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 February 28, 1997
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 March 28, 1997
- ----------------------------- ---------------------------------------
Common Stock, $0.01 par value 3,403,829
Transitional Small Business Disclosure Format (check one):
Yes ___ No X
Exhibit index located on page 12
ENDOGEN, INC.
FORM 10-QSB
QUARTER ENDED FEBRUARY 28, 1997
TABLE OF CONTENTS
Page
Number
------
PART I - FINANCIAL INFORMATION
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Item 1 - Financial Statements (Unaudited)
Condensed Balance Sheet
February 28, 1997 and May 31, 1996...................................................................... 3
Condensed Statement of Operations
for the three months ended February 28, 1997 and February 29, 1996 and
for the nine months ended February 28, 1997 and February 29, 1996....................................... 4
Condensed Statement of Cash Flows
for the nine months ended February 28, 1997 and February 29, 1996....................................... 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........................................................................10
Signatures...................................................................................................... 11
Index To Exhibits................................................................................................12
Page 2 of 12
PART I - Item 1
Financial Statements
ENDOGEN, INC.
CONDENSED BALANCE SHEET
February 28, May 31,
1997 1996
-------------------- ---------------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 386,648 $ 763,739
Accounts receivable, net of allowance for doubtful accounts
of $20,000 at February 28, 1997 and May 31, 1996, 1,653,436 1,280,280
Accounts receivable - stockholder 80,154 149,067
Inventories 1,738,693 1,289,902
Prepaid expenses and other current assets 234,883 265,622
-------------------- ---------------------
Total current assets 4,093,814 3,748,610
Fixed assets, net 2,401,816 1,894,982
Patents and license costs, net 181,578 205,120
Other assets 588,715 707,668
-------------------- ---------------------
3,172,109 2,807,770
-------------------- ---------------------
$ 7,265,923 $ 6,556,380
==================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit $ 50,000 $ -
Current portion of notes payable - bank 23,814 64,723
Current portion of convertible note payable - 400,596
Current portion of term loan payable to a bank 133,333 -
Current portion of capital lease 5,227 13,355
Accounts payable and accrued expenses 1,586,365 1,126,338
-------------------- ---------------------
Total current liabilities 1,798,739 1,605,012
-------------------- ---------------------
Borrowings under line of credit - 450,000
Notes payable - bank - 7,633
Term loan payable to a bank 233,333 -
Capital lease obligations 16,276 -
Convertible note payable - 1,602,382
-------------------- ---------------------
249,609 2,060,015
-------------------- ---------------------
Stockholders' equity:
Common stock, $.01 par value; 10,000,000 and 5,000,000
shares authorized; 3,400,656 and 2,949,346 shares
issued and outstanding at February 28, 1997
and May 31, 1996, respectively. 34,006 29,493
Additional paid-in capital 6,064,168 4,149,740
Accumulated deficit (880,599) (1,287,880)
-------------------- ---------------------
Total stockholders equity 5,217,575 2,891,353
==================== =====================
$ 7,265,923 $ 6,556,380
==================== =====================
See notes to condensed unaudited financial statements
Page 3 of 12
ENDOGEN, INC.
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
February 28, February 29, February 28, February 29,
1997 1996 1997 1996
-------------- -------------- -------------- --------------
REVENUE:
Product sales $ 2,353,634 $ 1,439,426 $ 6,867,304 $ 4,070,747
Product sales to stockholder 125,636 124,058 316,077 339,416
-------------- -------------- -------------- --------------
2,479,270 1,563,484 7,183,381 4,410,163
-------------- -------------- -------------- --------------
COSTS AND EXPENSES:
Cost of sales 832,310 469,353 2,365,119 1,337,262
Cost of sales to stockholder 38,630 50,863 120,051 139,067
Selling, general & administrative 1,024,075 676,490 3,044,458 1,970,070
Research and development 384,125 281,287 1,014,021 782,574
-------------- -------------- -------------- --------------
2,279,140 1,477,993 6,543,649 4,228,973
-------------- -------------- -------------- --------------
Income from operations 200,130 85,491 639,732 181,190
Interest income (expense), net (37,018) 4,562 (157,451) 5,238
-------------- -------------- -------------- --------------
Net income before provision
for income taxes 163,112 90,053 482,281 186,428
Provision for income taxes 25,000 - 75,000 -
-------------- -------------- -------------- --------------
Net income $ 138,112 $ 90,053 $ 407,281 $ 186,428
============== ============== ============== ==============
Net income per share $ 0.04 $ 0.03 $ 0.12 $ 0.06
============== ============== ============== ==============
Weighted average shares
outstanding 3,371,889 3,088,835 3,291,003 2,987,994
============== ============== ============== ==============
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)
Nine Months Ended
February 28, February 29,
1997 1996
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 407,281 $ 186,428
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 561,514 254,798
Increase in accounts receivable (373,156) (226,958)
Decrease (increase) in accounts receivable - stockholder 68,913 (32,266)
Increase in inventories (448,791) (91,800)
Decrease in prepaid expenses and other assets 78,946 27,395
Increase in patent and license costs (20,500) (40,371)
Increase (decrease) in accounts payable and accrued expenses 460,028 (158,354)
--------------- ---------------
Net cash provided (used) by operating activities 734,235 (81,128)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (953,559) (316,445)
Purchase of Cytokine Sciences, Inc. - (100,000)
--------------- ---------------
Net cash used for investing activities (953,559) (416,445)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations and other debt, net (674,028) (328,489)
Proceeds from borrowings under term loan payable to a bank 400,000 -
Proceeds from issuance of common stock 116,261 265,750
--------------- ---------------
Net cash used for financing activities (157,767) (62,739)
--------------- ---------------
Net decrease in cash and cash equivalents (377,091) (560,312)
Cash and cash equivalents, beginning of period 763,739 1,303,959
--------------- ---------------
Cash and cash equivalents, end of period $ 386,648 $ 743,647
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
AND NON-CASH FINANCING ACTIVITIES:
Cash paid for interest $ 163,862 $ 25,926
=============== ===============
Cash paid for income taxes $ 50,000 $ -
=============== ===============
Issuance of common stock upon conversion of convertible note payable $ 1,802,680 $ -
=============== ===============
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 February 28,
1997 and the results of operations for the three and nine month periods
ended February 28, 1997 and February 29, 1996. 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 $106,000 and an increase in earnings per share of $.01 and
$.03 for the three- and nine-month periods ended February 28, 1997.
3. Inventories
Inventories consist of the following:
February 28, May 31,
1997 1996
---------------- ----------------
Raw materials and supplies $ 624,020 $ 294,176
Work in process 610,146 314,976
Finished goods 504,527 680,750
---------------- ----------------
$ 1,738,693 $ 1,289,902
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Page 6 of 12
ENDOGEN, INC.
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
4. Fixed Assets
Fixed assets consist of the following:
February 28, May 31,
1997 1996
---------------- ----------------
Laboratory equipment $ 960,128 $ 896,056
Computer and office equipment 749,576 603,540
Leasehold improvements 1,689,187 945,736
---------------- ----------------
3,398,891 2,445,332
Accumulated depreciation and amortization (997,075) (550,350)
---------------- ----------------
$ 2,401,816 $ 1,894,982
================ ================
5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
February 28, May 31,
1997 1996
---------------- ----------------
Accounts payable $ 803,950 $ 624,043
Accrued wages 302,019 138,204
Accrued royalties 325,275 147,357
Accrued professional fees 155,122 216,734
================ ================
$ 1,586,366 $ 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.
7. Convertible Note Payable
On February 10, 1997, T Cell Diagnostics, Inc. exercised its right to
convert a convertible subordinated note into 389,347 shares of the
Company's common stock at a conversion price equal to $4.63 per share.
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 50 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 nine months ended February 28, 1997, product revenues increased 63% to
$7,183,381 from $4,410,163 in the same period last year. Revenues in the quarter
ended February 28, 1997 increased 59% to $2,479,270 from $1,563,484 in the same
quarter in fiscal 1996. 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 $2,485,170 for the nine months ended February 28, 1997
compared with $1,476,329 for the same period last year. As a percentage of
product revenues, cost of sales was 35% and 33% in the nine-month periods ended
February 28, 1997 and February 29, 1996, respectively. Similarly, cost of sales
was $870,940 or 35% of revenues in the third quarter ended February 28, 1997
versus $520,216 or 33% in the same quarter in fiscal 1996. The increase in cost
of sales as a percentage of product revenues in fiscal 1997 is due to changes in
product mix between the fiscal 1997 and 1996 three- and nine-month periods.
Research and development expense was $1,014,021 for the nine months ended
February 28, 1997 versus $782,574 for the same period last year, an increase of
$231,447. As a result of the growth of Endogen's revenues, research and
development expense decreased as a percentage of revenues to 14% for the nine
months ended February 28, 1997 from 18% for the same period last year. For the
three months ended February 28, 1997, research and development expense was
$384,125 or 15% of revenues versus $281,287 or 18% of revenues for the prior
year quarter. 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 $3,044,458 for the nine months
ended February 28, 1997 compared with $1,970,070 for the same period last year.
The increase of $1,074,388 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 nine months
ended February 28, 1997 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 February
28, 1997, selling, general and administrative expense was $1,024,075 or 41% of
revenues versus $676,490 or 43% of revenues in the comparable 1996 quarter.
Net interest expense was $157,451 for the nine months ended February 28, 1997
compared with net interest income of $5,238 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. On February 10, 1997, TCD exercised its right to convert the
convertible subordinated note into 389,347 shares of the Company's common stock
at a conversion price equal to $4.63 per share.
Page 8 of 12
The Company's effective tax rate is 15% and 16% for the three and nine months
ended February 28, 1997, respectively. 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.
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 February 28, 1997, Endogen's cash position was $386,648, a decrease of
$377,091 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 February 28, 1997 and outstanding borrowings
under a term loan agreement totaled $366,666 at February 28, 1997.
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 Reports on Form 10-QSB filed on
October 15, 1996 and January 13, 1997.
Page 9 of 12
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 10 of 12
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: April 3, 1997 /s/ Owen A. Dempsey
--------------------------------
Owen A. Dempsey
Director, President and
Chief Executive Officer
Date: April 3, 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
INDEX TO EXHIBITS
Exhibit Number Description Page
- -------------- ----------- ----
11.1 Statement regarding Computation of Earnings per Share....
27.1 Financial Data Schedule..................................
Page 12 of 12