U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------
Form 10-QSB
[ X] Quarterly report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended August 31, 1996
or
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period from _________ to ________.
Commission File No. 0-21354
ENDOGEN, INC.
(Exact name of Small Business Issuer as specified in charter)
Massachusetts 04-2789249
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
30 Commerce Way
Woburn, Massachusetts 01801
(Address of principal executive offices)
(617) 937-0890
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 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 X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Title Shares Outstanding as of October 1, 1996
- ----------------------------- ----------------------------------------
Common Stock, $0.01 par value 2,955,527
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
Exhibit index located on page 11
Page 1 of 13
ENDOGEN, INC.
FORM 10-QSB
QUARTER ENDED AUGUST 31, 1996
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION Number
- ------------------------------ ------
Item 1 - Financial Statements (Unaudited)
Condensed Balance Sheet
August 31, 1996 and May 31, 1996................................ 3
Condensed Statement of Operations
for the three months ended August 31, 1996 and 1995............. 4
Condensed Statement of Cash Flows
for the three months ended August 31, 1996 and 1995............. 5
Notes to Condensed Financial Statements............................. 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.........................8
PART II - OTHER INFORMATION
- ---------------------------
Item 6 - Exhibits and Reports on Form 8-K.................................9
Signatures.............................................................. 10
Index To Exhibits........................................................11
Page 2 of 13
PART I - ITEM 1
Financial Statements
ENDOGEN, INC.
CONDENSED BALANCE SHEET
August 31, May 31,
1996 1996
---------------- -----------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 717,314 $ 763,739
Accounts receivable, net of allowance for doubtful
accounts of $20,000 at August 31, 1996 and May 31,
1996 1,438,163 1,280,280
Accounts receivable - stockholder 111,604 149,067
Inventories 1,331,986 1,289,902
Prepaid expenses and other current assets 278,702 265,622
------------ ------------
Total current assets 3,877,769 3,748,610
Fixed assets, net 1,833,665 1,894,982
Patents and license costs, net 195,794 205,120
Other assets 710,970 707,668
------------ ------------
2,740,429 2,807,770
------------ ------------
$ 6,618,198 $ 6,556,380
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit $ 450,000 $ -
Current portion of notes payable - bank 51,813 64,723
Current portion of convertible note payable 400,596 400,596
Current portion of capital lease and other note
payable 7,031 13,355
Accounts payable and accrued expenses 1,090,632 1,126,338
------------ ------------
Total current liabilities 2,000,072 1,605,012
------------ ------------
Borrowings under line of credit - 450,000
Notes payable - bank 4,362 7,633
Convertible note payable 1,602,382 1,602,382
------------ ------------
1,606,744 2,060,015
------------ ------------
Stockholders' equity:
Common stock, $.01 par value; 5,000,000 shares
authorized; 2,952,477 and 2,949,346 shares
issued and outstanding at August 31, 1996
and May 31, 1996, respectively. 29,525 29,493
Additional paid-in capital 4,153,949 4,149,740
Accumulated deficit (1,172,092) (1,287,880)
------------ ------------
Total stockholders equity 3,011,382 2,891,353
============ ============
$ 6,618,198 $ 6,556,380
============ ============
See notes to condensed unaudited financial statements
Page 3 of 13
ENDOGEN, INC.
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
Three months ended
August 31,
1996 1995
------------ -------------
REVENUE:
Product sales $2,115,136 $1,315,419
Product sales to stockholder 111,345 106,140
---------- ----------
2,226,481 1,421,559
---------- ----------
COSTS AND EXPENSES:
Cost of sales 761,831 457,534
Cost of sales to stockholder 47,554 43,425
Selling, general & administrative 925,918 648,680
Research and development 297,146 251,384
---------- ----------
2,032,449 1,401,023
Income from operations 194,032 20,536
Interest income (expense), net (78,244) 3,894
---------- ----------
Net income $ 115,788 $ 24,430
========== ==========
Net income per share $ 0.04 $ 0.01
========== ==========
Weighted average shares
outstanding 3,245,245 3,046,713
========== ==========
See notes to condensed unaudited financial statements
Page 4 of 13
ENDOGEN, INC.
CONDENSED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
Three months ended
August 31,
1996 1995
---------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 115,788 $ 24,430
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization 192,699 72,658
Increase in accounts receivable (157,883) (48,404)
Decrease (increase) in accounts receivable -
stockholder 37,463 (16,948)
Decrease (increase) in inventories (42,084) 2,081
Increase in prepaid expenses and other assets (39,965) (95,650)
Increase in patent and license costs (5,500) (5,000)
Decrease in accounts payable and accrued expenses (35,706) (58,124)
---------- ----------
Net cash provided by (used for) operating
activities 64,812 (124,957)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (92,973) (20,324)
---------- ----------
Net cash used for investing activities (92,973) (20,324)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations and other note payable (22,505) (30,252)
Proceeds from issuance of common stock 4,241 33,069
---------- ----------
Net cash (used for) provided by financing
activities (18,264) 2,817
---------- ----------
Net decrease in cash and cash equivalents (46,425) (142,464)
Cash and cash equivalents, beginning of period 763,739 1,303,959
---------- ----------
Cash and cash equivalents, end of period $ 717,314 $1,161,495
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 9,347 $ 8,577
========== ==========
See notes to condensed unaudited financial statements
Page 5 of 13
ENDOGEN, INC.
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited condensed financial statements of Endogen, Inc. (the
"Company" or "Endogen") include, in the opinion of management, all
adjustments (consisting of normal and recurring adjustments) necessary for
a fair presentation of the Company's financial position as of August 31,
1996 and the results of operations for the three month periods ended August
31, 1996 and 1995. The results of operations are not necessarily indicative
of results for a full year.
These financial statements should be read in conjunction with the financial
statements contained in the Company's Form 10-K filed with the Securities
and Exchange Commission (the "SEC") on August 29, 1996 pursuant to the
Securities Exchange Act of 1934, as amended. Certain information and
footnote disclosures normally included in the financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the SEC rules and regulations.
2. Summary of Significant Accounting Policies
Net Income Per Share
Net income per share has been determined by taking net income divided by
the weighted average common shares and common share equivalents outstanding
during the period.
3. Inventories
Inventories consist of the following:
August 31, May 31,
1996 1996
------------- -------------
(Unaudited)
Raw materials and supplies $ 478,129 $ 294,176
Work in process
304,272 314,976
Finished goods 549,585
680,750
---------- ----------
$1,331,986 $1,289,902
========== ==========
4. Fixed Assets
Fixed assets consist of the following:
August 31, May 31,
1996 1996
------------- ------------
(Unaudited)
Laboratory equipment $ 924,900 $ 896,056
Computer and office equipment 651,794 603,540
Leasehold improvements 961,611 945,736
---------- ----------
2,538,305 2,445,332
Accumulated depreciation and amortization (704,640) (550,350)
---------- ----------
$1,833,665 $1,894,982
========== ==========
Page 6 of 13
ENDOGEN, INC.
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
August 31, May 31,
1996 1996
-------------- -------------
(Unaudited)
Accounts payable $ 542,878 $ 624,043
Accrued wages 185,096 138,204
Accrued royalties 191,632 147,357
Accrued professional fees 101,882 216,734
Accrued interest 69,144 --
========== ==========
$1,090,632 $1,126,338
========== ==========
Page 7 of 13
ENDOGEN, INC.
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
PART I - ITEM 2
Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion includes forward-looking statements, including, but not
limited to, statements with respect to the Company's future financial
performance, operating results, plans and objectives. Actual results may differ
materially from those currently anticipated depending upon a variety of factors.
Endogen, Inc. ("Endogen" or the "Company") is principally engaged in the
development, manufacture and sale of specialty reagents and immuno-assay test
kits for the biomedical research market. These products include over 200
specialty reagents and 49 immuno-assay test kits that measure immune system
function in human, mouse, rat or porcine samples. Products are sold directly in
the United States and through distributors in over 40 foreign countries.
Results of Operations
For the three months ended August 31, 1996, product revenues increased 57% to
$2,226,481 from $1,421,559 in the same period last year. This growth is
attributable to increased sales volume from existing Endogen product lines, new
product introductions and product lines acquired through the Company's
acquisition of T Cell Diagnostics ("TCD") in March 1996.
Cost of sales was $809,385 for the three months ended August 31, 1996 compared
with $500,959 for the same period last year. As a percentage of product
revenues, cost of sales was 36% for the three months ended August 31, 1996
compared with 35% in the same period last year. The slight difference was due
primarily to the increased inventory valuation of the finished goods acquired
from TCD under purchase accounting rules and the subsequent charge to cost of
goods for inventory sold during the first quarter.
Research and development expense was $297,146 for the three months ended August
31, 1996 versus $251,384 for the same period last year, an increase of $45,762.
As a result of the growth of Endogen's revenues, research and development
expense decreased as a percentage of revenues to 13% for the three months ended
August 31, 1996 from 18% for the same period last year. Future R&D spending is
expected to more closely approach historical levels including expenses related
to purchased technology. It is estimated that to complete development of the
acquired technology into commercially viable products, it would take up to one
year and an estimated $425,000.
Selling, general and administrative expense was $925,918 for the three months
ended August 31, 1996 compared with $648,680 for the same period last year. The
increase of $277,238 is due primarily to increases in sales and marketing
staffing and activities. As a percentage of product revenues, selling, general
and administrative expense decreased to 42% of revenues for the three months
ended August 31, 1996 compared with 46% for the same period last year. This
improvement is attributable to improved efficiencies stemming from the TCD
acquisition.
Net interest expense was $78,244 for the three months ended August 31, 1996
compared with net interest income of $3,894 for the same period last year. The
increase in interest expense is due primarily to a convertible subordinated note
in the original principal amount of $2,002,978 Endogen issued in connection with
the TCD acquisition in March 1996.
Liquidity and Capital Resources
The continued growth of Endogen's core business increases liquidity requirements
to fund working capital needs and capital expenditures. This includes financing
inventories and accounts receivable as well as the purchases of capital
equipment to support new product development and operations. Endogen has
financed its liquidity needs primarily through cash from operations and a
working capital line of credit with a bank.
At August 31, 1996, Endogen's cash position was $717,314, a decrease of $46,425
from May 31, 1996. At May 31, 1996, Endogen had utilized $450,000 of a $500,000
working capital line of credit with a bank. On August 28, 1996, the Company
refinanced its existing line of credit with a bank, providing for maximum
borrowings of $850,000. Outstanding borrowings totaled $450,000 at August 31,
1996. Also on August 28, 1996, the Company entered into an agreement for an
additional $400,000 from this bank in the form of a term loan.
Page 8 of 13
ENDOGEN, INC.
Based on management's current projections, Endogen believes that its financial
resources and cash flows from operations, together with the bank credit lines
currently available, will be sufficient to finance its current and planned
operations at least through May 31, 1997. There can be no assurance, however,
that the Company will not require additional working capital and, if it does
require such capital, that such capital will be available to the Company on
acceptable terms, if at all.
Certain Factors That May Affect Future Results
The Company does not provide forecasts of the future financial performance of
the Company. However, from time to time, information provided by the Company or
statements made by its employees may contain "forward-looking" information that
involve risks and uncertainties. In particular, statements contained in this
Form 10-QSB that are not historical facts constitute forward-looking statements
and are made under the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The Company's actual results of operations and
financial condition have varied and may in the future vary significantly from
those stated in any forward-looking statements. The Company's future operating
results are subject to risks and uncertainties and are dependent upon many
factors, including, without limitation, the Company's ability to (i) meet its
working capital and future liquidity needs, (ii) successfully implement its
strategic growth strategies, (ii) understand, anticipate and respond to rapidly
changing technologies, market trends and customer needs, (iv) develop,
manufacture and deliver high quality, technologically advanced products on a
timely basis to withstand competition from competitors which may have greater
financial, information gathering and marketing resources than the Company, (v)
obtain and protect licensing and intellectual property rights necessary for the
Company's technology and product development and on terms favorable to the
Company, and (vi) recruit and retain highly talented professionals in a
competitive job market. The Company's ability to market and sell its products
could also be adversely affected by the emergence of new competitors in the
market place and by changes resulting in increased government regulation of the
manufacture and sale of its products. In addition, a significant portion of the
Company's revenues are attributable to international customers, which may be
adversely affected by factors including fluctuations in exchange rates, adverse
political and economic conditions, tariff regulation, and difficulties in
obtaining export licenses. Each of these factors, and others, are discussed from
time to time in the filings made by the Company with the Securities and Exchange
Commission, including, but not limited to, the Company's Annual Report on Form
10-K filed on August 29, 1996.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) - EXHIBITS
11.1 Statement Re: Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) - REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter for which this
report is filed.
Page 9 of 13
ENDOGEN, INC.
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.
ENDOGEN, INC.
BY:
Date: October 15, 1996 /s/ Owen A. Dempsey
--------------------------------
Owen A. Dempsey
Director, President and
Chief Executive Officer
Date: October 15, 1996 /s/ Owen A. Dempsey
--------------------------------
Owen A. Dempsey
Treasurer (Principal Financial and
Chief Accounting Officer)
Page 10 of 13
ENDOGEN, INC.
INDEX TO EXHIBITS
Exhibit Number Description Page
- -------------- ----------- ----
11.1 Statement regarding computation of per share earnings...........12
27.1 Financial Data Schedule.........................................13