<PAGE>   1
                                    FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 1999

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from ________ to ___________

                         Commission file number: 0-26538


                           ENCORE MEDICAL CORPORATION
             (Exact name of Registrant as specified in its charter)

      DELAWARE                                                   65-0572565
      (State or other jurisdiction of                         (I.R.S. Employer
      incorporation or organization)                         Identification No.)

      9800 METRIC BLVD.
      AUSTIN, TEXAS                                                 78758
      (Address of principal executive offices)                    (Zip code)

                                  512-832-9500
               (Registrant's telephone number including area code)

           Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to section 12(g) of the Act:

                         Common Stock, $0.001 par value
                                   $5 Warrant
                                   $7 Warrant

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]  No [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [ ]  No [X]

         The aggregate market value of the voting and non-voting common equity
held by non-affiliates of Encore Medical Corporation, computed by reference to
the last sales price of such stock as of March 15, 2000, was $16,803,254.



<PAGE>   2

         Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 15, 2000, the latest practicable date.

<TABLE>
<CAPTION>
Title                                                        Outstanding
-----                                                        -----------
<S>                                                          <C>
Common Stock, par value $0.001                               9,018,725
</TABLE>

                       DOCUMENTS INCORPORATED BY REFERENCE

         List hereunder the following documents, if incorporated by reference,
and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the
document is incorporated: (1) any annual report to security holders; (2) any
proxy or information statement; and (3) any prospectus filed pursuant to Rule
424(b) or (c) under the Securities Act of 1933:

PORTIONS OF THE PROXY STATEMENT TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO REGULATION 14A UNDER THE SECURITIES EXCHANGE ACT OF 1934
IN CONNECTION WITH THE COMPANY'S ANNUAL MEETING OF SHAREHOLDERS ARE INCORPORATED
BY REFERENCE INTO PART III HEREOF (TO THE EXTENT SET FORTH IN ITEMS 10, 11, 12
AND 13 OF PART III OF THIS ANNUAL REPORT ON FORM 10-K.)

         This annual report on Form 10-K of Encore Medical Corporation for the
year ended December 31, 1999 contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. To the extent that
such statements are not recitations of historical fact, such statements
constitute forward-looking statements that, by definition, involve risks and
uncertainties. In any forward-looking statement, where Encore Medical
Corporation expresses an expectation or belief as to future results or events,
such expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will be achieved or accomplished.

         The following are factors that could cause actual results or events to
differ materially from those anticipated, and include, but are not limited to:
general economic, financial and business conditions; commodity prices; the
success and costs of advertising and promotional efforts; changes in and
compliance with governmental healthcare and other regulations; changes in tax
laws; and the costs and effects of legal proceedings.



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ITEM 1. BUSINESS

OVERVIEW

         Encore Medical Corporation ("EMC") through its primary operating
subsidiary, Encore Orthopedics, Inc. ("Encore" or the "Company"), designs,
markets and distributes orthopedic products and supplies. Its products are used
primarily by orthopedic medical specialists to treat patients with
musculoskeletal conditions resulting from degenerative diseases, deformities,
traumatic events and participation in sporting events. Encore's products cover a
broad variety of orthopedic needs and include hip, knee and shoulder implants to
reconstruct damaged joints and trauma products to reconstruct bone fractures.

         Encore was formed in April 1992, when several executives with
significant experience in the orthopedics industry joined with a small original
equipment manufacturer of orthopedic implants and related instruments. Encore's
first product, the Foundation(R) Knee System, was introduced in Europe in late
1992 and in the United States in February 1993 after receiving Food and Drug
Administration ("FDA") 510(k) approval. Encore also obtained registration for
this product in Japan, where sales began in late 1994. Since that time Encore
has developed and obtained regulatory approval for over 50 additional orthopedic
total joint products, trauma products, biologic products, spinal products, and
product improvements. Encore is also awaiting 510(k) and IDE/PMA approval on
several other products.

         By October 1997, Encore moved up to number 145 on the Inc. 500 listing,
compared to being ranked number 398 in the 1996 Inc. 500 list of the fastest
growing private companies. In May 1996, Encore completed its first acquisition
when it acquired the assets and liabilities of Applied Osteo Systems, Inc.
("AOS"). The acquisition expanded Encore's product line into trauma products.
This expansion into trauma products was furthered by the acquisition of
Biodynamic Technologies, Inc. ("BTI") in March 1999.

         On March 25, 1997, the stockholders of Encore approved the merger of
Encore with and into Healthcare Acquisition, Inc., a wholly owned subsidiary of
Healthcare Acquisition Corp., ("HCAC"), with Encore being the surviving entity.
As part of the transaction, HCAC became known as Encore Medical Corporation.
HCAC was formed in 1995 to invest in a healthcare business and completed its
initial public offering in March 1996. Encore currently employs approximately
100 people worldwide.

         The Company continues its growth by being present in the newest fields
of the orthopedic industry. Encore completed a distribution agreement with
Biocomposites, Ltd. of England that provided entry into the bone graft
substitute market. The Company also gained FDA approval of an expedited clinical
trial methodology for a low friction, ceramic-on-ceramic total hip replacement
product. Rapid growth and high margins characterize these innovative markets.
Encore's latest venture is in the spinal implant marketplace, which had growth
rates in 1996 and 1997 exceeding 30% per year. This new market anticipates
growth rates in excess of 20% per year for the next several years. Encore gained
access to its first spinal products through an exclusive United States
distribution agreement with SCIENT'X, a Paris-based spinal products
manufacturer.

INDUSTRY BACKGROUND

         Certain of the information contained in this Form 10-K, generally, and
in this section concerning the definition, size and development of the various
product markets in which Encore participates, and Encore's general expectations
concerning the development of such product markets, both domestically and
internationally, are based on estimates prepared by Encore using data from
various sources (primarily Medical Data International, Inc., Dain Raucher
Wessel, US Bancorp, Piper Jaffray and Knowledge Enterprises, as well as data
from Encore's internal research), which data Encore has no reason to believe are
unreliable, and on assumptions made by Encore, based on such data, and Encore's
knowledge of the orthopedic product industry, which Encore believes to be
reasonable.

         Over the last two decades, the orthopedic products market, which
consists of implants for joint replacement, spinal implants, trauma products,
certain arthroscopic, sports medicine and soft goods products, bone cement and
related products and instrumentation, has experienced significant growth in both
revenues and unit sales. Recent advances in technology require the addition to
the orthopedic products market tissue technology image-guided surgery,
osteobiologics and diagnostic products related to osteoporosis. Based on this
expanded scope, in 1998, the worldwide market for orthopedic products produced
approximately $11.2 billion in revenue. In the United States, the orthopedic
products market represented approximately $6.5 billion in revenue in 1998. From
1992 to 1998 the average annual revenue growth rate was approximately 10%. Unit
growth accounted for approximately half of this growth; the remainder of the
growth was attributable to technology driven price increases.



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         Joint reconstruction products accounted for approximately $2.1 billion
of the overall orthopedic market in the U.S. in 1998 and approximately $3.8
billion worldwide. Among the joint replacement products, hip and knee
replacement products account for approximately 95% of worldwide revenues (with
approximately $3.6 billion in worldwide sales in 1998) and shoulder replacement
and other related products (spinal, elbow, wrist, finger, toe, ankle and
ligament prostheses) account for approximately 5% of worldwide revenues (with
approximately $190 million in worldwide sales in 1998). The trauma, or fracture
fixation, segment of the orthopedic products market approached $750 million in
1998, representing approximately 10% growth over 1997. The trauma product market
is divided between internal and external fixation products. In 1998, internal
fixation products accounted for about 75% of the revenues from the sale of all
trauma products.

         Of particular note is the dynamic growth of both the spinal and
tissue/osteobiological market segments. It is estimated that the U.S. spinal
market exceeded $600 million in 1998 and was approaching $1 billion worldwide.
Rapid advances in technology and product design are predicted to produce growth
rates exceeding 20% per year for several years. Interbody fusion devices have
contributed greatly to this rapid growth, achieving approximately a 30% market
share since appearing on the market in 1996.

         Tissue technology, i.e., osteobiologics, was estimated at approximately
$500 million in 1998. Growth potential is concentrated in bone graft substitutes
and biologically active bone morphogenic proteins (BMP) as they replace more
traditional autografts and allografts, i.e. bone bank bone, which account for
more than 75% of the procedures requiring bone graft. As with spine, growth
rates for this market segment should exceed 20% for several years.

         The remaining segments of the orthopedic products market (soft goods,
cast room products, power and hand instruments, arthroscopy, etc.) account for
approximately 40% of the revenue for the total orthopedic products market.

         The international orthopedic market remains concentrated in a few
primary areas. The United States alone accounts for approximately 58% of the
worldwide market, and five countries, the United States, Germany, France, Japan
and the United Kingdom, account for approximately 80% of the worldwide market
for such products. There are, however, other markets being developed in areas
such as China, Eastern Europe, Russia and the Middle East, where there is
significant growth potential for sales of orthopedic products such as Encore
markets.

STRATEGY

         Encore has established its knee, hip and shoulder total joint products
as the core of its product line. Encore's management believes that it must offer
a complete line of reconstructive total joint implant products, along with
specialty trauma, biologic and spinal products, to remain competitive in the
orthopedic products marketplace. Encore will continue to design and acquire
technology to assemble complete, high quality, competitively-priced,
globally-designed product lines and will continue to expand its network of
independent sales agents and direct sales representatives for the sale of its
products in the United States and its distributor relationships worldwide.
Encore's goal is to increase its penetration in the United States and foreign
markets by introducing line extensions to its already broad array of total joint
replacement products, entering the revision total hip market, growing its line
of trauma products, concentrating on specialty and niche products, and entering
the biologic and spinal implant marketplace through internal development,
distribution agreements and the acquisition of existing products or companies.

         Outside the United States, Encore's strategy is to explore alternative
avenues for distribution in Europe and Japan and enter into new distribution
agreements in other parts of the world. For both its United States and its
international products, Encore will continue to work with a team of experienced
orthopedic surgeons to help design and promote its products, develop clinical
results, assist in marketing the products and participate in educational
programs focusing on Encore's products.

PRODUCTS

         Encore currently designs, manufactures and markets over 7,500 separate
orthopedic reconstructive joint products, trauma products, spinal products and
instruments used by surgeons to perform orthopedic surgery. Encore plans to
continue to develop or acquire new hip, knee and shoulder systems as well as new
trauma products, spinal products, biological products and line extensions that
address the differing preferences of surgeons, and new systems for new
indications.

RECONSTRUCTIVE KNEE PRODUCTS

         Encore currently offers the Foundation(R) Knee System in both cruciate
sparing and posterior stabilized versions, for both primary and revision
applications, all of which are designed to duplicate as closely as possible the
anatomical function of the patient's knee, thereby improving its range of motion
and stability. Encore's knee systems are used to replace the




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articulating surfaces of the knee: the knee cap (patella), top of the shin bone
(tibia), and bottom of the thigh bone (femur). The knee system consists of eight
different sizes of knee components, which are made of cobalt chrome alloy,
titanium alloy and high-density polyethylene. Sales of knee products accounted
for approximately 55% of total sales in 1999.

RECONSTRUCTIVE HIP PRODUCTS

         Encore is currently marketing four internally designed hip systems.
These include the Foundation(R) Hip System, the Vitality(R) Hip Stem, the
Linear(R) Hip Stem and the Revelation(TM) Hip Stem. Encore's hip implant
consists of the same basic parts as the normal hip, including a femoral stem
(thighbone) with a spherical femoral head (ball) and an acetabular cup (socket)
on which the femoral head articulates. Sales of hip products accounted for
approximately 30% of total sales in 1999.

RECONSTRUCTIVE SHOULDER PRODUCTS

         Encore markets its internally designed Foundation(R) Shoulder System.
Encore's shoulder implant consists of the same basic parts as the normal
shoulder, including a humeral stem with a spherical humeral head (ball) and a
glenoid component on which the humeral head articulates. Sales of shoulder
products accounted for approximately 4% of total sales in 1999.

TRAUMA PRODUCTS

         Encore has built its trauma product line through a series of
acquisitions. The first acquisition, Applied Osteo Systems in 1996, gave Encore
the True/Flex(R) intramedullary nails, a patented system of intramedullary nails
used in repairing bone fractures, primarily for use in correcting upper
extremity fractures, and the True/Lok(TM) external fixation system, developed by
Texas Scottish Rite Hospital. Encore has recently begun to sell True/Flex(R)
intramedullary nail products in the higher volume market for products used in
correcting lower extremity conditions. The acquisition of Biodynamic
Technologies, Inc. ("BTI") in March 1999 allowed Encore to offer a complete line
of specialty products for use in the treatment of upper extremity orthopedic
trauma and added other trauma products used in the hip and ankle areas of the
body. Sales of trauma products accounted for approximately 10% of total sales in
1999.

INSTRUMENTATION

         Approximately 1% of 1999 sales were the instrumentation used to implant
the above products. Virtually all of these sales were outside the United States.

SPINAL PRODUCTS

         In 1999 Encore began selling spinal products pursuant to an exclusive
distribution agreement for the United States for products produced by
Paris-based SCIENT'X. The SCIENT'X line contains many products which Encore
began to obtain FDA approval to market in 1999. The Isolock(TM) and Isobar(TM)
systems consist of rods, plates, cortical screws, and pedicle screws used to
achieve fusion of the spine. Of particular note is the Isomorphic(TM) Lumbar
Cage System that will allow Encore to compete in the interbody fusion cage
market after completion of clinical trials. The cervical spine is addressed with
the PCB(TM) Cervical Plate System. These product lines will continue to expand
as more products are developed and U.S. regulatory approval is obtained.

BIOLOGICAL PRODUCTS

         Encore's initial entry into the biological marketplace was with
Stimulan(TM) - Calcium Sulphate Bone Void Filler. This product provided Encore
with entry into the high margin synthetic bone graft substitute market. A
seven-year agreement Encore signed in late 1998 with Biocomposites, Ltd. of
England will also lead to the introduction of several orthopedic bioresorbable
products that address the repair of damaged soft tissue in and around the
joints.

MARKETING AND SALES

         Encore's products are currently marketed and sold in the United States,
Western Europe and Japan. In the United States, products are sold to hospitals
and orthopedic surgeons through a network of independent commissioned sales
agents and direct representatives. Outside the United States, Encore's total
joint products are sold through distributors. In 1999, Encore began rebuilding
its international sales force which in the past had been also exclusively with
the PLUS Endoprothetik AG family based in Switzerland. This rebuilding is being
accomplished on a territory by territory basis. During 1999, distributors were
added for France and the Middle East. It is Encore's practice to now require
that international distributors carry the complete line of Encore total joint
and trauma products. This differs from past practice when PLUS-Switzerland only
carried




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the Foundation Total Knee System. In Japan, its trauma products are sold by
Century Medical, Inc. Senko Medical Trading Co. carries both Encore's total
joint and trauma products in Japan.

         Encore's management is continuing to look for opportunities to expand
the international market for Encore's products and will continue its efforts to
identify international markets in which its U.S.-designed products can obtain
rapid acceptance with surgeons, hospitals and other buyer groups. Encore's
management will also continue to seek markets that have sufficient profit
potential, size and market conditions.

         Encore strives to place its United States sales agents in sales
territories whose populations contain significant concentrations of individuals
over 55 years of age. As of December 31, 1999, Encore had independent sales
agents selling either reconstructive products, trauma products, spinal products
or all of these systems, in 33 sales territories in 21 states of the United
States. Sales agents are generally granted a contract with a term of one to five
years. Agents are typically paid a sales commission of 20% of the gross selling
price of all products sold. Encore's current sales agents are also eligible to
receive stock options under the 1997 Distributor Advisory Panel Stock Option
Plan. Each of Encore's sales agents are assigned an exclusive sales territory.
Some of the sales agents may sell non-competing lines of orthopedic products
manufactured by other companies, but no agent may carry competing product lines.
Encore provides its agents with product inventories on consignment for their use
in marketing its products and for filling customer orders. All sales agents are
required to participate in periodic product and sales training courses given by
Encore at its corporate offices in Austin, Texas, as well as at other locations
around the United States.

         Encore has developed an on-line inventory control system and a
comprehensive distribution support system that provides for instrument and
inventory loaners in order to enable sales agents to service low volume
territories. Encore is also developing a dedicated field support group to
provide rapid response to technical issues.

         Encore continues to evaluate the most efficient methods of product
marketing and distribution and to assess its use of sales agents and stocking
distributors. Encore is designing its sales efforts to take into account the
fact that the customer base for its products now includes hospital
administrators, material management personnel, purchasing agents and review
committees, in addition to surgeons. The need to sell effectively to all of
these groups will continue to grow, and Encore intends to continue to address
the evolving landscape of the orthopedic marketplace.

AFFILIATED SURGEONS

         A key aspect in Encore's development, marketing and sale of its
products is the use of designing and consulting surgeons. Each major product is
supported by several designing surgeons who assist Encore not only with the
design of the product, but who also give demonstrations using the product,
assist in developing marketing materials and participate at symposia addressing
both clinical and economic aspects of the product. The designing surgeons
working on a product are compensated with an aggregate royalty of approximately
5%, which is typically split among the group members. The designing and
consulting surgeons may also receive stock options. Encore has encouraged
interaction among the surgeons with visits to designing surgeons' institutions
(e.g., viewing surgeries, training meetings and regional workshops) by
attempting to regionalize the designing surgeon groups. Encore also has
established relationships with consulting surgeons, who perform various
consulting services for Encore. Such services include conducting clinical
studies on various products, analysis of economic issues relating to use of the
products, establishment of protocols for use of the products and participation
at various symposia. Current consulting surgeons do not receive royalty payments
but may be granted stock options under the 1997 Surgeon Advisory Stock Option
Plan. Consulting surgeons are also occasionally paid consulting fees for their
services to Encore in support of Encore products.

RESEARCH AND DEVELOPMENT

         Encore conducts extensive research and development programs at its
facility in Austin, Texas. Such activities are focused on making improvements to
existing products, developing new products using new materials and surgical
applications and obtaining regulatory approval to market products in the United
States and around the world.

COMPETITION

         The market for orthopedic products is highly competitive and is
dominated by a number of large companies, each of which have research and
development, sales, marketing and manufacturing capabilities greater than those
of Encore. These competitors also feature a wider range of product offerings
than Encore, and many have the endorsement of leading orthopedic surgeons for
their products.



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         In the last ten years, new technologies and product concepts have been
introduced into the orthopedic market at a rapid rate, often before prior
technologies and concepts have been fully integrated. Many of Encore's
competitors have entered into various agreements and joint ventures with other
companies to develop innovative products for the industry. Furthermore, most
orthopedic product companies are attempting to develop new implant surfaces to
enhance bone ingrowth and are experimenting with new materials such as
hydroxylapatite and ceramics. It is the opinion of Encore's management that this
evolution in high technology products will continue for the foreseeable future.

         In addition to the race for technology, orthopedic product companies
must now devote attention to the prices of their products. Price has become
increasingly important as a competitive factor, due particularly to governmental
and third party payors' adoption of prospective payment systems. Thus, although
Encore's management believes that the design and quality of its products compare
favorably with those of its competitors, should Encore be unable to offer
products with the latest technological advances at relatively modest prices, its
ability to successfully compete with its competitors could be materially and
adversely affected. Currently, Encore competes favorably on price with most of
its competitors.

MANUFACTURING

         Encore's management believes that Encore must be a low-cost
manufacturer in order to effectively compete and that its manufacturing system
must be flexible and responsive to ongoing supply demands. Encore uses both
in-house manufacturing capabilities and relationships with third-party vendors
to supply products. The third-party vendors may have special manufacturing
capabilities (e.g., casting, forging, porous coating or sterilization) or may be
general suppliers of finished components. With the exception of those vendors
supplying special capabilities, the choice of in-house or vendor supply is based
on available in-house capacity, lead time control, and cost control.

         Encore's in-house capacity includes CNC machine tools, belting,
polishing, cleaning, packaging and quality control. Encore obtained ISO 9001
qualification and Medical Device Directive "CE" certification in 1996. At
present, the machining capacity is used to produce about 75% of the implant
units; third party manufacturers produce the remainder. The primary raw
materials used in the manufacture of Encore's reconstructive products are cobalt
chromium alloy, stainless steel alloys, titanium alloy and ultra high molecular
weight polyethylene. Encore has alternate sources for all of its vendors and
suppliers and believes that adequate capacity exists at its suppliers to meet
all anticipated needs.

         All implants and instruments go through in-house quality control,
cleaning and packaging operations. Quality control measures begin with an
inspection of all raw materials and castings to be used. Each piece is inspected
at each step of the manufacturing process. As a final step, products pass
through a "clean room" environment designed and maintained to reduce product
exposure to particulate matter.

INTELLECTUAL PROPERTY

         Encore holds one United States patent, covering a tibia base plate
design, used in connection with its Foundation(R) Knee System. It also has
approximately ten (10) exclusive patent licenses, which protect Encore both in
the United States and in several foreign countries. Encore has eight trademarks
registered in the United States, one of which is also registered in Germany,
Switzerland, Austria, China, Japan and the European Community, and another one
that is also registered in Japan. Encore also depends on numerous unregistered
trademarks, some of which have been submitted for registration in the United
States. In the future, Encore will apply for such additional patents and
trademarks as it deems appropriate. Finally, Encore relies on non-patented
proprietary know-how, trade secrets, process and other proprietary information,
which it protects through a variety of methods, including confidentiality
agreements and proprietary information agreements.

GOVERNMENT REGULATION

         Encore's products are subject to rigorous government agency regulation
in the United States and certain other countries. In the United States, the FDA
regulates the testing, labeling, manufacturing and marketing of medical devices
to ensure that medical products distributed in the United States are safe and
effective for their intended uses. The FDA also regulates the export of medical
devices manufactured in the United States to international markets. Encore's
products are subject to such FDA regulation.

         Under the Food, Drug and Cosmetic Act, as amended, medical devices are
classified into one of three classes depending on the degree of risk imparted to
patients by the medical device. Class I devices are those for which safety and
effectiveness can be assured by adherence to General Controls, which include
compliance with Good Manufacturing Practices ("GMPs"), facility and device
registrations and listings, reporting of adverse medical events, and appropriate
truthful and non-misleading labeling, advertising and promotional materials.
Some Class I devices also require pre-market review and clearance by the FDA
through the 510(k) Premarket Notification process described below. Class II
devices are subject to General Controls, as well as premarket demonstration of
adherence to certain performance standards or other special controls as
specified by the FDA. Premarket review and clearance



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by the FDA is accomplished through the 510(k) Premarket Notification procedure.
In the 510(k) Premarket Notification procedure, the manufacturer submits
appropriate information to the FDA in a Premarket Notification submission. If
the FDA determines that the device is "substantially equivalent" to a device
that was legally marketed prior to May 28, 1976, the date upon which the Medical
Device Amendments of 1976 were enacted, or to another similar commercially
available device subsequently cleared through the 510(k) Premarket Notification
process, it will grant clearance to commercially market the device. It generally
takes three to 12 months from the date of submission to obtain clearance of a
510(k) Premarket Notification submission, but the process may take longer. If
the FDA determines that the device, or its "labeled" intended use, is not
"substantially equivalent," the FDA will automatically place the device into
Class III.

         A Class III product is a product that has a wholly new intended use or
is based on advances in technology for which the device's safety and
effectiveness cannot be assured solely by the General Controls, performance
standards and special controls applied to Class I and II devices. These devices
often require formal clinical investigation studies to assess their safety and
effectiveness. A Pre-Market Approval ("PMA") from the FDA is required before the
manufacturer of a Class III product can proceed in marketing the product. The
PMA process is much more extensive than the 510(k) Premarket Notification
process. In order to obtain a PMA, Class III devices, or a particular intended
use of any such device, must generally undergo clinical trials pursuant to an
application submitted by the manufacturer for an IDE. An approved IDE exempts
the manufacturer from the otherwise applicable FDA regulations and grants
approval for the conduct of human clinical investigation in order to generate
the clinical data necessary to scientifically evaluate the safety and efficacy
of the Class III device or intended use.

         When a manufacturer believes that sufficient pre-clinical and clinical
data has been generated to prove the safety and efficacy of the new device or
new intended use, it may submit a PMA application to the FDA. An FDA review of a
PMA application generally takes one to two years from the date the PMA
application is accepted for filing, but the process may take significantly
longer. In approving a PMA application, the FDA may also require some form of
post-market surveillance whereby the manufacturer follows certain patient groups
for a number of years, making periodic reports to the FDA on the clinical status
of those patients. This helps to ensure that the long-term safety and
effectiveness of the device are adequately monitored for adverse events. Most
pre-amendment devices (those marketed prior to the enactment of the Medical
Device Amendment of 1976) are, in general, exempt from such Premarket Approval
requirements, as are Class I and Class II devices.

         Encore's products include both pre-amendment and post-amendment Class
I, II and III medical devices. All currently marketed devices hold the relevant
exemptions or premarket clearances or approvals, as appropriate, required under
federal medical device law.

         Encore's manufacturing processes are also required to comply with GMP
regulations that cover the methods and documentation of the design, testing,
production, control, quality assurance, labeling, packaging and shipping of
Encore's products. Further, Encore's facilities, records and manufacturing
processes are subject to periodic unscheduled inspections by the FDA or other
agencies. Failure to comply with applicable U.S. medical device regulatory
requirements could result in, among other things, warning letters, fines,
injunctions, civil penalties, repairs, replacements, refunds, recalls or
seizures of products, total or partial suspensions of production, refusal of the
FDA to grant future pre-market clearances or approvals, withdrawals or
suspensions of current clearances or approvals and criminal prosecution. There
are currently no adverse regulatory compliance issues or actions pending with
the FDA, and no FDA GMP audits conducted at Encore's facilities have resulted in
any adverse compliance enforcement actions.

         Encore must obtain export certificates from the FDA before it can
export certain of its products and is subject to regulations in many of the
foreign countries in which it sells its products. These include produce
standards, packaging requirements, labeling requirements, import restrictions,
tariff regulations, duties and tax requirements. Many of the regulations
applicable to Encore's devices and products in such countries are similar to
those of the FDA. The national health or social security organizations of
certain countries require Encore's products to be qualified before they can be
marketed in those countries. To date, Encore has not experienced any difficulty
in complying with these regulations. Encore has also implemented policies and
procedures allowing it to position itself for the changing international
regulatory environment. The ISO 9000 series of standards has been developed as
an internationally recognized set of guidelines that are aimed at ensuring the
design and manufacture of quality products. A company that passes an ISO audit
and obtains ISO registration becomes internationally recognized as well run and
functioning under a competent quality system. In certain foreign markets, it may
be necessary or advantageous to obtain ISO 9000 series certification, which is
in some ways analogous to compliance with the FDA's GMP requirements. The
European Community promulgated rules requiring medical products to receive a CE
mark by mid-1998. A CE mark is an international symbol of adherence to certain
standards and compliance with applicable European




                                      -8-
<PAGE>   9

medical device requirements. ISO 9000 series certification is one of the
prerequisites for CE marking for most of Encore's products. ISO 9001 is the
highest level of ISO certification, covering both the quality system for
manufacturing, as well as the quality system for product design controls. Encore
has received an ISO 9001 certification and "CE" certification.

         Certain provisions of the Social Security Act, commonly known as the
"Medicare Fraud and Abuse Statute," prohibit entities, such as Encore, from
offering, paying, soliciting or receiving any form of remuneration in return for
the referral of Medicare or state health program patients or patient care
opportunities, or in return for the recommendation, arrangement, purchase, lease
or order of items or services that are covered by Medicare or state health
programs. Violation of this statute is a felony, punishable by fines of up to
$25,000 per violation and imprisonment of up to five years. In addition, the U.
S. Department of Health and Human Services may impose civil penalties excluding
violators from participation in Medicare or state health programs. Many states
have adopted similar prohibitions against payments intended to induce referrals
of Medicaid and other third party payor patients.

         Subject to certain exemptions, federal physician self-referral
legislation prohibits a physician or a member of his immediate family from
referring Medicare or Medicaid patients to an entity providing "designated
health services" in which the physician has an ownership or investment interest,
or with which the physician has entered into a compensation arrangement.
Penalties for violations include a prohibition on payment by these government
programs and civil penalties of as much as $15,000 for each referral in
violation of the statute and $100,000 for participation in a "circumvention
scheme."

ITEM 2.  PROPERTIES

Encore owns no real property, however, Encore leases an approximately 70,000
square foot facility in Austin, Texas for its corporate headquarters,
manufacturing facilities and warehouse for its business operations. This lease
is a 10-year lease that commenced on April 1, 1997, with the option to renew for
five years and with an option to terminate the lease after 5 years upon the
payment of the unamortized leasehold improvement costs. The Company's monthly
lease payments are approximately $35,422, for an annual lease payment of
approximately $425,064, which amounts do not include the Company's share of
applicable common area maintenance, property taxes and public utility charges.

ITEM 3.  LEGAL PROCEEDINGS

Encore is currently a defendant in a lawsuit styled Wright Medical Technologies,
Inc. v. Encore Orthopedics, Inc., et al., C. A. No. 99CV4900(SSB), filed in the
United States District Court of New Jersey. In this case, Wright alleges that
Encore tortuously interfered with certain of Wright's contractual relationships
and conspired to cause a former Wright sales person to breach its contract with
Wright. Encore is actively and aggressively defending itself and does not
believe that it has committed any act which would give rise to a finding that
Encore is guilty of the charges leveled against it. The case is in the very
preliminary stages and significant discovery and motions must still be
undertaken.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted during the fourth quarter of the fiscal year covered
by this report to a vote of security holders through the solicitation of proxies
or otherwise.

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock and $5 Warrants are traded on the NASDAQ National
Market System under the symbols "ENMC" and "ENMCW," respectively. The $7
Warrants is not traded on a public market. The following tables set forth for
the periods indicated the high and low sales prices of the Company's Common
Stock and $5 Warrants as reported on the NASDAQ National Market since January 1,
1998:

<TABLE>
<CAPTION>
                                                          COMMON SHARES                    $5 WARRANTS
                                                       -------------------             -------------------
                                                       HIGH            LOW             HIGH            LOW
                                                       ----            ---             ----            ---
<S>                                                    <C>             <C>             <C>            <C>
   1999
   First Quarter                                       $3.75           $2.88           $0.88          $0.63
   Second Quarter                                      $3.41           $2.69           $0.63          $0.47
   Third Quarter                                       $3.00           $2.25           $0.56          $0.34
   Fourth Quarter                                      $2.50           $1.75           $0.38          $0.19
</TABLE>



                                      -9-
<PAGE>   10
<TABLE>
<CAPTION>
                                                          COMMON SHARES                    $5 WARRANTS
                                                       -------------------             -------------------
                                                       HIGH            LOW             HIGH            LOW
                                                       ----            ---             ----            ---
<S>                                                    <C>             <C>             <C>            <C>
   1998
   First Quarter                                       $5.31           $3.94           $1.38          $0.75
   Second Quarter                                      $4.94           $3.63           $1.19          $0.75
   Third Quarter                                       $4.63           $2.13           $0.88          $0.44
   Fourth Quarter                                      $3.88           $2.19           $0.88          $0.31
</TABLE>

As of March 15, 2000, the Company had approximately 88 shareholders of record of
the Company's Common Stock. There are in excess of 1,100 beneficial owners of
the Company's Common Stock. As of March 15, 2000, the Company had approximately
14 holders of record of the Company's $5 Warrants. There are in excess of 300
beneficial owners of the Company's $5 Warrants. As of March 15, 2000, the
Company had approximately 63 holders of record of the Company's $7 Warrants and
approximately 70 beneficial owners.

ITEM 6.  SELECTED FINANCIAL DATA

The following sets forth selected financial data with respect to the Company for
the periods indicated. The data as of December 31, 1995, 1996, 1997, 1998 and
1999 and for each of the five years in the period ended December 31, 1999, have
been derived from audited financial statements appearing elsewhere in this
report. The selected financial data should be read in conjunction with the
financial statements and related notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this report.

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                          -----------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)      1999       1998       1997       1996        1995
                                          --------   --------   --------   --------    --------
<S>                                       <C>        <C>        <C>        <C>         <C>
STATEMENT OF OPERATIONS DATA
Sales                                     $ 26,095   $ 28,990   $ 24,440   $ 17,621    $ 13,791
Gross margin                                17,902     19,408     16,504     11,563       8,051
Income from operations                       3,015      3,201      2,500      2,129       1,758
Income before extraordinary  item            1,619      1,777      1,857      1,033       1,408
Net income (a)                               1,619      1,777      1,259      1,033       1,408
Basic earnings per common share               0.18       0.20       0.16      (0.04)       0.27
Shares used in computing basic earnings
     per share                               9,117      9,088      8,033      5,463       5,150
Diluted earnings per share                    0.16       0.17       0.12      (0.04)       0.23
Shares used in computing diluted
 earnings per share                         10,219     10,611     10,253      5,463       6,216

BALANCE SHEET DATA
Working capital                           $ 20,680   $ 17,954   $ 14,682   $ 10,012    $  7,231
Total assets                                36,915     30,556     25,721     20,275      12,757
Current portion of note payable and
    long-term debt                             734      1,265        612      2,764         293
Long-term debt, less current portion        12,047      5,603      3,244      6,013       4,479
Stockholders' equity                        21,074     19,824     18,024      6,589       5,170
</TABLE>

     (a)  Due to changes in valuation in put warrants issued in 1995 and 1996,
          net income (loss) applicable to common stockholders would be $1,370 in
          1995 and ($236) in 1996. These warrants had this put feature
          eliminated in connection with the merger with HCAC and these warrants
          were exercised in 1997.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

GENERAL

         Encore develops, manufactures, markets and sells orthopedic implant
devices and related surgical instrumentation to hospitals and stocking
distributors. In the past five years, Encore has introduced its total joint
replacement and trauma products to the marketplace and established both domestic
and international distribution. Encore's strategy reflects its founders' beliefs
that Encore must design and market high quality orthopedic products to a
worldwide audience. Encore's past financial results



                                      -10-
<PAGE>   11

are reflective of its efforts to develop the necessary infrastructure and
relationships to make Encore a competitive participant in the orthopedics
industry.

         Encore has invested in building a flexible infrastructure consisting of
experienced personnel, business and management information systems, and floor
space to provide the highest level of customer responsiveness at the lowest
possible cost. The most current technology is employed to provide the visibility
required throughout the Company to plan for and manage rapid growth.

         Encore has expanded its full line of total joint implants to cover
knee, hip and shoulder applications. In addition, in May 1996, Encore acquired
all of the assets and liabilities of Applied Osteo Systems, Inc. ("AOS"), an
orthopedic company with products in the trauma implant area, in a transaction
accounted for as a pooling of interest. In March 1999, Encore acquired
substantially all of the stock of BTI, a company that had developed several
trauma products. This acquisition was accounted for as a purchase. Encore merged
with Healthcare Acquisition Corp. ("HCAC") in March 1997, which was treated as a
recapitalization of Encore for financial statement purposes. All financial
information included herein reflects these transactions.

         Encore has developed a network of independent sales representatives and
direct sales persons that sell Encore's products throughout the United States.
Encore has also established relationships with several international stocking
distributors. Encore must receive 510(k) or PMA approval from the FDA for every
product that it desires to sell in the United States and similar regulatory
approvals in other countries in which it sells its products. Encore has received
such approvals for all of its products that it currently markets.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998.

         Sales were $26,095,000 for the year ended December 31, 1999,
representing a decrease of $2,895,000 or 10% compared to total sales of
$28,990,000 for the year ended December 31, 1998. This decrease in absolute
sales reflects two different trends for Encore sales. On one hand, U.S. sales
increased 6% over 1998. More productive sales territories, an increase in the
number of sales territories and an increase in the number of products offered
for sale fueled the increase in U.S. sales. On the other hand, outside the U.S.,
sales decreased 35% compared to the year ended December 31, 1998. This was
mainly due to the significant decrease in the sales of Encore's former primary
distributor for Europe. This relationship was changed in the summer of 1999 and
Encore is actively engaged in pursuing alternative avenues for international
distribution to remedy this situation. Encore has recently entered into
distribution agreements for France and the Middle East and is actively engaged
in negotiations with other distributors for other countries in Europe. In
addition, Encore had terminated its relationship with its distributor for total
joint products in Japan as of December 31, 1998. During 1999, Encore located and
contracted with a new, highly experienced sales distribution company for
carrying not only Encore's total joint lines of products, but also its new
trauma products that it acquired when it acquired the trauma specialty company
BTI. This sales force will complement the other Japanese sales force that is
distributing Encore's specialty trauma line of intramedullary rods and external
fixation system.

         Overall, while sales of reconstructive products decreased 14% to
$23,490,000 in 1999, this decrease masks the significant increase in hip sales
for Encore. These products were significantly aided by the addition of several
new products that were introduced during 1998 and showed strong sales growth in
1999. The overall decrease in total joint sales was fueled by decreased sales of
the Foundation(R) Total Knee Systems which were the only product being sold by
Encore's former European distributor. Another strong indication of the progress
that Encore made during 1999 is that trauma product sales have increased 56.9%
over 1998. This increase was a result of having a broader product line, in part
due to the acquisition of BTI, and having the products gain more acceptance
throughout the United States. Another factor in the increased U.S. sales was the
transition from a non-exclusive to an exclusive sales force. Going forward,
rapid geographical expansion in the United States, an improvement in the quality
of the sales force, adding new international distributors who will carry the
full Encore product line and introduction of new products will fuel additional
increases in sales in both the total joint and trauma segments of the business.
Additionally, Encore received several of the needed FDA approvals to market
spinal products during the later half of 1999 and will be able to bring these
products to the United States during 2000.

         As an indication of the fiscal management and cost control that Encore
exercised during 1999, gross margin as a percent of sales increased in 1999 even
though sales overall decreased. Gross margin was 68.6% of sales in 1999 compared
to 66.9% of sales for 1998. This was due both to the increase in U.S. sales,
which generate a greater gross margin than sales outside the U.S., and continued
monitoring of manufacturing costs.



                                      -11-
<PAGE>   12
         Even with a decrease in sales for 1999, Encore kept up its strong
research and development program since it recognizes that new products are the
lifeblood of expansion of an orthopedics company. As a percentage of sales,
research and development expenses increased to 6.3% in 1999 from 5.8% in 1998.
Current activities include a joint design effort with Norton Desmarquest Fine
Ceramics to develop a ceramic knee femoral component to address the issue of
polyethylene wear in the knee, clinical trials for a ceramic/ceramic hip system
and a metal/metal hip system, development of a mobile bearing knee, development
of a revision hip system and regulatory submissions for spine.

         Part of controlling expenses in a year when sales decreased was that
selling, general and administrative expenses decreased by $1,284,000, or 9%, in
1999 when compared to the same period in 1998. While a part of this decrease
came from lower commissions and royalties associated with the overall decrease
in sales, significant portions of the savings came from management efforts
undertaken in 1999. For example, the Company incurred costs in 1998 relating to
consigned inventory discrepancies. Discrepancy charges in 1999 were
insignificant.

         As a result of the fiscal management of Encore during a year of
decreasing sales, operating income as a percent of sales increased 0.6% to 11.6%
as compared to 1998 of 11%. So even though sales decreased by 10%, operating
income only decreased 5.8% to $3,015,000, as compared to $3,201,000 for the year
ended December 31, 1998.

         Interest expense increased by $523,000 in 1999 compared to 1998. This
was due to an increase during 1999 in the average line of credit balance over
the same period last year and the addition of interest on notes payable related
to the acquisition of BTI on March 30, 1999. Other income increased $229,000 in
1999 due to licensing income and favorable foreign exchange gains.

         The total effect of the decrease in sales coupled with the strong
fiscal management of Encore was that net income as a percent of sales increased
to 6.2% in 1999 from 6.1% in 1998. In pure dollar terms, net income for the year
ended December 31, 1999, decreased to $1,619,000 from $1,777,000 in 1998.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997.

         Sales were $28,990,000 for the year ended December 31, 1998,
representing an increase of $4,550,000 or 18.6% over the year ended December 31,
1997. In 1998, U.S. sales and sales outside the U.S. increased 26.7% and 8.0%,
respectively, over 1997. The increase in U.S. sales was fueled primarily by the
growth of the U.S. sales force in the number of sales agents and more productive
sales territories. Outside the U.S., the economic environment that existed in
Asia affected sales. However, sales to the Japanese market rebounded
substantially in the fourth quarter with the addition of new distribution, which
was experienced in the orthopedic market. Sales of reconstructive products
increased 20.4% to $27,373,000 in 1998, led by the Foundation(R) Total Knee, Hip
and Shoulder Systems. Trauma product sales remained relatively flat. The
increase in reconstructive products was attributed primarily to the expansion of
the U.S. sales force. Continued transition from a non-exclusive to an exclusive
sales force was a major factor for the flat sales of trauma products.

         Gross margin increased to $19,408,000 in 1998, or 66.9% of sales, as
compared to $16,504,000 or 67.5% of sales for 1997. Gross margin as a percent of
sales decreased slightly due to discounts and higher costs associated with the
initial production of the Revelation(TM) and Linear(R) Hip Systems.

         Research and development expenses increased by $23,000 or 1.4% in 1998
when compared to the same period in 1997. Research and development activities
increased to complete the design of two new hip stems and two acetabular systems
that were released in early 1998. The Company effectively balanced the increased
activity at the beginning of the year with expenditures in the remainder of the
year to control expenses relative to sales by the end of 1998. Activities
included a joint design effort with Norton Desmarquest Fine Ceramics to develop
a ceramic knee femoral component to address the issue of polyethylene wear in
the knee. Initiation of activities that address polyethylene wear in the hip
included a FDA feasibility study for metal/metal articulation, as well as FDA
approval to begin full clinical studies for metal/metal and ceramic/ceramic
hips.

         Selling, general and administrative expenses increased by $2,180,000,
or 17.6%, in 1998 when compared to the same period in 1997. This increase was
due to additional instrumentation depreciation and continued investment in the
development of the U.S. sales infrastructure, increase in commission and royalty
expenses in conjunction with the increase in sales, costs associated with
unsuccessful acquisition attempts and a charge for inventory discrepancies at
consigned locations.

         Operating income increased 28% to $3,201,000, as compared to $2,500,000
for the year ended December 31, 1997. This increase was due to increased gross
margins, which was partially offset by increased operating expenses.



                                      -12-
<PAGE>   13
         Interest expense decreased by $201,000 in 1998 compared to 1997. This
was primarily related to the existence of $5 million in term debt in the first
five months of 1997, which was paid off as of the end of May 1997. In addition,
both a higher effective interest rate and the amortization of the related debt
discount in the prior year affected the decrease in interest expense.

         Income before extraordinary item decreased slightly to $1,777,000 in
1998 from $1,857,000 in 1997. It is important to note that the 1997 result
includes a one-time benefit of $537,000 from the reversal of a deferred tax
asset valuation allowance. Absent such one time event, income before
extraordinary item in 1997 would have been $1,320,000.

         There was no extinguishment of debt expense for the year ended December
31,1998, as compared to $598,000 for the same period in 1997. During the second
quarter of 1997, the Company repaid $5 million of long term debt plus accrued
interest of $39,000. The Company had previously capitalized approximately
$476,000 of financing costs and established a debt discount of $821,000
associated with detachable put warrants issued in accordance with the debt. The
unamortized portions of these two items were expensed in conjunction with the
repayment of the debt, resulting in an extraordinary charge to earnings of
$598,000, which was net of an income tax benefit of $308,000.

         Net income for the year ended December 31, 1998 increased 41.1% to
$1,777,000 from $1,259,000 in 1997.

CAPITAL EXPENDITURES

         Encore has spent a significant amount of its resources over the past
several years on building a state-of-the-art, fully integrated orthopedic
implant company. These expenditures have included the investment in surgical
instrumentation, machine tools to increase manufacturing capacity, computer
hardware and software, and equipment required to support a growing organization.
Over the last several years, Encore has acquired machine tools primarily through
capital leases. Encore has made significant investments in surgical
instrumentation, as such instrumentation is necessary to implant Encore
reconstructive products. Also, the size of the sales force and the increases in
the product lines have necessitated increases in the need for additional
surgical instruments. In the United States, these instruments are capitalized
and depreciated. They are loaned to the sales force without charge to aid in
sales. Internationally, these instruments are sold or leased to distributors.
The amounts of surgical instruments capitalized in 1997, 1998 and 1999 were
$1,180,000, $1,590,000 and $1,373,000 respectively. Other capital expenditures
during those periods were $978,000, $1,321,000 and $731,000, respectively.

         As a growing organization, Encore has devoted significant capital
resources to expanding and improving its management information systems through
additions of hardware and software. In addition, during 1999, Encore dealt with
Y2K issues. The expenditures for these computer improvements were approximately
$249,000 in 1999, $370,000 in 1998 and $454,000 in 1997.

LIQUIDITY

         Since its inception, the Company has financed its operations through
the sale of equity securities, borrowings and cash flow from operations. The
Company has available to it a $15 million revolving credit facility. As of
December 31, 1999, the Company had drawn approximately $9 million. A
distinguishing feature of the Credit Facility is that Encore's cash management
services are intermingled with it on a daily basis. Encore's bank accounts sweep
funds to either reduce or increase the loan balance, as needed, and invests any
excess funds if the loan balance equals zero, in a money market account. As
such, the outstanding loan balance is adjusted daily based on the net amount of
cash receipts versus cash outlays, while the cash balance at Wells Fargo remains
at zero as long as Encore is a net borrower. This sweep feature has the effect
of minimizing interest cost and automatically investing any excess funds.

         The Company's continued strong growth has resulted in an increase in
its capital requirements. This growth is now primarily funded by the Credit
Facility and cash generated from operations to meet its working capital needs.
As of December 31, 1999, the Company had net working capital of approximately
$21.0 million as compared to approximately $18 million at December 31, 1998.
This increase was primarily due to the increases in inventory and a decrease in
the current portion of a payment to a related party, and accounts payable and
accrued expenses.

         During the third quarter of 1998 and continuing in 1999, the Company
began actively purchasing its equity securities, both common stock and $5
Warrants, in connection with the buyback program it announced at the beginning
of 1998. This program was initiated because Company management and the Board of
Directors felt that the Company's equity was undervalued. The Company
repurchased 310,800 and 185,200 shares of common stock in 1998 and 1999
respectively, and 231,800 and 81,500 $5 Warrants during those periods,
respectively. This program is ongoing.



                                      -13-
<PAGE>   14
FORWARD LOOKING STATEMENTS

         The foregoing Management's Discussion and Analysis contains various
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that
represent Encore's expectations or beliefs concerning future events, including,
but not limited to, statements regarding growth in sales of Encore's products,
profit margins and the sufficiency of Encore's cash flow for its future
liquidity and capital resource needs. These forward looking statements are
further qualified by important factors that could cause actual results to differ
materially from those in the forward looking statements. These factors include,
without limitation, the effect of competitive pricing, Encore's dependence on
the ability of its third-party manufacturers to produce components on a basis
that is cost-effective to Encore, market acceptance of Encore's products and
effects of government regulation. Results actually achieved may differ
materially from expected results included in these statements as a result of
these or other factors.

ITEM 7A. MARKET RISK DISCLOSURE

Not Applicable

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
                                                                                                          Page
                                                                                                          ----
<S>                                                                                                       <C>
   Report of Independent Accountants                                                                        15
   Consolidated Balance Sheets as of December 31, 1999 and December 31, 1998                                16
   Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997                   17
   Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
       December 31, 1999, 1998 and 1997                                                                     18
   Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997               19
   Notes to Consolidated Financial Statements for the Years Ended December 31, 1999, 1998 and 1997          20
</TABLE>



                                      -14-
<PAGE>   15
                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and
Stockholders of Encore Medical Corporation

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows present fairly, in all material respects, the financial position of Encore
Medical Corporation and its subsidiary at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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 of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP


Austin, Texas
January 28, 2000





                                      -15-
<PAGE>   16
ENCORE MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                             1999          1998
                                                          ----------    ----------
<S>                                                       <C>           <C>
ASSETS
Current assets:
    Cash and cash equivalents                             $        1    $        1
    Accounts receivable, net of allowance for doubtful
      accounts of $112 and $145, respectively                  4,454         6,297
    Inventories                                               19,090        16,176
    Prepaid expenses and other current assets                    929           609
                                                          ----------    ----------
        Total current assets                                  24,474        23,083

Property and equipment, net                                    6,218         6,147
Intangible assets, net                                         5,396           340
Other assets                                                     827           986
                                                          ----------    ----------
        Total assets                                      $   36,915    $   30,556
                                                          ==========    ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Current portion of long-term debt                     $      734    $      465
    Current portion of payable to a related party                 --           800
    Accounts payable and accrued expenses                      3,060         3,864
                                                          ----------    ----------
        Total current liabilities                              3,794         5,129

Long-term debt, net of current portion                        12,047         5,603
                                                          ----------    ----------
      Total liabilities                                       15,841        10,732
                                                          ----------    ----------

Stockholders' equity:
    Common stock, $0.001 par value, 35,000,000 shares
      authorized; 9,340,000 and 9,248,000
      shares issued, respectively                                  9             9
    Additional paid-in capital                                19,379        19,267
    Deferred compensation                                       (288)         (310)
    Retained earnings                                          3,275         1,656
    Less cost of repurchased stock, warrants and rights
       (278,000 and 110,000 shares, respectively)             (1,301)         (798)
                                                          ----------    ----------
        Total stockholders' equity                            21,074        19,824
                                                          ----------    ----------
        Total liabilities and stockholders' equity        $   36,915    $   30,556
                                                          ==========    ==========
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.



                                      -16-
<PAGE>   17
ENCORE MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                    FOR THE YEAR ENDED
                                                                       DECEMBER 31,
                                                            1999           1998          1997
                                                          ----------    ----------    ----------
<S>                                                       <C>           <C>           <C>
Sales                                                     $   26,095    $   28,990    $   24,440
Cost of sales                                                  8,193         9,582         7,936
                                                          ----------    ----------    ----------
        Gross margin                                          17,902        19,408        16,504

Operating expenses:
   Selling, general and administrative                        13,256        14,540        12,360
   Research and development                                    1,631         1,667         1,644
                                                          ----------    ----------    ----------
      Income from operations                                   3,015         3,201         2,500

Other income (expense):
  Interest income                                                  7            --            77
  Interest expense                                              (977)         (454)         (655)
  Other income (expense)                                         222            --           (73)
                                                          ----------    ----------    ----------
Income before extraordinary item and income taxes              2,267         2,747         1,849
Provision (benefit) for income taxes                             648           970            (8)
                                                          ----------    ----------    ----------
Income before extraordinary item                               1,619         1,777         1,857
Extinguishment of debt (net of tax benefit of $308)               --            --          (598)
                                                          ----------    ----------    ----------
      Net income                                          $    1,619    $    1,777    $    1,259
                                                          ==========    ==========    ==========


EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:
Basic earnings per share-
    Income before extraordinary item applicable
      to common stock                                     $      .18    $      .20    $      .23
    Extinguishment of debt                                        --            --          (.07)
                                                          ----------    ----------    ----------
    Basic earnings per share                              $      .18    $      .20    $      .16
                                                          ==========    ==========    ==========
    Shares used in computing basic earnings per share          9,117         9,088         8,033
                                                          ==========    ==========    ==========
Diluted earnings per share-
    Income before extraordinary item applicable
      to common stock                                     $      .16    $      .17    $      .18
    Extinguishment of debt                                        --            --          (.06)
                                                          ----------    ----------    ----------
    Diluted earnings per share                            $      .16    $      .17    $      .12
                                                          ==========    ==========    ==========
    Shares used in computing diluted earnings per share       10,219        10,611        10,253
                                                          ==========    ==========    ==========
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.



                                      -17-
<PAGE>   18
ENCORE MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS)

<TABLE>
<CAPTION>

                                    PREFERRED STOCK         COMMON STOCK     ADDITIONAL    DEFERRED   RETAINED
                                 --------------------    -------------------   PAID-IN      COMPEN-   EARNINGS
                                  SHARES     AMOUNT       SHARES     AMOUNT    CAPITAL      SATION    (DEFICIT)
                                 --------    --------    --------   --------   --------    --------    --------
<S>                              <C>         <C>         <C>        <C>        <C>         <C>         <C>
BALANCE AT DECEMBER 31, 1996          652    $  2,935       5,627   $      6   $  6,468    $   (153)   $ (2,667)

Issuance of Common stock               --          --         803          1        353          --          --

Deferred compensation                  --          --          --         --        352        (352)         --

Amortization of deferred               --          --          --         --         --          87          --
compensation

Cancellation of put feature of         --          --          --         --        996          --       1,301
warrants

Merger with HCAC                     (652)     (2,935)      2,617          2     10,342          --          --

Other                                  --          --          --         --         35          --          (6)

Net Income                             --          --          --         --         --          --       1,259
                                 --------    --------    --------   --------   --------    --------    --------

                                 --------    --------    --------   --------   --------    --------    --------
BALANCE AT DECEMBER 31, 1997           --          --       9,047          9     18,546        (418)       (113)
                                 --------    --------    --------   --------   --------    --------    --------

Issuance of common stock               --          --         201         --        342          --          --

Deferred compensation                  --          --          --         --         24         (24)         --

Amortization of deferred               --          --          --         --         --         132          --
compensation

Purchase of treasury stock             --          --          --         --         --          --          --

Issuance of treasury stock             --          --          --         --        283          --          (8)

Tax benefit associated with            --          --          --         --         72          --          --
stock options

Net Income                             --          --          --         --         --          --       1,777
                                 --------    --------    --------   --------   --------    --------    --------

BALANCE AT DECEMBER 31, 1998           --          --       9,248          9     19,267        (310)      1,656
                                 --------    --------    --------   --------   --------    --------    --------

Issuance of common stock               --          --          92         --        124          --          --

Deferred compensation                  --          --          --         --         28         (28)         --

Amortization of deferred               --          --          --         --         --         133          --
compensation

Purchase of treasury stock             --          --          --         --         --          --          --

Issuance of treasury stock             --          --          --         --        (71)        (83)         --

Tax benefit associated with            --          --          --         --         31          --          --
stock options

Net income                             --          --          --         --         --          --       1,619
                                 --------    --------    --------   --------   --------    --------    --------

BALANCE AT DECEMBER 31, 1999           --    $     --       9,340   $      9   $ 19,379    $   (288)   $  3,275
                                 ========    ========    ========   ========   ========    ========    ========
<CAPTION>
                                                           TOTAL
                                    TREASURY STOCK        STOCK-
                                 --------------------     HOLDERS'
                                  SHARES      AMOUNT      EQUITY
                                 --------    --------    --------
<S>                              <C>         <C>         <C>
BALANCE AT DECEMBER 31, 1996           --    $     --    $  6,589

Issuance of Common stock               --          --         354

Deferred compensation                  --          --          --

Amortization of deferred               --          --          87
compensation

Cancellation of put feature of         --          --       2,297
warrants

Merger with HCAC                       --          --       7,409

Other                                  --          --          29

Net Income                             --          --       1,259
                                 --------    --------    --------

                                 --------    --------    --------
BALANCE AT DECEMBER 31, 1997           --          --      18,024
                                 --------    --------    --------

Issuance of common stock               --          --         342

Deferred compensation                  --          --          --

Amortization of deferred               --          --         132
compensation

Purchase of treasury stock           (366)     (1,545)     (1,545)

Issuance of treasury stock            256         747       1,022

Tax benefit associated with            --          --          72
stock options

Net Income                             --          --       1,777
                                 --------    --------    --------

BALANCE AT DECEMBER 31, 1998         (110)       (798)     19,824
                                 --------    --------    --------

Issuance of common stock               --          --         124

Deferred compensation                  --          --          --

Amortization of deferred               --          --         133
compensation

Purchase of treasury stock           (217)       (677)       (677)

Issuance of treasury stock             49         174          20

Tax benefit associated with            --          --          31
stock options

Net income                             --          --       1,619
                                 --------    --------    --------

BALANCE AT DECEMBER 31, 1999         (278)   $ (1,301)   $ 21,074
                                 ========    ========    ========
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.



                                      -18-
<PAGE>   19
ENCORE MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                            FOR THE YEAR ENDED
                                                                                 DECEMBER 31,
                                                                       1999          1998          1997
                                                                    ----------    ----------    ----------
<S>                                                                 <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                          $    1,619    $    1,777    $    1,259
Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
      Depreciation and amortization                                      2,683         1,945         1,451
      Loss on disposal of fixed assets                                      --             6           588
      Deferred tax benefit                                                  --            --          (524)
      Amortization of debt discount                                         --            --            65
      Other                                                                 --            --            13
    Changes in operating assets and liabilities:
      Decrease (increase) in accounts receivable                         1,898        (1,234)         (596)
      Increase in inventories                                           (2,296)       (2,817)       (3,447)
      (Increase) decrease in prepaid expenses and other assets          (1,410)          142           (43)
      (Decrease) increase in accounts payable and
        accrued expenses                                                (1,574)           23         1,295
                                                                    ----------    ----------    ----------
           Net cash provided by (used in) operating activities             920          (158)           61
                                                                    ----------    ----------    ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of BTI                                                      (1,068)           --            --
Purchases of property and equipment                                     (2,103)       (2,765)       (2,007)
Proceeds from sale of assets                                                 5            12            --
                                                                    ----------    ----------    ----------
           Net cash used in investing activities                        (3,166)       (2,753)       (2,007)
                                                                    ----------    ----------    ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Tax benefits associated with stock options                                  31            72            --
Proceeds from issuance of common stock                                      37           342         7,971
Payments to acquire treasury stock                                        (570)       (1,545)           --
Proceeds from issuance of treasury stock                                    --         1,022            --
Payments for merger expenses                                                --            --          (462)
Payment on payable to a related party                                     (800)         (300)         (300)
Proceeds from debt                                                       4,219         3,699         1,798
Payments on debt                                                          (671)         (387)       (7,524)
                                                                    ----------    ----------    ----------
           Net cash provided by financing activities                     2,246         2,903         1,483
                                                                    ----------    ----------    ----------
           Net increase (decrease) in cash and cash
             equivalents                                                    --            (8)         (463)
           Cash and cash equivalents at beginning of year                    1             9           472
                                                                    ----------    ----------    ----------
           Cash and cash equivalents at end of year                 $        1    $        1    $        9
                                                                    ==========    ==========    ==========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for:
    Interest                                                        $      977    $      454    $      590
    Income taxes                                                           969           625           327

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
    AND FINANCING ACTIVITIES:
Noncash equity transactions                                         $       --    $      184    $      459
Capital lease obligations related to equipment
    leases entered into during the year                                    310           560           447
Acquisition of BTI
   Fair value of assets acquired                                         5,002
   Cash paid for net assets of BTI                                      (1,068)
                                                                    ----------
          Liabilities assumed                                            3,934
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.



                                      -19-
<PAGE>   20
ENCORE MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Encore Medical Corporation (the "Company"), a Delaware corporation, through its
primary operating subsidiary, Encore Orthopedics, Inc. ("Encore"), designs,
manufactures, markets and sells products for the orthopedic implant industry
primarily in the United States, Europe and Asia.

The Company's products are subject to regulation by the Food and Drug
Administration ("FDA") with respect to their sale in the United States, and the
Company must obtain FDA authorization to market each of its products before they
can be sold in the United States. Additionally, the Company is subject to
similar regulations in many of the international countries in which it sells
products.

BASIS OF PRESENTATION

In November 1996, Encore and Healthcare Acquisition, Inc., a wholly owned
subsidiary of Healthcare Acquisition Corp. ("HCAC"), a publicly traded,
specified purpose acquisition company, executed a definitive agreement and plan
of merger (the "Merger Agreement"). Effective March 25, 1997, the merger was
completed and HCAC's name was changed to Encore Medical Corporation.

The merger was effected by HCAC issuing 0.8884 HCAC common shares and 0.13326
HCAC warrants with an exercise price of $7.00 ("HCAC $7 warrants") for each
common share of Encore and 1.11049 HCAC common shares and 0.16657 HCAC $7.00
warrants for each preferred share of Encore in accordance with the exchange
ratio set forth in the Merger Agreement. In addition, outstanding options and
warrants to purchase common stock of Encore were exchanged for options and
warrants to purchase HCAC common stock and HCAC $7.00 warrants based on the
exchange ratio discussed above.

For financial reporting and accounting purposes, the merger was accounted for as
a recapitalization of Encore, with the issuance of shares by Encore for the
assets of HCAC, these assets consisting primarily of cash. The capital accounts
of Encore for all periods presented, including all share information presented
in the notes to consolidated financial statements, have been reflected on an
equivalent share basis to give effect to the exchange ratios discussed above.
The accompanying consolidated statements of income include the results of
operations of HCAC from the effective date of the merger (March 25, 1997)
through the end of the period. HCAC did not have significant operations prior to
the merger, therefore pro forma presentation of combined results of operations
for periods presented is not considered meaningful and has been omitted.

On March 30, 1999, the Company and BTI executed a stock purchase agreement
whereby Encore purchased substantially all of the outstanding stock of BTI in
exchange for cash and promissory notes payable to the former shareholders of
BTI. This acquisition has been accounted for as a purchase and, accordingly, the
results of BTI have been included in the accompanying financial statements
beginning March 30, 1999. The terms of the agreement require a total cash
payment of $1,068,000 and issuance of notes payable of $3,166,000. For financial
reporting purposes, $140,000 of the purchase price was recorded as purchased
technology, which is being amortized over seven years, and $4,190,000 was
recorded as goodwill, which is being amortized over 15 years. BTI did not have
significant operations relative to the Company prior to the merger. Therefore,
pro forma presentation of combined results of operations for periods presented
is not considered meaningful and has been omitted.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

CASH AND CASH EQUIVALENTS

Cash consists of deposits with financial institutions. The Company considers all
highly liquid investments with original maturities of less than three months to
be cash equivalents.


                                      -20-
<PAGE>   21
INVENTORIES

Inventories are stated at the lower of cost or market, with cost being
determined under the first-in, first-out method.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets which range from three to seven years.
Leasehold improvements and assets subject to capital lease are amortized using
the straight-line method over the terms of the leases or lives of the assets, if
shorter. Maintenance and repairs are expensed as incurred.

INTANGIBLE AND OTHER ASSETS

Intangible assets consist of goodwill, agency rights and purchased technology
and are carried at cost less accumulated amortization. Amortization of
intangibles is computed based on the straight-line method over periods ranging
from five to fifteen years. Intangible assets are reviewed for impairment
whenever the facts and circumstances indicate that the carrying amount may not
be recoverable. Other assets consist of the non-current portion of advanced
commissions to sales representatives and deferred income taxes. Advanced
commissions are offset against future sales commissions earned. Deferred income
taxes reflect the differences between the assets and liabilities recognized for
financial reporting purposes and amounts recognized for tax purposes based on
currently enacted tax laws.

COMMON STOCK PUT WARRANTS

The common stock put warrants were issued in 1995 and 1996 and are further
described in Note 7. Changes in the estimate of the redemption amount from the
date of issuance have been recognized on a prospective basis as a charge to the
accumulated deficit. These warrants were exercised in 1997.

REVENUE RECOGNITION

The Company's products are sold through a network of sales representatives and
distributors. Revenues from sales made by representatives, who are paid
commissions upon the ultimate sale of the products, are recorded at the time the
product is utilized in a surgical procedure. Revenues from sales to distributors
are recorded when the product is shipped to the distributor. The distributors,
who sell the products to other customers, take title to the products and have no
or limited rights of return.

RESEARCH AND DEVELOPMENT

Research and development expenses relate primarily to the technological
development and enhancement of reconstructive, trauma and spinal devices.
Research and development costs are charged to expense as incurred.

INCOME TAXES

Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their reported amounts.

EARNINGS PER SHARE

Earnings per share ("EPS") has been presented in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share."

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments, including cash and
cash equivalents, trade accounts receivable and payable, and long-term debt
approximate fair values. The Company estimates the fair value of its long term
fixed rate debt generally using discounted cash flow analysis based on the
Company's current borrowing rate for debt with similar maturities, terms and
characteristics.



                                      -21-
<PAGE>   22
2.       INVENTORIES

Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                         1999           1998
                                                      ----------     ----------
<S>                                                   <C>            <C>
Components and raw materials                          $    3,953     $    4,159
Work in process                                            1,097          1,537
Finished goods                                            14,811         11,403
                                                      ----------     ----------
                                                          19,861         17,099
Less - reserve for obsolescence                             (771)          (923)
                                                      ----------     ----------
                                                      $   19,090     $   16,176
                                                      ==========     ==========
</TABLE>

3.       PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                            1999          1998
                                                         ----------    ----------
<S>                                                      <C>           <C>
Equipment                                                $    4,393    $    4,001
Furniture and fixtures                                        2,072         1,757
Leasehold improvements                                          580           572
Surgical instrumentation devices                              6,857         5,597
                                                         ----------    ----------
                                                             13,902        11,927
Less - accumulated depreciation and amortization             (7,684)       (5,780)
                                                         ----------    ----------
                                                         $    6,218    $    6,147
                                                         ==========    ==========
</TABLE>

Depreciation and amortization expense relating to property and equipment for the
years ended December 31, 1999, 1998 and 1997 was $2,026,000, $1,699,000 and
$1,276,000, respectively.

4.       INTANGIBLE ASSETS

Intangible assets consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                             1999          1998
                                                           ----------    ----------
<S>                                                        <C>           <C>
Goodwill                                                        4,190            --
Agency rights                                                   1,250            --
Purchased technology                                              645           505
                                                           ----------    ----------
                                                                6,085           505
Less - accumulated amortization                                  (689)         (165)
                                                           ----------    ----------
                                                                5,396           340
                                                           ==========    ==========
</TABLE>


                                      -22-
<PAGE>   23
5.       ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           1999         1998
                                                         ----------   ----------
<S>                                                      <C>          <C>
Accounts payable                                         $    1,393   $    1,197
Accrued wages and related expenses                              206          545
Accrued commissions                                           1,076        1,459
Accrued royalties                                               168          290
Accrued taxes                                                   217          333
Other accrued liabilities                                        --           40
                                                         ----------   ----------
                                                         $    3,060   $    3,864
                                                         ==========   ==========
</TABLE>

6.       LONG-TERM DEBT AND LEASES

LONG-TERM DEBT

Long-term debt (including capital lease obligations and a payable to a related
party) consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                                                    1999     1998
                                                                                  -------   ------
<S>                                                                               <C>       <C>
$15,000,000 revolving credit facility from a financial institution; interest at
    the lesser of the institution's base rate or LIBOR plus 2% ( 8.5% at
    December 31, 1999), payable monthly; collateralized by all assets of Encore
    and guaranteed by the Company; commitment fee of 0.25% of unused balance,
    payable monthly; due May 2001; available borrowings at December 31, 1999 of
    $6,112,000, calculated as the
    credit limit less total borrowings and letters of credit of $128,000          $ 8,760   $4,883

Non-interest bearing, unsecured payable to a related party, principal payable
    through March 1999 or due in full upon certain other
    corporate transactions                                                             --      800

8.9%unsecured notes payable to individuals in connection with the BTI
    acquisition, payable in varying quarterly installments through
    March 31, 2005                                                                  3,000       --

Capital lease obligations, secured by related equipment                               934    1,130
Escalated rental payments                                                              87       55
                                                                                  -------   ------
                                                                                   12,781    6,868

Less - current portion                                                                734    1,265
                                                                                  -------   ------
                                                                                  $12,047   $5,603
                                                                                  =======   ======
</TABLE>



                                      -23-
<PAGE>   24
The debt agreement related to the revolving credit facility contains warranties
and covenants and requires maintenance of certain financial ratios. Default on
any warranty or covenant could affect the ability to borrow under the agreement
and, if not waived or corrected, could accelerate the maturity of any borrowings
outstanding under the applicable agreement. As of December 31, 1999 and 1998,
the Company was in compliance with all debt covenants and warranties.

At December 31, 1999, the aggregate amount of annual principal maturities of
long-term debt (excluding capital lease obligations) is as follows (in
thousands):

<TABLE>
<CAPTION>
          YEAR ENDED DECEMBER 31,
<S>                                                               <C>
                  2000                                            $         314
                  2001                                                    9,206
                  2002                                                      614
                  2003                                                      703
                  2004 and thereafter                                     1,010
                                                                  --------------
                                                                  $      11,847
                                                                  =============
</TABLE>

LEASES

The Company leases building space, manufacturing facilities and equipment under
non-cancelable lease agreements that expire at various dates. At December 31,
1999, future minimum lease payments are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                        CAPITAL           OPERATING
                                                                         LEASES            LEASES
                                                                      --------------     --------------
<S>                                                                   <C>                <C>
    YEAR ENDING DECEMBER 31,
           2000                                                       $         486      $         446
           2001                                                                 259                446
           2002                                                                 191                509
           2003                                                                  87                507
           2004 and thereafter                                                   38                488
                                                                      -------------      -------------
    Total minimum lease payments                                              1,061      $       2,396
                                                                                         =============
    Less - amounts representing interest                                        127
                                                                      -------------
    Net minimum lease payments                                                  934
    Less - current portion of obligations under capital leases                  420
                                                                      -------------
                                                                      $         514
                                                                      =============
</TABLE>

Rental expense under operating leases totaled $669,000, $616,000 and $471,000
for the years ended December 31, 1999, 1998 and 1997, respectively.

Leased equipment and furniture and fixtures under capital leases, included in
property and equipment in the accompanying financial statements, is as follows
(in thousands):

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                        1999           1998
                                                      ----------     ----------
<S>                                                   <C>            <C>
Equipment                                             $    1,656     $    1,409
Furniture and fixtures                                       618            556
Less - accumulated amortization                             (958)          (633)
                                                      ----------     ----------
                                                      $    1,316     $    1,332
                                                      ==========     ==========
</TABLE>


                                      -24-
<PAGE>   25

7.       CAPITAL STOCK

PREFERRED STOCK

Preferred stock may be issued at the discretion of the Board of Directors (the
"Board") of the Company with such designation, rights and preferences as the
Board may determine from time to time. The preferred stock may have dividend,
liquidation, conversion, voting or other rights that may be more expansive than
the rights of the holders of the common stock. At December 31, 1999, the Company
has 1,000,000 shares of authorized preferred stock, none of which has been
issued.

STOCK OPTION PLANS

The Company has six stock option plans. All options granted under the plans are
exercisable for common stock in the Company as described below. The Company
applies Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plans. Under APB 25, no compensation cost has been recognized for grants under
the stock option plans, except for grants made to individuals other than
employees for services provided to the Company. The Company has recorded
deferred compensation for the fair value of grants made to individuals other
than employees and is amortizing such amount to income over the vesting period
or contract period for the options. Deferred compensation amortization was
$133,000, $132,000 and $87,000 for the years ended December 31, 1999, 1998 and
1997, respectively.

Had compensation cost for all stock option grants been determined based on their
fair value at the grant dates consistent with the method prescribed by SFAS No.
123, "Accounting for Stock-Based Compensation," the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
                                                                                  FOR THE YEAR ENDED
                                                                                      DECEMBER 31,
                                                                      1999                1998              1997
                                                                     --------           --------          --------
<S>                                     <C>                          <C>                <C>               <C>
Net income                              As reported                  $  1,619           $  1,777          $  1,259
                                        Pro forma                       1,401              1,713               908

Net income per share
      Basic:                            As reported                      0.18               0.20              0.16
                                        Pro forma                        0.15               0.19              0.11

      Diluted:                          As reported                      0.16               0.17              0.12
                                        Pro forma                        0.14               0.16              0.09
</TABLE>

The 1996 Incentive Option Plan provides for the grant of a variety of equity
related awards, including, but not limited to, incentive stock options,
non-qualified stock options, stock appreciation rights and restricted stock, to
key employees of the Company and its subsidiaries. The 1997 Distributor Advisory
Panel Stock Option Plan provides for the grant of stock options to those who are
sales representatives and distributors of the Company's and its subsidiaries'
products. The 1997 Surgeon Advisory Panel Stock Option Plan provides for the
grant of stock options to those who are serving as members of the Company's or
its subsidiaries' surgeon advisory panel.

In addition, the Company has the following stock option plans under which the
Company is no longer issuing new options but which, nevertheless, have
outstanding options. The 1992 Stock Option Plan provided for the grant of both
incentive and non-qualified stock options to directors, employees and certain
other persons affiliated with Encore. The 1993 Distributor Stock Option Plan
provided for the grant of stock options to those who were sales representatives
and distributors of Encore's products, and the 1993 Surgeon Advisory Panel Stock
Option Plan provided for the grant of stock options to those who were serving as
members of Encore's surgeon advisory panel.

The stock options granted under all of these plans are granted at or in excess
of fair market value on the date of grant, vest ratably over a predefined
period, and generally expire no more than 10 years from the date of grant. At
December 31, 1999, the Company had reserved a total of 5,314,842 shares of
common stock for the plans.



                                      -25-
<PAGE>   26
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                    1999              1998              1997
                                                               ---------------   ----------------  ----------------
<S>                                                            <C>               <C>               <C>
Employee options-
    Dividend yield                                                        --%                --%               --%
    Expected volatility                                                 65.0%              55.0%             25.0%
    Risk-free interest rate                                              6.0%              6.01%             6.01%
    Expected life                                                   1-4 years        1 - 4 years           4 years

Other than employee options-
    Dividend yield                                                        --%                --%               --%
    Expected volatility                                                 65.0%              55.0%             25.0%
    Risk-free interest rate                                              6.0%              6.01%             6.01%
    Expected life                                                     5 years          3-4 years         3-4 years
</TABLE>

A summary of the status of the Company's stock option plans is presented below:

<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                       -------------------------------------------------------------------------------------------
                                                    1999                          1998                           1997
                                       -----------------------------  -----------------------------  -----------------------------
                                                         WEIGHTED-                      WEIGHTED-                     WEIGHTED-
                                                         AVERAGE                         AVERAGE                       AVERAGE
                                                         EXERCISE                        EXERCISE                     EXERCISE
                                           SHARES          PRICE         SHARES           PRICE         SHARES          PRICE
                                       -------------   -------------  -------------   -------------  -------------   -------------
<S>                                    <C>             <C>            <C>             <C>            <C>             <C>
EMPLOYEE OPTIONS
Outstanding, beginning of year             3,257,112   $        2.20      2,858,808   $        1.83      2,538,138   $        1.46
Granted-
     At market                               180,500            2.33        669,000            3.55        414,441            4.72
     Above market                                 --              --             --              --             --              --
Exercised                                    (80,840)           1.61       (184,574)           1.42        (93,771)           1.06
Canceled                                    (122,233)           2.13        (86,122)           4.59             --
                                       -------------                  -------------                  -------------
Outstanding, end of year                   3,234,539            2.26      3,257,112            2.20      2,858,808            1.83
                                       =============                  =============                  =============

Options exercisable at year end            2,735,039                      2,709,115                      2,774,366
Weighted-average fair value of
     options granted during the year-
       At market                                       $        2.38                  $        3.47                  $        1.21
       Above market                                               --                             --                             --
</TABLE>


                                      -26-
<PAGE>   27
<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                         --------------------------------------------------------------------------
                                                 1999                      1998                        1997
                                         ---------------------      --------------------       --------------------
                                                      WEIGHTED-                 WEIGHTED-                  WEIGHTED-
                                                       AVERAGE                   AVERAGE                    AVERAGE
                                                      EXERCISE                  EXERCISE                   EXERCISE
                                         SHARES        PRICE        SHARES       PRICE         SHARES       PRICE
                                         -------      --------      -------     --------       -------     --------
<S>                                      <C>          <C>           <C>         <C>            <C>         <C>
OTHER THAN EMPLOYEE OPTIONS
Outstanding, beginning of year           957,070      $   4.10      896,010     $   4.10       732,865     $   1.86
Granted-
     At market                            70,000          3.97      282,500         4.07       324,583         4.32
     Above market                         36,500          4.39           --           --       110,000         5.00
Exercised                                     --            --      (18,767)        2.82      (155,073)        1.38
Canceled                                (269,767)         4.38     (202,673)        4.76      (116,365)        4.66
                                      ----------                 ----------                -----------
Outstanding, end of year                 793,803          4.17      957,070         4.10       896,010         4.10
                                      ==========                 ==========                ===========

Options exercisable at year end          607,478                    544,115                    218,985
Weighted-average fair value of
     options granted during the year-
       At market                                      $   3.45                  $   3.75                   $    .84
       Above market                                       2.84                        --                       1.03
</TABLE>

The following table summarizes information about stock options outstanding at
December 31, 1999:

<TABLE>
<CAPTION>
                                             OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE
                               ------------------------------------------------  -------------------------------
                                                 WEIGHTED-
                                                  AVERAGE
                                                 REMAINING        WEIGHTED-                         WEIGHTED-
         RANGE OF                               CONTRACTUAL        AVERAGE                           AVERAGE
      EXERCISE PRICES             NUMBER            LIFE            PRICE            NUMBER           PRICE
----------------------------   --------------  ---------------  ---------------  ---------------  --------------
                                                  (YEARS)
<S>                            <C>             <C>              <C>              <C>              <C>
      $0.56 to $1.90               1,804,921        3.35             $    1.21        1,769,921       $    1.19
      $2.14 to $3.95               1,180,284        5.73                  2.76          711,272            2.58
      $4.23 to $4.91                 643,500        3.73                  4.65          546,833            4.70
       $5.00 or more                 399,637        4.77                  5.51          314,491            5.49
                                 -----------                                        -----------
                                   4,028,342                                          3,342,517
                                 ===========                                        ===========
</TABLE>

COMMON STOCK PUT WARRANTS

Encore issued warrants in 1995 and 1996 to purchase a total of 465,601 shares of
Encore's common stock at $0.01 per share. The warrants could be put to Encore
for cash for a period of 30 days prior to their expiration. The amount payable
by Encore would be based on the per share fair market value of the common stock
at the date the warrants were put to Encore. In addition, Encore issued warrants
in 1995 and 1996 to purchase a total of 98,110 shares of Encore's common stock
at $0.01 per share for professional services rendered in connection with
obtaining long-term financing. Encore valued these warrants at $175,000 and
recorded such amount as a deferred debt issuance cost within other non-current
assets. These warrants contained the same put feature described above. In
determining net income applicable to common stock during 1995 and 1996, the
annual change in the estimated redemption amount of the common stock put
warrants was required to be subtracted from or added to net income. Changes in
the estimate of the redemption amount of the common stock put warrants were
based on independent professional appraisals and estimates made by management.


                                      -27-
<PAGE>   28
In connection with the merger with HCAC described in Note 1, the holders of
these warrants agreed to cancel the put feature. Subsequent to the merger, all
of these warrants were exercised in 1997 and no further adjustment to net income
applicable to common stock was required.

HCAC $7 WARRANTS

As discussed in Note 1, HCAC $7 warrants were issued for each common and
preferred share of Encore in connection with the merger. These warrants are
convertible into one share of common stock for each warrant and expire on March
25, 2001. The Company conducted a tender offer for these $7 warrants and the
rights to acquire the $7 warrants in December 1998. Of the 1,673,948 total $7
warrants and rights, 978,383 shares were tendered and purchased by the Company
for a total consideration of $239,080.

OTHER HCAC TRANSACTIONS

HCAC issued 3,850,000 warrants (the "$5 warrants") in connection with a public
offering in March 1996. These warrants have an exercise price of $5.00 per share
and are convertible into one share of common stock for each warrant. These
warrants expire on March 8, 2003, but are callable by the Company for $0.01 per
warrant at such time as the common shares of the Company have traded at a price
of $8.50 per share for 20 consecutive trading days. The Company repurchased
231,800 and 81,500 of these $5 warrants in 1998 and 1999, respectively.

Additionally, in connection with the public offering, HCAC issued 150,000 unit
options to the underwriters of the offering. These unit options allow the holder
to receive one share of common stock and two $5 warrants for each unit option.
These unit options have an exercise price of $6.60. The unit options and the $5
warrants connected with the unit options expire on March 8, 2001.

TREASURY STOCK

The Company began acquiring shares of its common stock and $5 warrants in
connection with a stock repurchase program announced in January 1998. That
program authorizes the Company to purchase up to one million common shares or $5
warrants from time to time on the open market or pursuant to negotiated
transactions at price levels the Company deems attractive. The Company purchased
310,800 shares for $937,000 and 185,200 shares for $495,000 in 1998 and 1999,
respectively. The Company purchased 231,800 $5 warrants for $170,000 and 81,500
$5 warrants for $68,000 in 1998 and 1999, respectively. The purpose of the stock
and warrant repurchase program is to help the Company achieve its long-term goal
of enhancing stockholder value. In connection with a tender offer conducted in
December 1998, the Company purchased 978,383 of the 1,673,948 total $7 warrants
and rights to acquire $7 warrants for a total consideration of $239,080.

8.       SEGMENT INFORMATION

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which the Company adopted in the first
quarter of 1998. The statement supersedes SFAS No. 14 "Financial Reporting for
Segments of a Business Enterprise," replacing the "industry segment" approach
with the "management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. It
also requires disclosures about products and services, geographic areas and
major customers.

While the Company sells its many products in many different markets, management
has chosen to organize the Company by geographic areas and, as a result, it has
only one reportable segment. All selling and administrative expenses, interest
income, interest expense, depreciation and amortization are recorded in the
United States. In addition, all identifiable assets are located in the United
States.

During the three years ended December 31, 1999, the Company's international
sales were primarily to a few foreign distributors, one of which has
individually accounted for approximately 20% of total Company sales during such
periods. Following are the Company's international sales by geographic area (in
thousands) and the percentage of total Company sales generated by one
distributor:




                                      -28-
<PAGE>   29
<TABLE>
<CAPTION>
                                                   FOR THE YEAR ENDED
                                                       DECEMBER 31,
                                            1999          1998          1997
                                         ----------    ----------    ----------
<S>                                      <C>           <C>           <C>
     Net Sales:
     United States                       $   18,672    $   17,557    $   13,856
     Europe                                   5,784         9,660         8,747
     Asia                                     1,639         1,773         1,837
                                         ----------    ----------    ----------
                                         $   26,095    $   28,990    $   24,440
                                         ==========    ==========    ==========

     Distributor A                               19%           21%           26%
</TABLE>

Net sales of orthopedic products by product category are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                     FOR THE YEAR ENDED
                                                        DECEMBER 31,
                                               1999         1998         1997
                                            ----------   ----------   ----------
<S>                                         <C>          <C>          <C>
     Reconstructive                         $   23,395   $   27,374   $   22,730
     Fixation                                    2,541        1,616        1,710
     Other                                         159           --           --
                                            ----------   ----------   ----------
                                            $   26,095   $   28,990   $   24,440
                                            ==========   ==========   ==========
</TABLE>

9.       INCOME TAXES

The income tax provision (benefit) consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                      FOR THE YEAR ENDED
                                                          DECEMBER 31,
                                                 1999         1998         1997
                                              ----------   ----------   ----------
<S>                                           <C>          <C>          <C>
      Continuing operations:
         Current income taxes:
            Federal                           $      531   $      724   $      514
            State                                     57           82            2
                                              ----------   ----------   ----------
                                                     588          806          516
                                              ----------   ----------   ----------
         Deferred income taxes:
            Federal                                   63          173         (521)
            State                                     (3)          (9)          (3)
                                              ----------   ----------   ----------
                                                      60          164           (8)
                                              ----------   ----------   ----------
      Extinguishment of debt:
         Current                                      --           --         (308)
                                              ----------   ----------   ----------
                                                      --           --         (308)
                                              ----------   ----------   ----------
                                              $      648   $      970   $     (316)
                                              ==========   ==========   ==========
</TABLE>





                                      -29-
<PAGE>   30
The difference in income taxes provided and the amounts determined by applying
the federal statutory tax rate to income before income taxes result from the
following (in thousands):

<TABLE>
<CAPTION>
                                                   FOR THE YEAR ENDED
                                                       DECEMBER 31,
                                              1999         1998         1997
                                           ----------   ----------   ----------
<S>                                        <C>          <C>          <C>
Tax at statutory rate                      $      781   $      934   $      321
Add (deduct) the effect of --
    FSC benefit                                  (100)         (58)         (68)
    State income taxes                             36           48           (1)
    Change in valuation allowance                  --           --         (537)
    Nondeductible expenses and other, net         (37)          85           21
    Utilization of R&D credit                     (32)         (39)         (52)
                                           ----------   ----------   ----------
                                           $      648   $      970   $     (316)
                                           ==========   ==========   ==========
</TABLE>

The components of deferred income tax assets and liabilities are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           1999         1998
                                                        ----------   ----------
<S>                                                     <C>          <C>
    Deferred tax assets:
       Minimum tax credit carry forward                 $       34   $      143
       Inventory and other reserves                            406          427
       Accrued bonuses and salaries                            193          170
       Other                                                     2           23
                                                        ----------   ----------
            Deferred tax assets                                635          763

    Deferred tax liability:
       Depreciation                                           (335)        (403)
                                                        ----------   ----------
            Net deferred tax asset                      $      300   $      360
                                                        ==========   ==========
</TABLE>

Prior to 1997, the Company placed a valuation allowance against its otherwise
recognizable net deferred tax assets due to uncertainties regarding the
realization of these assets. During 1997, management determined that it was more
likely than not that the benefits of such deferred tax assets would be realized
and, therefore, eliminated the valuation allowance of $537,000.

10.      EARNINGS PER SHARE

Basic EPS is computed by dividing net income applicable to common stockholders
by the weighted average number of common shares outstanding during each period.
Diluted EPS is computed by dividing net income applicable to common stockholders
by the weighted average number of common shares and common share equivalents
outstanding (if dilutive) during each period. The number of common share
equivalents outstanding is computed using the treasury stock method.




                                      -30-
<PAGE>   31
Following is a reconciliation of the basic and diluted per share computations
(dollars in thousands, except for per share amounts):

<TABLE>
<CAPTION>
                                                         FOR THE YEAR ENDED DECEMBER 31,
                                                     -------------------------------------
                                                        1999         1998         1997
                                                     -----------  -----------  -----------
<S>                                                  <C>          <C>          <C>
Net income (basic)                                   $     1,619  $     1,777  $     1,857

Effect of dilutive securities                                 --           --           --
                                                     -----------  -----------  -----------
Net income (diluted)                                 $     1,619  $     1,777  $     1,857
                                                     ===========  ===========  ===========

Shares used in computing basic earnings per share      9,117,356    9,088,294    8,032,887
Stock options                                          1,101,763    1,522,396    1,821,436
Put warrants                                                  --           --      248,250
Convertible preferred stock                                   --           --      149,991
                                                     -----------  -----------  -----------
Shares used in computing diluted earnings per share   10,219,119   10,610,690   10,252,564
                                                     ===========  ===========  ===========

Earnings per share
   Basic                                             $      0.18  $      0.20  $      0.23
                                                     ===========  ===========  ===========

   Diluted                                           $      0.16  $      0.17  $      0.18
                                                     ===========  ===========  ===========
</TABLE>

Options and warrants to purchase 1,868,948 and 4,670,597 shares of common stock,
respectively, were outstanding at December 31, 1999, but were not included in
the computation of diluted EPS because their exercise price was greater than the
average market price of the common shares.

11.      RELATED PARTY TRANSACTIONS

Effective April 1, 1992, a stockholder of the Company sold to the Company
certain intellectual property, including trade secrets, manufacturing processes,
instrumentation, technical knowledge and patent rights for a knee device for
$2,000,000. The Company contracted to pay annually the greater of an amount
equal to 1.08% of the total gross sales related to sales of any knee systems
incorporating material elements of this knee device (not to exceed $2,000,000)
or certain fixed payments (without interest) through March 31, 1999. The Company
recorded the related asset at the stockholder's basis of $0 and reflected
$2,000,000 in long-term debt. The excess of consideration paid over the
stockholder's basis was charged to stockholders' equity.

12.      COMMITMENTS AND CONTINGENCIES

As of December 31, 1999, the Company had entered into purchase commitments for
inventory, capital acquisitions and other services totaling $1,931,000 in the
ordinary course of business.

The Company is, from time to time, subject to claims and suits for damages
arising in the normal course of business. The Company maintains insurance, which
management believes would cover most claims.

The Company is currently a defendant in a lawsuit styled Wright Medical
Technologies, Inc. v. Encore Orthopedics, Inc., et al., C. A. No. 99CV4900(SSB),
filed in the United States District Court of New Jersey. In this case, Wright
alleges that Encore tortuously interfered with certain of Wright's contractual
relationships and conspired to cause a former Wright sales person to breach its
contract with Wright. Encore is actively and aggressively defending itself and
does not believe that it has committed any act which would give rise to a
finding that Encore is guilty of the charges leveled against it. The case is in
the very preliminary stages and significant discovery and motions must still be
undertaken.



                                      -31-
<PAGE>   32
13.      EMPLOYEE BENEFIT PLANS

The Company has a qualified defined contribution plan, which allows for
voluntary pre-tax contributions by the employees. The Company pays all general
and administrative expenses of the plan and may make contributions to the plan.
The Company made matching contributions of $262,000, $276,000 and $221,000 to
the plan in 1999, 1998 and 1997, respectively, based on 100% of the first 6% of
employee contributions.

ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE

None in the past two years.

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information set forth under the caption "Election of Directors" contained in
the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 for its 1999 Annual Meeting of
Shareholders (the "Proxy Statement") is incorporated herein by reference.

ITEM 11.      EXECUTIVE COMPENSATION

The information set forth under the sub-captions "Directors Continuing in
Office" and "Executive Compensation" contained in the Company's Proxy Statement
is incorporated herein by reference.

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth under the caption "Stock Ownership" contained in the
Company's Proxy Statement is incorporated herein by reference.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the sub-caption "Certain Transactions" contained
in the Company's Proxy Statement is incorporated herein by reference.

ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)           FINANCIAL STATEMENTS

              The financial statements filed as part of this report are listed
under Item 8.

(b)           REPORTS ON FORM 8-K
              None

(c)           EXHIBITS:

Exhibit
No.           Description
--------      -----------

2             Agreement and Plan of Merger dated as of November 12, 1996, by and
              among Healthcare Acquisition Corp. ("HCAC"), Healthcare
              Acquisition, Inc. and Encore Orthopedics, Inc., as amended by an
              Amendment dated February 14, 1997(3)

3.1           Certificate of Incorporation of Healthcare Acquisition Corp.(1)

3.2           Amendment to the Certificate of Incorporation of HCAC(3)

3.3           Bylaws of HCAC(1)

4.1           Form of HCAC Common Stock Certificate(2)

4.2           Form of Certificate for HCAC $5.00 Warrant(2)

4.3           Form of Unit Purchase Option granted to GKN Securities Corp. and
              Gaines, Berland Inc(2)

4.4           Warrant Agreement between Continental Stock Transfer and Trust
              Company and HCAC with respect to the HCAC $5.00 Warrants(1)

4.5           Form of Encore Medical Corporation $7.00 Warrant(3)


                                      -32-
<PAGE>   33
Exhibit
No.           Description
--------      -----------

4.6           Warrant Agreement, by and between Encore Medical Corporation and
              Continental Stock Transfer and Trust Company with respect to the
              HCAC $7.00 Warrants(3)

4.7           Form of Encore Medical Corporation Common Stock Certificates(5)

10.1          Investment Management Trust Agreement between IBJ Schroder Bank &
              Trust Company and HCAC(1)

10.2          Stock Escrow Agreement between Continental Stock Transfer and
              Trust Company and HCAC(1)

10.3          Letter Agreement between GKN Securities Corp. and each of the
              initial stockholders of HCAC(1)

10.4          Encore Medical Corporation 1996 Incentive Stock Plan(3)

10.5          Employment Agreement between Encore and Nick Cindrich, dated
              August 26, 1994(5)

10.6          Severance Agreement between Encore and Nick Cindrich, dated
              September 27, 1995, as amended on March 18, 1997(5)

10.7          Employment Agreement between Encore and Craig L. Smith, dated
              August 26, 1994(5)

10.8          Severance Agreement between Encore and Craig L. Smith, dated
              September 19, 1995, as amended on March 18, 1997(5)

10.9          [intentionally omitted]

10.10         [intentionally omitted]

10.11         Employment Agreement between Encore and Ken Ludwig, Jr., dated
              August 26, 1994(5)

10.12         Severance Agreement between Encore and Ken Ludwig, Jr., dated
              September 19, 1995, as amended on March 18, 1997(5)

10.13         Employment Agreement between Encore and August Faske, dated August
              26, 1994(5)

10.14         Severance Agreement between Encore and August Faske, dated
              September 20, 1995, as amended on March 18, 1997(5)

10.15         Employment Agreement between Encore and Harry L. Zimmerman, dated
              August 26, 1994(5)

10.16         Severance Agreement between Encore and Harry L. Zimmerman, dated
              September 19, 1995, as amended on March 18, 1997(5)

10.17         Employment Agreement between Encore and J.D. Webb, Jr., dated
              August 26, 1994(5)

10.18         Severance Agreement between Encore and J.D. Webb, Jr., dated
              September 19, 1995, as amended on March 18, 1997(5)

10.19         Employment Agreement between Encore and Greg Kaseeska, dated March
              1, 1998(6)

10.20         Severance Agreement between Encore and Greg Kaseeska, dated March
              1, 1998(6)

10.21         Employment Agreement between Encore and Kathy Weiderkehr, dated
              April 1, 1997(6)

10.22         Severance Agreement between Encore and Kathy Weiderkehr, dated
              April 1, 1997(6)

10.23         Employment Agreement between Encore and Robert Buckley, dated
              December 1, 1998(6)

10.24         Severance Agreement between Encore and Robert Buckley dated
              December 1, 1998(6)

10.25         Employment Agreement between Encore and Jean-Paul Burtin, dated
              December 1, 1998(6)

10.26         Severance Agreement between Encore and Jean-Paul Burtin, dated
              December 1, 1998(6)

10.27         Second Amendment to Severance Agreement between Encore and Nick
              Cindrich dated December 31, 1998(6)

10.28         Second Amendment to Severance Agreement between Encore and Craig
              Smith dated December 31, 1998(6)

10.29         Second Amendment to Severance Agreement between Encore and August
              Faske dated December 31, 1998(6)

10.30         Second Amendment to Severance Agreement between Encore and Harry
              L. Zimmerman dated December 31, 1998(6) 10.31 Second Amendment to
              Severance Agreement between Encore and Kenneth Ludwig, Jr. dated
              December 31, 1998(6)

10.32         Second Amendment to Severance Agreement between Encore and J.D.
              Webb, Jr. dated December 31, 1998(6)

10.33         Amendment to Severance Agreement between Encore and Greg Kaseeska
              dated December 31, 1998(6)

10.34         Amendment to Severance Agreement between Encore and Kathy
              Weiderkehr dated December 31, 1998(6)

21            Schedule of Subsidiaries of Encore Medical Corporation

27            Financial Data Schedule




                                      -33-
<PAGE>   34
(1)           Filed as an exhibit to Amendment No. 1 to HCAC's Registration
              Statement on Form S-1 (33-92854) filed with the SEC on July 14,
              1995

(2)           Filed as an exhibit to Amendment No. 2 to HCAC's Registration
              Statement on Form S-1 (33-92854) filed with the SEC on February
              20, 1996

(3)           Filed as an exhibit to HCAC's Registration Statement on Form S-4
              (333-22053) filed with the SEC on February 19, 1997

(4)           Filed as an exhibit to Company Form 8-K filed with the SEC on May
              30, 1997

(5)           Filed as an exhibit to Company Form 10-K filed with the SEC on
              March 30, 1998

(6)           Filed as an exhibit to Company Form 10-K filed with the SEC on
              March 23, 1999



                                      -34-
<PAGE>   35
                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) 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.

                                     ENCORE MEDICAL CORPORATION


3/22/00                               By:  /s/ Nick Cindrich
Date                                      Nick Cindrich, Chairman of the Board
                                          and Chief Executive Officer

3/28/00                               By:  /s/ August Faske
Date                                      August Faske, Chief Financial Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.


3/22/00                               By:  /s/ Jay Haft
Date                                      Jay M. Haft, Director


3/22/00                               By:  /s/ Joel Kanter
Date                                      Joel Kanter, Director


3/22/00                               By:  /s/ Dennis Enright
Date                                      Dennis Enright, Director


3/22/00                               By: /s/ Craig L. Smith
Date                                      Craig L. Smith, Director


3/22/00                               By: /s/ John Abeles
Date                                      John Abeles, Director


3/22/00                               By:  /s/ Kenneth Davidson
Date                                      Kenneth Davidson, Director


3/22/00                               By:  /s/ Richard Martin
Date                                      Richard Martin, Director



                                      -35-
<PAGE>   36
                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
Exhibit
No.           Description
--------      -----------
<S>           <C>
2             Agreement and Plan of Merger dated as of November 12, 1996, by and
              among Healthcare Acquisition Corp. ("HCAC"), Healthcare
              Acquisition, Inc. and Encore Orthopedics, Inc., as amended by an
              Amendment dated February 14, 1997(3)

3.1           Certificate of Incorporation of Healthcare Acquisition Corp.(1)

3.2           Amendment to the Certificate of Incorporation of HCAC(3)

3.3           Bylaws of HCAC(1)

4.1           Form of HCAC Common Stock Certificate(2)

4.2           Form of Certificate for HCAC $5.00 Warrant(2)

4.3           Form of Unit Purchase Option granted to GKN Securities Corp. and
              Gaines, Berland Inc(2)

4.4           Warrant Agreement between Continental Stock Transfer and Trust
              Company and HCAC with respect to the HCAC $5.00 Warrants(1)

4.5           Form of Encore Medical Corporation $7.00 Warrant(3)
</TABLE>

<PAGE>   37

<TABLE>
<CAPTION>
Exhibit
No.           Description
--------      -----------
<S>           <C>
4.6           Warrant Agreement, by and between Encore Medical Corporation and
              Continental Stock Transfer and Trust Company with respect to the
              HCAC $7.00 Warrants(3)

4.7           Form of Encore Medical Corporation Common Stock Certificates(5)

10.1          Investment Management Trust Agreement between IBJ Schroder Bank &
              Trust Company and HCAC(1)

10.2          Stock Escrow Agreement between Continental Stock Transfer and
              Trust Company and HCAC(1)

10.3          Letter Agreement between GKN Securities Corp. and each of the
              initial stockholders of HCAC(1)

10.4          Encore Medical Corporation 1996 Incentive Stock Plan(3)

10.5          Employment Agreement between Encore and Nick Cindrich, dated
              August 26, 1994(5)

10.6          Severance Agreement between Encore and Nick Cindrich, dated
              September 27, 1995, as amended on March 18, 1997(5)

10.7          Employment Agreement between Encore and Craig L. Smith, dated
              August 26, 1994(5)

10.8          Severance Agreement between Encore and Craig L. Smith, dated
              September 19, 1995, as amended on March 18, 1997(5)

10.9          [intentionally omitted]

10.10         [intentionally omitted]

10.11         Employment Agreement between Encore and Ken Ludwig, Jr., dated
              August 26, 1994(5)

10.12         Severance Agreement between Encore and Ken Ludwig, Jr., dated
              September 19, 1995, as amended on March 18, 1997(5)

10.13         Employment Agreement between Encore and August Faske, dated August
              26, 1994(5)

10.14         Severance Agreement between Encore and August Faske, dated
              September 20, 1995, as amended on March 18, 1997(5)

10.15         Employment Agreement between Encore and Harry L. Zimmerman, dated
              August 26, 1994. (5)

10.16         Severance Agreement between Encore and Harry L. Zimmerman, dated
              September 19, 1995, as amended on March 18, 1997(5)

10.17         Employment Agreement between Encore and J.D. Webb, Jr., dated
              August 26, 1994(5)

10.18         Severance Agreement between Encore and J.D. Webb, Jr., dated
              September 19, 1995, as amended on March 18, 1997(5)

10.19         Employment Agreement between Encore and Greg Kaseeska, dated March
              1, 1998(6)

10.20         Severance Agreement between Encore and Greg Kaseeska, dated March
              1, 1998(6)

10.21         Employment Agreement between Encore and Kathy Weiderkehr, dated
              April 1, 1997(6)

10.22         Severance Agreement between Encore and Kathy Weiderkehr, dated
              April 1, 1997(6)

10.23         Employment Agreement between Encore and Robert Buckley, dated
              December 1, 1998(6)

10.24         Severance Agreement between Encore and Robert Buckley dated
              December 1, 1998(6)

10.25         Employment Agreement between Encore and Jean-Paul Burtin, dated
              December 1, 1998(6)

10.26         Severance Agreement between Encore and Jean-Paul Burtin, dated
              December 1, 1998(6)

10.27         Second Amendment to Severance Agreement between Encore and Nick
              Cindrich dated December 31, 1998(6)

10.28         Second Amendment to Severance Agreement between Encore and Craig
              Smith dated December 31, 1998(6)

10.29         Second Amendment to Severance Agreement between Encore and August
              Faske dated December 31, 1998(6)

10.30         Second Amendment to Severance Agreement between Encore and Harry
              L. Zimmerman dated December 31, 1998(6) 10.31 Second Amendment to
              Severance Agreement between Encore and Kenneth Ludwig, Jr. dated
              December 31, 1998(6)

10.32         Second Amendment to Severance Agreement between Encore and J.D.
              Webb, Jr. dated December 31, 1998(6)

10.33         Amendment to Severance Agreement between Encore and Greg Kaseeska
              dated December 31, 1998(6)

10.34         Amendment to Severance Agreement between Encore and Kathy
              Weiderkehr dated December 31, 1998(6)

21            Schedule of Subsidiaries of Encore Medical Corporation

27            Financial Data Schedule
</TABLE>

<PAGE>   38
(1)           Filed as an exhibit to Amendment No. 1 to HCAC's Registration
              Statement on Form S-1 (33-92854) filed with the SEC on July 14,
              1995

(2)           Filed as an exhibit to Amendment No. 2 to HCAC's Registration
              Statement on Form S-1 (33-92854) filed with the SEC on February
              20, 1996

(3)           Filed as an exhibit to HCAC's Registration Statement on Form S-4
              (333-22053) filed with the SEC on February 19, 1997.

(4)           Filed as an exhibit to Company Form 8-K filed with the SEC on May
              30, 1997.

(5)           Filed as an exhibit to Company Form 10-K filed with the SEC on
              March 30, 1998.

(6)           Filed as an exhibit to Company Form 10-K filed with the SEC on
              March 23, 1999.