SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Amendment No. 1
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
August 21, 2001 (July 10, 2001)
Date of Report (Date of earliest event reported)
INTERPORE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-22958 95-3043318
(State or other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification Number)
181 Technology Drive 92618
Irvine, California (Zip Code)
(Address of principal executive offices)
(949) 453-3200
(Registrant's telephone number, including area code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
This amendment to the Current Report on Form 8-K originally filed on July
24, 2001, is being filed in order to include the historical financial statements
of American OsteoMedix Corporation ("AOM") and the unaudited pro forma financial
information listed below.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial statements of business acquired.
The following financial statements of AOM are included in this report:
Audited balance sheets of AOM as of December 31, 2000 and 1999, and the
statements of operations, stockholders' equity and cash flows for each
of the two years in the period ended December 31, 2000.
Unaudited condensed balance sheet as of June 30, 2001 and the unaudited
condensed statements of operations and cash flows for the six months
ended June 30, 2001 and 2000.
(b) Pro forma financial information.
The following unaudited pro forma condensed financial information is
being filed herewith:
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30,
2001
Unaudited Pro Forma Condensed Combined Statements of Operations for the
six months ended June 30, 2001 and the year ended December 31, 2000
2
Item 7 (a). Financial Statements of Business Acquired
Report of Independent Auditors
Board of Directors
American OsteoMedix Corporation
We have audited the accompanying balance sheets of American OsteoMedix
Corporation as of December 31, 2000 and 1999, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American OsteoMedix Corporation
at December 31, 2000 and 1999, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
March 14, 2001, except for
Note 9, as to which the date is May 31, 2001
3
American OsteoMedix Corporation
Balance Sheets
December 31
2000 1999
------------------------------
Assets
Current assets:
Cash $ 650,531 $12,762
Accounts receivable 337,878 20,550
Inventories 644,246 34,265
Prepaid expenses and other current assets 40,039 -
------------------------------
Total current assets 1,672,694 67,577
Property and equipment, net 105,603 9,962
------------------------------
Total assets $1,778,297 $77,539
==============================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 394,280 $13,708
Accrued wages, commissions and related liabilities 319,128 19,841
Deferred revenue 45,000 -
Other liabilities 175,258 7,366
------------------------------
Total current liabilities 933,666 40,915
Deferred tax liability - 2,800
Stockholders' equity:
Common stock, $.01 par value; 15,000,000 shares and 10,000,000
shares authorized at December 31, 2000 and 1999, respectively;
5,728,500 and 4,206,000 shares issued and outstanding at
December 31, 2000 and 1999, respectively 57,285 42,060
Additional paid-in capital 1,796,867 -
Deferred compensation (106,732) -
Accumulated deficit (902,789) (8,236)
------------------------------
Total stockholders' equity 844,631 33,824
------------------------------
Total liabilities and stockholders' equity $1,778,297 $77,539
==============================
See accompanying notes.
4
American OsteoMedix Corporation
Statements of Operations
Year ended December 31
2000 1999
--------------------------------
Revenues $1,180,791 $260,560
Costs of goods sold 329,893 33,968
--------------------------------
Gross profit 850,898 226,592
--------------------------------
Operating expenses 1,762,981 182,802
--------------------------------
Income (loss) from operations (912,083) 43,790
Interest income, net 10,394 -
--------------------------------
Income (loss) before income taxes (901,689) 43,790
Income tax benefit (expense) 7,136 (10,166)
--------------------------------
Net income (loss) $ (894,553) $ 33,624
================================
See accompanying notes.
5
American OsteoMedix Corporation
Statements of Stockholders' Equity
Common Stock Additional Total
Paid-in Deferred Accumulated Stockholders'
Shares Amount Capital Compensation Deficit Equity
------------------------------------------------------------------------------
Balance at December 31, 1998 4,206,000 $42,060 $ - $ - $ (41,860) $ 200
Net income - - - - 33,624 33,624
------------------------------------------------------------------------------
Balance at December 31, 1999 4,206,000 42,060 - - (8,236) 33,824
Exercise of stock options 600,000 6,000 6,000 - - 12,000
Issuance of common stock 867,500 8,675 1,672,117 - - 1,680,792
Restricted stock grant 55,000 550 109,450 (110,000) - -
Issuance of stock options - - 9,300 (9,300) - -
Amortization of deferred
compensation - - - 12,568 - 12,568
Net loss - - - - (894,553) (894,553)
------------------------------------------------------------------------------
Balance at December 31, 2000 5,728,500 $57,285 $1,796,867 $ (106,732) $ (902,789) $ 844,631
==============================================================================
See accompanying notes.
6
American OsteoMedix Corporation
Statements of Cash Flows
Year ended December 31
2000 1999
----------------------------
Operating activities
Net income (loss) $ (894,553) $ 33,624
Adjustments to reconcile net income (loss) to net
cash provided (used) in operating activities
Depreciation 8,782 602
Amortization of deferred stock compensation 12,568 -
Changes in operating assets and liabilities:
Accounts receivable (317,328) (20,550)
Inventories (609,981) (34,265)
Prepaid expenses and other (40,039) -
Accounts payable 380,572 13,708
Accrued wages, commissions and related
liabilities 299,287 19,841
Deferred revenue 45,000
Deferred income taxes (2,800) 2,800
Other liabilities 167,892 7,366
----------------------------
Net cash provided by (used in) operating activities (950,600) 23,126
Investing activities
Purchases of property and equipment (104,423) (10,564)
----------------------------
Net cash used in investing activities (104,423) (10,564)
Financing activities
Exercise of stock options 12,000 -
Issuance of common stock 1,680,792 200
----------------------------
Net cash provided by financing activities 1,692,792 200
----------------------------
Net increase in cash 637,769 12,762
Cash at beginning of period 12,762 -
----------------------------
Cash at end of period $ 650,531 $ 12,762
============================
Supplemental information:
Cash paid for income taxes $ 14,734 $ -
Cash paid for interest 3,712 -
See accompanying notes.
7
American OsteoMedix Corporation
Notes to Financial Statements
1. Organization
American OsteoMedix Corporation (the Company), was incorporated in December 1998
under the laws and provisions of the state of Virginia. The Company was
incorporated with the objective of engaging in the design, manufacture and
worldwide sale of new proprietary products for the minimally invasive spine
surgery market.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on a
straight-line basis using a useful life of three to seven years. Maintenance and
repairs are charged to expense as incurred.
Income Taxes
The Company provides for income taxes in accordance with the liability method.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Inventories
Inventories consist of raw materials, work-in-progress and finished goods that
are stated at the lower of cost (determined on an average-cost basis which
approximates the first-in, first-out basis) or market.
Revenue Recognition
The Company recognizes revenue from the sale of its products when the products
are shipped to its customers unless a consignment arrangement exists. Revenue
from consignment distributors is recognized based on notification from the
distributor that the customer has received the product for use. Deferred
revenue represents amounts received on contracts but not yet earned.
8
American OsteoMedix Corporation
Notes to Financial Statements
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, (APB 25) and complies with the disclosure provisions of
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123). Under APB 25, compensation expense is based on the
difference, if any, on the date of the grant between the fair value of the
Company's stock and the exercise price of the option. The Company accounts for
equity instruments issued to non-employees in accordance with SFAS No. 123 and
EITF 96-18, Accounting for Equity Instruments that are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods, or Services.
Fair Value of Financial Instruments
The fair value of the Company's cash, accounts receivable, accounts payable and
accrued liabilities have approximated their carrying amounts due to the
relatively short maturity of these items.
Concentration of Credit Risk
Accounts receivable as of December 31, 2000 consist of the following:
Billed receivables $339,639
Less: Provision for doubtful accounts (1,761)
---------------
$337,878
===============
Net accounts receivable balances for the Company's three largest customers with
balances outstanding for the year ended December 31, 2000 account for 18% of
total billed accounts receivable (6% each).
Reclassification
Certain reclassifications have been made to prior year's information to conform
with the current year.
9
American OsteoMedix Corporation
Notes to Financial Statements
3. Property and Equipment
Property and equipment, at cost, consist of the following:
December 31
2000 1999
----------------------
Computer hardware $ 46,361 $ -
Equipment 64,671 10,564
Furniture and fixtures 3,955 -
----------------------
Total property and equipment, cost 114,987 10,564
Less accumulated depreciation (9,384) (602)
----------------------
Property and equipment, net $ 105,603 $ 9,962
======================
4. Income Taxes
The Company accounts for income taxes under FASB Statement No. 109 Accounting
for Income Taxes (SFAS 109). Deferred income tax assets and liabilities are
determined based upon differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
For the years ended December 31, 2000 and 1999, the Company had differences in
reporting revenues for financial statement purposes and income tax purposes.
The provision for (benefit from) income taxes consists of:
Year ended December 31
2000 1999
----------------------
Current $ (7,136) $ 7,366
Deferred (304,720) 2,800
Valuation allowance 304,720 -
----------------------
Provision (benefit) from income taxes $ (7,136) $10,166
======================
10
American OsteoMedix Corporation
Notes to Financial Statements
The provision for (benefit from) income taxes can be reconciled to the income
tax that would result from applying the statutory rate to the net income (loss)
before income taxes as follows:
Year ended
December 31, 2000
-----------------------------------------
Tax benefit at statutory rate $ (294,003) 32.60 %
Nondeductible expenses for income tax purposes 22,383 (2.50)%
Increase in valuation allowance 297,584 (33.00)%
State taxes (33,100) 3.70 %
-----------------------------------------
Benefit from income taxes $ (7,136) 0.80 %
=========================================
The Company's net deferred tax assets consist of the following:
December 31
2000 1999
-----------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 288,333 $ -
Non-qualified stock options 3,398 -
Deferred revenue 17,082 -
Organizational costs 379 505
Contribution carryforward 190 -
Deferred tax liabilities
Depreciation (4,662) (3,305)
Valuation allowance (297,584) -
-----------------------------------------
Net deferred tax assets (liabilities) $ 7,136 $(2,800)
=========================================
SFAS 109 requires a valuation allowance to reduce the deferred tax assets
reported, if based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management has
determined that a $297,584 valuation allowance at December 31, 2000 is necessary
to reduce the deferred tax assets to the amount that will more likely than not
be realized. There was no valuation allowance reported for December 31, 1999. At
December 31, 2000, the Company has available net operating loss carryforwards of
approximately $759,000 that will begin to expire in the year 2020, if unused.
11
American OsteoMedix Corporation
Notes to Financial Statements
5. Related Party Transactions
On October 2, 2000, the Company issued a $20,000 interest-free note receivable
to an employee. The note should be paid in full on December 31, 2001 or prepaid,
at any time, in whole or in part, without penalty. Imputed interest on this note
is not significant to the operating results of the Company for the year ended
December 31, 2000.
The Company entered into an agreement effective April 1, 2000, with a
distributing company that is owned by a member of management. The contract with
the distributing company conforms to the terms of the contracts for other
similar agents, During the year ended December 31, 2001, the distributing
company sold approximately $366,925 of product to various hospitals and earned
commissions of approximately $41,400.
During fiscal years 1999 and 2000 and until September of 2000 when their
principals became employees and members of management, the Company had in effect
agreements with consulting companies owned by members of management. These
companies provided consulting services in engineering, financial and strategic
planning, and sold products and certain prototyping materials to the Company.
During the years ended December 31, 2000 and 1999, the Company paid these
consulting companies $64,000 and $90,000, respectively.
During 2000, the Company borrowed $160,000 from certain members of management
under provisions of secured notes. These notes were converted into 80,000 shares
of the Company's common stock under the terms of the Company's private placement
of equity, which closed in September of 2000.
As of December 31, 2000, the Company owed its officers back pay of $227,000 for
work performed during 2000. In February 2001, $181,600 of this debt was paid by
the issuance of 40,800 shares of the Company's common stock and the remainder
was issued as cash compensation.
6. Commitments
The Company leases office facilities under an operating lease agreement. Rent
expense for the year ended December 31, 2000 was approximately $32,000. The
lease expires in 2004 and the remaining minimum rental payments at December 31,
2000 are as follows:
2001 $ 63,481
2002 64,896
2003 64,896
2004 10,816
--------
Total $204,089
========
12
American OsteoMedix Corporation
Notes to Financial Statements
7. Stockholders' Equity
Common Stock
Common Stock holders are entitled to one vote per share in all matters voted
upon by the stockholders and have no right to cumulate votes in the election of
directors. Holders of Common Stock are entitled to receive ratably such
dividends, when as and if declared by the Board of Directors out of funds
legally available therefore. Upon liquidation, dissolution or winding up the
Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company after payment of all debts and other liabilities. Holders
of Common Stock have no preemptive, subscription, redemption or conversion
rights, and there are no sinking fund provisions applicable to the Common Stock.
In September of 2000, the Company sold 867,500 shares of its $0.01 par value
Common Stock at $2 per share through a Private Placement Memorandum, to
qualified investors for proceeds of approximately $1.7 million. In connection
with this offering, the holders of these shares of Common Stock will have
antidilution protection for a period of three years.
The Company granted 55,000 shares of Common Stock to a key executive, which
vests over five years with one-fifth vesting each July 1. At the time of
issuance, the Company recorded deferred stock compensation of $110,000 and has
recognized an expense of approximately $7,300 for the year ended December 31,
2000.
Stock Options
On December 1, 2000, the Company adopted the American OsteoMedix (AOM)
Corporation Stock Incentive Plan (the 2000 Plan) to provide for the granting of
stock awards, such as stock options, restricted common stock and stock
appreciation rights to employees. The Company has reserved 400,000 shares of
common stock under the 2000 Plan.
The Board of Directors determines who will receive options under the 2000 Plan
and determines the vesting period, which is generally five years. Options may
have a maximum term of no more then ten years. The exercise price of options
granted under the 2000 Plan must be at least equal to the fair market value of
the common stock on the date of grant.
The Company has also issued nonqualified stock options. As of December 31, 2000,
such nonqualified options represented 165,000 of the total of 196,500 options
outstanding.
13
American OsteoMedix Corporation
Notes to Financial Statements
Additional information with respect to stock option activity is summarized as
follows:
December 31, 2000 December 31, 1999
-----------------------------------------------------------
Weighted- Weighted-
Average Average
Shares Exercise Shares Exercise
Price Price
-----------------------------------------------------------
Options granted 46,500 $2.00 750,000 $ .02
Options exercised 600,000 .02 -
Options canceled or expired - - - -
--------------- --------------
Outstanding at end of year 196,500 .49 750,000 .02
=============== ==============
Options exercisable at end of year 159,300 .14 600,000 .02
=============== ==============
The options outstanding at December 31, 2000 have a weighted average option
price of $0.49 per share and have a weighted average remaining contractual life
of 3.3 years.
If compensation cost for the Company's stock option plan had been determined
based upon the fair market value at the grant date for awards under the plan
consistent with the methodology prescribed under SFAS No. 123, the Company's net
loss for the year ended December 31, 2000 would have been approximately
$895,000. The weighted average fair value of the options granted in 2000 was
$0.01 as of the date of grant. The minimum value option pricing model was used
to determine the fair market value with the following assumptions: dividend
yield of 0%, risk-free interest rate of 6%, and expected life of five years.
The effect of applying SFAS 123 on 2000 and 1999 net income (loss), as stated
above, is not necessarily representative of the effects on reported net income
for future years due to, among other things, the vesting period of the stock
options and the fair value of additional stock options in future years.
During 2000, the Company granted options to consultants to purchase a total of
15,000 shares of common stock at an exercise price of $2.00 per share in
exchange for services received, with various expiration dates. Vesting occurs
every December over the remaining 5 years of the agreement. At the time of
issuance, the Company recorded deferred stock compensation of $7,800 and has
recognized an expense of $5,268 for the year ended December 31, 2000. Under
variable plan accounting, the value of the unvested options will be re-measured
and recognized in income at each reporting date until vesting occurs.
14
American OsteoMedix Corporation
Notes to Financial Statements
8. Contingent Liabilities
The manufacturing and marketing of medical products necessarily entails an
inherent risk of product liability claims. The Company currently has a product
liability claim pending for which no provision has been made in the Company's
financial statements. Management believes that resolution of this claim will not
have a materially adverse effect on the Company's business, financial condition
or results of operations. The Company has not experienced any losses due to
product liability claims and management believes that the Company currently
maintains adequate liability insurance coverage.
9. Subsequent Events
Subsequent to December 31, 2000, the Company entered into a Note Purchase
Agreement providing for up to two convertible notes in the aggregate amount of
$1,000,000 to be issued by the Company to Interpore International, Inc.
("Interpore"). The Company, upon entering into the agreement, issued an initial
note in the amount of $500,000. The obligation of Interpore to purchase the
second note is contingent upon, among other things, the successful completion of
due diligence precedent to the completion of negotiations concerning the
potential acquisition of the Company by Interpore. Under the terms of the Note
Purchase Agreement, principal and interest under the Note will be paid to
Interpore on May 20, 2006, or before at the option of the Company. The Note
bears interest at 7.5% compounded monthly. Beginning on July 15, 2001, the
principal and interest due under the Note shall become automatically convertible
into the securities issued by the Company in the next sale by the Company of
Debt or Equity securities in a qualified arm's length transaction.
On May 31, 2001, the Company entered into a definitive Agreement and Plan of
Merger (the "Merger Agreement") with Interpore. The Merger Agreement provides
for the Company to be merged into a subsidiary of Interpore. Under the terms of
this Merger Agreement, if consummated, the shareholders of the Company will
receive a variable price consisting of approximately $8,000,000 of cash,
approximately 2,400,000 shares of Interpore stock, and contingent consideration
based on future revenues. The amount of cash and the shares of stock are subject
to variation based upon the expenses of the transaction and the market price of
Interpore stock. The principal and interest due under the Notes shall be reduced
immediately prior to closing by cash remaining on the balance sheet of the
Company and any remaining principal shall be applied as a reduction of the
purchase price.
The closing of the Merger Agreement is contingent upon, among other things, the
approval of a majority of the Company's shareholders, and the receipt from
counsel of an opinion in acceptable form that the merger will qualify under
section 368a of the Internal Revenue Code.
15
American OsteoMedix Corporation
Balance Sheets
December 31, June 30,
2000 2001
---------------- ---------------
(unaudited)
Assets
Current assets:
Cash ..................................................................... $ 650,531 $ 707,029
Accounts receivable ...................................................... 337,878 445,734
Inventories .............................................................. 644,246 580,042
Prepaid expenses and other current assets ................................ 40,039 24,117
---------------- ---------------
Total current assets ....................................................... 1,672,694 1,756,922
Property and equipment, net ................................................ 105,603 106,438
---------------- ---------------
Total assets ............................................................... $ 1,778,297 $ 1,863,360
================ ===============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable ......................................................... $ 394,280 $ 315,879
Accrued wages, commissions and related liabilities ....................... 319,128 105,453
Deferred revenue ......................................................... 45,000 39,167
Other liabilities ........................................................ 175,258 578,275
---------------- ---------------
Total current liabilities .................................................. 933,666 1,038,774
---------------- ---------------
Stockholders' equity:
Common stock, $.01 par value; 15,000,000 shares authorized at December
31, 2000 and June 30, 2001; 5,728,500 and 5,841,800 shares issued and
outstanding at December 31, 2000 and June 30, 2001, respectively......... 57,285 58,418
Additional paid-in-capital .............................................. 1,796,867 2,022,334
Deferred compensation..................................................... (106,732) (104,416)
Accumulated deficit ..................................................... (902,789) (1,151,750)
---------------- ---------------
Total stockholders' equity ................................................. 844,631 824,586
---------------- ---------------
Total liabilities and stockholders' equity ................................. $ 1,778,297 $ 1,863,360
================ ===============
See accompanying notes.
16
American OsteoMedix Corporation
Statements of Operations
(unaudited)
Six months ended June 30,
-----------------------------------
2000 2001
---------- ----------
Revenues $ 487,608 $1,614,263
Cost of goods sold 119,852 342,319
---------- ----------
Gross profit 367,756 1,271,944
---------- ----------
Operating expenses 485,479 1,524,614
---------- ----------
Loss from operations (117,723) (252,670)
Interest income, net - 3,709
---------- ----------
Loss before income taxes (117,723) (248,961)
Income tax benefit 48,036 -
---------- ----------
Net loss $ (69,687) $ (248,961)
========== ==========
See accompanying notes.
17
American OsteoMedix Corporation
Statements of Cash Flows
(unaudited)
Six months ended June 30,
----------------------------------
2000 2001
--------- ---------
Operating activities
Net loss $ (69,687) $(248,961)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation 1,651 14,587
Amortization of deferred stock compensation - 2,316
Changes in operating assets and liabilities:
Accounts receivable (29,975) (107,856)
Inventories (110,225) 64,204
Prepaid expenses and other (99,176) 15,922
Accounts payable 160,571 (78,401)
Accrued wages, commissions and related liabilities 105,159 (213,675)
Deferred revenue - (5,833)
Deferred income taxes - -
Other liabilities 68,094 (96,983)
--------- ---------
Net cash provided by (used in) operating activities 26,412 (654,680)
--------- ---------
Investing activities
Purchases of property and equipment (16,556) (15,422)
--------- ---------
Net cash used in investing activities (16,556) (15,422)
--------- ---------
Financing activities
Exercise of stock options 12,000 45,000
Issuance of common stock - 181,600
Issuance of note payable to Interpore International, Inc. - 500,000
--------- ---------
Net cash provided by financing activities 12,000 726,600
--------- ---------
Net increase in cash 21,856 56,498
Cash at beginning of period 12,762 650,531
--------- ---------
Cash at end of period $ 34,618 $ 707,029
========= =========
See accompanying notes.
18
American OsteoMedix Corporation
Notes to Unaudited Financial Statements
June 30, 2001
(unaudited)
1. Organization and Description of Business
American OsteoMedix Corporation was incorporated in December 1998 under the
laws and provisions of the state of Virginia. AOM was incorporated with the
objective of engaging in the design, manufacture and worldwide sale of new
proprietary products for the minimally invasive spine surgery market.
2. Note Payable
Other liabilities includes a $500,000 note payable to Interpore
International, Inc. This note was paid in full prior to the July 10, 2001
closing of the acquisition of American OsteoMedix Corporation by Interpore
International.
19
Item 7 (b). Pro Forma Financial Information
Interpore International, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 2001
(in thousands)
Pro forma Pro forma
Interpore AOM adjustments adjusted
----------- ----------- ------------- ----------
Assets
Current assets:
Cash and cash equivalents........................ $ 16,260 $ 707 $ (8,368) (a) $ 8,599
Accounts receivable, net......................... 10,395 446 10,841
Inventories...................................... 13,277 580 13,857
Prepaid expenses and other current assets........ 4,664 24 (500) (c) 4,188
----------- ----------- ------------- ----------
Total current assets............................... 44,596 1,757 (8,868) 37,485
Property, plant and equipment, net................. 1,562 106 1,668
Deferred income taxes.............................. 1,598 - 1,598
Goodwill and intangible assets, net................ 2,098 - 19,832 (b) 21,930
Other assets....................................... 71 - 71
----------- ----------- ------------- ----------
Total assets....................................... $ 49,925 $ 1,863 $ 10,964 $ 62,752
=========== =========== ============= ==========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable................................. $ 1,751 $ 316 $ $ 2,067
Accrued compensation and related expense......... 1,538 106 1,644
Accrued royalties................................ 423 - 423
Deferred revenue................................. - 39 39
Income taxes payable............................. 1,043 - 1,043
Other accrued liabilities........................ 1,035 578 (500) (c) 1,113
----------- ----------- ------------- ----------
Total current liabilities.......................... 5,790 1,039 (500) 6,329
----------- ----------- ------------- ----------
Stockholders' equity:
Common stock..................................... 150 58 24 (a)
(58) (b) 174
Additional paid-in-capital....................... 49,971 2,022 12,264 (a)
(2,022) (b) 62,235
Deferred compensation............................ - (104) 104 (b) -
Accumulated deficit.............................. (2,877) (1,152) 1,152 (b) (2,877)
Treasury stock, at cost.......................... (3,109) - (3,109)
----------- ----------- ------------- ----------
Total stockholders' equity......................... 44,135 824 11,464 56,423
----------- ----------- ------------- ----------
Total liabilities and stockholders' equity......... $ 49,925 $ 1,863 $ 10,964 $ 62,752
=========== =========== ============= ==========
See accompanying Notes to Pro Forma Condensed Combined Financial Statements.
20
Interpore International, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
Six Months ended June 30, 2001
(in thousands, except per share data)
Pro forma Pro forma
Interpore AOM adjustments adjusted
------------- ------------- ------------- -------------
Net sales...................................... $ 24,297 $ 1,614 $ - $ $25,911
Cost of goods sold............................. 7,085 342 7,427
------------- ------------- ------------- -------------
Gross profit................................... 17,212 1,272 18,484
------------- ------------- ------------- -------------
Operating expenses............................. 14,187 1,525 661 (d) 16,373
------------- ------------- ------------- -------------
Income (loss) from operations.................. 3,025 (253) (661) 2,111
Total interest and other income, net........... 608 4 (151) (e) 461
------------- ------------- ------------- -------------
Income (loss) before taxes..................... 3,633 (249) (812) 2,572
Income tax provision (benefit)................. 1,399 - (58) (e) 1,341
------------- ------------- ------------- -------------
Net income (loss).............................. $ 2,234 $ (249) $ (754) $ 1,231
============= ============= ============= =============
Net income per share:
Basic........................................ $ .15 $ .07
Diluted...................................... $ .15 $ .07
Shares used in computing earnings per share:
Basic........................................ 14,426 16,826
Diluted...................................... 14,629 17,029
See accompanying Notes to Pro Forma Condensed Combined Financial Statements.
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Interpore International, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
Year ended December 31, 2000
(in thousands, except per share data)
Pro forma Pro forma
Interpore AOM adjustments adjusted
------------- ------------- ------------- -------------
Net sales .................................. $ 44,319 $ 1,181 $ - $ 45,500
Cost of goods sold ......................... 13,460 330 13,790
------------- ------------- ------------- -------------
Gross profit ............................... 30,859 851 31,710
------------- ------------- ------------- -------------
Operating expenses ......................... 25,256 1,763 1,322 (d) 28,341
------------- ------------- ------------- -------------
Income (loss) from operations .............. 5,603 (912) (1,322) 3,369
Total interest and other income, net ....... 991 10 (481) (e) 520
------------- ------------- ------------- -------------
Income (loss) before taxes ................. 6,594 (902) (1,803) 3,889
Income tax provision (benefit) ............. 2,461 (7) (179) (e) 2,275
------------- ------------- ------------- -------------
Net income (loss) .......................... $ 4,133 $ (895) $ (1,624) $ 1,614
============= ============= ============= =============
Net income per share:
Basic .................................... $ .29 $ .10
Diluted .................................. $ .27 $ .09
Shares used in computing earnings per share:
Basic .................................... 14,043 16,443
Diluted .................................. 15,140 17,540
See accompanying Notes to Pro Forma Condensed Combined Financial Statements.
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Interpore International, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
1. Basis of Presentation
The unaudited pro forma condensed combined financial statements give effect
to the acquisition by Interpore International, Inc. ("Interpore") of American
OsteoMedix Corporation ("AOM"). This acquisition (the "Transaction") was
completed on July 10, 2001.
The accompanying unaudited Pro Forma Condensed Combined Balance Sheet as of
June 30, 2001 presents the unaudited pro forma financial condition of Interpore
as if the Transaction had occurred as of June 30, 2001. The accompanying
unaudited Pro Forma Condensed Combined Statements of Operations for the six
months ended June 30, 2001 and for the year ended December 31, 2000 present
unaudited pro forma operating results for Interpore as if the Transaction had
occurred as of the beginning of the periods presented.
The unaudited pro forma adjustments are described in the accompanying
notes. The unaudited pro forma adjustments represent Interpore's preliminary
determination of the necessary adjustments and are based upon certain
assumptions Interpore considers reasonable under the circumstances. Final
amounts may differ from those set forth below. The unaudited pro forma
financial information presented does not consider any future events which may
occur after the Transaction.
THE UNAUDITED PRO FORMA FINANCIAL INFORMATION IS PRESENTED FOR
INFORMATIONAL PURPOSES ONLY AND IS NOT NECESSARILY INDICATIVE OF THE OPERATING
RESULTS OR FINANCIAL POSITION THAT WOULD HAVE OCCURRED HAD THE TRANSACTION BEEN
CONSUMMATED AT THE DATES INDICATED, NOR IS IT NECESSARILY INDICATIVE OF FUTURE
OPERATING RESULTS OR THE FINANCIAL POSITION OF INTERPORE FOLLOWING THE
TRANSACTION.
The unaudited pro forma condensed combined financial information should be
read in conjunction with the consolidated financial statements of Interpore and
the related notes thereto contained in (i) Interpore's Annual Report on Form 10-
K for the year ended December 31, 2000, and (ii) Interpore's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001.
2. Pro Forma Assumptions
The purchase price of AOM consisted of the payment of approximately $7.9
million in cash (of which $500,000 was placed into escrow) and the issuance of
approximately 2.4 million shares of Interpore common stock having a value of
approximately $12.2 million. In addition, Interpore agreed to pay the AOM
shareholders a pro rata share of up to $5 million, contingent upon Interpore's
sales of AOM product systems following the Transaction. Any such additional
consideration paid will be allocated to goodwill in accordance with APB 16, FIN
44 and EITF 95-8, Accounting for Contingent Consideration Paid to Shareholders
of an Acquired Enterprise in a Purchase Business Combination.
Accordingly, the cost of the Transaction for purposes of the Unaudited Pro
Forma Condensed Combined Financial Statements, including the purchase price of
approximately $20.2 million in cash and stock and estimated transaction costs of
$500,000, totaled approximately $20.7 million. The estimated fair market value
adjustments to the recorded values of the net assets acquired is immaterial, and
therefore the $19.8 million excess of acquisition costs over the net assets
acquired is being allocated to goodwill for purposes of the Unaudited Pro Forma
Condensed Combined Financial Statements.
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets. SFAS No. 141 addresses financial
accounting and reporting for business combinations and requires all business
combinations to be accounted for using the purchase method. SFAS No. 141 is
effective for any business combinations initiated after June 30, 2001. SFAS No.
142, effective for Interpore on January 1, 2002, addresses the initial
recognition and measurement of goodwill and other intangible assets acquired in
a business combination.
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Goodwill and other intangible assets with indefinite lives will no longer be
amortized but instead will be subject to impairment tests at least annually.
Since the Transaction was completed after June 30, 2001, Interpore will not be
amortizing the goodwill obtained in the acquisition of AOM in its actual results
of operations, but will test the goodwill for impairment at least annually.
However, since the periods presented in the Unaudited Pro Forma Condensed
Combined Financial Statements are prior to the effective dates in SFAS Nos. 141
and 142, the goodwill is being amortized over a period of 15 years for pro forma
purposes.
3. Pro Forma Adjustments
The pro forma financial information reflects the following adjustments:
a) To record the issuance of common stock and the disbursement of cash in
connection with the Transaction.
b) To record the preliminary allocation of the excess of acquisition costs
over the net assets acquired to goodwill and to eliminate the equity
accounts of AOM.
c) To record the elimination of the $500,000 note payable by AOM to Interpore.
d) To record the amortization of goodwill acquired in the Transaction over a
period of 15 years.
e) To record the estimated reduction in interest income that would have been
generated had the cash portion of the purchase price been paid as of the
beginning of the period presented and to record the related estimated tax
effect of the adjustment.
4. Pro Forma Earnings Per Share
Basic and diluted earnings per share for each period are calculated by
dividing pro forma net income by the sum of (i) the shares used to calculate
earnings per share in the historical period plus (ii) the approximately 2.4
million common shares which were issued in connection with the Transaction.
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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 hereunto duly authorized.
Interpore International, Inc.
Date: August 21, 2001 By: /s/ Richard L. Harrison
--------------------------------------------
Richard L. Harrison
Sr. Vice President and Chief Financial Officer
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