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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

FOR THE QUARTERLY PERIOD ENDED JUNE 29, 2002

OR

FOR THE TRANSITION PERIOD FROM _____________ TO _______________.

Commission File Number 001-16757

DJ ORTHOPEDICS, INC.

2985 Scott Street
Vista, California 92083
(800) 336-5690

Indicate by check mark whether each 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 [   ]

The number of shares of the Registrant’s Common Stock outstanding at June 29, 2002 was 17,855,566 shares.

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FORM 10-Q INDEX

EXPLANATORY NOTE

     dj Orthopedics, Inc. (“dj Orthopedics”), through its subsidiary dj Orthopedics, LLC (“dj Ortho”) and dj Ortho’s subsidiaries (collectively, the “Company”), is a global designer, manufacturer and marketer of products for the orthopedic sports medicine market. dj Orthopedics was incorporated in Delaware in August 2001. We are the successor to DonJoy, L.L.C. (“DonJoy”), which, prior to June 30, 1999, was wholly-owned by Smith & Nephew, Inc. (Smith & Nephew), a wholly-owned subsidiary of Smith & Nephew plc., a United Kingdom company. On June 30, 1999, DonJoy consummated a recapitalization pursuant to which J.P. Morgan DJ Partners, LLC, formerly Chase DJ Partners, LLC (JPMDJ Partners), obtained a controlling interest in DonJoy. Concurrently with the completion of dj Orthopedics’ initial public offering on November 20, 2001, DonJoy merged with and into dj Orthopedics through a series of transactions, referred to herein as the “Reorganization”. As a result of the foregoing transactions, dj Ortho became a wholly-owned subsidiary of dj Orthopedics.

     This Form 10-Q is filed pursuant to the Securities Exchange Act of 1934, as amended, for dj Orthopedics. dj Orthopedics and dj Orthopedics Development Corporation (“dj Development”), a wholly-owned subsidiary of dj Ortho, guarantee dj Ortho’s bank borrowings and the 12 5/8% Senior Subordinated Notes (the “Notes”) issued by dj Ortho and DJ Orthopedics Capital Corporation (“DJ Capital”), a wholly-owned subsidiary of dj Ortho. DJ Capital was formed solely to act as a co-issuer (and as a joint and several obligor) with dj Ortho with respect to the Notes. DJ Capital does not hold any assets or other properties or conduct any business. No separate financial information for DJ Capital has been provided herein because management believes such information would not be meaningful as DJ Capital has no financial or other data to report in response to the requirements of Form 10-Q. Condensed consolidating financial statements showing separate information for dj Orthopedics, dj Ortho, dj Development and the Company’s non-guarantor subsidiaries in the aggregate have been provided within the footnotes to the financial statements included herein.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DJ ORTHOPEDICS, INC.

See accompanying notes.

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DJ ORTHOPEDICS, INC.

For the required information related to the pro forma impact of income taxes on net loss per share, see Note 1.

See accompanying notes.

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DJ ORTHOPEDICS, INC.

See accompanying notes.

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DJ ORTHOPEDICS, INC.

1. General

Business and Organization

     dj Orthopedics, Inc. (“dj Orthopedics”), through its subsidiary dj Orthopedics, LLC (“dj Ortho”) and dj Ortho’s subsidiaries (collectively, the “Company”), is a global designer, manufacturer and marketer of products for the orthopedic sports medicine market. dj Orthopedics was incorporated in Delaware in August 2001. dj Orthopedics is the successor to DonJoy, L.L.C. (“DonJoy”), which, prior to June 30, 1999, was wholly-owned by Smith & Nephew, Inc. (Smith & Nephew), a wholly-owned subsidiary of Smith & Nephew plc., a United Kingdom company. On June 30, 1999, DonJoy consummated a recapitalization pursuant to which J.P. Morgan DJ Partners, LLC, formerly Chase DJ Partners, LLC (JPMDJ Partners), obtained a controlling interest in DonJoy. Concurrently with the completion of dj Orthopedics’ initial public offering on November 20, 2001, DonJoy merged with and into dj Orthopedics through a series of transactions, referred to herein as the “Reorganization”. As a result of the foregoing transactions, dj Ortho became a wholly-owned subsidiary of dj Orthopedics.

     Effective January 1, 2002, the Company commenced direct distribution of its products in Germany and the United Kingdom through its two new wholly-owned subsidiaries, dj Orthopedics Deutschland GmbH (“dj Germany”) and dj Orthopaedics UK Ltd (“dj UK”). dj Germany and dj UK replaced third-party distributors in those countries. Effective May 7, 2002, the Company commenced direct distribution of its products in Canada through its wholly-owned subsidiary, dj Ortho, Canada Inc. (“dj Canada”), replacing the Smith & Nephew sales organization, which previously distributed the Company’s products in Canada.

Basis of Presentation

     The accompanying unaudited consolidated financial statements for the three and six months ended June 29, 2002 and June 30, 2001, respectively, have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements of dj Orthopedics and the notes thereto included in dj Orthopedics’ Annual Report on Form 10-K for the year ended December 31, 2001. The accompanying unaudited consolidated financial statements at and for the three and six months ended June 29, 2002 and June 30, 2001, respectively, have been prepared on the same basis as the audited consolidated financial statements and include all adjustments (consisting of normal recurring accruals and the adjustments described in Notes 3 and 5) which, in the opinion of management, are necessary for a fair presentation of the financial position, operating results and cash flows for the interim date and interim periods presented. Results for the interim period ended June 29, 2002 are not necessarily indicative of the results to be achieved for the entire year or future periods.

     The accompanying consolidated financial statements present the historical financial position and results of operations of dj Orthopedics and include the accounts of dj Ortho, the accounts of dj Ortho’s wholly-owned subsidiaries, dj Orthopedics Development Corporation (“dj Development”) and DJ Orthopedics Capital Corporation (“DJ Capital”), the accounts of dj Ortho’s wholly-owned Mexican subsidiary that manufactures a portion of dj Ortho’s products under Mexico’s maquiladora program, the accounts of dj Ortho’s wholly-owned subsidiaries in Canada, Germany and the United Kingdom, and the accounts of dj Ortho’s majority owned subsidiary in Australia (formed March 2001). All intercompany accounts and transactions have been eliminated in consolidation. Minority interest at June 29, 2002 represents the minority stockholders’ proportionate share of the net assets of dj Australia.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions about the future that affect the amounts reported in the consolidated financial statements. These estimates include assessing the collectibility of accounts

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receivable, usage and recoverability of inventory and long-lived assets and incurrence of contractual allowances, returns and warranty and rebate costs. Actual results could differ from those estimates.

     The Company’s fiscal year ends on December 31. Each quarter consists of one five-week and two four-week periods.

Per Share Information

     Earnings per share are computed in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 128, Earnings Per Share. Basic earnings per share are computed using the weighted average number of common shares outstanding during each period. Diluted earnings per share include the dilutive effect of weighted average common share equivalents potentially issuable upon the exercise of stock options. For purposes of computing diluted earnings per share, weighted average common share equivalents (computed using the treasury stock method) do not include stock options with an exercise price that exceeds the average fair market value of the Company’s common stock during the periods presented. For the three and six months ended June 29, 2002, all stock options had exercise prices which exceeded the average fair market value of the Company’s common stock for these periods presented and were therefore excluded from the computation.

Pro Forma Income Taxes and Pro Forma Per Share Information

     The pro forma income tax expense and the calculations for pro forma per share information reflect the Company’s operations for the three and six-month periods ended June 30, 2001 as if the Reorganization occurred as of the beginning of 2001. Pro forma income tax expense represents the charge based on the Company’s operating results for the three and six-month periods ended June 30, 2001 as if the Company were a corporation from the beginning of 2001, using an estimated combined worldwide effective tax rate of 40.0%. The pro forma basic and diluted per share information is computed based on the weighted average number of shares of common stock outstanding for the three and six-month periods ended June 30, 2001. For comparative purposes, the 7,800,000 shares of common stock issued as part of the Company’s initial public offering have been included in the weighted averaged number of shares outstanding for the three and six months ended June 30, 2001, as if the shares were outstanding for the entire periods. Basic and diluted shares used for the calculation of pro forma earnings per share were the same due to the net loss position of the Company for the three and six months ended June 30, 2001 since all weighted average common share equivalents were antidilutive. The following table presents the information referenced above (in thousands, except per share amounts):

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Foreign Currency Translation

     The financial statements of the Company’s international operations, where the local currency is the functional currency, are translated into U.S. dollars using period-end exchange rates for assets and liabilities and average exchange rates during the period for revenues and expenses. Cumulative translation gains and losses are excluded from results of operations and recorded as a separate component of consolidated stockholders’ equity.

Recently Issued Accounting Standards

     In June 2001, the FASB issued SFAS Nos. 141 and 142, Business Combinations and Goodwill and Other Intangible Assets. SFAS 141 replaces prior accounting standards and eliminates pooling-of-interests accounting prospectively. It also provides guidance on purchase accounting related to the recognition of intangible assets and accounting for negative goodwill. SFAS 142 changes the accounting for goodwill from an amortization method to an impairment write-off approach. Under SFAS 142, goodwill will be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired. In addition, SFAS 142 requires the completion of a transitional impairment test within six months of adoption, with any impairment treated as a cumulative effect of a change in accounting principle as of the date of adoption. The Company completed the transitional impairment test during the second quarter of 2002 and determined that no impairment existed as of the date of adoption. SFAS 141 and SFAS 142 are effective for all business combinations completed after June 30, 2001. Effective January 1, 2002, amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 ceased, and intangible assets acquired prior to July 1, 2001 that do not meet the criteria for separate recognition under SFAS 141 have been reclassified to goodwill.

     The following table presents the impact of SFAS 142 on net income (loss) had the standard been in effect for the three and six months ended June 30, 2001 (in thousands):

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     Comparative per share information is not presented in the table above because it is not meaningful.

     Components of intangible assets acquired in prior purchase business combinations and acquired as individual assets are as follows (in thousands):

     The amortization expense on intangible assets was $0.9 million and $1.5 million for the three and six months ended June 29, 2002, respectively, as compared to $1.5 million and $2.9 million for the comparable periods in 2001.

     The estimated future amortization expense of amortizable intangible assets is as follows (in thousands):

     In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 replaces SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The FASB issued SFAS 144 to establish a single accounting model, based on the framework established in SFAS 121, as SFAS 121 did not address the accounting for a segment of a business accounted for as a discontinued operation under Accounting Principles Board (APB) No. 30, Reporting The Results of Operations — Reporting The Effects of Disposal of a Segment of a Business, and Extraordinary Unusual and Infrequently Occurring Events and Transactions. SFAS 144 also resolves significant implementation issues related to SFAS 121. Companies are required to adopt SFAS 144 as of the beginning of fiscal 2002 (see Note 5).

     In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. Besides rescinding the three FASB Statements, this Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company adopted SFAS 145 in the three months ended June 29, 2002. The adoption of SFAS 145 on the Company’s financial statements was not material.

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2. Financial Statement Information

     Inventories consist of the following (in thousands):

3. Changes in Accounting Estimates

Contractual Allowances and Doubtful Accounts

     As disclosed in the Company’s critical accounting policies in its Form 10-K for the year ended December 31, 2001 and its Form 10-Q for the three months ended March 30, 2002, the Company experienced a problem with a third-party insurance billing company, which required that a substantial portion of the accounts receivable from its OfficeCare® and Insurance programs be transferred to another third-party billing company in the latter half of 2001. During the second quarter of 2002, the Company enhanced the ability of its systems to obtain and analyze the information processed by its third-party billing companies. Historically, the Company relied heavily on these billing companies to provide information about the OfficeCare® and Insurance programs, including the data utilized to determine reserves for contractual allowances and doubtful accounts. The Company’s increased ability to obtain and better analyze information in the second quarter of 2002 has revealed that, as a result of the third-party billing problems, the Company has experienced an increase in write-offs and bad debts for accounts receivable from its OfficeCare® and Insurance programs. Accordingly, the Company increased its related reserves by $4.4 million ($2.8 million net of tax, with an effect of $(0.16) on diluted loss per share) in the second quarter of 2002, which is included in sales and marketing expenses in the accompanying unaudited consolidated statements of operations for the three and six months ended June 29, 2002.

Excess and Obsolete Inventories

     In the second quarter of 2002, the Company provided incremental provisions for estimated excess inventories in the amount of $1.3 million ($0.8 million net of tax, with an effect of $(0.05) on diluted loss per share). The increase in the Company’s estimate for these reserves was primarily related to inventories on hand for certain new product areas which had not achieved anticipated market share, including the Company’s OrthoPulse® bone growth stimulator product. The Company has experienced continuing delays in obtaining FDA approval for the OrthoPulse® bone growth stimulator product. On July 1, 2002, notification was received from the FDA that the premarket approval application for OrthoPulse® was placed on an integrity hold due to concerns that the clinical data that had been submitted in support of the PMA were not reliable. As required by the FDA, an independent review of the clinical data commenced on August 5, 2002.

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4. Comprehensive Income (Loss)

     Comprehensive income (loss) consists of the following components (in thousands):

5. Impairment of Long-Lived Assets

     In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, whenever events or changes in circumstances indicate that the carrying amount of its assets might not be recoverable, the Company, using its best estimates based upon reasonable and supportable assumptions and projections, reviews the carrying value of its long-lived assets to determine whether the carrying value can be recovered through undiscounted future operating cash flows. Impairment for long-lived assets to be held is measured by comparing the carrying amount of the asset to its fair value. Impairment is reviewed at the lowest levels for which there are identifiable cash flows that are independent of the cash flows of other groups of assets. The Company performed such analysis on an individual asset basis and estimated fair values based on expected future discounted cash flows. The Company measures impairment for long-lived assets to be disposed of at the lower of the carrying amount or net realizable value (fair market value less costs to dispose). As a result of certain new products not achieving anticipated revenues or estimated recovery values of assets being disposed of being less than anticipated, the Company’s estimated future cash flows from such new products and assets are lower than originally estimated. During the second quarter of 2002, the Company recognized $1.9 million in charges related to impairment of certain of the Company’s long-lived assets. These long-term assets include intangible assets associated with the Company’s DonJoy Vista™ Rehabilitation System product line and other smaller product lines as well as estimated impairment in an investment in an internet marketing company.

6. Segment and Related Information

     dj Ortho has two reportable segments as defined by FASB Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information. dj Ortho’s reportable segments are its business units that offer different products, which are managed separately because each business requires different technology and marketing strategies. The rigid knee bracing segment designs, manufactures and sells rigid framed ligament and osteoarthritis knee braces and post-operative splints. The soft goods segment designs, manufactures and sells fabric, neoprene and Drytex® based products for the knee, ankle, shoulder, back and wrist. dj Ortho’s other business units are included in specialty and other orthopedic products. None of the other business units met any of the quantitative thresholds for determining reportable segments, including our recently introduced line of surgical products. Information regarding industry segments is as follows (in thousands):

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     The accounting policies of the reportable segments are the same as those described in Note 1 of the notes to dj Orthopedics’ consolidated financial statements included in dj Orthopedics’ 2001 Form 10-K filed with the Securities and Exchange Commission. dj Ortho allocates resources and evaluates the performance of segments based on gross profit and therefore has not disclosed certain other items, such as interest, depreciation and amortization by segment as permitted by SFAS No. 131. dj Ortho does not allocate assets to reportable segments because a significant portion of assets are shared by all segments of dj Ortho.

     For the three and six months ended June 29, 2002 and June 30, 2001, respectively, dj Ortho had no individual customer or distributor within a segment which accounted for more than 10% or more of total net revenues for the respective periods.

     Net revenues to customers, attributed to regions based on the location of the customer, were as follows (in thousands):

     Total assets by region were as follows (in thousands):

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7. Income Taxes

     In connection with the Reorganization on November 20, 2001, the Company became a corporation and became subject to U.S. federal, state, and foreign income taxes on its earnings after that date. The Company’s estimated worldwide effective tax rate was 40% for the period from November 20 to December 31, 2001. The Company currently estimates its annual worldwide effective tax benefit rate to be approximately 36% for 2002. The comparable tax benefit is reduced primarily due to the disallowance by certain states of net operating loss carryforwards.

8. Contingencies

     Several class action complaints were filed in the United States District Courts for the Southern District of New York and for the Southern District of California on behalf of purchasers of the Company’s common stock alleging violations of the federal securities laws in connection with the Company’s November 15, 2001 initial public offering. The Company is named as a defendant along with Leslie H. Cross, President and Chief Executive Officer, Cyril Talbot III, former Senior Vice President, Finance, Chief Financial Officer, and Secretary, Charles T. Orsatti, former Chairman of the Company’s Board of Directors, and the underwriters of the Company’s initial public offering. The complaints sought unspecified damages and alleged that defendants violated Sections 11, 12, and 15 of the Securities Act of 1933 by, among other things, misrepresenting and/or failing to disclose material facts in connection with the Company’s registration statement and prospectus for the initial public offering. On February 25, 2002, plaintiffs agreed to dismiss the New York actions without prejudice. On February 28, 2002, a federal district court judge consolidated the Southern District of California actions into a single action, In re DJ Orthopedics, Inc. Securities Litigation,Case No. 01-CV-2238-K (LSP) (S.D. Cal.), and appointed Oracle Partners, L.P. as lead plaintiff. On May 3, 2002, the lead plaintiff filed its consolidated amended complaint, which alleges the same causes of action and adds our outside directors Mitchell J. Blutt, M.D., Kirby L. Cramer, and Damion E. Wicker, M.D. as defendants. On June 17, 2002, the Company and the other defendants filed a motion to dismiss the Consolidated Complaint. On August 6, 2002, the Court granted in part and denied in part the motion to dismiss. The Court dismissed several categories of the misstatements and omissions alleged by plaintiffs. The remaining allegation pertains to a purported failure to disclose material intra-quarterly sales data in the registration statement and prospectus. The Company believes the claims are without merit and intends to defend the action vigorously. However, there can be no assurance that the Company will succeed in defending or settling this action. Additionally, there can be no assurance that the action will not have a material adverse effect on the Company’s business.

     On February 13, 2002, the Company filed a complaint in the United States District Court, Southern District of California, Case No. 02-CV-0279-K (LAB) against medi Bayreuth and medi UK, Ltd, the Company’s former distributors in Germany and the United Kingdom, respectively, alleging breach of contract, unfair competition and patent infringement resulting from the termination of the Company’s distributorship arrangements with them. On April 19, 2002, the defendants filed their answer and counterclaims seeking a net recovery from the Company of approximately $1.4 million for the repurchase of inventory. The lawsuit presently is in the discovery phase. The Company intends to vigorously prosecute this litigation and to vigorously defend against the counterclaims brought by these entities. There can be no assurance that the Company will be successful in this litigation.

     On June 7, 2002, a patent infringement action was filed against the Company and its former parent, Smith & Nephew, in the United States District Court, Eastern District of Texas, Case No. 2:02CV-123-TJW by Generation II Orthotics Inc. and Generation II USA Inc. The suit alleges that the Company and Smith & Nephew willfully infringed, and are infringing, U.S. Patent No. 5,302,169 and U.S. Patent No. 5,400,806 by manufacturing, using and selling certain orthopedic knee braces for the treatment of unicompartmental osteoarthritis. The lawsuit seeks unspecified monetary damages and an injunction to prevent the Company from infringing the patents and from selling the relevant knee braces. The Company believes the claims are without merit and intends to defend the action vigorously. The Company has filed an answer and counterclaims seeking to invalidate the patents. Pursuant to a prior contractual obligation, the Company has agreed to indemnify and defend Smith & Nephew in this matter. There can be no assurance that the Company will be successful in this litigation.

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     The Company from time to time is involved in lawsuits arising in the ordinary course of business. With respect to these matters, management believes that it has adequate legal defense, insurance and/or has provided adequate accruals for related costs. The Company is not aware of any pending lawsuits not mentioned above that could have a material adverse effect on the Company’s business, financial condition and results of operations.

9. Subsequent Events

     Subsequent to June 29, 2002, certain organizational changes were made beginning with the appointment of Jack Blair as the Chairman of the Company’s Board of Directors and Vickie Capps as the Company’s new Chief Financial Officer. The Company also commenced the process of streamlining its organization and improving its cost structure by consolidating certain executive positions and corporate functions. In addition, the Company has engaged AlixPartners, LLC, a company specializing in corporate performance improvements, to expedite the development of a financial and operating performance improvement program. An objective of the performance improvement program is to reduce both costs of goods sold and operating expenses as a percentage of net revenues in future periods, after the related costs of such program have been incurred. The Company has not yet determined the cost of the improvement program, the amounts of any related charges or what impact, if any, such program will have on the Company’s future financial performance. The Company anticipates that costs of the improvement program will be recognized in the third quarter of 2002. Depending on the magnitude of such costs, the Company may be required to obtain waivers for noncompliance with, or amendments of, certain financial covenants included in its bank credit facility. There can be no assurance that the lenders under the bank credit facility will grant any such waivers, or enter into any such amendments.

     On July 1, 2002, notification was received from the FDA that the premarket approval application (PMA) for the Company’s OrthoPulse™ bone growth stimulator product was placed on an integrity hold due to concerns that the clinical data that had been submitted in support of the PMA were not reliable. As required by the FDA, an independent review of the clinical data commenced on August 5, 2002. Without approval of the PMA by the FDA, marketing of the OrthoPulse™ product in the United States cannot proceed. Although we cannot distribute such inventory in the United States until FDA approval is obtained, we can distribute such inventory in certain other countries which do not require FDA approval. In the second quarter of 2002, the Company increased its inventory reserves for the OrthoPulse™ product. At this point, the Company does not have an estimate of when or whether final FDA approval will occur and there can be no assurance that this delay in the approval process will not have a material adverse effect on the Company’s ability to sell OrthoPulse™ in the United States in the future.

10. Condensed Consolidating Financial Information

     dj Ortho is a wholly-owned operating subsidiary of dj Orthopedics, Inc. and represents substantially all of the revenues and net income of dj Orthopedics, Inc., which has no independent assets or operations. DJ Capital is a wholly-owned subsidiary of dj Ortho, has no independent assets or operations and was formed solely for the purpose of being a co-issuer of the senior subordinated notes. dj Ortho’s obligations under the senior subordinated notes are guaranteed by dj Orthopedics, Inc. and dj Development. The guarantees of the senior subordinated notes by dj Orthopedics, Inc. and dj Development and any guarantee of the notes by a future parent or wholly-owned subsidiary guarantor are full and unconditional. dj Ortho, DJ Capital and dj Development comprise all the direct and indirect subsidiaries of dj Orthopedics, Inc. other than foreign subsidiaries, which are non-guarantors of the senior subordinated notes. The indenture governing the senior subordinated notes (Indenture) and the Amended Credit Agreement (Credit Facility) contain certain covenants restricting the ability of dj Ortho and DJ Capital to, among other things, pay dividends or make other distributions (other than certain tax distributions) or loans or advances to dj Orthopedics, Inc. unless certain financial tests are satisfied in the case of the Indenture or the consent of the lenders is obtained in the case of the Credit Facility. The Indenture and the Credit Facility permit dj Ortho to make distributions to dj Orthopedics, Inc. in amounts required by dj Orthopedics, Inc. to pay federal, state and local income taxes to the extent such income taxes are attributable to the income of dj Ortho and its subsidiaries.

     The following supplemental condensed consolidating financial information presents the balance sheet as of June 29, 2002, the statements of operations for the three and six months ended June 29, 2002 and the statement of cash flows for the six months ended June 29, 2002. Since the Company did not establish dj Development until the second quarter of 2002 and the non-guarantor foreign subsidiaries were previously minor, a supplemental

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condensed consolidating balance sheet as of December 31, 2001 and condensed consolidating statements of operations for the three and six months ended June 30, 2001 and the statement of cash flows for the six months ended June 30, 2001 are not required under the Securities Exchange Act of 1934. As discussed in Note 1 above, during 2002, the Company established new operating subsidiaries in Germany, the United Kingdom and Canada. Therefore, in the aggregate, the non-guarantor subsidiaries are no longer minor. For purposes of the financial information below, “DJO, Inc.” represents dj Orthopedics, Inc., “DJO, LLC” represents dj Ortho, “DJODC” represents dj Development (subsidiary guarantor), “Non-Guarantors” represents the Company’s subsidiaries in Mexico, Germany, Australia, the United Kingdom and Canada (non-guarantor subsidiaries) and “Elims” represents the consolidating elimination entries recorded by the Company. No separate financial information has been provided herein for DJ Capital because management believes such information would not be meaningful as DJ Capital has no financial or other data to report in response to the requirements of Form 10-Q. The accompanying unaudited condensed consolidating financial statements for the three and six months ended June 29, 2002, respectively, have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. They have been prepared using the same basis as the Company’s audited consolidated financial statements and include all adjustments (consisting of normal recurring accruals, and the adjustments discussed in Notes 3 and 5) which, in the opinion of management, are necessary for a fair presentation of the financial position, operating results and cash flows for the interim date and interim periods presented.

Unaudited Condensed Consolidating Balance Sheet
June 29, 2002
(in thousands)