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, 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 Its 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)
(781) 937-0890
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) 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
--- ---
State 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 6, 1998
- ------------------------------ ----------------------------------------
Common Stock, $0.01 par value 3,440,079
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
Exhibit index located on page 17
Page 1 of 17
<PAGE>
ENDOGEN, INC.
FORM 10-QSB
QUARTER ENDED NOVEMBER 30, 1997
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION Number
- ------------------------------ ------
Item 1 - Financial Statements (Unaudited)
Balance Sheet
November 30, 1997 and May 31, 1997................................ 3
Income Statement
for the three months ended November 30, 1997 and 1996............. 4
Income Statement
for the six months ended November 30, 1997 and 1996............... 5
Statement of Cash Flows
for the six months ended November 30, 1997 and 1996............... 6
Notes to Financial Statements......................................... 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations........................ 10
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders............... 15
Item 6 - Exhibits and Reports on Form 8-K.................................. 15
Signatures................................................................. 16
Index To Exhibits.......................................................... 17
Page 2 of 17
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ENDOGEN, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
November 30, May 31,
1997 1997
-------------------- --------------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 741,463 $ 334,050
Accounts receivable, net of allowance for doubtful accounts
and returns of $50,000 at November 30, 1997 and May 31, 1997 1,420,462 1,612,908
Inventories 2,001,549 1,817,440
Prepaid expenses and other current assets 292,908 221,862
Deferred income taxes 188,000 188,000
-------------------- --------------------
Total current assets 4,644,382 4,174,260
-------------------- --------------------
Fixed assets, net 2,292,978 2,327,550
Intangible assets, net 337,709 395,730
Deferred income taxes 280,000 280,000
Other assets 222,657 300,213
-------------------- --------------------
$ 7,777,726 $ 7,477,753
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of note payable - bank $ -- $ 7,633
Equipment line of credit 167,863 --
Current portion of term note payable 133,333 133,333
Current portion of capital lease obligations 6,184 5,528
Accounts payable and accrued expenses 1,181,561 1,292,939
-------------------- --------------------
Total current liabilities 1,488,941 1,439,433
-------------------- --------------------
Term note payable - bank 133,333 200,000
Capital lease obligations and other note payable 11,511 14,776
-------------------- --------------------
144,844 214,776
-------------------- --------------------
Stockholders' equity:
Common stock, $.01 par value; 10,000,000 shares authorized;
3,440,079 and 3,416,319 shares issued and outstanding at
November 30, 1997 and May 31, 1997, respectively 34,401 34,162
Additional paid-in capital 6,282,028 6,101,667
Deferred compensation (126,096) --
Accumulated deficit (46,392) (312,285)
-------------------- --------------------
Total stockholders' equity 6,143,941 5,823,544
==================== ====================
$ 7,777,726 $ 7,477,753
==================== ====================
</TABLE>
See notes to unaudited financial statements
Page 3 of 17
<PAGE>
ENDOGEN, INC.
INCOME STATEMENT
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
November 30, November 30,
1997 1996
-------------- --------------
<S> <C> <C>
REVENUES: $ 2,590,448 $ 2,477,630
-------------- --------------
COSTS AND EXPENSES:
Cost of revenues 885,928 804,846
Selling, general and administrative 1,027,607 1,094,466
Research and development 411,161 332,750
-------------- --------------
2,324,696 2,232,062
-------------- --------------
Income from operations 265,752 245,568
Interest expense, net (3,037) (42,189)
-------------- --------------
Income before income taxes 262,715 203,379
Provision for income taxes 91,000 50,000
-------------- --------------
Net income $ 171,715 $ 153,379
============== ==============
Net income per share $ 0.05 $ 0.05
============== ==============
Weighted average shares outstanding 3,691,394 3,257,576
============== ==============
</TABLE>
See notes to unaudited financial statements
Page 4 of 17
<PAGE>
ENDOGEN, INC.
INCOME STATEMENT
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
November 30, November 30,
1997 1996
-------------- --------------
<S> <C> <C>
REVENUES: $ 4,914,459 $ 4,704,111
-------------- --------------
COSTS AND EXPENSES:
Cost of revenues 1,778,992 1,614,231
Selling, general and administrative 1,986,819 2,020,383
Research and development 744,500 629,896
-------------- --------------
4,510,311 4,264,510
-------------- --------------
Income from operations 404,148 439,601
Interest expense, net (6,255) (120,434)
-------------- --------------
Income before income taxes 397,893 319,167
Provision for income taxes 132,000 50,000
-------------- --------------
Net income $ 265,893 $ 269,167
============== ==============
Net income per share $ 0.07 $ 0.08
============== ==============
Weighted average shares outstanding 3,637,986 3,250,665
============== ==============
</TABLE>
See notes to unaudited financial statements
Page 5 of 17
<PAGE>
ENDOGEN, INC.
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
November 30, November 30,
1997 1996
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 265,893 $ 269,167
--------------- ---------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 408,114 375,362
Decrease (increase) in accounts receivable 192,446 (156,581)
Increase in inventories (184,109) (287,226)
(Increase) decrease in prepaid expenses and other assets (10,125) 73,384
Increase in intangible assets -- (20,500)
(Decrease) increase in accounts payable and accrued expenses (111,378) 79,009
--------------- ---------------
Net cash provided by operating activities 560,841 332,615
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (298,886) (495,720)
--------------- ---------------
Net cash used for investing activities (298,886) (495,720)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations and notes payable (76,909) (646,014)
Proceeds from borrowings under an equipment line of credit with a bank 167,863 --
Proceeds from borrowings under term loan payable to a bank -- 400,000
Proceeds from issuance of common stock 54,504 50,722
--------------- ---------------
Net cash provided by (used in) financing activities 145,458 (195,292)
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 407,413 (358,397)
Cash and cash equivalents, beginning of period 334,050 763,739
--------------- ---------------
Cash and cash equivalents, end of period $ 741,463 $ 405,342
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 18,551 $ 125,838
=============== ===============
Cash paid for income taxes $ 45,465 $ 50,000
=============== ===============
</TABLE>
See notes to unaudited financial statements
Page 6 of 17
<PAGE>
ENDOGEN, INC.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited 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, 1997
and the results of operations for the three and six month periods ended
November 30, 1997 and November 30, 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-KSB filed with the
Securities and Exchange Commission (the "SEC") on August 8, 1997 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 is determined by dividing net income by the
weighted average common shares and common share equivalents outstanding
during the period.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
per Share" which replaces primary and fully diluted earnings per share
with basic and diluted earnings per share. SFAS 128 is effective for the
Company beginning in the third quarter of fiscal 1998 and requires
restatement of all previously reported interim and annual earnings per
share data. Pro forma net income per share data assuming application of
SFAS 128 for each of the respective periods follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
------------------- --------------------
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic................................. $0.05 $0.05 $0.08 $0.09
Diluted............................... $0.05 $0.05 $0.07 $0.08
</TABLE>
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
November 30, May 31,
1997 1997
---------------- ----------------
<S> <C> <C>
Raw materials and supplies $ 890,746 $ 797,104
Work in process 420,083 369,290
Finished goods 690,720 651,046
---------------- ----------------
$ 2,001,549 $ 1,817,440
================ ================
</TABLE>
Page 7 of 17
<PAGE>
ENDOGEN, INC.
NOTES TO FINANCIAL STATEMENTS
4. Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
November 30, May 31,
1997 1997
---------------- ----------------
<S> <C> <C>
Laboratory equipment $ 1,106,802 $ 967,289
Computer and office equipment 918,788 847,518
Leasehold improvements 1,721,078 1,632,975
---------------- ----------------
3,746,668 3,447,782
Accumulated depreciation and amortization (1,453,690) (1,120,232)
---------------- ----------------
$ 2,292,978 $ 2,327,550
================ ================
</TABLE>
5. Intangible Assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
November 30, May 31,
1997 1997
---------------- ----------------
<S> <C> <C>
Acquired technology $ 305,290 $ 305,290
Patent costs 68,240 68,240
License costs 401,559 401,559
---------------- ----------------
775,089 775,089
Accumulated depreciation and amortization (437,380) (379,359)
---------------- ----------------
$ 337,709 $ 395,730
================ ================
</TABLE>
6. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
November 30, May 31,
1997 1997
---------------- ----------------
<S> <C> <C>
Accounts payable $ 639,387 $ 756,957
Accrued wages 190,551 221,608
Accrued royalties 187,694 241,751
Accrued professional fees 163,929 72,623
---------------- ----------------
$ 1,181,561 $ 1,292,939
================ ================
</TABLE>
Page 8 of 17
<PAGE>
ENDOGEN, INC.
NOTES TO FINANCIAL STATEMENTS
7. Borrowings
In August 1997, the Company modified its existing credit agreement with
a bank to provide for, among other things, an additional demand line of
credit of up to $250,000 available to finance certain equipment purchases
through April 1998 (the "Equipment Line"). Borrowings under the Equipment
Line bear interest at the prime rate plus 1.25% and are secured by all
corporate assets of the Company. The Equipment Line contains a feature
whereby outstanding borrowings at April 1998 automatically convert into a
term loan payable in thirty-six equal principal installments plus
interest. The Company has outstanding borrowings under the Equipment Line
of $167,863 at November 30, 1997. The credit agreement was also modified
to extend the maturity date on the Company's existing revolving line of
credit to August 1998 and to reduce the interest rate to the prime rate
plus 1.0%. Additionally, the interest rate on the existing term note
payable was reduced to the prime rate plus 1.25%.
8. Common Stock
On November 6, 1997, the stockholders of the Company approved an
increase in the number of shares available for issuance under the
Company's 1992 Stock Plan from 768,499 to 1,000,000 shares.
9. Commitments
On August 21, 1997, the Company entered into a Product Development and
Marketing Agreement (the "Agreement") with Third Wave Technologies, Inc.
("Third Wave") of Madison, Wisconsin. Under the terms of the Agreement,
Endogen will fund certain research and development activities at Third
Wave in exchange for certain exclusive, worldwide rights to sell and
distribute to the life science research market messenger RNA ("mRNA")
quantitation kits jointly developed by the two companies. Funding
payments, not to exceed $1,050,000 in total, will be made to Third Wave
quarterly by the Company over a three year period beginning December 1,
1997. In connection with the Agreement, the Company issued a five-year
warrant to Third Wave for the purchase of up to 125,000 shares of Endogen
common stock at a price of $6.00 per share. The warrant vests ratably over
three years from August 31, 1997. The Company has ascribed a value of
$134,500 to such warrant, which is being amortized on a straight-line
basis over three years.
Page 9 of 17
<PAGE>
ENDOGEN, INC.
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 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 260 specialty reagents and
57 immuno-assay test kits that measure immune system function in human, mouse,
rat, or porcine samples. Products marketed under Endogen's name are sold
directly in the United States and through distributors in over 40 foreign
countries. The Company also sells products on a private label basis to customers
who market these products under their own brand names.
Results of Operations
As an aid to understanding Endogen's operating results, the following table
shows each item from the income statement expressed as a percentage of revenues.
PERCENTAGE OF REVENUES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
------------------- -------------------
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues.................................... 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenues.......................... 34.2% 32.5% 36.2% 34.3%
Selling, general, and administrative...... 39.7% 44.2% 40.4% 42.9%
Research and development.................. 15.9% 13.4% 15.2% 13.4%
Income from operations...................... 10.2% 9.9% 8.2% 9.4%
Interest expense, net..................... 0.1% 1.7% 0.1% 2.6%
Net income before income taxes.............. 10.1% 8.2% 8.1% 6.8%
Provision for income taxes................ 3.5% 2.0% 2.7% 1.1%
Net income.................................. 6.6% 6.2% 5.4% 5.7%
</TABLE>
Three Month Period Ended November 30, 1997 As Compared
with the Three Month Period Ended November 30, 1996
------------------------------------------------------
Revenues
For the three months ended November 30, 1997, total revenues increased to
$2,590,448 from $2,477,630 in the same period last year, an increase of $112,818
or 4.6%. Domestic and international sales of Endogen branded products increased
to $1,722,106 during the second quarter of fiscal 1998 from $1,535,813 in the
same quarter last year, an increase of 12%. This growth was due primarily to
increased sales volume from existing Endogen product lines, new product
introductions and an expansion of the international distribution network. This
increase was offset in part by a 10% decline in private label sales, which
decreased to $837,107 in the second quarter of fiscal 1998 from $929,179 during
the second quarter of fiscal 1997. This decline was attributable primarily to a
decrease in sales to one major private label customer. The Company believes that
this customer has undertaken to increase its inventory turnover which reduced
Endogen's second quarter private label sales.
Page 10 of 17
<PAGE>
ENDOGEN, INC.
Cost of Revenues
Cost of revenues was $885,928 for the three months ended November 30, 1997
compared with $804,846 for the same period last year, an increase of $81,082 or
10%. As a percentage of product revenues, cost of revenues was 34% and 33% in
the three-month periods ended November 30, 1997 and 1996, respectively. The
increase in cost of revenues as a percentage of product revenues during the
second quarter of fiscal 1998 was due in part to changes in the mix of products
sold, increases in full-time headcount as a result of the Company's fiscal 1997
growth, higher fixed overhead costs and increased royalty expenses associated
with new product introductions.
Selling, General and Administrative Expenses
Selling, general and administrative expense was $1,027,607 for the three
months ended November 30, 1997 compared with $1,094,466 for the same period last
year, a decrease of $66,859 or 6%. The decrease was due primarily to a decline
in professional fees incurred in fiscal 1998 offset in part by increases in
sales and administrative staffing over the prior year period. As a percentage of
product revenues, selling, general and administrative expense decreased to 40%
of revenues for the three months ended November 30, 1997 compared with 44% for
the same period last year.
Research and Development Expenses
Research and development expense was $411,161 for the three months ended
November 30, 1997 versus $332,750 for the same period last year, an increase of
$78,411, or 24%. Research and development expense increased as a percentage of
product revenues to 16% for the three months ended November 30, 1997 from 13%
for the same period last year. Endogen plans to continue to spend heavily on
product development for new products and to upgrade existing products.
Interest Expense, net
Net interest expense was $3,037 for the three months ended November 30, 1997
compared with net interest expense of $42,189 for the same period last year, a
decrease of $39,152 or 93%. Interest expense for the three-month period ended
November 30, 1996, reflects interest incurred on the convertible subordinated
note (the "Note") in the original principal amount of $2,002,978 issued by
Endogen in connection with the T Cell Diagnostics, Inc. acquisition in March
1996. The Note was converted into shares of the Company's common stock in
February 1997. In addition, during fiscal 1997 and fiscal 1998, interest expense
was incurred in connection with borrowings under notes payable, an equipment
line of credit and capital lease obligations.
Income Taxes
The Company's effective tax rate was 35% for the three months ended November
30, 1997 as compared to 25% for the comparable period in fiscal 1997. The
increase in the effective tax rate in fiscal 1998 is primarily the result of the
Company's use of its remaining net operating loss carryforwards during fiscal
1998.
Six Month Period Ended November 30, 1997 As Compared
with the Six Month Period Ended November 30, 1996
----------------------------------------------------
Revenues
For the six months ended November 30, 1997, total revenues increased to
$4,914,459 from $4,704,111 in the same period last year, an increase of $210,348
or 4.5%. Domestic and international sales of Endogen branded products increased
to $3,494,488 during the first six months of fiscal 1998 from $3,023,688 in the
same period last year, an increase of 16%. This growth was due primarily to
increased sales volume from existing Endogen product lines, new product
introductions and an expansion of the international distribution network. This
increase was offset in part by a 16% decline in private label sales, which
decreased to $1,376,811 in the first six months of fiscal 1998 from $1,632,848
during the first six months of fiscal 1997. This decline was attributable
primarily to a decrease in sales to one major private label customer. The
Company believes that this customer has undertaken to increase its inventory
turnover which reduced Endogen's six-month private label sales.
Page 11 of 17
<PAGE>
ENDOGEN, INC.
Cost of Revenues
Cost of revenues was $1,778,992 for the six months ended November 30, 1997
compared with $1,614,231 for the same period last year, an increase of $164,761
or 10%. As a percentage of product revenues, cost of revenues was 36% and 34% in
the six-month periods ended November 30, 1997 and 1996, respectively. The
increase in cost of revenues as a percentage of product revenues during the
first six months of fiscal 1998 was due in part to changes in the mix of
products sold, increases in full-time headcount as a result of the Company's
fiscal 1997 growth, higher fixed overhead costs and increased royalty expenses
associated with new product introductions.
Selling, General and Administrative Expenses
Selling, general and administrative expense was $1,986,819 for the six months
ended November 30, 1997 compared with $2,020,383 for the same period last year,
a decrease of $33,564 or 2%. The decrease was due primarily to a decline in
professional fees incurred in fiscal 1998 offset in part by increases in sales
and administrative staffing over the prior year period. As a percentage of
product revenues, selling, general and administrative expense decreased to 40%
of revenues for the six months ended November 30, 1997 compared with 43% for the
same period last year.
Research and Development Expenses
Research and development expense was $744,500 for the six months ended
November 30, 1997 versus $629,896 for the same period last year, an increase of
$114,604, or 18%. Research and development expense increased as a percentage of
product revenues to 15% for the six months ended November 30, 1997 from 13% for
the same period last year. Endogen plans to continue to spend heavily on product
development for new products and to upgrade existing products. In August 1997,
the Company entered into a Product Development and Marketing Agreement with
Third Wave for the joint development of a new line of products which will
quantitatively measure levels of mRNA.
Interest Expense, net
Net interest expense was $6,255 for the six months ended November 30, 1997
compared with net interest expense of $120,434 for the same period last year, a
decrease of $114,179 or 95%. Interest expense for the six-month period ended
November 30, 1996, reflects interest incurred on the convertible subordinated
note (the "Note") in the original principal amount of $2,002,978 issued by
Endogen in connection with the T Cell Diagnostics, Inc. acquisition in March
1996. The Note was converted into shares of the Company's common stock in
February 1997. In addition, interest expense decreased in fiscal 1998 versus
fiscal 1997 as a result of the reduction in average outstanding borrowings under
other notes payable and capital lease obligations.
Income Taxes
The Company's effective tax rate was 33% for the six months ended November
30, 1997 as compared to 16% for the comparable period in fiscal 1997. The
increase in the effective tax rate in fiscal 1998 is primarily the result of the
Company's use of its remaining net operating loss carryforwards during fiscal
1998.
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. In addition, in
connection with its Product Development and Marketing Agreement with Third Wave,
the Company is obligated to make funding payments, not to exceed $1,050,000 in
total, to Third Wave in quarterly installments over a three year period
beginning December 1, 1997. Endogen has financed its liquidity needs primarily
through cash from operations, a working capital line of credit, an equipment
line of credit and a term loan payable to a bank.
Page 12 of 17
<PAGE>
ENDOGEN, INC.
At November 30, 1997, Endogen's cash position was $741,463, an increase of
$407,413 from May 31, 1997. At November 30, 1997, the Company had $850,000
available under a working capital line of credit and $82,137 under an equipment
line of credit with a bank. The interest rate on these lines is 1.0% and 1.25%
above the bank's prime rate, respectively.
Cash Flows from Operating Activities
Net cash provided by operations during the six-month period ended November
30, 1997 was $560,841 as compared to $332,615 in the same fiscal 1997 period.
For the first six months of fiscal 1998, net cash provided by operating
activities consisted primarily of depreciation and amortization of $408,114, net
income of $265,893 and a decrease in accounts receivable of $192,446. This was
offset in part by an increase in inventories of $184,109, an increase in prepaid
expenses and other assets of $10,125 and a decrease in accounts payable and
accrued expenses of $111,378. For the first six months of fiscal 1997, net cash
provided by operations consisted primarily of net income of $269,167,
depreciation and amortization of $375,362, decrease prepaid expenses and other
assets of $73,384 and an increase in accounts payable and accrued expenses of
$79,009. This was partially offset by increased accounts receivable of $156,581,
increased inventories of $287,226 and increased intangible assets of $20,500.
Cash Flows from Investing Activities
Investments in capital equipment totaled $298,886 and $495,720 for the six
months ended November 30, 1997 and 1996, respectively.
Cash Flows from Financing Activities
During the six-month period ended November 30, 1997, cash was used to
decrease borrowings by $76,909 and was offset by proceeds of $167,863 from
borrowings under an equipment line of credit and from the issuance of common
stock of $54,504. In the first six months of fiscal 1997, cash was used to
decrease borrowings by $246,014, and was offset in part by proceeds from the
issuance of common stock of $50,722.
The Company expects to continue expanding operations through internal growth
and strategic acquisitions which offer products similar or complementary to
those offered by the Company. Although the Company has no material current
acquisition agreements or arrangements, there may be opportunities which require
additional external financing, and the Company may from time to time seek to
obtain additional funds from public or private issuance of equity or debt
securities. There can be no assurance that such financing will be available at
all or on terms acceptable to the Company.
Based on management's current projections, Endogen believes that its
financial resources and cash flows from operations, together with borrowings
available from credit agreements with a bank, 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
Page 13 of 17
<PAGE>
ENDOGEN, INC.
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-KSB filed on August 8, 1997 and its Quarterly
Report on Form 10-QSB filed on October 9, 1997.
Page 14 of 17
<PAGE>
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, 1997. 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 1992 Stock Plan, (3) to amend the Company's 1993 Non-employee Director
Stock Option Plan; and (4) to ratify the selection of the firm of Price
Waterhouse LLP as independent auditors for the fiscal year ending May 31, 1998.
The shareholder voting results are as follows:
<TABLE>
<CAPTION>
Votes Votes Votes Broker
for against abstained Non-votes
<S> <C> <C> <C> <C>
(1) Election of:
Owen A. Dempsey 2,938,916 91,241 - -
Wallace G. Dempsey 2,938,916 91,241 - -
Irwin J. Gruverman 2,938,916 91,241 - -
Hayden H. Harris 2,938,916 91,241 - -
Wolfgang Woloszczuk 2,938,916 91,241 - -
(2) Amend 1992 Stock Plan 1,402,711 138,197 20,506 1,468,743
(3) Amend 1993 Non-employee
Director Stock Option Plan
2,754,578 107,945 25,585 142,049
(4) Ratify Price Waterhouse LLP 2,941,901 76,328 11,928 -
</TABLE>
Item 6 - Exhibits and Reports on Form 8-K
(a) - EXHIBITS
The following exhibits, required by Item 601 of Regulation S-B, are filed
as a part of this Quarterly Report on Form 10-QSB. Exhibit numbers, where
applicable, correspond to those of Item 601 of Regulation S-B.
10.1 Second Loan Modification Agreement dated as of August 27, 1997
between Endogen, Inc. and Silicon Valley Bank.
10.2 Equipment Line Promissory Note dated October 8, 1997 of Endogen,
Inc. to Silicon Valley Bank
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 15 of 17
<PAGE>
ENDOGEN, INC.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ENDOGEN, INC.
BY:
Date: January 9, 1998 /s/ Owen A. Dempsey
--------------------------------
Owen A. Dempsey
Director, President and
Chief Executive Officer
Date: January 9, 1998 /s/ Avery W. Catlin
--------------------------------
Avery W. Catlin
Vice President, Finance, Treasurer
and Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
Page 16 of 17
<PAGE>
ENDOGEN, INC.
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
10.1 Second Loan Modification Agreement dated as of August 27, 1997
between Endogen, Inc. and Silicon Valley Bank
10.2 Equipment Line Promissory Note dated October 8, 1997 of Endogen,
Inc. to Silicon Valley Bank
11.1 Statement Re: Computation of Earnings per Share.
27.1 Financial Data Schedule.
Page 17 of 17
SECOND LOAN MODIFICATION AGREEMENT
This SECOND LOAN MODIFICATION AGREEMENT is entered into as of August
27, 1997, by and between SILICON VALLEY BANK, a California-chartered bank with
its principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and
with a loan production office located at Wellesley Office Park, 40 William
Street, Suite 350, Wellesley, MA 02181, doing business under the name "Silicon
Valley East ("Bank"), and ENDOGEN, INC., a MASSACHUSETTS corporation with its
principal place of business at 30 COMMERCE WAY, WOBURN, MASSACHUSETTS 01801
("Borrower").
RECITALS
Borrower has borrowed money from Bank pursuant to certain Existing Loan
Documents, as defined below. In consideration of certain financial
accommodations from Bank, and Borrower's continuing obligations under the
Existing Loan Documents, Borrower and Bank agree as follows:
AGREEMENT
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which
may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a
Revolving Promissory Note dated August 28, 1996 in the original principal amount
of EIGHT HUNDRED FIFTY THOUSAND AND NO/100THS DOLLARS ($850,000) (the "Revolving
Note") and a Term Promissory Note dated August 28, 1996 in the original
principal amount of FOUR HUNDRED THOUSAND AND NO/100THS DOLLARS ($400,000) (the
"Term Note"). The Revolving Note and the Term Note are governed by the terms of
a Loan and Security Agreement dated August 28, 1996 between Borrower and Bank,
as amended by a Loan Modification Agreement dated as of May 7, 1997 between
Borrower and Bank, and as such Loan and Security Agreement may be further
amended from time to time (the "Loan Agreement").
Hereinafter, all indebtedness owing by Borrower to Bank under the
Revolving Note, the Term Note and the Loan Agreement shall be referred to as the
"Indebtedness."
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured
pursuant to the Loan Agreement. Hereinafter, the Loan Agreement, the Revolving
Note and the Term Note, together with all other documents securing payment of
the Indebtedness, shall be referred to as the "Existing Loan Documents."
3. DESCRIPTION OF CHANGES IN TERMS.
3.1 Modifications to Revolving Note. The Revolving Note is hereby
amended as follows:
The entire principal amount and all accrued interest shall be
due and payable on AUGUST 26, 1998.
3.2 Modifications to Definitions. Section 1.1 of the Loan Agreement is
hereby amended by substituting the following definitions for those set forth
therein for the same terms, and in the case of new definitions, by adding those
new definitions to that Section 1.1:
"Committed Equipment Line" means a credit extension of up to
TWO HUNDRED FIFTY THOUSAND AND NO/100THS Dollars ($250,000)
"Credit Extension" means each Advance, Equipment Advance,
Letter of Credit, Exchange Contract or any other extension of
credit by Bank for the benefit of Borrower hereunder.
"Equipment Advance" has the meaning set forth in Section
2.1.4.
1
<PAGE>
"Equipment Availability End Date" has the meaning set forth in
Section 2.1.4.
"Exchange Contract" has the meaning set forth in Section
2.1.3.
"Letter of Credit" means a letter of credit or similar
undertaking issued by Bank pursuant to Section 2.1.2.
"Letter of Credit Reserve" has the meaning set forth in
Section 2.1.2.
"Maturity Date" means March 27, 2001.
"Revolving Maturity Date" means August 26, 1998.
3.3 Modifications to Section 2.1 of Loan Agreement. Section 2.1
of the Loan Agreement is hereby replaced in its entirety
with the following
2.1 Credit Extensions. Borrower promises to pay to the order
of Bank, in lawful money of the United States of America, the
aggregate unpaid principal amount of all Credit Extensions
made by Bank to Borrower hereunder. Borrower shall also pay
interest on the unpaid principal amount of such Credit
Extensions at rates in accordance with the terms hereof.
2.1.1 Revolving Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Revolving Advances to Borrower
in an aggregate outstanding amount not to exceed (i) the
Committed Revolving Line or the Borrowing Base, whichever is
less, (ii) minus, the face amount of all outstanding Letters
of Credit (including drawn but unreimbursed Letters of
Credit), and (iii) minus the Foreign Exchange Reserve. Subject
to the terms and conditions of this Agreement, amounts
borrowed pursuant to this Section 2.1.1 may be repaid and
reborrowed at any time up to the Revolving Maturity Date.
(b) Whenever Borrower desires a Revolving Advance, Borrower
will notify Bank by facsimile transmission or telephone no
later than 3:00 p.m. Pacific time, on the Business Day that
the Revolving Advance is to be made. Each such notification
shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized
to make Revolving Advances under this Agreement, based upon
instructions received from a Responsible Officer or a designee
of a Responsible Officer, or without instructions if in Bank's
discretion such Revolving Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank
shall be entitled to rely on any telephonic notice given by a
person who Bank reasonably believes to be a Responsible
Officer or a designee thereof, and Borrower shall indemnify
and hold Bank harmless for any damages or loss suffered by
Bank as a result of such reliance. Bank will credit the amount
of Revolving Advances made under this Section 2.1 to
Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Revolving Advances
under this Section 2.1.1 and other amounts due under this
Agreement (except as otherwise expressly specified herein)
shall be immediately due and payable.
2
<PAGE>
2.1.2 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued Letters of Credit
for the account of Borrower in an aggregate outstanding face
amount not to exceed (i) the lesser of the Committed Revolving
Line or the Borrowing Base, whichever is less, (ii) minus the
then outstanding principal balance of the Advances; provided
that the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit and any
Letter of Credit Reserve) shall not in any case exceed TWO
HUNDRED FIFTY THOUSAND AND NO/100THS Dollars ($250,000). Each
Letter of Credit shall have an expiry date no later than three
hundred sixty (360) days after the Revolving Maturity Date,
provided that Borrower's Letter of Credit reimbursement
obligation shall be secured by cash on terms acceptable to
Bank at any time after the Revolving Maturity Date if the term
of this Agreement is not extended by Bank. All Letters of
Credit shall be in form and substance acceptable to Bank in
its sole discretion and shall be subject to the terms and
conditions of Bank's form of standard Application and Letter
of Credit Agreement.
(b) The obligation of Borrower to immediately reimburse Bank
for drawings made under Letters of Credit shall be absolute,
unconditional and irrevocable, and shall be performed strictly
in accordance with the terms of this Agreement and such
Letters of Credit, under all circumstances whatsoever.
Borrower shall indemnify, defend, protect and hold Bank
harmless from any loss, cost, expense or liability, including,
without limitation, reasonable attorneys' fees, arising out of
or in connection with any Letters of Credit.
(c) Borrower may request that Bank issue a Letter of Credit
payable in a currency other than United States Dollars. If a
demand for payment is made under any such Letter of Credit,
Bank shall treat such demand as an Advance to Borrower of the
equivalent of the amount thereof (plus cable charges) in
United States currency at the then prevailing rate of exchange
in San Francisco, California, for sales of that other currency
for cable transfer to the country of which it is the currency.
(d) Upon the issuance of any Letter of Credit payable in a
currency other than United States Dollars, Bank shall create a
reserve under the Committed Revolving Line for letters of
credit against fluctuations in currency exchange rates, in an
amount equal to ten percent (10%) of the face amount of such
Letter of Credit (the "Letter of Credit Reserve"). The amount
of such Letter of Credit Reserve may be amended by Bank from
time to time to account for fluctuations in the exchange rate.
The availability of funds under the Committed Revolving Line
shall be reduced by the amount of such Letter of Credit
Reserve for so long as such Letter of Credit remains
outstanding.
2.1.3 Foreign Exchange Contract; Foreign Exchange
Settlements.
(a) Subject to the terms of this Agreement, Borrower may enter
into foreign exchange contracts (the "Exchange Contracts") not
to exceed an aggregate amount of TWO HUNDRED FIFTY THOUSAND
3
<PAGE>
AND NO/100THS Dollars ($250,000) (the "Contract Limit"),
pursuant to which Bank shall sell to or purchase from Borrower
foreign currency on a spot or future basis. Borrower shall not
request any Exchange Contracts at any time it is out of
compliance with any of the provisions of this Agreement. All
Exchange Contracts must provide for delivery or settlement on
or before the Revolving Maturity Date. The amount available
under the Committed Revolving Line at any time shall be
reduced by the following amounts (the "Foreign Exchange
Reserve") on any given day (the "Determination Date"): (i) on
all outstanding Exchange Contracts on which delivery is to be
effected or settlement allowed more than two business days
after the Determination Date, 10% of the gross amount of the
Exchange Contracts; plus (ii) on all outstanding Exchange
Contracts on which delivery is to be effected or settlement
allowed within two business days after the Determination Date,
100% of the gross amount of the Exchange Contracts.
(b) Bank may, in its discretion, terminate the Exchange
Contracts at any time (a) that an Event of Default occurs or
(b) that there is no sufficient availability under the
Committed Revolving Line and Borrower does not have available
funds in its bank account to satisfy the Foreign Exchange
Reserve. If Bank terminates the Exchange Contracts, and
without limitation of any applicable indemnities, Borrower
agrees to reimburse Bank for any and all fees, costs and
expenses relating thereto or arising in connection therewith.
(c) Borrower shall not permit the total gross amount of all
Exchange Contracts on which delivery is to be effected and
settlement allowed in any two business day period to be more
than $100,000 (the "Settlement Limit") nor shall Borrower
permit the total gross amount of all Exchange Contracts to
which Borrower is a party, outstanding at any one time, to
exceed the Contract Limit. Notwithstanding the above, however,
the amount which may be settled in any two (2) business day
period may be increased above the Settlement Limit up to, but
in no event to exceed, the amount of the Contract Limit under
either of the following circumstances:
(i) if there is sufficient availability under the Committed
Revolving Line in the amount of the Foreign Exchange Reserve
as of each Determination Date, provided that Bank in advance
shall reserve the full amount of the Foreign Exchange Reserve
against the Committed Revolving Line; or
(ii) if there is insufficient availability under the Committed
Revolving Line, as to settlements within any two (2) business
day period, provided that Bank, in its sole discretion, may:
(A) verify good funds overseas prior to crediting Borrower's
deposit account with Bank (in the case of Borrower's sale of
foreign currency); or (B) debit Borrower's deposit account
with Bank prior to delivering foreign currency overseas (in
the case of Borrower's purchase of foreign currency).
(d) In the case of Borrower's purchase of foreign currency,
Borrower in advance shall instruct Bank upon settlement either
to treat the settlement amount as an advance under the
Committed Revolving Line, or to debit Borrower's account for
the amount settled.
(e) Borrower shall execute all standard form applications and
agreements of Bank in connection with the Exchange Contracts
4
<PAGE>
and, without limiting any of the terms of such applications
and agreements, Borrower will pay all standard fees and
charges of Bank in connection with the Exchange Contracts.
(f) Without limiting any of the other terms of this Agreement
or any such standard form applications and agreement of Bank,
Borrower agrees to indemnify Bank and hold it harmless, from
and against any and all claims, debts, liabilities, demands,
obligations, actions, costs and expenses (including, without
limitation, attorneys' fees of counsel of Bank's choice), of
every nature and description which it may sustain or incur,
based upon, arising out of, or in any way relating to any of
the Exchange Contracts or any transactions relating thereto or
contemplated thereby.
2.1.4 Equipment Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through April 8,
1998 (the "Equipment Availability End Date"), Bank agrees to
make advances (each an "Equipment Advance" and collectively,
the "Equipment Advances") to Borrower in an aggregate
outstanding amount not to exceed the Committed Equipment Line.
To evidence the Equipment Advance or Equipment Advances,
Borrower shall deliver to Bank, at the time of each Equipment
Advance request, an invoice for the equipment to be purchased
or financed The Equipment Advances shall be used only to
purchase or finance Equipment purchased on or after June 1,
1997 and shall not exceed ONE HUNDRED Percent (100%) of the
invoice amount of such equipment approved from time to time by
Bank, excluding taxes, shipping, warranty charges, freight
discounts and installation expense. Software and tenant
improvements may, however, constitute up to TWENTY FIVE
percent (25%) and THIRTY FIVE percent (35%), respectively, of
aggregate Equipment Advances. (b) Interest shall accrue from
the date of each Equipment Advance at a per annum rate equal
to ONE AND ONE-QUARTER (1.25) percentage points above the
Prime Rate and shall be payable monthly for each month through
the month in which the Equipment Availability End Date falls.
Any Equipment Advances that are outstanding on the Equipment
Availability End Date will be payable in THIRTY SIX (36) equal
monthly installments of principal, plus all accrued interest,
beginning on the Payment Date of each month following the
Equipment Availability End Date and ending on the Maturity
Date. Equipment Advances, once repaid, may not be reborrowed.
(c) When Borrower desires to obtain an Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable)
by facsimile transmission to be received no later than 3:00
p.m. Pacific time one (1) Business Day before the day on which
the Equipment Advance is to be made. Such notice shall be
substantially in the form of Exhibit B. The notice shall be
signed by a Responsible Officer or its designee and include a
copy of the invoice(s) for the Equipment to be financed.
3.4 Modifications to Overadvances Provisions. Section 2.3 of the
Loan Agreement is hereby replaced in its entirety with the
following:
5
<PAGE>
2.3 Overadvances. If, at any time or for any reason, the
amount of Obligations owed by Borrower to Bank pursuant to
Sections 2.1.1, 2.1.2 and 2.1.3 of this Agreement is greater
than the Committed Revolving Line or the Borrowing Base,
whichever is less, then Borrower shall immediately pay to
Bank, in cash, the amount of such excess.
3.5 Modifications to Interest Rate Provisions. Sections 2.4(a)
and (b) of the Loan Agreement are hereby replaced in their
entirety with the following:
(a) Interest Rate. Except as set forth in Section 2.4(b), all
Advances shall bear interest on the average Daily Balance at a
rate equal to ONE (1.0) percentage point above the Prime Rate;
and the Term Loan shall bear interest on the average Daily
Balance at a rate equal to ONE AND ONE-QUARTER (1.25)
percentage points above the Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from
and after the occurrence, and during the continuance, of an
Event of Default, at a rate equal to five (5) percentage
points above the interest rate applicable immediately prior to
the occurrence of the Event of Default.
3.6 Modifications to Term of Agreement. Section 2.8 of the Loan
Agreement is hereby replaced in its entirety with the
following:
2.8 Term. Except as otherwise set forth herein, this Agreement
shall become effective on the Closing Date and, subject to
Section 12.7, shall continue in full force and effect for a
term ending on the Maturity Date. Notwithstanding the
foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement
immediately and without notice upon the occurrence, and during
the continuance, of an Event of Default. Notwithstanding
termination, Bank's Lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding.
3.7 Modifications to Financial Reporting Covenants. Section 6.3
of the Loan Agreement is hereby replaced in its entirety
with the following:
6.3 Financial Statements, Reports, Certificates. (i)
Borrower shall deliver to Bank:
(a) within five (5) days of filing with the SEC, copies of all
statements, reports and notices sent or made available
generally by Borrower to its security holders or to any
holders of Subordinated Debt and all reports on Form 10-K,
10-Q and 8-K filed with the Securities and Exchange
Commission;
(b) promptly upon receipt of notice thereof, a report of any
legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower
or any Subsidiary of One Hundred Thousand Dollars ($100,000)
or more; and
(c) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time
to time.
(d) Within twenty-five (25) days after the last day of each
month, Borrower shall deliver to Bank a Borrowing Base
6
<PAGE>
Certificate signed by a Responsible Officer in substantially
the form of Exhibit C hereto, together with aged listings of
accounts receivable and accounts payable.
(e) Within five (5) days filing its Form 10-Q with the SEC,
Borrower shall deliver to Bank, with the Form 10-Q, a
Compliance Certificate signed by a Responsible Officer in
substantially the form of Exhibit D hereto.
(ii) Bank shall have a right from time to time hereafter to
audit Borrower's Accounts at Borrower's expense, provided that
such audits will be conducted no more often than every twelve
(12) months unless an Event of Default has occurred and is
continuing.
3.8 Modifications to Quick Ratio Covenant. Section 6.8 of the
Loan Agreement is hereby replaced in its entirety with the
following:
6.8 Quick Ratio. Borrower shall maintain, as of the last day
of each fiscal quarter beginning with the fiscal quarter
ending August 31, 1997, a ratio of Quick Assets to Current
Liabilities of at least 1.10 to 1.0.
3.9 Modifications to Debt-Net Worth Ratio Covenant. Section 6.9
of the Loan Agreement is hereby replaced in its entirety with
the following:
6.9 Debt-Net Worth Ratio. Borrower shall maintain, as of the
last day of each fiscal quarter beginning with the fiscal
quarter ending August 31, 1997, a ratio of Total Liabilities
less Subordinated Debt to Tangible Net Worth plus Subordinated
Debt of not more than 0.75 to 1.0.
3.10 Modifications to Tangible Net Worth Covenant. Section 6.10 of
the Loan Agreement is hereby replaced in its entirety with
the following:
6.10 Tangible Net Worth. Borrower shall maintain, as of the
last day of each fiscal quarter beginning with the fiscal
quarter ending August 31, 1997, a Tangible Net Worth of not
less than FOUR MILLION AND NO/100THS Dollars ($4,000,000).
3.11 Modifications to Profitability Covenant. Section 6.11 of the
Loan Agreement is hereby replaced in its entirety with the
following:
6.11 Profitability. Borrower shall be profitable for each
fiscal quarter beginning with the fiscal quarter ending August
31, 1997, except Borrower may suffer a loss no greater than
SEVENTY FIVE THOUSAND AND NO/100THS Dollars ($75,000) in any
one fiscal quarter in the fiscal year commencing October 1,
1997.
3.10 Modifications to Debt Service Covenant. Section 6.12 of the
Loan Agreement is hereby replaced in its entirety with the
following:
6.12 Minimum Debt Service. Borrower shall maintain, as of the
last day of each fiscal quarter beginning with the fiscal
quarter ending August 31, 1997, a Debt Service ratio of at
least 1.50 to 1.00.
3.11 Modifications to Default Provisions. References to "Advances"
in Sections 8.2, 8.4, 8.5 and 8.8 of the Loan Agreement are
hereby replaced with "Credit Extensions".
3.12 Modifications to Bank's Rights and Remedies. Sections
9.1(g)(1) and 9.1(g)(2) are hereby added to the Loan Agreement
as follows:
7
<PAGE>
(g)(1) Demand that Borrower (i) deposit cash with Bank in an
amount equal to the amount of any Letters of Credit remaining
undrawn, as collateral security for the repayment of any
future drawings under such Letters of Credit, and Borrower
shall forthwith deposit and pay such amounts, and (ii) pay in
advance all Letters of Credit fees scheduled to be paid or
payable over the remaining term of the Letters of Credit;
(g)(2) Liquidate any Exchange Contracts not yet settled and
demand that Borrower immediately deposit cash with Bank in an
amount sufficient to cover any losses incurred by Bank due to
liquidation of the Exchange Contracts at the then prevailing
market price;
3.13 Modifications to Exhibits. Exhibits C and D of the Loan Agreement
are hereby replaced in their entirety with Exhibits C and D to this Agreement.
4. FACILITY FEE. Borrower shall pay to Bank a Facility Fee equal to
FIVE THOUSAND FIVE HUNDRED AND NO/100THS Dollars ($5,500), which fee shall be
due upon delivery of this Second Loan Modification Agreement to Bank and shall
be fully earned and non-refundable. as well as any out-of-pocket expenses
incurred by the Bank through the date hereof, including reasonable attorneys'
fees and expenses, and after the date hereof, all Bank Expenses, including
reasonable attorneys' fees and expenses, as and when they become due.
5. CONDITIONS PRECEDENT TO FURTHER ADVANCES. The obligation of Bank to
make further advances to Borrower under this line is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Second Loan Modification Agreement and the
Equipment Line Promissory Note duly executed by Borrower;
(b) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
6. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described in this Second Loan
Modification Agreement.
7. NO DEFENSES OF BORROWER. Borrower agrees that as of this date, it
has no defenses against any of the obligations to pay any amounts under the
Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that (i) in
modifying the Existing Loan Documents, Bank is relying upon Borrower's
representations, warranties and agreements, as set forth in the Existing Loan
Documents, (ii) except as expressly modified pursuant to this Second Loan
Modification Agreement (including the effects of Section 6 hereof), the Existing
Loan Documents remain unchanged and in full force and effect, (iii) Bank's
agreement to modify the Existing Loan Documents pursuant to this Second Loan
Modification Agreement shall in no way obligate Bank to make any future
modifications to the Existing Loan Documents, (iv) it is the intention of Bank
and Borrower to retain as liable parties all makers and endorsers of the
Existing Loan Documents, unless a party is expressly released by Bank in
writing, (v) no maker, endorser or guarantor will be released by virtue of this
Second Loan Modification Agreement, and (vi) the terms of this Section 8 apply
not only to this Second Loan Modification Agreement but also to all subsequent
loan modification agreements, if any.
9. EFFECTIVENESS. This Agreement shall become effective only when it
shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower": ENDOGEN, INC. "Bank": SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: By:
------------------------------ ------------------------------
Owen A. Dempsey, President Phillip S. Ernst, VP
SILICON VALLEY BANK
By:
-------------------------------
Title:
----------------------------
(Signed in Santa Clara County, California)
EXHIBITS C AND D FOLLOWS
9
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
<TABLE>
<S> <C> <C> <C>
Borrower: Endogen, Inc. Lender: Silicon Valley Bank
30 Commerce Way 3003 Tasman Drive
Woburn, MA 01801 Santa Clara, CA 95054
Commitment Amount: $850,000
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ________________ $__________
2. Additions (please explain on reverse) $__________
3. TOTAL ACCOUNTS RECEIVABLE $__________
ACCOUNTS RECEIVABLE DEDUCTIONS
4. Amounts over 90 days due $_________
5. Credit Balances Applied to Over 90-Day Accounts $_________
6. Balance of 50% over 90 day accounts $_________
7. Concentration Limits $_________
8. Ineligible Foreign Accounts $_________
9. Governmental Accounts $_________
10. Contra Accounts $_________
11. Promotion or Demo Accounts $_________
12. Intercompany/Employee Accounts $_________
13. Other (please explain on reverse) $_________
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_________
15. Eligible Accounts (#3 - #14) $_________
16. LOAN VALUE OF ACCOUNTS (75% of #15) $_________
BALANCES
17. Maximum Loan Amount $ 850,000
18. Total Funds Available (Lesser of #17 or #16) $_________
19. Present balance owing on Line of Credit $_________
20. Outstanding under Sublimits (L/C - $250,000, FX - $250,000) $_________
21. RESERVE POSITIVE (#18 - #19 + #20) $_________
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement dated August 28, 1996, as may be amended from time to time,
between the undersigned and Silicon Valley Bank.
COMMENTS:
BANK USE ONLY
Rec'd By:
----------------
Auth. Signer
Date:
--------------------
ENDOGEN, INC. Verified:
-----------------
Auth. Signer
By: Date:
-------------------- --------------------
Authorized Signer
10
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
Borrower: Endogen, Inc. Lender: Silicon Valley Bank
30 Commerce Way 3003 Tasman Drive
Woburn, MA 01801 Santa Clara, CA 95054
The undersigned authorized officer of ENDOGEN, INC. hereby certifies
that in accordance with the terms and conditions of the Loan and Security
Agreement dated AUGUST 28, 1996 between Borrower and Bank, as amended (the "Loan
Agreement"), (i) Borrower is in complete compliance for the period ending
___________ of all required conditions and terms except as noted below and (ii)
all representations and warranties of Borrower stated in the Agreement are true,
accurate and complete in all material respects as of the date hereof. Attached
herewith are the required documents supporting the above certification. The
Officer further certifies that these are prepared in accordance with Generally
Accepted Accounting Principals (GAAP) and are consistent from one period to the
next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under '"Complies" column
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
------------------ -------- --------
<S> <C> <C> <C>
SEC Form 10Q Within 5 days of SEC filing Yes No
SEC Form 10K Within 5 days of SEC filing Yes No
A/R & A/P Agings Monthly within 25 days Yes No
A/R Audit Annual Yes No
Financial Covenants Required Actual Complies
------------------- -------- ------ --------
Maintain on a Quarterly Basis:
- ------------------------------
Minimum Quick Ratio commencing 8/31/97 1.10:1.0 __________:1.0 Yes No
Maximum Debt/TNW 0.75:1.0 __________:1.0 Yes No
Minimum TNW $4,000,000 $__________ Yes No
Minimum Profitability * $1 $__________ Yes No
Minimum Debt Service 1.5:1.0 __________:1.0 Yes No
</TABLE>
* Maximum loss of $75,000 allowed in any one quarter during the fiscal year
commencing 9/1/97.
Comments Regarding Exceptions:
On behalf of Borrower, the Officer further acknowledges that at any such time as
Borrower is out of compliance with any of the terms set forth in the Agreement,
including, without limitation, any of the financial covenants, Borrower cannot
receive any advances.
Sincerely,
BANK USE ONLY
- -------------------------- Received by:
Signature ---------------------------
Date:
- -------------------------- ----------------------------------
TITLE Verified:
------------------------------
- -------------------------- Date:
DATE ----------------------------------
Compliance Status: Yes No
Equipment Line Promissory Note
------------------------------
$250,000 Woburn, Massachusetts
October 8, 1997
FOR VALUE RECEIVED, the undersigned, ENDOGEN, INC., a Massachusetts
corporation (the "Borrower"), promises to pay to the order of Silicon Valley
Bank, a California-chartered bank ("Bank"), at such place as the holder hereof
may designate, in lawful money of the United States of America, the aggregate
unpaid principal amount of all advances ("Advances") made by Bank to Borrower in
accordance with the terms of the Loan and Security Agreement between Borrower
and Bank dated August 31, 1997, as amended from time to time (the "Loan
Agreement"), up to a maximum principal amount of TWO HUNDRED FIFTY THOUSAND AND
NO/100THS Dollars ($250,000), until paid in full. Borrower shall also pay
interest on the aggregate unpaid principal amount of such Advances at the rates
and in accordance with the terms of the Loan Agreement.
The entire principal amount and all accrued interest shall be due and payable on
MARCH 27, 2001.
Borrower irrevocably waives the right to direct the application of any
and all payments at any time hereafter received by Bank from or on behalf of
Borrower, and Borrower irrevocably agrees that Bank shall have the continuing
exclusive right to apply any and all such payments against the then due and
owing obligations of Borrower as Bank may deem advisable. In the absence of a
specific determination by Bank with respect thereto, all payments shall be
applied in the following order: (a) then due and payable fees and expenses; (b)
then due and payable interest payments and mandatory prepayments; and (c) then
due and payable principal payments and optional prepayments.
Bank is hereby authorized by Borrower to endorse on Bank's books and
records each Advance made by Bank under this Note and the amount of each payment
or prepayment of principal of each such Advance received by Bank; it being
understood, however, that failure to make any such endorsement (or any error in
notation) shall not affect the obligations of Borrower with respect to Advances
made hereunder, and payments of principal by Borrower shall be credited to
Borrower notwithstanding the failure to make a notation (or any errors in
notation) thereof on such books and records.
Borrower promises to pay Bank all costs and expenses of collection of
this Note and to pay all reasonable attorneys' fees incurred in such collection,
whether or not there is a suit or action, or in any suit or action to collect
this Note or in any appeal thereof. Borrower waives presentment, demand,
protest, notice of protest, notice of dishonor, notice of nonpayment, and any
and all other notices and demands in connection with the delivery, acceptance,
performance, default or enforcement of this Note, as well as any applicable
statutes of limitations. No delay by Bank in exercising any power or right
hereunder shall operate as a waiver of any power or right.
Time is of the essence as to all obligations hereunder.
This Note is issued pursuant to the Loan Agreement, which shall govern
the rights and obligations of Borrower with respect to all obligations
hereunder.
This Note shall be deemed to be made under, and shall be construed in
accordance with and governed by, the laws of the Commonwealth of Massachusetts,
excluding conflicts of laws principles.
Executed as an instrument under seal.
ENDOGEN, INC.
By:
------------------------------------
Owen A. Dempsey, President
ENDOGEN, INC.
EXHIBIT 11.1
Computation of Net Income Per Share
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Weighted average number of shares outstanding 3,428,461 2,958,746 3,424,225 2,954,866
Shares deemed outstanding from the assumed
exercise of stock options and warrants 262,933 298,830 213,761 295,799
-------------- -------------- -------------- --------------
Total 3,691,394 3,257,576 3,637,986 3,250,665
============== ============== ============== ==============
Net income applicable to common shares $ 171,715 $ 153,379 $ 265,893 $ 269,167
============== ============== ============== ==============
Net income per share of common stock $ 0.05 $ 0.05 $ 0.07 $ 0.08
============== ============== ============== ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-QSB OF ENDOGEN, INC. TO WHICH THIS
EXHIBIT IS A PART AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000894020
<NAME> Endogen, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> May-31-1998
<PERIOD-START> Jun-01-1997
<PERIOD-END> Nov-30-1997
<EXCHANGE-RATE> 1.00
<CASH> 741
<SECURITIES> 0
<RECEIVABLES> 1,470
<ALLOWANCES> 50
<INVENTORY> 2,002
<CURRENT-ASSETS> 4,644
<PP&E> 3,747
<DEPRECIATION> 1,454
<TOTAL-ASSETS> 7,778
<CURRENT-LIABILITIES> 1,489
<BONDS> 0
0
0
<COMMON> 34
<OTHER-SE> 6,110
<TOTAL-LIABILITY-AND-EQUITY> 7,778
<SALES> 4,914
<TOTAL-REVENUES> 4,914
<CGS> 1,779
<TOTAL-COSTS> 4,510
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 398
<INCOME-TAX> 132
<INCOME-CONTINUING> 266
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 266
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
