<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 2000
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No. 0-22958
INTERPORE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3043318
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
181 Technology Drive, Irvine, California 92618-2402
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (949) 453-3200
Not applicable
---------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
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 proceeding 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 [_]
As of November 10, 2000, there were 14,408,480 shares of the
registrant's common stock issued and outstanding.
<PAGE>
Interpore International, Inc.
Index
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1999 and September 30, 2000 (unaudited) ....................... 3
Condensed Consolidated Statements of Income (unaudited) for the
three month and nine month periods ended September 30, 1999 and
September 30, 2000 .......................................................... 4
Condensed Consolidated Statements of Cash Flows (unaudited) for the
nine month periods ended September 30, 1999 and September 30, 2000 .......... 5
Notes to Condensed Consolidated Financial Statements ........................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................................ 14
</TABLE>
2
<PAGE>
Interpore International, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, Sept. 30,
1999 2000
---------------- ---------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents................................................... $ 6,315 $ 14,936
Short-term investments...................................................... 3,459 -
Accounts receivable, less allowance for doubtful accounts
of $516 and $436 in 1999 and 2000, respectively........................... 8,887 8,619
Inventories................................................................. 13,070 12,417
Prepaid expenses............................................................ 995 1,563
Deferred income taxes....................................................... 1,750 1,748
Other current assets........................................................ 129 73
------------- -------------
Total current assets............................................................ 34,605 39,356
Property, plant and equipment, net.............................................. 1,349 1,459
Deferred income taxes........................................................... 2,333 2,333
Intangible assets, net.......................................................... 2,274 2,184
Other assets.................................................................... 232 71
------------- -------------
Total assets.................................................................... $ 40,793 $ 45,403
============= =============
Liabilities and stockholders' equity Current liabilities:
Current portion of capital lease obligations................................ $ 15 $ 14
Accounts payable............................................................ 1,046 847
Accrued compensation and related expenses................................... 1,615 1,481
Accrued royalties........................................................... 339 348
Reserve for products liability claims....................................... 183 103
Accrued disposition costs................................................... 118 47
Accrued merger-related expenses and restructuring charges................... 324 106
Income taxes payable........................................................ 326 1,046
Other accrued liabilities................................................... 425 660
------------- -------------
Total current liabilities....................................................... 4,391 4,652
------------- -------------
Long-term obligations:
Long-term debt.............................................................. 3,152 -
Obligations under capital leases, net....................................... 13 -
------------- -------------
Total long-term obligations..................................................... 3,165 -
------------- -------------
Commitments and contingencies
Stockholders' equity:
Series E convertible preferred stock, voting, par value $.01 per share:
Authorized - 594,000; issued and outstanding shares - 25,573 at December
31, 1999 and none at September 30, 2000; aggregate liquidation
value of $192 at December 31, 1999....................................... - -
Preferred stock, par value $.01 per share: Authorized shares - 4,406,000;
outstanding shares - none................................................ - -
Common stock, par value $.01 per share: Authorized shares - 50,000,000;
issued and outstanding shares - 14,272,279 at December 31, 1999 and
15,013,489 at September 30, 2000......................................... 143 150
Additional paid-in-capital.................................................. 45,451 49,645
Accumulated deficit......................................................... (9,244) (5,935)
Accumulated other comprehensive loss........................................ (4) -
------------- -------------
36,346 43,860
Less treasury stock, at cost - 605,000 shares at December 31, 1999 and
September 30, 2000....................................................... (3,109) (3,109)
------------- -------------
Total stockholders' equity...................................................... 33,237 40,751
------------- -------------
Total liabilities and stockholders' equity...................................... $ 40,793 $ 45,403
============= ==============
</TABLE>
See accompanying notes.
3
<PAGE>
Interpore International, Inc.
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
1999 2000 1999 2000
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 9,549 $ 10,613 $ 28,177 $ 33,386
Cost of goods sold 2,651 3,119 8,406 10,116
------------- -------------- -------------- -------------
Gross profit 6,898 7,494 19,771 23,270
------------- -------------- -------------- -------------
Operating expenses:
Research and development 1,041 1,346 3,083 3,825
Selling and marketing 3,508 3,738 10,241 11,525
General and administrative 1,100 953 3,236 3,049
Non-recurring charges - - - 268
------------- -------------- -------------- -------------
Total operating expenses 5,649 6,037 16,560 18,667
------------- -------------- -------------- -------------
Income from operations 1,249 1,457 3,211 4,603
------------- -------------- -------------- -------------
Interest income 120 191 314 483
Interest expense (87) (7) (260) (152)
Other income 112 117 294 317
------------- -------------- -------------- -------------
Total interest and other income, net 145 301 348 648
------------- -------------- -------------- -------------
Income before taxes 1,394 1,758 3,559 5,251
Income tax provision - 580 - 1,942
------------- -------------- -------------- -------------
Net income $ 1,394 $ 1,178 $ 3,559 $ 3,309
============= ============== ============== =============
Net income per share:
Basic $ .10 $ .08 $ .26 $ .24
Diluted $ .10 $ .08 $ .26 $ .22
Shares used in computing net income per share:
Basic 13,512 14,237 13,492 13,920
Diluted 14,473 15,189 14,347 15,335
</TABLE>
See accompanying notes.
4
<PAGE>
Interpore International, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
----------------------------------------
1999 2000
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 3,559 $ 3,309
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 639 733
Changes in operating assets and liabilities:
Accounts receivable (1,239) 268
Inventories (1,425) 653
Prepaid expenses (385) (568)
Other assets 250 90
Accounts payable and accrued liabilities 1,372 262
------------------- -------------------
Net cash provided by operating activities 2,771 4,747
------------------- -------------------
Cash flows from investing activities
Sales (purchase) of short-term investments (3,516) 3,463
Capital expenditures (550) (657)
Expenditures for patent rights and other intangible assets (129) (102)
------------------- -------------------
Net cash provided by (used in) investing activities (4,195) 2,704
------------------- -------------------
Cash flows from financing activities
Repayment of long-term debt and capital lease obligations (12) (169)
Proceeds from exercise of stock options 100 1,302
Proceeds from employee stock purchase plan 54 37
------------------- -------------------
Net cash provided by financing activities 142 1,170
------------------- -------------------
Net increase (decrease) in cash and cash equivalents (1,282) 8,621
Cash and cash equivalents at beginning of period 7,908 6,315
------------------- -------------------
Cash and cash equivalents at end of period $ 6,626 $ 14,936
=================== ===================
</TABLE>
See accompanying notes.
5
<PAGE>
Interpore International, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Organization and Description of Business
Interpore International, Inc., doing business as Interpore Cross
International ("Interpore Cross"), is a medical device company that operates in
one business segment: the design, manufacture and marketing of medical devices
for the orthopedic marketplace. The products are distributed in the United
States and internationally.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared without audit, pursuant to Securities and Exchange Commission
regulations. In the opinion of management, the accompanying condensed
consolidated financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the consolidated
financial position at September 30, 2000 and the consolidated results of
operations and cash flows for the periods ended September 30, 1999 and 2000.
The accompanying condensed consolidated financial statements include
the accounts of Interpore Cross and its subsidiaries after elimination of all
significant intercompany transactions.
The results of operations and cash flows for the periods ended
September 30, 2000 are not necessarily indicative of results to be expected for
future quarters or the full year.
These consolidated financial statements should be read in conjunction
with the financial statements included in Interpore Cross' Annual Report on Form
10-K for the year ended December 31, 1999, as filed with the Securities and
Exchange Commission.
6
<PAGE>
3. Per Share Information
Basic earnings per share is calculated by dividing net earnings by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the assumed conversion of all dilutive securities,
consisting of employee stock options, convertible securities and warrants. The
following table presents the computation of net income per share (in thousands,
except per share data):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------------- ---------------------------
1999 2000 1999 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income used in the calculation of basic earnings per share $ 1,394 $ 1,178 $ 3,559 $ 3,309
Interest on Convertible Subordinated Debentures 66 - 200 70
------------- ------------- ------------- -------------
Net income used in calculation of diluted earnings per share $ 1,460 $ 1,178 $ 3,759 $ 3,379
============= ============= ============= =============
Shares used in computing net income per share - basic:
Weighted average common shares outstanding 13,512 14,237 13,492 13,920
Effect of dilutive securities:
Weighted average convertible preferred stock 32 - 32 8
Shares issuable pursuant to stock option plans 434 882 328 1,088
Shares issuable under the Convertible Subordinated
Debentures 495 70 495 319
------------- ------------- ------------- -------------
Shares used in computing net income per share - diluted 14,473 15,189 14,347 15,335
============= ============= ============= =============
Net income per share - basic $ .10 $ .08 $ .26 $ .24
Net income per share - diluted $ .10 $ .08 $ .26 $ .22
</TABLE>
4. Inventories
Inventories are stated at the lower of first-in, first-out average cost
or market. Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------------ -----------------
<S> <C> <C>
Raw materials $ 1,159 $ 1,318
Work-in-process 442 522
Finished goods 11,469 10,577
------------------ -----------------
$ 13,070 $ 12,417
================== =================
</TABLE>
5. Contingencies
The nature of Interpore Cross' business subjects it to products
liability and various other legal proceedings from time to time. In the opinion
of management, the amount of ultimate liability with respect to any known
proceedings or claims will not materially affect the financial position or
results of operations of Interpore Cross.
7
<PAGE>
6. Long-Term Debt
The 8.5% Convertible Subordinated Debentures (the "Debentures") due
June 1, 2003 were convertible at any time before maturity, unless previously
redeemed, into shares of Interpore Cross common stock at a conversion price of
$6.37 per share. On June 14, 2000, Interpore Cross notified the holders that the
Debentures would be redeemed, if not earlier converted, effective August 1,
2000, and as of September 30, 2000, there are none outstanding. During the first
nine months of 2000, debentures totaling $3.0 million were converted into
470,000 shares of common stock, and $155,000 of the Debentures were redeemed.
The fair value of the Debentures was approximately $3.9 million on December 31,
1999.
7. Comprehensive Income
Total comprehensive income represents the net change in stockholders'
equity during a period from sources other than transactions with stockholders
and as such, includes net income. The components of comprehensive income, net of
related tax, are as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------------- ---------------------------
1999 2000 1999 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 1,394 $ 1,178 $ 3,559 $ 3,309
Reclassification adjustment related to short-term investments - - - 4
------------- ------------- ------------- -------------
Comprehensive income $ 1,394 $ 1,178 $ 3,559 $ 3,313
============= ============= ============= =============
</TABLE>
8. Non-recurring Charges
During the second quarter of 2000, a non-recurring charge of $268,000
was recorded in connection with the withdrawal of a proposed secondary public
stock offering.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Description of Business
Our revenues are generated from the sale of products in two principal
product categories--spinal implant products and orthobiologic products. Our
spinal implant products consist of titanium or stainless steel hooks, rods and
screws and related instruments required for the surgeon to assemble a construct
which restores the natural anatomy of the spine, keeping it immobilized while a
bone graft eventually fuses the vertebrae. Our orthobiologic products consist of
synthetic bone graft substitute materials and products used to derive AGFTM. AGF
is used to provide faster, more complete bone growth and enhance the performance
of our bone graft products.
All of our operations are located in the United States, however, we sell
our products to customers both within and outside the United States. Within the
United States, we distribute our products primarily through independent agents.
These independent agents provide a delivery and consultative service to our
surgeon and hospital customers and receive commissions based on sales in their
territories. The commissions are reflected in our income statement within
selling and marketing expense.
For our spinal implant products, we invoice hospitals directly following a
surgical procedure in which our products are used. Our spinal implant products
are made available to hospitals from consignment inventories maintained by our
larger independent agents, or from loaner implant sets that we ship from our
facility. For our orthobiologic products, we generally ship directly to
hospitals from our facility, and we invoice hospitals upon shipment. We also
distribute AGF related products through a supply agreement with Edwards
Lifesciences Cardiovascular Resources.
Outside the United States, we sell our products directly to distributors
who maintain an inventory of our products. We record revenue at the time of
shipment to the distributor at prices generally ranging from 40% to 70% of our
U.S. list prices. The distributors provide service to the surgeons and
hospitals, deliver products and invoice hospitals directly at prices determined
by the distributors.
Because our revenues from U.S. hospitals are primarily at list price, and
our revenues from international distributors are at a discount to U.S. list
prices, our gross margins are subject to fluctuation based on the mix of
domestic and international sales, with domestic gross margins being somewhat
higher than international gross margins. Additionally, the spinal implant and
orthobiologic sales mix also affects our gross margins, with higher margins for
our orthobiologic products.
9
<PAGE>
Results of Operations
The following table presents our results of operations as percentages:
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
--------------------------------------- ---------------------------------------
Percentage Percentage
Percentage of net sales change Percentage of net sales change
------------------------- ------------ -------------------------- ------------
2000 vs. 2000 vs.
1999 2000 1999 1999 2000 1999
------------- ----------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 11.1% 100.0% 100.0% 18.5%
Cost of goods sold 27.8% 29.4% 17.7% 29.8% 30.3% 20.3%
------------- ----------- ------------- ------------- ------------ ------------
Gross profit 72.2% 70.6% 8.6% 70.2% 69.7% 17.7%
------------- ----------- ------------- ------------- ------------ ------------
Operating expense:
Research and development 10.9% 12.7% 29.3% 10.9% 11.5% 24.1%
Selling and marketing 36.7% 35.2% 6.6% 36.4% 34.5% 12.5%
General and administrative 11.5% 9.0% (13.4%) 11.5% 9.1% (5.8%)
Non-recurring charges - - n/a - .8% n/a
------------- ----------- ------------- ------------- ------------ ------------
Total operating expenses 59.1% 56.9% 6.9% 58.8% 55.9% 12.7%
------------- ----------- ------------- ------------- ------------ ------------
Income from operations 13.1% 13.7% 16.7% 11.4% 13.8% 43.4%
============= =========== ============= ============= ============ ============
</TABLE>
Three months ended September 30, 1999 and 2000
----------------------------------------------
For the quarter ended September 30, 2000, net sales of $10.6 million
were $1.1 million or 11.1% higher than net sales of $9.5 million for the same
period of 1999. The following table presents sales by category (in thousands):
<TABLE>
<CAPTION>
Three months ended September 30, Change
-------------------------------------- -------------------------------------
1999 2000 Amount %
------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Spinal implant product sales...... $ 5,053 $ 5,439 $ 386 7.6%
Orthobiologic product sales....... 4,496 5,174 678 15.1%
------------------ ------------------- ------------------ ------------------
Total sales.................. $ 9,549 $ 10,613 $ 1,064 11.1%
================== =================== ================== ==================
</TABLE>
Sales of spinal implant products increased in the quarter ended
September 30, 2000 by $386,000 or 7.6% to $5.4 million, compared to $5.1 million
for the quarter ended September 30, 1999. The increase is attributable to higher
usage of the SynergyTM Spinal System as well as a sales price increase which
took place in October 1999.
Sales of orthobiologic products increased by $678,000 or 15.1% to $5.2
million for the three months ended September 30, 2000, compared to $4.5 million
for the three months ended September 30, 1999. Our AGF related products, which
were launched on a nationwide basis during the second quarter of 1999, increased
by $864,000 or 113.8% and sales of synthetic bone products decreased by $186,000
or 5.0% versus the same quarter of 1999. We believe the decline in sales of
synthetic bone products is primarily related to the shift in domestic
distribution from direct sales representatives to independent agents, which we
believe are focusing a greater portion of their efforts on spinal implant
product sales. Therefore, we believe this trend is likely to continue for the
foreseeable future.
Total domestic sales of spinal implant products and orthobiologic
products increased 14.0% or $1.1 million to $9.0 million for the three months
ended September 30, 2000, compared to $7.9 million for the same period of 1999.
International sales for the third quarter of 2000 were approximately $1.6
million and for the third quarter of 1999 were approximately $1.7 million.
10
<PAGE>
For the quarter ended September 30, 2000, the gross margin was 70.6% of
sales compared to 72.2% of sales for the quarter ended September 30, 1999. A
decrease in manufacturing overhead absorption resulting from our inventory
reduction efforts is the primary cause of the decrease in gross margin.
Total operating expenses for the quarter ended September 30, 2000
increased by 6.9% or $388,000 to $6.0 million, compared to $5.6 million for the
same quarter of 1999, but decreased as a percentage of sales from 59.2% in the
third quarter of 1999 to 56.9% in the third quarter of 2000. Research and
development expenses increased by 29.3% or $305,000 due primarily to the hiring
of personnel and other costs related to spinal implant product development
projects and amortization of intangible assets primarily related to the AGF
technology. Selling and marketing expenses increased $230,000 or 6.6% compared
to the third quarter of 1999 primarily due to increased commissions on higher
domestic sales. General and administrative expenses decreased by 13.4% or
$147,000 due primarily to lower products liability insurance premium rates and a
lesser accrual for a profit-based bonus program.
Net interest and other income increased $156,000 or 107.6% related
principally to an increase in interest income combined with reduced interest
expense. Interest income for the quarter ended September 30, 2000 increased
$71,000 or 59.2% compared to the third quarter of 1999 due to increased average
cash and short-term investment balances combined with higher interest rates.
Interest expense decreased during the quarter ended September 30, 2000 as a
result of the extinguishment of the convertible subordinated debentures.
During the third quarter of 1999, we had no income tax provision due to
the utilization of net operating loss carryforwards. The valuation allowance was
reduced during the same three month period since management believes that the
deferred tax assets are more probable than not to be realized. During the fourth
quarter of 1999, the valuation allowance was eliminated. In the third quarter of
2000 we recorded an income tax provision of $580,000, which reflected an
effective tax rate of approximately 33% for the quarter and which adjusted the
year-to-date effective tax rate to 37%.
Nine months ended September 30, 1999 and 2000
---------------------------------------------
For the nine months ended September 30, 2000, sales of $33.4 million
were $5.2 million or 18.5% higher than net sales of $28.2 million for the same
period of 1999. The following table presents sales by category (in thousands):
<TABLE>
<CAPTION>
Nine months ended September 30, Change
-------------------------------------- -------------------------------------
1999 2000 Amount %
------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Spinal implant product sales...... $ 15,172 $ 18,049 $ 2,877 19.0%
Orthobiologic product sales....... 13,005 15,337 2,332 17.9%
------------------ ------------------- ------------------ ------------------
Total sales.................. $ 28,177 $ 33,386 $ 5,209 18.5%
================== =================== ================== ==================
</TABLE>
Sales of spinal implant products increased in the nine months ended
September 30, 2000 by $2.9 million or 19.0% to $18.1 million, compared to $15.2
million for the nine months ended September 30, 1999. The increase reflects
continued sales growth of the SynergyTM Spinal System, aided by improved
distribution and territory coverage.
Sales of orthobiologic products increased by $2.3 million or 17.9% to
$15.3 million for the nine months ended September 30, 2000, compared to $13.0
million for the nine months ended September 30, 1999. Sales of AGF related
products, which were launched on a nationwide basis during the second quarter of
1999, increased by $2.9 million for the nine months ended September 30, 2000
compared to the same period of 1999. Sales of synthetic bone products decreased
by $602,000 or 5.3% versus the same period of 1999. We believe the decline in
sales of synthetic bone products is primarily related to the shift in domestic
distribution from direct sales representatives to independent agents, which we
believe are focusing a greater portion of their efforts on spinal implant
product sales. Therefore, we believe this trend is likely to continue for the
foreseeable future.
11
<PAGE>
Total domestic sales of spinal implant products and orthobiologic
products increased 21.2% or $4.7 million to $26.7 million for the nine months
ended September 30, 2000, compared to $22.0 million for the same period of 1999.
International sales increased $531,000 or 8.6% to $6.7 million for the first
nine months of 2000 from $6.1 million for the first nine months of 1999.
For the nine months ended September 30, 2000, the gross margin was
69.7% of sales compared to 70.2% of sales for the nine months ended September
30, 1999. The slight decrease reflects lower overhead absorption resulting from
our inventory reduction efforts.
Total operating expenses for the nine months ended September 30, 2000
increased by 12.7% or $2.1 million to $18.7 million, compared to $16.6 million
for the same period of 1999, and as a percentage of sales decreased from 58.8%
in the first nine months of 1999 to 55.9% in the first nine months of 2000.
Research and development expenses increased by 24.1% or $742,000 due primarily
to the hiring of personnel and other costs related to spinal implant product
development projects and amortization of intangible assets related to the AGF
technology . Selling and marketing expenses increased $1.3 million or 12.5%
compared to the first nine months of 1999 primarily due to increased commissions
on higher domestic sales. General and administrative expenses decreased $187,000
or 5.8% due primarily to lower products liability insurance premium rates.
During the second quarter of 2000, a non-recurring charge of $268,000 was
recorded in connection with the withdrawal of a proposed secondary public stock
offering.
Net interest and other income increased $300,000 or 86.2% related
principally to an increase in interest income combined with reduced interest
expense. Interest income for the nine months ended September 30, 2000 increased
$169,000 or 53.8% from the same period of 1999 due to increased average cash and
short-term investment balances combined with higher interest rates. Interest
expense decreased during the nine months ended September 30, 2000 as a result of
the extinguishment of the convertible subordinated debentures.
During the first nine months of 1999, we had no income tax provision
due to the utilization of net operating loss carryforwards. The valuation
allowance was reduced during the same nine month period since management
believes that the deferred tax assets are more probable than not to be realized.
During the fourth quarter of 1999, the valuation allowance was eliminated. In
the first nine months of 2000 we recorded an income tax provision of $1.9
million, reflecting an effective tax rate of approximately 37%.
Liquidity and Capital Resources
In the first nine months of 2000, our operating activities generated
$4.7 million of net cash. We invest our excess cash in U.S. Treasury securities
and high-grade marketable securities. At September 30, 2000, cash, cash
equivalents and short-term investments totaled $14.9 million as compared to $9.8
million at December 31, 1999. We also have a $5.0 million revolving line of
credit available to us that had no amount outstanding at September 30, 2000 and
which expires in June 2001.
We have used and may continue to use our cash, our common stock, or a
combination of both to pay for purchased technologies, product lines, mergers
and acquisitions. We also intend to continue to invest in the development of our
business. We believe we currently possess sufficient resources to meet the cash
requirements of our operations for at least the next year. However, some of the
aforementioned activities may require cash in excess of that which we currently
possess, and we can give no assurance that we will be able to raise the
additional capital on satisfactory terms, if at all.
At September 30, 2000, we had no material commitments for capital
expenditures.
______________________
The quarterly results contained herein are unaudited and reflect
certain assumptions of management that may change. Results of the quarter may
not be representative of results for future quarters or indicative of our
financial results for the year. Certain statements in this Quarterly Report on
Form 10-Q are forward-looking and may involve risks and uncertainties,
including, but not limited to: product demand and market acceptance risks; risks
related to the development of future products; risk that we will not receive
additional regulatory approval of
12
<PAGE>
products; and the impact of competitive products. Additional information on
factors that could affect our financial results and growth prospects is
disclosed in reports we file from time to time with the Securities and Exchange
Commission, including the "Certain Business Considerations" section of our
Annual Report on Form 10-K.
13
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
Reference is made to the Exhibit Index on Page 16 hereof.
b. Reports on Form 8-K.
No reports on Form 8-K were filed during the fiscal quarter
ended September 30, 2000.
14
<PAGE>
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.
DATE: November 10, 2000 INTERPORE INTERNATIONAL, INC.
(Registrant)
By: /s/ David C. Mercer
-------------------------------
David C. Mercer,
Chairman and Chief Executive Officer
By: /s/ Richard L. Harrison
--------------------------
Richard L. Harrison
Sr. Vice President and
Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
----- -----------
<S> <C>
3.01 Certificate of Incorporation of Interpore International, Inc. as amended (1)
3.02 Bylaws of Registrant (1)
3.03 Amendment Number One to Bylaws (16)
4.01 Rights Agreement dated November 19, 1998, between Interpore International, Inc. and U.S. Stock Transfer
Corporation, which includes the form of Certificate of Determination of the Series A Junior Participating
Preferred Stock of Interpore International, Inc. as Exhibit A, the form of Right Certificate as Exhibit B
and the Summary of Rights to Purchase Preferred Shares as Exhibit C (2)
4.02 Registration Rights Agreement dated December 8, 1999 by and between Interpore International, Inc., John A.
Dawdy and Andrew G. Hood (20)
10.01 Cancellation and Release Agreement dated March 1, 1993 among Registrant, Interpore Orthopaedics, Inc.,
Pfizer, Inc. and Howmedica, Inc. (3)
10.02 Single Tenant Lease dated July 25, 1991 between Registrant and The
Irvine Company as amended by a Third Amendment to Lease dated December
11, 1996 (4);
10.03 Amended and Restated Loan and Security Agreement dated June 22, 1999 among Registrant, Interpore
Orthopaedics, Inc., Cross Medical Products, Inc., Interpore Cross International Inc., and Silicon Valley
Bank (19) and Loan Modification Agreement dated June 21, 2000 (21)
10.04 Amended and Restated Stock Option Plan dated March 19, 1991 (6), First
Amendment to the Amended and Restated Stock Option Plan, effective
October 15, 1991 (3); Amendment to the Amended and Restated Stock
Option Plan dated September 17, 1994 (7)
10.05 1995 Stock Option Plan (8)
10.06 Stock Option Plan for Non-Employee Directors of Interpore International (9)
10.07 Danninger Medical Technology, Inc. Amended and Restated 1984 Non-Statutory Stock Option Plan (10)
10.08 Danninger Medical Technology, Inc. Amended and Restated 1984 Incentive Stock Option Plan (10)
10.09 Cross Medical Products Inc. Amended and Restated 1994 Stock Option Plan (10)
10.10 Asset Purchase Agreement dated March 12, 1997, among Cross Medical Products, Inc., Danninger Healthcare,
Inc. and OrthoLogic Corp. (11)
10.11 Indenture concerning 8.5% Convertible Subordinated Debentures between Cross Medical Products, Inc. and
Fifth Third Bank (12)
10.12 Supplemental Indenture between Interpore International, Inc. and Cross Medical Products, Inc. and Fifth
Third Bank (5)
10.13 Form of Indemnification Agreement (13)
10.14 Schedule of Parties to Form of Indemnification Agreement (14)
10.15 Agreement between Dr. Edward Funk and Cross Medical Products, Inc. dated February 11, 1998 (15)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
10.16 Form of Employment Agreement dated July 31, 2000 / August 30, 2000 between Interpore International,
Inc. and its executive officers
10.17 Schedule of Parties to Form of Employment Agreement dated July 31, 2000 /
August 30, 2000
10.18 1999 Consultants Stock Option Plan (17)
10.19 Amended and Restated Employee Qualified Stock Purchase Plan dated November 13, 1998 (18)
10.20 Asset Purchase Agreement dated December 8, 1999, by and among Interpore
Orthopaedics, Inc.,
Quantic Biomedical, Inc., Quantic Biomedical Partners, John A. Dawdy and Andrew G. Hood (20)
27.01 Financial Data Schedule
</TABLE>
____________
(1) Incorporated by reference from our Registration Statement on Form S-4,
Registration No. 333-49487.
(2) Incorporated by reference from our Current Report on Form 8-K dated
December 1, 1998.
(3) Incorporated by reference from our Registration Statement on Form S-1,
Registration No. 33-69872.
(4) Incorporated by reference from our Current Report on Form 8-K dated
February 11, 1998.
(5) Incorporated by reference from our Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1998.
(6) Incorporated by reference from our Registration Statement on Form S-8,
Registration No. 33-77426.
(7) Incorporated by reference from our Registration Statement on Form S-8,
Registration No. 33-86290.
(8) Incorporated by reference from our Proxy Statement for the 1994 Annual
Meeting of Shareholders.
(9) Incorporated by reference from our Proxy Statement for the 1995 Annual
Meeting of Shareholders.
(10) Incorporated by reference from our Registration Statement on Form S-8,
Registration No. 333-53775.
(11) Incorporated by reference from the Cross Medical Products, Inc. Annual
Report on Form 10-K for the year ended December 31, 1996.
(13) Incorporated by reference from our Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1998.
(14) Incorporated by reference from our Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1998.
(15) Incorporated by reference from the Cross Medical Products, Inc. Annual
Report on Form 10-K for the year ended December 31, 1997.
(16) Incorporated by reference from our Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
(17) Incorporated by reference from our Proxy Statement for the 1999 Annual
Meeting of Stockholders.(18) Incorporated by reference from our Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1999.
(19) Incorporated by reference from our Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1999.
(20) Incorporated by reference from our Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.
(21) Incorporated by reference from our Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 2000.
17
