INTERPORE INTERNATIONAL INC /DE/ - 10-Q Quarterly Report

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, 2002

o	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 incorporation or organization)		(I.R.S. employer 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

As of November 8, 2002, there were 17,286,161 shares of the registrant’s common stock issued and outstanding.

Interpore International, Inc.

Index

			Page(s)

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

		Condensed Consolidated Balance Sheets as of December 31, 2001 and September 30, 2002 (unaudited)	3

		Condensed Consolidated Statements of Income (unaudited) for the three month and nine month periods ended September 30, 2001 and September 30, 2002	4

		Condensed Consolidated Statements of Cash Flows (unaudited) for the nine month periods ended September 30, 2001 and September 30, 2002	5

		Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		9

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		19

Item 4.	Controls and Procedures		19

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		20

Item 6.	Exhibits and Reports on Form 8-K		20

Signatures			21

Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002			22

Interpore International, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)

		December 31, 2001			September 30, 2002

					(unaudited)
Assets
Current assets:
	Cash and cash equivalents	$	6,538		$	1,304
	Accounts receivable, less allowance for doubtful accounts of $688 and $800 in 2001 and 2002, respectively		13,051			13,187
	Inventories		16,479			28,219
	Prepaid expenses		763			1,967
	Deferred income taxes		1,964			1,964

Total current assets			38,795			46,641
Property, plant and equipment, net			2,354			3,150
Deferred income taxes			1,022			1,022
Intangible assets, net			22,130			22,746
Other assets			261			233

Total assets		$	64,562		$	73,792

Liabilities and stockholders’ equity
Current liabilities:
	Accounts payable		1,981			3,967
	Accrued compensation and related expenses		1,969			1,865
	Accrued royalties		474			540
	Income taxes payable		664			—
	Other accrued liabilities		544			1,211

Total current liabilities			5,632			7,583

Long-term debt			—			3,332
Commitments and contingencies
Stockholders’ equity:
	Series E convertible preferred stock, voting, par value $.01 per share: Authorized shares - 594,000; issued and outstanding shares - none		—			—
	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 – 17,543,605 at December 31, 2001 and 17,891,161 at September 30, 2002		175			179
	Additional paid-in-capital		62,717			63,980
	Retained earnings (accumulated deficit)		(853	)		1,827

			62,039			65,986
	Less treasury stock, at cost - 605,000 shares at December 31, 2001 and September 30, 2002		(3,109	)		(3,109	)

Total stockholders’ equity			58,930			62,877

Total liabilities and stockholders’ equity		$	64,562		$	73,792

See accompanying notes.

Interpore International, Inc.
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)

		Three months ended September 30,						Nine months ended September 30,

		2001			2002			2001			2002

Net sales		$	12,230		$	14,724		$	36,527		$	43,173
Cost of goods sold			3,457			4,277			10,542			12,114

Gross profit			8,773			10,447			25,985			31,059

Operating expenses:
	Research and development		1,600			1,855			4,886			5,834
	Selling and marketing		4,588			6,366			13,118			17,675
	General and administrative		1,487			1,845			3,858			5,376

Total operating expenses			7,675			10,066			21,862			28,885

Income from operations			1,098			381			4,123			2,174

Interest income			80			1			433			40
Interest expense			(7	)		(11	)		(13	)		(21	)
Other income			151			202			412			487

Total interest and other income, net			224			192			832			506

Income before taxes			1,322			573			4,955			2,680
Income tax provision (benefit)			509			(811	)		1,908			—

Net income		$	813		$	1,384		$	3,047		$	2,680

Net income per share:
	Basic	$	.05		$	.08		$	.20		$	.16
	Diluted	$	.05		$	.08		$	.20		$	.15
Shares used in computing net income per share:
	Basic		16,436			17,282			15,096			17,219
	Diluted		17,020			17,724			15,388			18,059

See accompanying notes.

Interpore International, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

			Nine months ended September 30,

			2001			2002

Cash flows from operating activities
Net income			$	3,047		$	2,680
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
	Depreciation			563			847
	Amortization			168			218
	Compensation expense from stock option grants			29			199
	Changes in operating assets and liabilities:
		Accounts receivable		(315	)		(136	)
		Inventories		(2,021	)		(11,740	)
		Prepaid expenses		(572	)		(1,204	)
		Other assets		76			28
		Accounts payable and accrued liabilities		1,534			1,871

Net cash provided by (used in) operating activities				2,509			(7,237	)

Cash flows from investing activities
Net cash paid for American OsteoMedix Corporation				(8,413	)		(66	)
Capital expenditures				(738	)		(1,643	)

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