(Unaudited)
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June 30,
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December 31,
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2009
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2008
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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7,847
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$
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7,611
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Restricted cash equivalents
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500
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500
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Accounts receivable, net of allowance for doubtful accounts of $58 and $72,
respectively
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8,154
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6,371
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Other receivables
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15
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3
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Inventories
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7,241
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7,099
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Other current assets
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283
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443
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Total current assets
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24,040
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22,027
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Property and equipment, net
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2,630
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2,993
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Goodwill
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4,631
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4,631
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Intangibles, net
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6,806
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7,508
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Other assets
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96
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104
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Total assets
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$
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38,203
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$
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37,263
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable and accrued expenses
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$
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6,023
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$
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5,401
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Short-term portion of debt
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1,077
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750
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Total current liabilities
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7,100
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6,151
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Long term debt
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3,873
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4,250
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Other long term liabilities
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1,029
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1,045
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Long term liabilities
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4,902
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5,295
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Total liabilities
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12,002
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11,446
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Commitments and contingencies (Note 11)
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Stockholders equity:
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Convertible preferred stock, $0.001 par value; 5,000,000 shares authorized, no
shares issued and outstanding
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Common stock, $0.001 par value; 75,000,000 shares authorized, 44,875,000 and
44,365,000 shares issued, respectively, and 44,380,000 and 43,870,000 shares
outstanding, respectively
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45
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44
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Additional paid-in capital
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172,176
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170,239
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Accumulated deficit
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(145,332
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)
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(143,730
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Treasury stock, at cost, 495,000 shares
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(661
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(661
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Accumulated other comprehensive income
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(27
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(75
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Total stockholders equity
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26,201
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25,817
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Total liabilities and stockholders equity
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$
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38,203
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$
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37,263
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3
ENDOLOGIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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2009
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2008
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2009
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2008
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Revenue:
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Product
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$
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13,168
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$
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9,261
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$
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25,002
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$
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17,578
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License
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12
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24
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Total revenue
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13,168
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9,273
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25,002
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17,602
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Cost of product revenue
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3,256
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2,554
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6,161
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5,085
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Gross profit
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9,912
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6,719
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18,841
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12,517
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Operating expenses:
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Research, development and clinical
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1,469
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1,798
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2,824
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3,296
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Marketing and sales
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6,570
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6,144
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13,192
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11,944
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General and administrative
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2,260
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2,599
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4,328
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4,871
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Total operating expenses
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10,299
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10,541
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20,344
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20,111
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Loss from operations
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(387
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)
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(3,822
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)
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(1,503
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(7,594
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)
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Other income:
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Interest income
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6
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42
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18
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40
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Interest expense
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(61
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)
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(123
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)
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Other income
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17
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18
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6
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100
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Total other income (expense)
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(38
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)
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60
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(99
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)
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140
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Net loss
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$
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(425
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)
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$
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(3,762
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)
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$
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(1,602
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)
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$
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(7,454
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)
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Basic and diluted net loss per share
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$
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(0.01
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)
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$
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(0.09
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)
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$
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(0.04
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)
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$
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(0.17
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)
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Shares used in computing basic and
diluted net loss per share
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43,351
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42,976
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43,348
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42,964
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See accompanying notes
4
ENDOLOGIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Six Months Ended
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June 30,
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2009
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2008
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Cash flows from operating activities:
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Net loss
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$
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(1,602
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)
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$
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(7,454
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)
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Adjustments to reconcile net loss to net cash used in operating activities:
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Depreciation and amortization
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1,191
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1,201
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Stock-based compensation
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1,594
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1,368
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Change in:
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Accounts receivable
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(1,783
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)
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(440
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)
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Inventories
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69
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844
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Other receivables and other assets
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156
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496
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Accounts payable and accrued expenses
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607
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715
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Net cash provided by (used in) operating activities
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232
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(3,270
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)
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Cash flows provided by investing activities:
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Cash paid for property and equipment
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(357
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)
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(252
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)
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Net cash used in investing activities
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(357
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)
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(252
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)
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Cash flows provided by (used in) financing activities:
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Proceeds from sale of common stock under employee stock purchase plan
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347
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277
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Proceeds from exercise of common stock options
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16
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30
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Financing for capital purchase
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200
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Payments under the term loan
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(250
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)
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Net cash provided by financing activities
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313
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307
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Effect of exchange rate changes on cash and cash equivalents
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48
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89
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Net increase (decrease) in cash and cash equivalents
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236
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|
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(3,126
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)
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Cash and cash equivalents, beginning of period
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7,611
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|
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8,728
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|
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Cash and cash equivalents, end of period
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$
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7,847
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$
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5,602
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Supplemental Disclosure of Cash Flow Activities:
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Cash paid during the year for interest
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$
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123
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$
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|
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See accompanying notes
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE, PER UNIT, AND NUMBER OF YEARS)
(Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered necessary for a
fair statement of the results of the periods presented have been included. Operating results for
the unaudited six month period ended June 30, 2009 are not necessarily indicative of results that
may be expected for the year ending December 31, 2009 or any other period. For further information,
including information on significant accounting policies and use of estimates, refer to the
consolidated financial statements and footnotes thereto included in the Companys Annual Report on
Form 10-K for the year ended December 31, 2008.
For the six months ended June 30, 2009, the Company incurred a net loss of $1,602. As of June
30, 2009, the Company had an accumulated deficit of $145,332. At June 30, 2009, the Company had
cash and cash equivalents of $7,847. The Company believes that its current cash balance, in
combination with cash receipts generated from sales of the Powerlink System and borrowings
available under its credit facility, will be sufficient to meet anticipated cash needs for
operating and capital expenditures for at least the next twelve months.
2. Stock-Based Compensation
The Company uses the Black-Scholes option pricing model which requires extensive use of
financial estimates and accounting judgment, including estimates of the expected period of time
employees will retain their vested stock options before exercising them, the expected volatility of
the Companys common stock over the expected term, and the number of shares that are expected to be
forfeited before they are vested. Application of alternative assumptions could produce
significantly different estimates of the fair value of the stock-based compensation and as a
result, significantly different results recognized in the consolidated statements of operations.
Expense recorded pursuant to FAS 123R during the three and six months ended June 30, 2009 and
2008 was as follows:
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Three Months
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|
|
Three Months
|
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Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
General and Administrative
|
|
$
|
489
|
|
|
$
|
442
|
|
|
$
|
875
|
|
|
$
|
647
|
|
Marketing and Sales
|
|
|
236
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|
|
|
260
|
|
|
|
475
|
|
|
|
487
|
|
Research, Development, and Clinical
|
|
|
60
|
|
|
|
52
|
|
|
|
135
|
|
|
|
111
|
|
Cost of Sales
|
|
|
65
|
|
|
|
57
|
|
|
|
102
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|
|
|
136
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
850
|
|
|
$
|
811
|
|
|
$
|
1,587
|
|
|
$
|
1,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, the Company had $58 of stock based compensation capitalized into inventory as of
June 30, 2009, and $78 of stock based compensation capitalized into inventory as of December 31,
2008.
During the three and six months ended June 30, 2009, the Company granted 160,000 shares of
restricted stock. In the prior three and six month periods ended June 30, 2008, the Company
granted 500,000 shares of restricted stock. The Company recognizes the expense associated with the
issuance of restricted stock ratably over the requisite service period. Included in the table above
is $181 and $354 of stock based compensation expense recognized during the three and six months
ended June 30, 2009, and $93 for the three and six months ended June 30, 2008.
Under
the 2004 Performance Compensation Plan, or the Performance Plan,
Performance Units (as defined in the Performance Plan) were
6
granted at a discount to the fair market value (as defined in the Performance Plan) of the
Companys common stock on the grant date, or the Base Value. The Performance Units vest over
three-years; one-third vests at the end of the first year, and the remainder vests ratably on a
quarterly basis. The difference between the twenty-day average closing market price of the
Companys common stock and the Base Value of the vested Performance Unit will be payable in cash at
the first to occur of (a) a change of control (as defined in the Performance Plan), (b) the
termination of employment for any reason other than Cause (as defined in the Performance Plan), or
(c) upon exercise of the Performance Unit, which cannot occur until eighteen months from the grant
date. There were no Performance Units granted during the three and six month periods ended June 30,
2009 and 2008. The total accrued compensation expense as of June 30, 2009 and
December 31, 2008 was $55 and $0, respectively, and there were an aggregate of 110 Performance Units outstanding
at the end of both periods. The Company recorded an increase in expense totaling $55 for the three
and six months ended June 30, 2009, and a reduction in expense totaling $58 and $40 for the three
and six months ended June 30, 2008, respectively, in accordance with FIN 28. During the three and six months
ended June 30, 2009, no Performance Units expired. If incurred, the expense is included in
marketing and sales expense in the consolidated statements of operations. The Company records
changes in the estimated compensation expense over the vesting period of the Performance Units, and
once fully vested, records the difference between the twenty-day average closing price of the
Companys common stock and the Base Value as compensation
expense in each period until exercised
unless the Base Value exceeds the twenty day average closing market price, in which case no
compensation expense is accrued.
3. Net Loss Per Share
Net loss per common share is computed using the weighted average number of common shares
outstanding during the periods presented. Certain options with an exercise price below the average
market price for the three and six months ended June 30, 2009 and the three and six months ended
June 30, 2008 have been excluded from the calculation of diluted earnings per share, as they are
anti-dilutive.
If anti-dilutive stock options were included for the three months ended June 30, 2009 and
2008, the number of shares used to compute diluted net loss per share would have been increased by
approximately 4,859 and 4,468 shares, respectively. Of these amounts, 4,493 shares and 4,424 shares
had an exercise price above the average closing price for the three months ended June 30, 2009 and
2008, respectively. If anti-dilutive stock options were included for the six months ended June 30,
2009 and 2008, the number of shares used to compute diluted net loss per share would have been
increased by approximately 4,918 and 4,158 shares, respectively. Of these amounts, 4,718 shares and
4,092 shares had an exercise price above the average closing price for the six months ended June
30, 2009 and 2008, respectively.
4. Restricted Cash Equivalents
The Company has a $475 line of credit with a bank in conjunction with a corporate credit card
agreement. At June 30, 2009, the Company had pledged all of its cash held at the bank as collateral
on the line of credit. Per the agreement, the Company must maintain a balance of at least $500 in
restricted cash with the bank.
5. Inventories
Inventories are stated at the lower of cost, determined on a first in, first out basis, or
market value. Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Raw materials
|
|
$
|
2,635
|
|
|
$
|
2,467
|
|
Work-in-process
|
|
|
1,652
|
|
|
|
2,058
|
|
Finished goods
|
|
|
3,328
|
|
|
|
3,342
|
|
|
|
|
|
|
|
|
|
|
|
7,615
|
|
|
|
7,867
|
|
Less reserve for excess and obsolescence
|
|
|
(374
|
)
|
|
|
(768
|
)
|
|
|
|
|
|
|
|
|
|
$
|
7,241
|
|
|
$
|
7,099
|
|
|
|
|
|
|
|
|
6. Long Term Liabilities
7
Long term liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Term loan
|
|
$
|
2,750
|
|
|
$
|
3,000
|
|
Revolving credit facility
|
|
|
2,000
|
|
|
|
2,000
|
|
Deferred tax
|
|
|
1,029
|
|
|
|
1,029
|
|
Other
|
|
|
200
|
|
|
|
|
|
Deferred rent
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
5,979
|
|
|
|
6,045
|
|
Current portion of long-term debt
|
|
|
(1,077
|
)
|
|
|
(750
|
)
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
4,902
|
|
|
$
|
5,295
|
|
|
|
|
|
|
|
|
On February 21, 2007, the Company entered into a credit facility with Silicon Valley Bank
whereby the Company may borrow up to $5,000 under a revolving line of credit. All outstanding
amounts under the revolving line of credit bear interest at a variable rate equal to the lenders
prime rate plus 0.5%, which is payable on a monthly basis. The unused portion is subject to an
unused revolving line facility fee, payable quarterly, in arrears, on a calendar year basis, in an
amount equal to one quarter of one percent per annum of the average unused portion of the revolving
line of credit, as determined by Silicon Valley Bank. The credit facility is collateralized by all of the
Companys assets with the exception of its intellectual property. All amounts owing under the
revolving line of credit become due and payable in July 2010. As of June 30, 2009, the Company had
$2,000 in outstanding borrowings under the revolving line of credit.
In July 2008, the Company entered into an amendment to the credit facility which added a term
loan whereby the Company may borrow up to $3,000. In September 2008, the Company drew the entire
$3,000 available under the term loan. The term loan required interest only payments at a variable
rate equal to the lenders prime rate plus 1.0%, which were payable on a monthly basis through
March 31, 2009. The term loan principal is due in 36 monthly installments which began in April
2009. The Company made principal payments of $250 during the three months ended June 30, 2009 and
had $2,750 in outstanding borrowings under the term loan as of June 30, 2009.
The Companys existing credit facility with Silicon Valley Bank contains negative covenants
regarding the operation of its business and financial covenants, including a covenant requiring
the Company to maintain a tangible net worth of $13,000. As of June 30, 2009, the Companys
tangible net worth was $14,763. If the Company is not able to maintain compliance with its
financial covenants, certain terms of the revolving line of credit and term loan will change,
including an increase in the applicable interest rate and a limitation on the amounts available for
borrowing under the credit facility based on eligible accounts receivable. Further, if the Company
does not maintain a tangible net worth of at least $12,500 from the first date on which the Company
is not in complete compliance with its financial covenants, it will be in default under the credit
facility which could allow Silicon Valley Bank to accelerate the repayment of the indebtedness then
existing under the credit facility.
As of June 30, 2009, the Company was in compliance with all covenants under the credit
facility.
7. Product Revenue by Geographic Region
The Company had product sales, based on the locations of its customer, by region as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
United States
|
|
$
|
11,410
|
|
|
$
|
7,881
|
|
|
$
|
21,586
|
|
|
$
|
14,730
|
|
Europe
|
|
|
594
|
|
|
|
1,006
|
|
|
|
1,262
|
|
|
|
1,858
|
|
Japan
|
|
|
430
|
|
|
|
85
|
|
|
|
1,232
|
|
|
|
449
|
|
South America
|
|
|
715
|
|
|
|
214
|
|
|
|
903
|
|
|
|
455
|
|
Other
|
|
|
19
|
|
|
|
75
|
|
|
|
19
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,168
|
|
|
$
|
9,261
|
|
|
$
|
25,002
|
|
|
$
|
17,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Concentrations of Credit Risk and Significant Customers
8
During the three and six months ended June 30, 2009 and 2008, no single customer accounted for
more than 10% of total revenue.
As of June 30, 2009 and December 31, 2008, no single customer accounted for more than 10% of
the Companys accounts receivable balance.
9. Comprehensive Loss
The Companys comprehensive loss included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net loss
|
|
$
|
(425
|
)
|
|
$
|
(3,762
|
)
|
|
$
|
(1,602
|
)
|
|
$
|
(7,454
|
)
|
Foreign currency translation adjustment
|
|
|
81
|
|
|
|
(17
|
)
|
|
|
48
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(344
|
)
|
|
$
|
(3,779
|
)
|
|
$
|
(1,554
|
)
|
|
$
|
(7,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Intangible Assets and Goodwill
The following table details the intangible assets, estimated lives, related accumulated
amortization and goodwill:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Developed technology (10 year life)
|
|
$
|
14,050
|
|
|
$
|
14,050
|
|
Accumulated amortization
|
|
|
(9,952
|
)
|
|
|
(9,250
|
)
|
|
|
|
|
|
|
|
Net developed technology
|
|
|
4,098
|
|
|
|
4,800
|
|
Trademarks and trade names (Indefinite life)
|
|
|
2,708
|
|
|
|
2,708
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
6,806
|
|
|
$
|
7,508
|
|
|
|
|
|
|
|
|
Goodwill (Indefinite life)
|
|
$
|
4,631
|
|
|
$
|
4,631
|
|
|
|
|
|
|
|
|
In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill and other
intangible assets with indeterminate lives are no longer subject to amortization but are tested for
impairment annually or whenever events or changes in circumstances indicate that the asset might be
impaired. The Company most recently performed its annual impairment analysis as of June 30, 2009
and will continue to test for impairment annually as of June 30 each year. No impairment was
indicated in the last analysis. Intangible assets with finite lives continue to be subject to
amortization, and any impairment is determined in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.
The Company recognized amortization expense on intangible assets of $351 and $351 during the
three months ended June 30, 2009 and 2008, respectively. The Company recognized amortization
expense on intangible assets of $702 and $702 during the six months ended June 30, 2009 and 2008,
respectively. Estimated amortization expense for the remainder of 2009 and the four succeeding
fiscal years is as follows:
|
|
|
|
|
2009
|
|
$
|
703
|
|
2010
|
|
$
|
1,405
|
|
2011
|
|
$
|
1,405
|
|
2012
|
|
$
|
585
|
|
2013
|
|
$
|
|
|
11. Commitments and Contingencies
Legal Matters
The Company is involved in various claims and legal proceedings of a nature considered normal
to its business, including product liability, intellectual property, employment and other matters.
Management is of the opinion that the outcome of these matters will not have a material adverse
effect on the Companys financial position, results of operations, or cash flow. However, as
certain matters are ongoing, there is no assurance that these
9
will be resolved favorably by the Company or will not result in a material liability.
12. Related Party Transactions
Until June 11, 2009, a former director of the Company also served as a director of a hospital
facility from which the Company contracts for physician training and clinical research services.
Payments totaling $10 and $29 for the three month periods ended June 30, 2009 and 2008,
respectively, were made to this hospital. In addition, this hospital purchased products from the
Company totaling $200 and $182 for the three months ended June 30, 2009 and 2008, respectively.
Payments totaling $23 and $58 for the six month periods ended June 30, 2009 and 2008, respectively,
were made to this hospital. In addition, this hospital purchased products from the Company totaling
$508 and $403 for the six months ended June 30, 2009 and 2008, respectively. All transactions were
in accordance with normal commercial terms and conditions.
13. Recent Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board, or the
FASB, issued Statement of Financial Accounting Standards No. 141(R), or
SFAS 141(R), Business Combinations (revised 2007). SFAS 141(R) is a revision to previously
existing guidance on accounting for business combinations. The statement retains the fundamental
concept of the purchase method of accounting, and introduces new requirements for the recognition
and measurement of assets acquired, liabilities assumed and noncontrolling interests. The statement
is effective for fiscal years beginning after December 15, 2008. As of June 30, 2009, the adoption
of SFAS 141(R) had no impact on the Companys consolidated financial statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, or SFAS
160, Noncontrolling Interests in Consolidated Financial Statements. The Statement requires that
noncontrolling interests be reported as stockholders equity. The Statement also establishes a
single method of accounting for changes in a parents ownership interest in a subsidiary as long as
that ownership change does not result in deconsolidation. SFAS 160 is required to be applied
prospectively in 2009, except for the presentation and disclosure requirements which are to be
applied retrospectively. The statement is effective for fiscal years beginning after December 15,
2008. As of June 30, 2009, the adoption of SFAS 160 had no impact on the Companys consolidated
financial statements.
Effective
January 1, 2008, the Company adopted Statement of Financial
Accounting Standards No. 157, or SFAS 157, Fair Value
Measurements. In
February 2008, the FASB issued FASB Staff Position No.
FAS 157-2, or FSP FAS 157-2, Effective Date of FASB Statement No. 157, which provides a one year
deferral of the effective date of SFAS 157 for non-financial assets and non-financial liabilities,
except those that are recognized or disclosed in the financial statements at fair value at least
annually. SFAS 157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair value measurements.
SFAS 157 applies under other accounting pronouncements that require or permit fair value
measurements and does not require any new fair value measurements. The standard describes a fair
value hierarchy based on three levels of inputs, the first two of which are considered observable
and the last unobservable, that may be used to measure fair value. As of June 30, 2009, the
adoption of SFAS 157 had no impact on the Companys consolidated financial statements. As of June
30, 2009, the adoption of FSP FAS 157-2 had no impact on the Companys consolidated financial
statements.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, or SFAS
161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB
Statement No. 133. This new standard requires enhanced disclosures for derivative instruments,
including those used in hedging activities. It is effective for fiscal years and interim periods
beginning after November 15, 2008. As of June 30, 2009, the adoption of SFAS 161 had no impact on
the Companys consolidated financial statements.
In April 2008, the FASB issued Staff Position No. FAS 142-3, or FSP FAS 142-3, Determination
of the Useful Life of Intangible Assets, which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. FSP FAS
142-3 allows an entity to use its own historical experience in renewing or extending similar
arrangements, adjusted for specified entity-specific factors, in developing
10
assumptions about renewal or extension used to determine the useful life of a recognized
intangible asset and will be effective for fiscal years and interim periods beginning after
December 15, 2008. Additional disclosures are required to enable financial statement users to
assess the extent to which the expected future cash flows associated with the asset are affected by
the entitys intent and/or ability to renew or extend the arrangement. The guidance for determining
the useful life of a recognized intangible asset is to be applied prospectively to intangible
assets acquired after the effective date. The disclosure requirements are to be applied
prospectively to all intangible assets recognized as of, and subsequent to, the effective date. As
of June 30, 2009, the adoption of FSP FAS 142-3 had no impact on the Companys consolidated
financial statements.
In June 2008, the FASB issued FSP EITF 03-6-1, or FSP 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating Securities. FSP 03-6-1 clarifies
that share-based payment awards that entitle their holders to receive nonforfeitable dividends
before vesting should be considered participating securities. As participating securities, these
instruments should be included in the calculation of basic earnings per share. FSP 03-6-1 is
effective for financial statements issued for fiscal years beginning after December 15, 2008, as
well as interim periods in those years. Once effective, all prior period earnings per share data
presented must be adjusted retrospectively and early application is not permitted. As of June 30,
2009, the adoption of FSP 03-6-1 had no impact on the Companys consolidated financial statements.
On
May 28, 2009, the FASB issued Statement of Financial Accounting
Standards No. 165, or SFAS 165, Subsequent Events. SFAS 165 establishes general standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are issued or are available to be
issued. Specifically, SFAS 165 provides:
|
1.
|
|
The period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur
for potential recognition or disclosure in the financial statements.
|
|
|
2.
|
|
The circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial
statements.
|
|
|
3.
|
|
The disclosures that an entity should make about events or
transactions that occurred after the balance sheet date.
|
In
accordance with SFAS 165, an entity should apply the requirements to interim or
annual financial periods ending after June 15, 2009. As of June 30, 2009, the adoption of SFAS 165 had no impact on the Companys consolidated financial statements.
14. Subsequent Events
The
Company has performed an evaluation of subsequent events through July 28, 2009, which is
the date the financial statements were issued.
11
|
|
|
Item 2.
|
|
MANAGEMENTS 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, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that
are based on managements 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 Managements
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 Powerlink® System and related products,
economic and market conditions, estimates regarding patient
populations, number of procedures performed and market statistics, 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 Managements 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
The
sections below entitled Introduction, Industry Background, Market Opportunity, Our Products,
Research and Development, Marketing and Sales and Patents and Proprietary
Information update and restate certain information contained in the similarly
named sections of our Annual Report on Form 10-K under Item 1. Business.
To the extent the information set forth below is inconsistent with
the information in our Annual Report on Form 10-K, the
information set forth below shall control.
Introduction
We develop, manufacture, market and sell innovative treatments for aortic disorders. Our
principal product, the Powerlink® System is a minimally invasive device for the treatment of
abdominal aortic aneurysm, or AAA. AAA is a weakening of the wall of the aorta, the largest artery
of the body. Once AAA develops, it continues to enlarge and if left untreated becomes increasingly
susceptible to rupture. The overall patient mortality rate for ruptured AAAs is between 50% and
80%, making it a leading cause of death in the United States today.
The Powerlink System is a catheter and endoluminal stent graft, or ELG, system. The device
consists of a self-expanding cobalt chromium alloy stent cage covered by ePTFE, a common surgical
graft material. The Powerlink ELG is implanted in the abdominal aorta, which is accessed through
the femoral artery. Once the Powerlink ELG is deployed into its proper position, blood flow is
shunted away from the weakened or aneurismal section of the aorta, reducing pressure and the
potential for the aorta to rupture. Our clinical trials demonstrated that implantation of our
products reduces the mortality and morbidity rates associated with conventional AAA surgery, as
well as provides a clinical alternative for many patients who could not undergo conventional
surgery. Sales of our Powerlink System in the United States, Europe, Japan, and South America are
the primary source of our reported revenues.
Industry Background
Atherosclerosis is the thickening and hardening of arteries. Some hardening of arteries occurs
naturally as people grow older. Atherosclerosis involves deposits of fatty substances, cholesterol,
cellular waste products,
12
calcium and other substances on the inner lining of an artery. Atherosclerosis is a slow,
complex disease that starts in childhood and often progresses with age.
Atherosclerosis also can reduce the integrity and strength of the blood vessel wall, causing
the vessel to expand or balloon out, which is known as an aneurysm. Aneurysms are commonly
diagnosed in the aorta, which is the bodys largest artery. The highest incidence of aortic
aneurysms occurs in the segment below the opening of the arteries that feed the kidneys, the renal
arteries, and the area where the aorta divides into the two iliac arteries that travel down the
legs. Once diagnosed, patients with AAA require either a combination of medical therapy and
non-invasive monitoring, or they must undergo a procedure to repair the aneurysm.
For years, physicians have been interested in less invasive methods to treat AAA disease as an
alternative to the current standard of open surgical repair. The high morbidity and mortality rates
of this surgery are well documented, and medical pharmacological management for this condition
carries the catastrophic risk of aneurysm rupture. Physicians and commercial interests alike began
investigating catheter-based alternatives to repair an aneurysm from within, utilizing surgical
grafts in combination with stents to exclude blood flow and pressure from the weakened segment of
the aorta.
We believe the appeal of the Powerlink System for patients, physicians, and health-care payors
is compelling. The conventional treatment is a highly invasive, open surgical procedure requiring a
large incision in the patients abdomen, withdrawal of the patients intestines to provide access
to the aneurysm, and the cross clamping of the aorta to stop blood flow. This procedure typically
lasts two to four hours and is performed under general anesthesia. The complication rates for the
open surgical procedure, as well as ELG systems, vary depending upon patient risk classification.
An article published in the New England Journal of Medicine on January 31, 2008 compared the
results of open surgical procedure and the endovascular treatment of AAA on more than 45,000
patients over a three year period. Among the findings discussed in the article were:
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The mortality rate of all patients in the study undergoing endovascular repair was
approximately 1.2% as compared to 4.8% for open surgical repair. Importantly, these
findings are based on a patient population that typically has a significantly higher
co-morbidity rate compared with those patients treated by open surgery.
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Patients treated by endovascular repair were three times as likely to be discharged
to their homes rather than another rehabilitation facility as compared to patients
treated with open repair. This results in substantial clinical and economic benefits
for patients and payors alike.
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The average hospital stay for patients in the study undergoing endovascular repair
was 3.4 days versus 9.3 days for patients undergoing open repair.
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Open surgical repair entails risk of re-hospitalization due to problems associated
with surgical incision. Patients had to be re-admitted over time for surgical
complications associated with the laparotomy, such as adhesions and bowel resections,
at a much higher rate than those undergoing endovascular repair.
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Market Opportunity
In the United States alone, it is estimated that between 1.2 million and 2 million people have
an AAA. Although AAA is one of the most serious cardiovascular diseases, many AAAs are never
detected. Approximately 75% of AAA patients do not have symptoms at the time of their initial
diagnosis, and AAAs generally are discovered inadvertently during procedures to diagnose unrelated
medical conditions. Once an AAA develops, it continues to enlarge and if left untreated, becomes
increasingly susceptible to rupture. The overall patient mortality rate for ruptured aneurysms is
between 50% and 80%.
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We estimate that approximately 250,000 people per year are diagnosed with AAA in the
United States and approximately 60,000 of those diagnosed will undergo aneurysm repair, either via an ELG or via open
surgery.
AAAs are generally more prevalent in people over the age of 65 and are more common in men than
in women. In addition to the current pool of potential patients, we expect that the number of
persons seeking treatment for their condition will increase based on demographic factors. In 2008,
the age 65 and over population in the United States numbered approximately 38 million, or 12% of
the total population, and is expected to be 71 million by 2030. It is growing at a higher rate than
the overall United States population.
Over the next several years,
we forecast the ELG market to increase by at least 9% per year, and we estimate that up to 75% of AAA procedures will be performed using ELGs by 2013. We estimate that the current total
worldwide AAA market is approximately $700 million, with approximately $450 million of the market to
be in the United States, and is expected to grow to approximately $1
billion by 2013. We expect that the total aortic stent graft market (including thoracic stents, for which we do not
currently have a product candidate) will grow to $1.4 billion by
2013.
Our Products
Powerlink System
Our principal product is the Powerlink System for the treatment of AAA. The device consists of
a self-expanding cobalt chromium alloy stent cage covered with ePTFE, a common surgical graft
material. The Powerlink ELG is implanted in the abdominal aorta, gaining access through a small
incision into the femoral artery. Once the Powerlink ELG is deployed into its proper position,
blood flow is shunted away from the weakened, or aneurismal, section of the aorta, reducing
pressure and the potential for the aorta to rupture.
We believe the Powerlink System is a superior design that overcomes the inherent limitations
of early generation AAA devices and offers the following advantages:
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One-Piece, Bifurcated ELG
. This eliminates many of the problems associated with
early generation multi-piece systems. Our products eliminate much of the guide wire
manipulation required during the procedure to assemble the component parts of a modular
system, thereby simplifying the procedure. In addition, in the follow-up period, there
can be no limb component separation with a one-piece system. We believe this should
result in continued long-term exclusion of the aneurysm, and improved clinical results.
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Fully Supported
. The main body and limbs of the Powerlink System are fully supported
by a cobalt chromium alloy cage. The cobalt chromium alloy cage greatly reduces or
eliminates the risk of kinking of the stent graft in even tortuous anatomies,
eliminating the need for additional procedures or costly peripheral stents. Kinking may
result in reduced blood flow and limb thrombosis.
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Unique, Minimally Invasive Delivery Mechanism
. The Powerlink System requires only a
small surgical incision in one leg. The other leg needs only placement of a
non-surgical introducer sheath, three millimeters in diameter. Other ELGs typically
need surgical exposure of the femoral artery in both legs to introduce the multiple
components. Our unique delivery mechanism and downsizing of the catheter permits our
technology to be used in patients having small or very tortuous access vessels.
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Self-Expanding
. The stent is formed from cobalt chromium alloy in a proprietary
configuration that is protected by our patent portfolio. This proprietary design
expands to the proper size of the target aorta and eliminates the need for hooks or
barbs for attachment. Based on our results to date, the Powerlink System has an
excellent record of successful deployments.
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Single Wire and Long Main Body Design
. The long main body of the stent cage is made
of a continuous piece of wire shaped into its appropriate configuration. Migration of
individual stent
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graft sections is eliminated. In addition, the long main body places the Powerlink
System near or at the aortic bifurcation, which minimizes the risk of device
migration during the follow-up period.
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Limitations of Earlier Technology
Our technology is dramatically different than other currently available AAA devices. Despite
enthusiasm by physicians and patients alike for minimally invasive technology, we believe early
generation devices have achieved a limited market penetration due to design limitations and related
complications. The published clinical literature details many of the deficiencies of these
approaches. In our opinion, early generation devices were limited because assembly was required by
the surgeon. Multi-piece, or modular, systems require assembly by the mating of multiple components
to form a bifurcated stent graft within the aneurysm sac. These systems can be more difficult to
implant and lead to longer operative times. In addition, there are a number of reports of component
detachment during the follow-up period. Component detachment can lead to a leak and a
re-pressurization of the aneurysm sac. We believe this increases the risk of AAA rupture, often requiring a
highly invasive, open surgical procedure to repair the detachment.
Powerlink System Products
Variations in patient anatomies require an adaptive technology. We designed our Powerlink
System, with multiple proximal extensions, limb extensions, bifurcated main body lengths and
diameters to simplify procedures, improve clinical results, and drive product adoption by offering
physicians a full line of products that are adaptable for treatment of the majority of patients
with AAA disease.
Powerlink Infrarenal Bifurcated Systems
. The Powerlink Infrarenal Bifurcated System is
available in multiple diameters and lengths and can treat patients that have an aortic neck up to
32 millimeters in diameter. The infrarenal device is made of a cobalt chromium alloy stent covered
by high density ePTFE for placement below the renal arteries. The self-expanding stent permits the
graft to be used in a wide range of neck diameters, which allows us to treat a wide variety of
anatomies with a standard device. We obtained the CE Mark for this product in Europe in August
1999, U.S. Food and Drug Administration, or FDA, pre-market approval, or PMA, in October
2004, and Shonin approval, which is equivalent to FDA approval of a PMA application in the United
States, in Japan in February 2008. We commenced commercial sales in the United States in late 2004
and to Japan in February 2008 through Cosmotec, our exclusive distributor in that country.
Powerlink Aortic Cuffs and Limb Extensions
. The Powerlink Proximal Extensions and Limb
Extensions permit the physician to treat a greater number of patients. Proximal Extensions are
available in 25, 28 and 34 millimeters in diameter and multiple lengths. They also are available in
both infrarenal and suprarenal configurations. Limb extensions are available in 16, 20, and 25
millimeters in diameter with various lengths, allowing the physician to customize the technology to
treat a wide range of patient anatomies. We have obtained the CE Mark for these products in Europe
in October 1999 (16/20 mm Limb Extensions), December 1999 (25/28 mm Proximal Extensions), May 2002
(34 mm Proximal Extensions) and November 2008 (25 mm Limb
Extensions). We obtained FDA marketing approval in October 2004 (25 and 28 mm proximal infrarenal extensions and the 16 and
20 mm limb extensions), March 2008 (25 mm limb extensions), and October 2008 (34 mm proximal
infrarenal and suprarenal extensions and 25 and 28 mm proximal suprarenal extensions). Our large
diameter 34mm Proximal Extensions are marketed under the trademark Powerlink XL.
IntuiTrak
. In October 2008, we received FDA approval for a new system to deliver and deploy
the Powerlink System. The new system, called IntuiTrak, was designed to further simplify the
implant procedure and provide a delivery profile advantage over many competitive devices. We had a full market introduction for the product in the second quarter of 2009.
IntuiTrak Express.
In
March 2009, we received FDA approval for a new system to deliver the Powerlink
XL stent graft. This completes the application of IntuiTrak technology to the full
range of sizes of the Powerlink System. IntuiTrak Express was
introduced to the market at the Society for Vascular Surgery meeting in June 2009.
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Research
and Development
We spent $6.1 million in 2008, $6.4 million in 2007, and $6.8 million in 2006, on research and
development, including clinical studies. Our focus is to continually develop innovative and
cost effective medical device technology for the treatment of aortic disorders. We believe
that our ability to develop new technologies is a key to our future growth and success. Our
research and development activities have focused, or are expected to focus, on technology that
makes our existing products easier to use, developing products to treat patients with AAA that
are not able to be treated endovascularly due to limitations of currently marketed products and
new technologies to address AAA and other aortic disorders, such as stent grafts for the thoracic
region of the aorta. Historically, we have focused on developing the Powerlink System for AAA.
However, we believe that we will need to continue to devote more resources to new technologies
for AAA and aortic disorders, such as thoracic aneurysms, to continue to grow our business.
Undertaking these research and development activities will likely require significant cash
resources and could take many years to complete, if at all.
Marketing and Sales
We sell and market products both in the United States and internationally. As of July 24,
2009, we market our products in 21 countries outside of the United States through 12 active
independent distributors.
United States.
We began a focused launch of the Powerlink System in the United States with six
sales representatives and two clinical specialists in late 2004. We have expanded our domestic
sales force to 52 defined sales territories and expect to have 54 territories by the end of 2009.
As of July 24, 2009, 47 of these territories were filled. The primary customer and decision maker
for these devices in the United States is the vascular surgeon. Through our direct sales force, we
provide clinical support and service to many of the approximately 1,600 hospitals in the United
States who perform endovascular aneurysm repair.
Europe.
The market for ELGs in Europe is influenced by vascular surgeons, interventional
radiologists and, to a lesser extent, interventional cardiologists who perform catheter directed
treatment of AAA. The European market is less concentrated than the domestic market. We have
obtained the right to affix the CE Mark to our family of Powerlink products. Europe represents a
smaller market opportunity due to capitated hospital budgets and a selling price that is typically
less than in the United States. We currently sell our devices through exclusive independent
distributors.
Japan.
The Powerlink System received Shonin approval in February 2008. We commenced commercial
sales to Japan in February 2008 through Cosmotec, our exclusive distributor in that country.
Rest of World.
We have obtained regulatory approval and have active distribution partners in a
number of countries, including Argentina, Brazil, Chile, Colombia, Mexico, Turkey and China. In
addition, we have obtained regulatory approval but have not initiated the distribution process in
several other countries, including Australia, Canada, and the European countries of Norway, Poland,
Portugal, and Spain. We may or may not pursue these markets depending on the availability of a
suitable distribution partner.
Patents and Proprietary Information
We have an aggressive program to develop intellectual property in the United States, Europe
and Asia.
We are building a portfolio of apparatus and method patents covering various aspects of our
current and future technology. In the AAA area, we have 18 United States patents issued, including
393 claims, and 20 pending United States patent applications. Our current AAA related patents begin
expiring in 2017 and the last patent expires in 2019. We intend to continue to file for patent
protection to strengthen our intellectual property position as we continue to develop our
technology.
In addition to our AAA intellectual property, we own or have the rights to 35 issued United
States patents, one issued European patent, and one issued Japanese patent relating to
intravascular radiation, stents, and various catheter technologies. The non-AAA patents begin
expiring in 2012 and the last patent expires in 2018.
Our policy is to protect our proprietary position by, among other methods, filing United
States and foreign patent applications to protect technology, inventions and improvements that are
important to the development of our business.
We also own trademarks to protect the names of our products. In addition to patents and
trademarks, we rely on trade secrets and proprietary know-how. We seek protection of these trade
secrets and proprietary know-how, in part, through confidentiality and proprietary information
agreements. We make efforts to require our employees, directors, consultants and advisors, other
advisors and other individuals and entities to execute confidentiality agreements upon the start of
employment, consulting or other contractual relationships with us. These agreements provide that
all confidential information developed or made known to the individual or entity during the course
of the relationship is to be kept confidential and not be disclosed to third parties, except in
specific circumstances. In the case of employees and some other parties, the agreements provide
that all inventions conceived by the individual will be our exclusive property.
Results of Operations
Comparison of the Three Months Ended June 30, 2009 and 2008
Product Revenue
. Product revenue increased 42% to $13.2 million in the three months ended June
30, 2009 from $9.3 million in the three months ended June 30, 2008. Domestic sales increased 45% to
$11.4 million in the three months ended June 30, 2009 from $7.9 million in the three months ended
June 30, 2008. The increase in domestic sales was primarily due to increased productivity of our
sales representatives, as well as the introduction of two new products in the fourth quarter of
2008 and the marketing of IntuiTrak, our new system to deliver and deploy the Powerlink System, in
the first quarter of 2009.
International sales increased 27% to $1.8 million in the three months ended June 30, 2009 from
$1.4 million for the comparable period in the prior year. This increase was driven primarily by
higher sales to Cosmotec in Japan and various distributors in South America, due to greater market
acceptance.
We expect that product revenue will continue to grow, both sequentially in the second half of
2009 relative
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to the first six months and compared to prior year periods. We anticipate that product revenue
will be between $51.0 and $53.0 million for the year ending December 31, 2009.
Cost of Product Revenue
. The cost of product revenue increased 27% to $3.3 million in the
three months ended June 30, 2009 from $2.6 million in the three months ended June 30, 2008, due to
an increase in the volume of Powerlink System sales. As a percentage of product revenue, cost of
product revenue decreased to 25% in the second quarter of 2009 as compared to 28% in the same
period of 2008. The percentage decline in the cost of product revenue was due to a higher domestic
to international sales mix in the products sold during the period, favorable product mix due to new
product introductions, and certain product cost efficiencies due to higher volume.
We believe that gross profit will increase in the second half of 2009 due to the expected
higher commercial sales of the Powerlink System both in and outside of the United States. We also
expect gross profit as a percentage of product revenue to increase modestly relative to the first
six months of 2009 due to expected continued effect of the factors mentioned above.
Research, Development and Clinical.
Research, development and clinical expense decreased 18%
to $1.5 million in the three months ended June 30, 2009 from $1.8 million for the three months
ended June 30, 2008. This decline was due to the timing of expenses related to the development
cycle for the IntuiTrak delivery system.
We expect that research, development, and clinical expense will increase sequentially over the
remaining quarters of 2009 as we pursue opportunities to develop additional new products for the
treatment of aortic disorders.
Marketing and Sales
. Marketing and sales expense increased 7% to $6.6 million in the three
months ended June 30, 2009 from $6.1 million in the three months ended June 30, 2008. The increase
in the second quarter of 2009 resulted primarily from:
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marketing costs related to the launch of the IntuiTrak delivery system,
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expenses related to more intensive training of sales representatives, and
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higher commission expense on the 45% increase in domestic sales between those
periods.
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We anticipate that marketing and sales expense will increase sequentially at a moderate rate
for the remaining quarters of 2009 due to the expected addition of four to six additional sales
territories, the higher compensation associated with the anticipated sales growth, the addition of
executive staff in the second quarter, and the increase in marketing related costs for the broader
launch of the IntuiTrak Express delivery system for Powerlink XL in the third quarter of 2009.
General and Administrative
. General and administrative expense decreased 13% to $2.3 million
in the three months ended June 30, 2009 from $2.6 million in the three months ended June 30, 2008.
The decrease is primarily due to the resolution in the second half of 2008 of certain legal matters
which were ongoing during the second quarter of 2008, offset by higher compensation expense paid in
2009.
We expect general and administrative expenses to be in the $2.0 million to $2.2 million range
per quarter through the balance of 2009.
Other Income/(Expense)
. Other income decreased 6% to $17,000 in the three months ended June 30,
2009 from $18,000 in the same period of 2008.
Comparison of the Six Months Ended June 30, 2009 and 2008
Product Revenue.
Product revenue increased 42% to $25.0 million in the six months ended June
30, 2009 from $17.6 million in the six months ended June 30, 2008. Domestic sales increased 47% to
$21.6 million in the six months ended June 30, 2009 from $14.7 million in the six months ended June
30, 2008. The increase in domestic sales was due to the increased productivity of our sales force,
the introduction of new products including Powerlink
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XL, Powerlink XL Express, and the IntuiTrak delivery system, and increased physician
acceptance of the Powerlink System.
International sales increased 20% to $3.4 million in the six months ended June 30, 2009 from
$2.8 million for the comparable period in the prior year. This increase was driven by higher sales
to our distributors in South America and Japan, offset by lower sales to our distributors in
Europe.
License Revenue.
License revenue was $24,000 for the six months ended June 30, 2008. The
minimum royalty provision of our licensing agreement with Abbott Laboratories expired at December
31, 2007 and the license was fully paid up at June 30, 2008.
Cost of Product Revenue.
The cost of product revenue increased 21% to $6.2 million in the six
months ended June 30, 2009 from $5.1 million in the six months ended June 30, 2008, due to an
increase in the volume of Powerlink System sales. As a percentage of product revenue, cost of
product revenue decreased to 25% in the six months ended June 30, 2009 from 29% in the same period
of 2008. The percentage decline in the cost of product revenue was due to a higher domestic to
international sales mix in the products sold during the 2009 period, favorable product mix due to
new product introductions, and certain product cost efficiencies due to higher volume.
Research, Development and Clinical.
Research, development and clinical expense decreased 14%
to $2.8 million in the six months ended June 30, 2009 as compared to $3.3 million for the six
months ended June 30, 2008. This decline was due to the timing of expenses related to the
development cycle for the IntuiTrak delivery system.
Marketing and Sales.
Marketing and sales expense increased 10% to $13.2 million in the six
months ended June 30, 2009 from $11.9 million in the six months ended June 30, 2008. The increase
in the first half of 2009 resulted primarily from variable commission payments on the 47% increase
in domestic sales between those periods.
General and Administrative.
General and administrative expense decreased 11% to $4.3 million
in the six months ended June 30, 2009, from $4.9 million in the six months ended June 30, 2008. The
decrease was primarily due to $550,000 in costs associated with our CEO succession, which occurred
in May 2008, and significant legal fees, as previously discussed, in the six months ended June 30,
2008, offset by higher stock based compensation charges and incentive compensation accruals based
on performance metrics for the six months ended June 30, 2009.
Other Income/(Expense), Net.
Other income/(expense) decreased 171% to $(99,000) in the six
months ended June 30, 2009, from $140,000 in the same period of 2008. The decrease in other
income/(expense) is primarily due to interest expense on the term loan and revolving line of
credit with Silicon Valley Bank in the 2009 period, the non-recurrence of income related to a
credit card rebate program, and the loss in value of our investment in Cianna Medical, partially
offset by a gain in foreign currency exchange.
Liquidity and Capital Resources
For the six months ended June 30, 2009, we incurred net losses of $1.6 million. As of June 30,
2009, we had an accumulated deficit of approximately $145.3 million. Historically, we have relied
on the sale and issuance of equity securities to provide a significant portion of funding for our
operations.
In February 2007, we entered into a credit facility with Silicon Valley Bank, or SVB, whereby
we may borrow up to $5.0 million under a revolving line of credit. All outstanding amounts under
the revolving line of credit bear interest at a variable rate equal to the lenders prime rate plus
0.5%, which is payable on a monthly basis. The unused portion is subject to an unused revolving
line facility fee, payable quarterly, in arrears, on a calendar year basis, in an amount equal to
one quarter of one percent per annum of the average unused portion of the revolving line of credit,
as determined by SVB. The credit facility is collateralized by all of our assets with the exception
of our intellectual property. All amounts owing under the revolving line of credit become due and
payable in July 2010. As of June 30, 2009, we had $2.0 million in outstanding borrowings under the
revolving line of credit.
In July 2008, we entered into an amendment to the credit facility which added a term loan
whereby we may borrow up to $3.0 million. In September 2008, we drew the entire $3.0 million
available under the term loan.
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Interest on the term loan is calculated at a variable rate equal to the lenders prime rate
plus 1.0%, which is payable on a monthly basis. The term loan principal is due in 36 monthly
installments which began in April 2009. We made principal payments of $250,000 during the three months
ended June 30, 2009, and had $2.75 million in outstanding borrowings under the term loan as of June
30, 2009.
The credit facility contains negative covenants regarding the operation of our business and
financial covenants, including a covenant requiring us to maintain a tangible net worth of $13.0
million. As of June 30, 2009, our tangible net worth was $14.8 million. If we are not able to
maintain compliance with our financial covenants, certain terms of the revolving line of credit and
term loan will change, including an increase in the applicable interest rate and a limitation on
the amounts available for borrowing under the credit facility based on eligible accounts
receivable. Further, if we do not maintain a tangible net worth of at least $12.5 million, we will
be in default under the credit facility which could allow SVB to accelerate the repayment of the
indebtedness under the credit facility. As of June 30, 2009, we were in complete compliance with
all of our covenants under the credit facility.
At June 30, 2009, we had cash and cash equivalents of $7.8 million. In the three months ended
June 30, 2009, we generated $871,000 of positive cash flow from operations. We believe that our
current cash balance, in combination with cash receipts generated from sales of the Powerlink
System and borrowings available under our credit facility, will be sufficient to meet anticipated
cash needs for operating and capital expenditures through at least the next twelve months. If we do
not realize expected revenue and gross profit margin levels, or if we are unable to manage our
operating expenses in line with our revenues, or if we cannot maintain our days sales outstanding
accounts receivable level, we may not continue to achieve positive cash flow from operations, nor
be able to fund our operations through at least the next twelve months.
We believe that the future growth of our business will depend upon our ability to successfully
develop new technologies for the treatment of aortic disorders and bring these technologies to
market, and to increase the size and productivity of our direct sales force. In order to achieve
these objectives, we may need to seek additional sources of financing. In the event that we require
additional funding, we will attempt to raise the required capital through either debt or equity
arrangements.
The timing and amount of our future capital requirements will depend on many factors,
including:
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the need for additional capital to fund future development programs or sales force
expansion;
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our requirements for additional manufacturing capacity;
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our requirements for additional information technology infrastructure and systems; and
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our requirements for additional facility space.
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If we are required to obtain additional financing, we may not be able to do so on acceptable
terms, if at all. Even if we are able to obtain such financing it may cause substantial dilution
for our stockholders, in the case of an equity financing, or may contain burdensome restrictions on
the operations of our business, in the case of debt financing.
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Item 3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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We do not believe that we currently have material exposure to interest rate, foreign currency
exchange rate or other relevant market risks.
Interest Rate and Market Risk.
Our exposure to market risk for changes in interest rates
relates primarily to our revolving line of credit and our term loan
with SVB. Under
our revolving line of credit, all outstanding amounts bear interest at a variable rate equal to the
lenders prime rate plus 0.5%. As of June 30, 2009, we had $2.0 million outstanding under our
revolving line of credit. The interest rate under the revolving line of credit was 4.5% at June 30,
2009. As of June 30, 2009, we had $2.8 million outstanding under our term loan. The
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interest rate under the term loan was 5.0% at June 30, 2009. Under both the term loan and the
revolving line of credit, interest is payable on a monthly basis which may expose us to market risk
due to changes in interest rates.
We do not use derivative financial instruments in our investment portfolio. We place our
investments with high credit quality issuers and, by policy, limit the amount of credit exposure to
any one issuer other than the U.S. government. We are averse to principal loss and try to ensure
the safety and preservation of our invested funds by limiting default risk, market risk, and
reinvestment risk. We attempt to mitigate default risk by investing in only high credit quality
securities and by constantly positioning our portfolio to respond appropriately to a significant
reduction in a credit rating of any investment issuer or guarantor. At June 30, 2009, our
investment portfolio included only money market instruments.
Foreign Currency Transaction Risk.
We do not currently have material foreign currency exposure
as the majority of our assets are denominated in U.S. currency and our foreign-currency based
transaction exchange risk is not material.
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Item 4.
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CONTROLS AND PROCEDURES.
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We carried out an evaluation, under the supervision and with the participation of our
management, including our chief executive officer and chief financial officer, of the effectiveness
of our disclosure controls and procedures as of the end of the period covered by this report,
pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or
the Exchange Act. Based on that evaluation, our chief executive officer and chief financial officer
have concluded that our disclosure controls and procedures, as of the end of the period covered by
this report, were effective to ensure that information we are required to disclose in reports that
we file or submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms and to ensure that
information required to be disclosed by us in the reports that we file or submit under the Exchange
Act is accumulated and communicated to our management, including our chief executive officer and
chief financial officer, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
There has been no change in our internal control over financial reporting during the period
covered by this report that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
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Part II.
OTHER INFORMATION
Our Annual Report on Form 10-K for the year ended December 31, 2008 contains a full discussion
of our risk factors. There have been no material changes or additions to the risk factors disclosed in our Form
10-K except for the risk factors set forth below, which should be
read in conjunction with the risk factors set forth in our Annual Report on Form 10-K.
Our success depends on the growth in the number of AAA patients treated with endovascular
devices
.
Of
the estimated 1.2 million to 2 million people with AAA in the United States, about 250,000
new diagnoses are made each year. In 2008, approximately 35,000 were treated with an endovascular device. Our success
with our Powerlink System will depend on an increasing percentage of patients with AAA being
diagnosed, and an increasing percentage of those diagnosed receiving endovascular, as opposed to
open surgical procedures. Initiatives to increase screening for AAA are underway but are out of our
control and such general screening programs may never gain wide acceptance. The failure to diagnose
more patients with AAA, could negatively impact sales of the Powerlink System.
Our international operations subject us to certain operating risks, which could adversely
impact our net sales, results of operations and financial condition
.
Sales of our products outside the United States represented 15% of our revenue in 2008.
We market our products in 21 countries outside of the United States
through 12 active independent distributors. The sale and shipment of our products across international borders, as
well as the purchase of components and products from international sources, subject us to extensive
U.S. and foreign governmental trade, import and export, and custom regulations and laws. Compliance
with these regulations is costly and exposes us to penalties for non-compliance. Other laws and
regulations that can significantly impact us include various anti-bribery laws, including the U.S.
Foreign Corrupt Practices Act and anti-boycott laws. Any failure to comply with applicable legal
and regulatory obligations could impact us in a variety of ways that include, but are not limited
to, significant criminal, civil and administrative penalties, including imprisonment of
individuals, fines and penalties, denial of export privileges, seizure of shipments, restrictions
on certain business activities, and exclusion or debarment from government contracting. Also, the
failure to comply with applicable legal and regulatory obligations could result in the disruption
of our shipping and sales activities.
In addition, many of the countries in which we sell our products are, to some degree, subject
to political, economic or social instability. Our international operations expose us and our
distributors to risks inherent in operating in foreign jurisdictions. These risks include:
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the imposition of additional U.S. and foreign governmental controls or regulations;
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the imposition of costly and lengthy new export licensing requirements;
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the imposition of U.S. or international sanctions against a country, company,
person or entity with whom we do business that would restrict or prohibit continued
business with the sanctioned country, company, person or entity;
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a shortage of high-quality sales people and distributors;
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changes in third-party reimbursement policies that may require some of the patients
who receive our products to directly absorb medical costs or that may necessitate the
reduction of the selling prices of our products;
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21
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changes in duties and tariffs, license obligations and other non-tariff barriers to
trade;
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the imposition of new trade restrictions;
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the imposition of restrictions on the activities of foreign agents, representatives
and distributors;
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scrutiny of foreign tax authorities which could result in significant fines,
penalties and additional taxes being imposed on us;
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pricing pressure that we may experience internationally;
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laws and business practices favoring local companies;
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difficulties in maintaining consistency with our internal guidelines;
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difficulties in enforcing agreements and collecting receivables through certain
foreign legal systems; and
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difficulties in enforcing or defending intellectual property rights.
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Any of these factors may adversely impact our operations. A significant portion of our
international sales are made to Europe. In Europe, healthcare regulation and reimbursement for
medical devices vary significantly from country to country. This changing environment could
adversely affect our ability to sell our products in some European countries, which could
negatively affect our results of operations.
If we fail to comply with healthcare regulations, we could face substantial penalties and our
business, operations and financial condition could be adversely affected
.
While we do not provide healthcare services, control the referral of patients for healthcare
services, nor bill Medicare, Medicaid or other third-party payors, due to the breadth of many
healthcare laws and regulations, we may be subject to healthcare fraud and patient privacy
regulation and enforcement by both the federal government and the states in which we conduct our
business. The laws that may affect our ability to operate include:
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the federal healthcare programs Anti-Kickback Law, which prohibits, among other
things, persons from knowingly and willfully soliciting, receiving, offering or paying
remuneration, directly or indirectly, in exchange for or to induce either the referral
of an individual for, or the purchase, order or recommendation of, any good or service
for which payment may be made under federal healthcare programs such as the Medicare
and Medicaid programs;
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federal false claims laws which prohibit, among other things, individuals or
entities from knowingly presenting, or causing to be presented, claims for payment from
Medicare, Medicaid, or other third-party payors that are false or fraudulent, and which
may apply to entities like us which provide coding and billing advice to customers;
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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA,
which created federal criminal laws that prohibit executing a scheme to defraud any
healthcare benefit program or making false statements relating to healthcare matters
and which also imposes certain requirements relating to the privacy, security and
transmission of individually identifiable health information;
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the federal physician self-referral law, known as the Stark Law, which prohibits a
physician from making a referral to an entity for certain designated health services
reimbursed by Medicare or
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22
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Medicaid if the physician (or the physicians immediate family member) has a
financial relationship with the entity, and which prohibits the submission of any
claim for reimbursement for designated health services furnished pursuant to a
prohibited referral; and
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state law equivalents of each of the above federal laws, such as anti-kickback and
false claims laws which may apply to items or services reimbursed by any third-party
payor, including commercial insurers, and state laws governing the privacy of health
information in certain circumstances, many of which differ from each other in
significant ways and often are not preempted by HIPAA, thus complicating compliance
efforts.
|
If our operations are found to be in violation of any of the laws described above or any other
governmental regulations that apply to us, we may be subject to penalties, including civil and
criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any
penalties, damages, fines, curtailment or restructuring of our operations could adversely affect
our ability to operate our business and our financial results. The risk of our being found in
violation of these laws is increased by the fact that their provisions are open to a variety of
interpretations.
Any action against us for violation of these laws, even if we successfully defend against it,
could cause us to incur significant legal expenses and divert our managements attention from the
operation of our business. Moreover, to achieve compliance with applicable federal and state
privacy, security, and electronic transaction laws, we may be required to modify our operations
with respect to the handling of patient information. Implementing these modifications may prove
costly. At this time, we are not able to determine the full consequences to us, including the total
cost of compliance, of these various federal and state laws.
Our business is subject to extensive governmental regulation that could make it more expensive
and time consuming for us to introduce new or improved products
.
Our products must comply with regulatory requirements imposed by the FDA and similar agencies
in foreign countries. These requirements involve lengthy and detailed laboratory and clinical
testing procedures, sampling activities, an extensive FDA review process, and other costly and
time-consuming procedures. It often takes several years to satisfy these requirements, depending on
the complexity and novelty of the product. We also are subject to numerous additional licensing and
regulatory requirements relating to safe working conditions, manufacturing practices, environmental
protection, fire hazard control and disposal of hazardous or potentially hazardous substances. Some
of the most important requirements we face include:
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California Department of Health Services requirements;
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ISO 9001:1994 and ENISO 13485:2003; and
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European Union CE Mark requirements.
|
Government regulation may impede our ability to conduct continuing clinical trials of
Powerlink System enhancements and to manufacture the Powerlink System and other prospective
products. Government regulation also could delay our marketing of new products for a considerable
period of time and impose costly procedures on our activities. The FDA and other regulatory
agencies may not approve any of our future products on a timely basis, if at all. Any delay in
obtaining, or failure to obtain, such approvals could negatively impact our marketing of any
proposed products and reduce our product revenues.
Even after we obtain marketing approval for a product, we must comply with laws and
regulations administered by the FDA and other authorities, such as labeling and promotional
requirements; medical device adverse event and other reporting requirements; and the FDAs Quality
System Regulation, which obligates manufacturers, including third-party and contract manufacturers,
to adhere to stringent design, testing, control, documentation and other quality assurance
procedures during the design and manufacture of a device. The FDA and
23
similar governmental authorities in other countries have the authority to order mandatory
recall of our products or order their removal from the market if the governmental entity finds that
our products might cause adverse health consequences or death. A government-mandated or voluntary
recall by us could occur as a result of component failures, manufacturing errors or design defects,
including labeling defects. Enforcement actions resulting from failure to comply with these and
other government requirements could also result in fines, suspensions of approvals, seizure of
products, operating restrictions or shutdown, and criminal prosecutions that could adversely affect
the manufacture and marketing of our products. The FDA or another regulatory agency could withdraw
a previously approved product from the market upon receipt of newly discovered information,
including a failure to comply with regulatory requirements, the occurrence of unanticipated
problems with products following approval, or other reasons, which could adversely affect our
operating results. Our products remain subject to strict regulatory controls on manufacturing,
marketing and use. We may be forced to modify or recall our product after release in response to
regulatory action or unanticipated difficulties encountered in general use. Any such action could
have a material effect on the reputation of our products and on our business and financial
position.
Further, regulations may change, and any additional regulation could limit or restrict our
ability to use any of our technologies, which could harm our business. We could also be subject to
new federal, state or local regulations that could affect our research and development programs and
harm our business in unforeseen ways. If this happens, we may have to incur significant costs to
comply with such laws and regulations, which will harm our results of operations.
Our products could have unknown defects, which may give rise to claims against us or divert
application of our resources from other purposes
.
In the past we have experienced manufacturing defects which have resulted in a voluntary
recall. Although we have since implemented additional procedures to reduce the likelihood of such
an occurrence, we may experience similar problems in the future. Despite clinical testing and
strict controls on manufacturing, defects or errors may arise in our products, which could result
in product recalls, a failure to achieve market acceptance or expansion, diversion of development
resources, injury to our reputation and increased service and maintenance costs. Defects or errors
in our products might also discourage customers from purchasing our products. The costs incurred in
correcting any defects or errors may be substantial and could adversely affect our operating
margins.
Potential future acquisitions could be difficult to integrate, divert the attention of key
management personnel, disrupt our business, dilute stockholder value and adversely affect our
financial results
.
We may acquire technologies, products or companies that we feel could accelerate our ability
to compete in our core markets. Acquisitions involve numerous risks, including:
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difficulties in integrating operations, technologies, accounting and personnel;
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difficulties in supporting and transitioning customers of our acquired companies;
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diversion of financial and management resources from existing operations;
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risks of entering new markets;
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potential loss of key employees; and
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inability to generate sufficient revenue to offset acquisition costs.
|
Acquisitions also frequently result in the recording of goodwill and other intangible assets
which are subject to potential impairments in the future that could harm our financial results. In
addition, if we finance acquisitions by issuing convertible debt or equity securities, our existing
stockholders may be diluted, which could affect the market price of our stock. As a result, if we
fail to properly evaluate acquisitions or investments, we may not achieve the anticipated benefits
of any such acquisitions, and we may incur costs in excess of what we anticipate.
24
If our suppliers cannot provide the components we require, our ability to manufacture our
products could be harmed
.
We rely on third-party suppliers to provide us with some components used in our existing
products and products under development. Relying on third-party suppliers makes us vulnerable to
component part failures and to interruptions in supply, either of which could impair our ability to
distribute our products and conduct clinical trials on a timely basis. Our third-party suppliers
may be required to comply with the FDA or other regulatory manufacturing regulations and to satisfy
regulatory inspections in connection with the manufacture of the components. Any failure by a
supplier to comply with applicable requirements could lead to a
disruption in supply. Our suppliers may not furnish us required components when we need them. These factors could
make it more difficult for us to manufacture our products effectively and efficiently and could
adversely impact our results of operations. Some of our suppliers may be the only source for a
particular component, which makes us vulnerable to significant cost increases. Sole source vendors
may decide to limit or eliminate sales of certain components to the medical industry due to product
liability or other concerns and we might not be able to find a suitable replacement for those
products. Our inventory may run out before we find alternative suppliers and we might be forced to
purchase substantial inventory, if available, to last until we qualify an alternate supplier. If we
cannot obtain a necessary component, we may need to find, test and obtain regulatory approval for a
replacement component, produce the component ourselves or redesign the related product, which would
cause significant delay and could increase our manufacturing costs. Any of these events could
adversely impact our results of operations.
Healthcare reforms, changes in healthcare policies and changes to third-party coverage and
reimbursement may affect demand for our products and services
.
The U.S. government has in the past considered, is currently considering and may in the
future consider, healthcare policies and proposals intended to curb rising healthcare costs,
including those that could significantly affect both private and public reimbursement for
healthcare services. State and local governments, as well as a number of foreign governments, are
also considering or have adopted similar types of policies. These policies have included, and may
in the future include: basing coverage and reimbursement policies and rates on clinical outcomes,
the comparative effectiveness and costs of different treatment technologies and modalities;
imposing price controls on medical products and service providers; and other measures. Future
significant changes in the healthcare systems in the United States or elsewhere, and current
uncertainty about whether and how changes may be implemented, could have a negative impact on the
demand for our products and services and our business. These include changes that may reduce
reimbursement rates for procedures using our products and changes that may be proposed or
implemented by the current U.S. Presidential administration or Congress. It is unclear which, if
any, of the various U.S. healthcare reforms currently being discussed and/or proposed might be
enacted by the U.S. Congress and signed into law by the President. We are unable to predict what
healthcare reform legislation or regulations, if any, will be enacted in the United States or
elsewhere; whether other healthcare legislation or regulations affecting our business may be
proposed or enacted in the future; what effect any legislation or regulation would have on our
business; or the effect ongoing uncertainty about these matters will have on the purchasing
decisions of our customers.
In addition, sales of our healthcare products indirectly depend on whether adequate coverage
and reimbursement is available to our customers for the treatment provided by those products from
third-party healthcare payors, such as government healthcare insurance programs, including the
Medicare and Medicaid programs, private insurance plans, health maintenance organizations and
preferred provider organizations. Once Medicare has made a decision to provide reimbursement for a
given treatment, these reimbursement rates are generally reviewed and adjusted by Medicare
annually. Private third-party payors, although independent from Medicare, sometimes use portions of
Medicare reimbursement policies and payment amounts in making their own reimbursement decisions. As
a result, decisions by the Centers for Medicare and Medicaid Services to reimburse for a treatment,
or changes to Medicares reimbursement policies or reductions in payment amounts with respect to a
treatment sometimes extend to third-party payor reimbursement policies and amounts for that
treatment. Significant changes in the availability and amount of reimbursement for treatments using
our products could influence our customers decisions. Any significant cuts in overall
reimbursement rates for surgical procedures using our products could increase uncertainty and
reduce demand for our products and have a material adverse effect on our revenues and stock price.
25
As a general matter, third-party payors are increasingly challenging the pricing of medical
procedures or limiting or prohibiting reimbursement for specific services or devices, and we cannot
be sure that they will reimburse our customers at levels sufficient to enable us to achieve or
maintain sales and price levels for our products. Without adequate support from third-party payors,
the market for our products may be limited. There is no uniform policy on reimbursement among
third-party payors, nor can we be sure that procedures using our products will qualify for
reimbursement from third-party payors. Foreign governments also have their own healthcare
reimbursement systems and we cannot be sure that adequate reimbursement will be made available with
respect to our products under any foreign reimbursement system.
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Item 4.
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
The annual meeting of stockholders was held on June 11, 2009. The following actions were taken
at this meeting and included are the tabulation of the votes:
|
1.
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Election of Directors:
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Number of Shares
|
Name
|
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For
|
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Withheld
|
Franklin D. Brown
|
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38,834,096
|
|
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3,504,819
|
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John McDermott
|
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39,029,246
|
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3,309,669
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The terms of office of our other directors, Paul McCormick, Roderick de Greef, Gregory D.
Waller, and Jeffrey ODonnell, continued after the meeting.
|
2.
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|
Amendment to the 2006 Employee Stock Purchase Plan to increase the total number
of shares purchasable thereunder from 558,734 shares to 2,058,734 shares:
|
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|
|
|
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|
|
|
Number of Shares
|
|
|
For
|
|
Against
|
|
Abstain
|
|
Broker Non Votes
|
25,193,456
|
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418,365
|
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15,952
|
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16,711,142
|
|
3.
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|
Amendment to our amended and restated certificate of incorporation to increase
the number of authorized shares of our common stock thereunder from 60,000,000 to
75,000,000 and to increase the total number of authorized shares of our capital stock
thereunder from 65,000,000 to 80,000,000:
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|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
For
|
|
Against
|
|
Abstain
|
|
Broker Non Votes
|
40,692,395
|
|
1,585,243
|
|
61,276
|
|
|
|
4.
|
|
Ratification of PricewaterhouseCoopers LLP as independent registered public
accounting firm for the fiscal year ending December 31, 2009:
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
For
|
|
Against
|
|
Abstain
|
|
Broker Non Votes
|
41,945,175
|
|
387,712
|
|
6,028
|
|
|
26
The following exhibits are filed herewith:
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
3.1
|
|
Amended and Restated Certificate of Incorporation, as amended.
|
|
|
|
10.1
|
|
2006 Employee Stock Purchase Plan, as amended through June 11,
2009 (Incorporated by reference to Exhibit 10.1 to Endologix
Current Report on Form 8-K, filed with the SEC on June 17, 2009).
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
|
|
|
|
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.
|
|
|
|
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.
|
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
ENDOLOGIX, INC.
|
|
Date: July 28, 2009
|
/s/ John McDermott
|
|
|
President and Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
Date: July 28, 2009
|
/s/ Robert J. Krist
|
|
|
Chief Financial Officer and Secretary
|
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|
(Principal Financial and Accounting Officer)
|
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|
28
EXHIBIT INDEX
The following exhibits are filed herewith:
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
3.1
|
|
Amended and Restated Certificate of Incorporation, as amended.
|
|
|
|
10.1
|
|
2006 Employee Stock Purchase Plan, as amended through June 11,
2009 (Incorporated by reference to Exhibit 10.1 to Endologix
Current Report on Form 8-K, filed with the SEC on June 17, 2009).
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
|
|
|
|
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.
|
|
|
|
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.
|
29
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