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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

[X]	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended September 30, 2002.

[  ]	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from ______ to ______

Commission file number 0-28440

ENDOLOGIX, INC.
(Exact name of Registrant as specified in its charter)

Delaware	68-0328265
(State or other jurisdiction of	(I.R.S.Employer
incorporation or organization)	Identification Number)

13900 Alton Parkway, Suite 122, Irvine, California 92618
(Address of principal executive offices)

Registrant’s telephone number, including area code (949) 595-7200

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]      No [  ]

On November 5, 2002, the Registrant had outstanding approximately 24,221,000 shares of Common Stock of $.001 par value, which is the Registrant’s only class of Common Stock.

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ENDOLOGIX, INC.

Form 10-Q

September 30, 2002

TABLE OF CONTENTS

		Page
Part I.	Financial Information
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed consolidated balance sheets at December 31, 2001 and September 30, 2002	3
	Condensed consolidated statements of operations for the three and nine months ended September 30, 2001 and 2002	4
	Condensed consolidated statements of cash flows for the nine months ended September 30, 2001 and 2002	5
	Notes to condensed consolidated financial statements	6
Item 2.	Management’s discussion and analysis of financial condition and results of operations	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4.	Controls and Procedures	31
Part II.	Other Information
Items 1 through 6.		33
Signatures		35
Certifications		36
Exhibit Index		38

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ENDOLOGIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	December 31, 2001				September 30, 2002
					(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,327			$	2,996
Marketable securities available-for-sale		12,322				7,679
Accounts receivable, net		139				723
Other receivables		2,310				1,929
Inventories		73				1,486
Other current assets		133				285
Total current assets		18,304				15,098
Property and equipment, net		10				209
Marketable securities available-for-sale		4,661				1,552
Notes receivable from officers		147				—
Goodwill (Note 9)		—				4,101
Other intangibles, net of amortization of $468 (Note 9)		—				16,289
Other assets		208				550
Total Assets	$	23,330			$	37,799
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	3,112			$	3,416
Merger consideration payable		—				210
Note payable		—				1,106
Deferred revenue		81				81
Total current liabilities		3,193				4,813
Deferred revenue		279				218
Minority interest		100				88
Total liabilities		3,572				5,119
Commitments and contingencies (Note 10)
Stockholders’ equity:
Convertible preferred stock, $.001 par value; 5,000,000 shares authorized, no shares issued and outstanding		—				—
Common stock, $.001 par value; 30,000,000 authorized, 13,122,000 and 24,221,000 issued and outstanding at December 31, 2001 and September 30, 2002, respectively		13				24
Additional paid-in capital		80,850				99,513
Deferred compensation		(15	)			(9	)
Accumulated deficit		(61,437	)			(66,929	)
Treasury stock, cost, 93,000 shares at September 30, 2002		—				(79	)
Accumulated other comprehensive income		347				160
Total stockholders’ equity		19,758				32,680
Total Liabilities and Stockholders’ Equity	$	23,330			$	37,799

See accompanying notes

3

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ENDOLOGIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended September 30,								Nine Months Ended September 30,
	2001				2002				2001				2002
Revenue:
Product	$	225			$	387			$	990			$	527
License		1,559				1,746				4,653				5,314
Total revenues		1,784				2,133				5,643				5,841
Cost of product revenue		346				170				999				322
Cost of revenue from restructuring		601				—				601				—
Total cost of revenue		947				170				1,600				322
Gross profit		837				1,963				4,043				5,519
Operating expenses:
Research, development and clinical		3,960				1,994				12,202				4,710
Marketing and sales		360				354				1,199				487
General and administrative		352				842				1,750				1,933
Charge for acquired in-process research and development		—				63				—				4,501
Restructuring charges		4,256				—				4,256				—
Minority interest		(51	)			(6	)			(64	)			(21	)
Total operating expenses		8,877				3,247				19,343				11,610
Loss from operations		(8,040	)			(1,284	)			(15,300	)			(6,091	)
Other income (expense):
Interest income		342				109				1,149				520
Gain on sale of assets		11				20				77				112
Other income (expense)		—				(23	)			1				(33	)
Total other income		353				106				1,227				599
Net loss	$	(7,687	)		$	(1,178	)		$	(14,073	)		$	(5,492	)
Basic and diluted net loss per share	$	(0.59	)		$	(0.05	)		$	(1.08	)		$	(0.30	)
Shares used in computing basic and diluted net loss per share		13,094				24,303				13,076				18,223

See accompanying notes

4

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ENDOLOGIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

	Nine Months Ended September 30,
	2001				2002
Cash flows from operating activities:
Net loss	$	(14,073	)		$	(5,492	)
Adjustments to reconcile net loss to net cash used in operating activities (net of the effect of the acquisition):
Charge for acquired in-process research and development		—				4,501
Restructuring charges		4,857				—
Depreciation and amortization		985				491
Amortization of deferred compensation		119				(12	)
Bad debt expense		(33	)			102
Gain on sale of assets		(77	)			(69	)
Minority interest in losses of Radiatec		(64	)			(21	)
Forgiveness of officer loan		—				137
Change in:
Trade accounts receivable		230				9
Inventories		397				(18	)
Other receivables and other assets		281				872
Accounts payable and accrued expenses		60				(1,338	)
Deferred revenue		(60	)			(61	)
Net cash used in operating activities		(7,378	)			(899	)
Cash flows provided by investing activities:
Purchases of available-for-sale securities		(17,157	)			(8,620	)
Sales of available-for-sale securities		20,253				16,245
Purchase of (former) Endologix, net of cash acquired of $2,097		—				(6,972	)
Purchase of property and equipment		(376	)			(79	)
Net cash provided by investing activities		2,720				574
Cash flows provided by financing activities:
Proceeds from sale of common stock		216				16
Proceeds from exercise of common stock options		20				40
Purchases of treasury stock		—				(79	)
Net cash provided by (used in) financing activities		236				(23	)
Effect of exchange rate changes on cash and cash equivalents		(21	)			17
Net decrease in cash and cash equivalents		(4,443	)			(331	)
Cash and cash equivalents, beginning of period		6,311				3,327
Cash and cash equivalents, end of period	$	1,868			$	2,996
Supplemental disclosure of non-cash operating and investing activities: In February 2001, the Company amended the Assets Sale and Purchase agreement and exchanged accounts receivable ($182) due from Escalon Medical Corporation for cash ($18), notes receivable ($64) and 50,000 shares of their common stock ($100 fair value).(Note 4),
In May 2002, the Company acquired all of the common stock of (former) Endologix (Note 9). The following is a summary of the transaction:
Fair value of assets acquired, including intangible assets					$	26,163
Acquired in-process research and development						4,501
Cash paid						(9,069	)
Merger consideration payable						(210	)
Common stock issued						(18,637	)
Liabilities assumed					$	2,748

See accompanying notes

5

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ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Unaudited)

1.   Business and Basis of Presentation

Endologix, Inc. (formerly named Radiance Medical Systems, Inc. and Cardiovascular Dynamics, Inc. and referred to as “Endologix” or the “Company”) was incorporated in California in March 1992 and reincorporated in Delaware in June 1993. In May 2002, the Company was merged with privately held Endologix, Inc., and changed its name to Endologix, Inc.

The Company is engaged in the development, manufacture, sales and marketing of minimally invasive therapies for the treatment of vascular disease. The Company’s primary focus is the development of the PowerLink System, a catheter-based alternative treatment for abdominal aortic aneurysms, or AAA. AAA is a weakening of the wall of the aorta, the largest artery of the body. Prior to restructuring in September 2001 (Note 11) and the merger in May 2002 (Note 9), the Company was developing proprietary devices to deliver r