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 November 30, 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 01801-1059
(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 January 3, 1997
---------------------------- ----------------------------------------
Common Stock, $0.01 par value 2,974,434
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
Exhibit index located on page 12
Page 1 of 12
ENDOGEN, INC.
FORM 10-QSB
QUARTER ENDED NOVEMBER 30, 1996
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION Number
- ------------------------------ ------
Item 1 - Financial Statements (Unaudited)
Condensed Balance Sheet
November 30, 1996 and May 31, 1996...............................3
Condensed Statement of Operations
for the three months ended November 30, 1996 and 1995 and
for the six months ended November 30, 1996 and 1995..............4
Condensed Statement of Cash Flows
for the six months ended November 30, 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 4 - Submission of Matters to a Vote of Security Holders.............10
Item 6 - Exhibits and Reports on Form 8-K................................10
Signatures.............................................................. 11
Index To Exhibits........................................................12
Page 2 of 12
PART I - Item 1
Financial Statements
ENDOGEN, INC.
CONDENSED BALANCE SHEET
November 30, May 31,
1996 1996
------------ -------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 405,342 $ 763,739
Accounts receivable, net of allowance for
doubtful accounts of $20,000 at
November 30, 1996 and May 31, 1996, 1,517,432 1,280,280
Accounts receivable - stockholder 68,496 149,067
Inventories 1,577,128 1,289,902
Prepaid expenses and other current assets 218,989 265,622
----------- ----------
Total current assets 3,787,387 3,748,610
Fixed assets, net 2,092,164 1,894,982
Patents and license costs, net 195,960 205,120
Other assets 633,753 707,668
----------- ----------
2,921,877 2,807,770
----------- ----------
$ 6,709,264 $6,556,380
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit $ 50,000 $ -
Current portion of notes payable - bank 37,814 64,723
Current portion of convertible note payable 400,596 400,596
Current portion of term loan payable to a bank 133,333 -
Current portion of capital lease and other
note payable - 13,355
Accounts payable and accrued expenses 1,205,347 1,126,338
----------- ----------
Total current liabilities 1,827,090 1,605,012
----------- ----------
Borrowings under line of credit - 450,000
Notes payable - bank 2,181 7,633
Term loan payable to a bank 266,667 -
Convertible note payable 1,402,084 1,602,382
----------- ----------
1,670,932 2,060,015
----------- ----------
Stockholders' equity:
Common stock, $.01 par value; 10,000,000 and
5,000,000 shares authorized; 2,974,434 and
2,949,346 shares issued and outstanding at
November 30, 1996 and May 31, 1996,
respectively. 29,744 29,493
Additional paid-in capital 4,200,211 4,149,740
Accumulated deficit (1,018,713) (1,287,880)
---------- -----------
Total stockholders equity 3,211,242 2,891,353
---------- -----------
$6,709,264 $ 6,556,380
========== ===========
See notes to condensed unaudited financial statements
Page 3 of 12
ENDOGEN, INC.
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
November 30, November 30,
1996 1995 1996 1995
----------- ---------- ---------- ----------
REVENUE:
Product sales $2,398,533 $1,315,778 $4,513,669 $2,631,198
Product sales to stockholder 79,097 109,218 190,442 215,358
----------
---------- ---------- ----------
2,477,630 1,424,996 4,704,111 2,846,556
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 770,993 410,373 1,532,824 867,908
Cost of sales to stockholder 33,853 44,779 81,407 88,204
Selling, general & administrative 1,094,466 644,776 2,020,383 1,293,456
Research and development 332,750 249,903 629,896 501,287
---------- ---------- ---------- ----------
2,232,062 1,349,831 4,264,510 2,750,855
---------- ---------- ---------- ----------
Income from operations 245,568 75,165 439,601 95,701
Interest income (expense), net (42,189) (3,217) (120,434) 677
---------- ---------- ---------- ----------
Net income before provision
for income taxes 203,379 71,948 319,167 96,378
Provision for income taxes 50,000 - 50,000 -
---------- ---------- ---------- ----------
Net income $ 153,379 $ 71,948 $ 269,167 $ 96,378
========== ========== ========== ==========
Net income per share $ 0.05 $ 0.02 $ 0.08 $ 0.03
========== ========== ========== ==========
Weighted average shares
outstanding 3,257,576 3,105,894 3,250,665 3,061,311
========== ========== ========== ==========
See notes to condensed unaudited financial statements
Page 4 of 12
ENDOGEN, INC.
CONDENSED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
Six Months Ended
November 30,
1996 1995
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 269,167 $ 96,378
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 375,362 126,859
(Increase) decrease in accounts receivable (237,152) 50,037
Decrease (increase) in accounts receivable - stockholder 80,571 (91,400)
Increase in inventories (287,226) (51,700)
Decrease (increase) in prepaid expenses and other assets 73,384 (25,750)
Increase in patent and license costs (20,500) (26,672)
Increase in accounts payable and accrued expenses 79,009 104,583
---------- ----------
Net cash provided by operating activities 332,615 182,335
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (495,720) (139,981)
---------- ----------
Net cash used for investing activities (495,720) (139,981)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations and other note payable, net (646,014) (294,804)
Proceeds from borrowings under term loan payable to a bank 400,000 -
Proceeds from issuance of common stock 50,722 198,627
---------- ----------
Net cash used for financing activities (195,292) (96,177)
---------- ----------
Net decrease in cash and cash equivalents (358,397) (53,823)
Cash and cash equivalents, beginning of period 763,739 1,303,959
---------- ----------
Cash and cash equivalents, end of period $ 405,342 $1,250,136
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 125,838 $ 20,033
========== ==========
Cash paid for income taxes $ 50,000 $ --
========== ==========
See notes to condensed unaudited financial statements
Page 5 of 12
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 November 30,
1996 and the results of operations for the three and six month periods
ended November 30, 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.
Change in Estimate
Effective September 1, 1996, the Company changed its estimate of the
remaining service life of certain fixed assets. The effect of the change
in estimate was a decrease in depreciation expense of approximately
$53,000 and an increase in earnings per share of $.02 for the three months
ended November 30, 1996.
3. Inventories
Inventories consist of the following:
November 30, May 31,
1996 1996
------------ ------------
Raw materials and supplies $ 704,036 $ 294,176
Work in process 436,311 314,976
Finished goods 436,781 680,750
---------- -----------
$1,577,128 $1,289,902
========== ===========
4. Fixed Assets
Fixed assets consist of the following:
November 30, May 31,
1996 1996
----------- -----------
Laboratory equipment $ 942,400 $ 896,056
Computer and office equipment 690,664 603,540
Leasehold improvements 1,307,988 945,736
---------- ----------
2,941,052 2,445,332
Accumulated depreciation and amortization (848,888) (550,350)
---------- ----------
$2,092,164 $1,894,982
========== ==========
Page 6 of 12
Endogen, Inc.
Notes to Condensed Unaudited Financial Statements
5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
November 30, May 31,
1996 1996
------------ --------
Accounts payable $ 696,544 $ 624,043
Accrued wages 178,172 138,204
Accrued royalties 173,024 147,357
Accrued professional fees 126,147 216,734
Accrued interest 31,460 --
---------- ----------
$1,205,347 $1,126,338
========== ==========
6. Common Stock
On November 6, 1996, the stockholders of the Company approved an increase
in the number of authorized shares of common stock from 5,000,000 to
10,000,000 shares.
Page 7 of 12
ENDOGEN, INC.
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 pharmaceutical, biotechnology and biomedical research. These products
include over 200 specialty reagents and 49 immuno-assay test kits that measure
immune system function in human, mouse, rat, rabbit or porcine samples. Products
are sold directly in the United States and through distributors in over 40
foreign countries.
Results of Operations
For the six months ended November 30, 1996, product revenues increased 65% to
$4,704,111 from $2,846,556 in the same period last year. Revenues in the quarter
ended November 30, 1996 increased 74% to $2,477,630 from $1,424,996 in the same
quarter in 1995. The 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 $1,614,231 for the six months ended November 30, 1996 compared
with $956,112 for the same period last year. As a percentage of product
revenues, cost of sales was 34% in each of the six-month periods ended November
30, 1996 and 1995, respectively. Similarly, cost of sales was $804,846 or 32% of
revenues in the second quarter ended November 30, 1996 versus $455,152 or 32% in
the same quarter in 1995.
Research and development expense was $629,896 for the six months ended November
30, 1996 versus $501,287 for the same period last year, an increase of $128,609.
As a result of the growth of Endogen's revenues, research and development
expense decreased as a percentage of revenues to 13% for the six months ended
November 30, 1996 from 18% for the same period last year. For the three months
ended November 30, 1996, research and development expense was $332,750 or 13% of
revenues versus $249,903 or 18% of revenues for the prior year quarter. Future
research and development spending could, however, be expected to more closely
approach historical levels. Endogen plans to continue to spend heavily on
research and development in order to develop new products and to upgrade
existing products.
Selling, general and administrative expense was $2,020,383 for the six months
ended November 30, 1996 compared with $1,293,456 for the same period last year.
The increase of $726,927 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 43% of revenues for the six months ended
November 30, 1996 compared with 45% for the same period last year. This
improvement is attributable to improved efficiencies stemming from the TCD
acquisition and increased product revenues. For the three months ended November
30, 1996, selling, general and administrative expense was $1,094,466 or 44% of
revenues versus $644,776 or 45% of revenues in the comparable 1995 quarter.
Net interest expense was $120,434 for the six months ended November 30, 1996
compared with net interest income of $677 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 issued by Endogen in connection
with the TCD acquisition in March 1996 and borrowings under a term note payable
with a bank.
The Company's effective tax rate is 16% for the three and six months ended
November 30, 1996. The effective rate is a result of 1997 operating income and
expected utilization of the Company's net operating loss and research and
development tax credit carryforwards. The Company did not have a provision for
income taxes during 1996 due to cumulative operating losses.
Page 8 of 12
ENDOGEN, INC.
Liquidity and Capital Resources
The substantial growth of Endogen's business has led to increased liquidity
requirements to fund working capital needs and capital expenditures. This
includes financing inventories and accounts receivable to support the Company's
growing operations, as well as purchases of new laboratory equipment and
leasehold improvements to support new product development. Endogen has financed
its liquidity needs primarily through cash from operations, a working capital
line of credit with a bank and a term loan payable to a bank.
At November 30, 1996, Endogen's cash position was $405,342, a decrease of
$358,397 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 with this bank under a
line of credit totaled $50,000 at November 30, 1996 and outstanding borrowings
under a term loan agreement totaled $400,000 at November 30, 1996.
Based on management's current projections, Endogen believes that its financial
resources and cash flows from operations, together with the bank credit line and
term loan currently available, will be sufficient to finance its current and
planned operations for at least the next twelve months. 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, (iii) 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 and its Quarterly Report on Form 10-QSB filed on
October 15, 1996.
Page 9 of 12
ENDOGEN, INC.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
The annual meeting of Stockholders of Endogen, Inc. was held on
November 6, 1996. A vote was proposed (1) to elect members of the
Company's Board of Directors to serve for the ensuing year or until
their successors are elected and qualified, or until their earlier
resignation or removal; (2) to amend the Company's Restated Articles of
Organization to increase the number of authorized shares of Common
Stock, $.01 par value per share, from 5,000,000 to 10,000,000 shares;
and (3) to ratify the selection of the firm of Price Waterhouse LLP as
independent auditors for the fiscal year ending May 31, 1997. The
shareholder voting results are as follows:
Votes Votes Votes Broker
for against abstained Non-votes
(1) Election of:
Owen A. Dempsey 2,504,959 77,751 - -
Wallace G. Dempsey 2,505,027 77,683 - -
Irwin J. Gruverman 2,394,027 188,683 - -
Hayden H. Harris 2,504,734 77,976 - -
Wolfgang Woloszczuk 2,505,027 77,683 - -
(2) Amend Restated Articles of Organization
2,458,789 105,200 18,721 -
(2) Ratify Price Waterhouse LLP 2,568,048 4,203 10,459 -
Item 6 - Exhibits and Reports on Form 8-K
(a) - EXHIBITS
--------
3.1 Restated Articles of Organization
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 10 of 12
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: January 13, 1997 /s/ Owen A. Dempsey
--------------------------------
Owen A. Dempsey
Director, President and
Chief Executive Officer
Date: January 13, 1997 /s/ Avery W. Catlin
--------------------------------
Avery W. Catlin
Vice President, Finance, Treasurer
and Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
Page 11 of 12
ENDOGEN, INC.
INDEX TO EXHIBITS
Exhibit Number Description Page
3.1 Restated Articles of Organization...........................
11.1 Statement regarding Computation of Earnings per Share.......
27.1 Financial Data Schedule.....................................
Page 12 of 12