**UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549**

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**FORM 10-Q**

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(Mark One)

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

**For the quarterly period ended April 1, 2000**

**OR**

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

**For the transition period from ________to _________**

**Commission file number 0-27422**

**ARTHROCARE CORPORATION**
(Exact name of Registrant as specified in its Charter)



|**Delaware**                                                   | **94-3180312**                      
|-------------------------------------------------------------- | ------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification Number)

**595 North Pastoria AvenueSunnyvale, California 94086**(Address of Principal Executive Offices including Zip Code)

**(408) 736-0224**(Registrant's Telephone Number, Including Area Code)

(Former name, former address and former fiscal year if changed
 since last report)







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

The number of shares outstanding of the registrant's common stock as of
April 14, 2000 was 10,916,309.







**ARTHROCARE CORPORATION
                                    FORM 10-Q
                                     INDEX**

**PART I. Financial Information**

Item 1.  Financial Statements (unaudited)

> Condensed Consolidated Balance Sheets as of
>             April 1, 2000  and January 1, 2000Condensed Consolidated Statements of Operations for the three
>             month periods ended April 1, 2000  and April 3, 1999.Condensed Consolidated Statements of Cash Flows for the
>            three month periods ended April 1, 2000  and April 3, 1999.Notes to Condensed Consolidated Financial
>          Statements

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

> OverviewResults of OperationsLiquidity and Capital Resources

Item 3.   Quantitative and Qualitative Disclosure about Market Risks

**PART II. Other Information**

Item 1:  Legal Proceedings

Item 2:  Changes in Securities

Item 3:  Defaults Upon Senior Securities

Item 4:  Submission of Matters to a Vote of Security Holders

Item 5:  Other Information

Item 6:  Exhibits and Reports on Form 8-K

**SIGNATURES**

**PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements**

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**ARTHROCARE CORPORATION****CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)**

`April 1,     January 1,
                                                       2000           2000
                                                   -------------  -------------
                                                    (unaudited)
                        ASSETS
Current assets:
  Cash and cash equivalents.....................        $48,251        $47,875
  Available-for-sale securities.................         12,749         22,582
  Accounts receivable, net of allowances........         17,129         13,917
  Inventories, net..............................          8,758          6,960
  Prepaid expenses and other current assets.....            677            719
                                                   -------------  -------------
       Total current assets                              87,564         92,053

Available-for-sales securities..................         21,125          9,150
Property and equipment, net.....................          7,975          7,366
Related party receivables.......................          1,205          1,205
Other assets....................................            265            265
                                                   -------------  -------------
     Total assets...............................       $118,134       $110,039
                                                   =============  =============
         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..............................         $3,133         $2,930
  Accrued liabilities...........................          1,798          1,256
  Accrued compensation..........................          2,888          2,689
  Capital lease obligation, current portion.....             60             60
                                                   -------------  -------------
          Total current liabilities                       7,879          6,935

Capital lease obligation, less
   current portion..............................             67             87
Deferred rent...................................            130            134
                                                   -------------  -------------
          Total liabilities.....................          8,076          7,156
                                                   -------------  -------------


Stockholders' equity:
  Common stock..................................             11             11
  Additional paid in capital....................        127,860        125,200
  Notes receivable from stockholders............             --           (273)
  Accumulated other comprehensive (loss)........           (255)          (151)
  Accumulated deficit...........................        (17,558)       (21,904)
                                                   -------------  -------------
          Total stockholders' equity............        110,058        102,883
                                                   -------------  -------------
     Total liabilities and stockholders' equity.       $118,134       $110,039
                                                   =============  =============`

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

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**ARTHROCARE CORPORATION****CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per share data)
                                  (unaudited)**

`Three Months Ended
                                 -----------------------
                                  April 1,    April 3,
                                    2000        1999
                                 ----------- -----------
Revenues:
   Product sales................    $15,691      $9,077
   License fees and royalties...      2,069         625
                                 ----------- -----------
      Total revenues............     17,760       9,702
      Cost of product sales.....      6,364       3,876
                                 ----------- -----------
      Gross profit..............     11,396       5,826
                                 ----------- -----------
Operating expenses:
   Research and development.....      1,757       1,024
   Sales and marketing..........      4,896       3,336
   General and administrative...      1,239       1,349
                                 ----------- -----------
      Total operating expenses..      7,892       5,709
                                 ----------- -----------

        Income from operations..      3,504         117
Interest and other income, net..      1,071         134
                                 ----------- -----------
Income before taxes.............      4,575         251
Income tax provision............        229          11
                                 ----------- -----------
Net income .....................     $4,346        $240
                                 =========== ===========

Basic net income per
   share.......................       $0.40       $0.03
                                 =========== ===========
Diluted net income per
   share.......................       $0.36       $0.03
                                 =========== ===========
Shares used in computing basic
 net income per share...........     10,918       8,973
                                 =========== ===========
Shares used in computing
 diluted net income per share...     11,944       9,505
                                 =========== ===========`

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

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**ARTHROCARE CORPORATION****CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                  (unaudited)**

`Three Months Ended
                                                      --------------------------
                                                        April 1,      April 3,
                                                          2000          1999
                                                      ------------  ------------
Cash flows from operating activities:
   Net income .......................................      $4,346          $240
   Adjustments to reconcile net income
    to net cash provided by operating activities:
        Depreciation and amortization................         851           470
        Amortization of deferred  stock
          compensation and stock compensation expense         364            40
        Provision for doubtful accounts receivable
          and product returns........................         (93)           93
        Provision for excess and obsolete inventory..        (636)          525
        Deferred rent................................          (4)           (2)
        Changes in operating assets and liabilities:
          Accounts receivable                              (3,120)         (552)
          Inventory..................................      (1,162)         (666)
          Prepaid expenses and other current assets..          42           636
          Accounts payable...........................         203          (566)
          Accrued liabilities........................         741          (167)
          Deferred revenue...........................          --           605
          Other assets...............................          --            59
                                                      ------------  ------------
   Net cash provided by operating activities                1,532           715
                                                      ------------  ------------
Cash flows from investing activities:
   Purchases of property and equipment...............      (1,460)       (1,130)
   Purchases of available-for-sale securities........     (22,851)         (347)
   Sale or maturities of available-for-sale
     securities......................................      20,624        1,001
                                                      ------------  ------------
   Net cash used in investing
     activities......................................      (3,687)         (476)
                                                      ------------  ------------
Cash flows from financing activities:
   Issuance of notes receivable to related
     parties.........................................          --           (11)
   Repayment of capital leases.......................         (20)          (19)
   Repayment of notes receivable from related
     parties.........................................         273           148
   Proceeds from exercise of options
     to purchase common stock........................       2,296           406
                                                      ------------  ------------
           Net cash provided by financing
               activities............................       2,549           524
                                                      ------------  ------------

Effect of exchange rate on changes in cash                    (18)          (36)
                                                      ------------  ------------
Net increase in cash and cash equivalents............         376           727
Cash and cash equivalents, beginning of period.......      47,875         2,826
                                                      ------------  ------------
Cash and cash equivalents, end of period.............     $48,251        $3,553
                                                      ============  ============`

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

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**ARTHROCARE CORPORATION****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)**

**1.      Basis of Presentation:**

In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all adjustments
(all of which are normal and recurring in nature) necessary to
present fairly the financial position, results of operations and cash
flows of ArthroCare Corporation and its subsidiaries ("ArthroCare,"
"we," "us" or "our") for the periods indicated.  Interim results of
operations are not necessarily indicative of the results to be
expected for the full year or any other interim periods.  The notes
to the financial statements contained in our Form 10-K for the year
ended January 1, 2000 should be read in conjunction with these
condensed consolidated financial statements.  The balance sheet at
January 1, 2000 was derived from audited financial statements;
however, the financial statements in this report do not include all
disclosures required by generally accepted accounting principles.

**2.      Computation of Net Income Per Share:**

Basic net income per share is computed using the weighted
average number of shares of common stock outstanding during the period.  Diluted net
income per share is computed using the weighted average number of
shares of common stock outstanding and common equivalent shares
outstanding during the period.  Common equivalent shares consist of
stock options and are excluded from the computation if their effect
is anti-dilutive.

The following is a reconciliation of the computation for basic
and diluted net income per share (in thousands, except per share
data):

`Three Months Ended
                                 -----------------------
                                   April 1,    April 3,
                                     2000        1999
                                 ----------- -----------
Net income .....................     $4,346        $240
                                 =========== ===========
Shares calculation:
   Weighted average basic
    shares outstanding..........     10,918       8,973
   Options......................      1,026         532
                                 ----------- -----------
     Total shares used to
      compute diluted net
      income per share..........     11,944       9,505
                                 =========== ===========
Net income per share:
   Basic........................      $0.40       $0.03
                                 =========== ===========
   Diluted......................      $0.36       $0.03
                                 =========== ===========`

Options to purchase 316,481 shares of common stock at prices
ranging from $17.25-$24.25 per share were outstanding during the
three month period ended April 3, 1999, but were not included in the
computation of diluted earnings per share because the option's
exercise price was greater than the average market price of the
common stock during the period.

**3.     Comprehensive Income:**

Comprehensive income is comprised of net income and other
comprehensive income such as foreign currency translation gain/loss
and unrealized gains or losses on available-for-sale marketable
securities. Our total comprehensive income was as follows (in
thousands):

`Three Months Ended
                                 -----------------------
                                    April 1,    April 3,
                                     2000        1999
                                 ----------- -----------
Net income .....................     $4,346        $240

 Other comprehensive income:

  Change in unrealized gain and
   losses in available for sale
   marketable securities........        (85)        --

  Foreign translation
   adjustment...................        (18)        (36)
                                 ----------- -----------
Comprehensive net income........     $4,243        $204
                                 =========== ===========`

**4.      Balance Sheet Detail (in thousands):**

`April 1,   January 1,
                                                2000         2000
                                            ------------ ------------
                                            (unaudited)
Inventory:
   Raw materials.........................        $3,478       $2,870
   Work-in-process.......................         1,967        1,280
   Finished goods........................         3,313        2,810
                                            ------------ ------------
Total....................................        $8,758       $6,960
                                            ============ ============
Other accrued liabilities:
   Accrued professional fees.............           $30          $30
   Accrued warranty......................           248          174
   Other.................................         1,520        1,052
                                            ------------ ------------
Total....................................        $1,798       $1,256
                                            ============ ============`

**5.     Line of Credit:**

In June 1999, we entered into a $7.0 million revolving line of
credit that expires in June 2000.  Available borrowings under this
line of credit are contingent upon and collateralized by our assets
and are subject to covenants related to financial ratios and profits.
Borrowings under the line of credit bear interest at the bank's prime
rate plus one-quarter of one percentage point.   At April 1, 2000, we
were in compliance with these covenants and no borrowings were
outstanding.

**6.      Litigation:**

We are currently involved in ongoing litigation. In June 1998, we
announced that we had entered into an exclusive worldwide marketing
and distribution agreement with Xomed Surgical Products for our
products in the ENT surgery market. On February 4, 1999, Xomed
Surgical Products of Jacksonville, Florida filed a complaint against
us in the Fourth Judicial Circuit, Duval County Florida, alleging
breach of contract by us. In the complaint, Xomed has demanded a full
refund of the amounts paid for certain products bought by Xomed from
us, and for a portion of an exclusive license fee paid by Xomed
pursuant to an exclusive license and distribution agreement between
Xomed and ArthroCare.  This license and distribution agreement was
terminated by us on February 5, 1999. We believe that the suit is
without merit, and filed a Motion to Dismiss on February 24, 1999.

**7.      Recent Accounting Pronouncements:**

In December 1999, the SEC issued Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" ("SAB 101").  SAB
101 requires that license and other upfront fees from research
collaborators be recognized over the term of the agreement unless the
fee is in exchange for products delivered or services performed that
represent the culmination of a separate earnings process.  On March
24, 2000, the SEC issued Staff Accounting Bulletin No. 101A
"Amendment: Revenue Recognition Financial Statements".  SAB 101A
allows companies to defer the reporting of a change in accounting
principle, as required by SAB101, until the second quarter of the
current year.  Accordingly, we will report a change in accounting
principle for the fiscal quarter ending July 1, 2000.  We are still
evaluating the application of SAB101 and believe that certain revenue
previously recognized may be deferred to future periods.  The
cumulative effect of this change in accounting principle, which we
anticipate adopting in the second quarter of 2000, may result in an
increase of our accumulated deficit.

**8.      Segment Information:**

We are organized into five business units based on product
markets:  arthroscopy, spinal and neurosurgery, ear nose and throat
surgery, cosmetic surgery and cardiology.  Our reportable segments are arthroscopy,
and cosmetic surgery and other which includes spinal and neurosurgery, ear nose and throat surgery
and cardiology.  Total revenues  for the three month period ended April 1, 2000 for the
arthroscopy, cosmetic surgery and other business segments were $12.9 million ,4.6 million, and
 .03 million, respectively.  Total revenues  for the three month period ended April 3, 1999
for the arthroscopy cosmetic surgery and other business segments were  $8.0 million, $1.5 million
and $0.2 million respectively.  Income (loss) from operations for the three month period ended
April 1, 2000 for the arthroscopy, cosmetic surgery and other business segments was $3.8 million,
$3.1 million and ($1.1) million, respectively.  Income (loss) from operations for the three
month period ended April 3, 1999, for the arthroscopy, cosmetic surgery and other business
segments were $1.0 million, $0.8 million and ($2.0) million respectively.  Our reportable
segments do not include interest and other income and certain corporate expenses which amounted
to $1.1 million and $2.3 million, respectively, for the three month periods ended April 1, 2000
and $0.1 million and $1.5 million, respectively,  for the three month period ended April 3, 1999.

**9.      Stock Split:**

On March 24, 2000 the Board of Directors approved a two-for-one
stock split of our common stock, which is subject to shareholder
approval. The following table sets out proforma basic and diluted net income per share as if the
stock split had been effective from the begining of the periods indicated:

`Three Months Ended
                                 -----------------------
                                   April 1,    April 3,
                                     2000        1999
                                 ----------- -----------

Basic net income per share:

   As reported....................    $0.40       $0.03
   Proforma.......................    $0.20       $0.01



Diluted  net income per share:

   As reported....................    $0.36       $0.03
   Proforma.......................    $0.18       $0.01`

**PART I. FINANCIAL INFORMATION**

**Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**Overview**

Statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operations which express that
ArthroCare Corporation ("ArthroCare" "we," "us," or "our")
"believes", "anticipates", "expects" or "plans to", as well as other
statements which are not historical fact, are forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Actual events or results may differ materially as
a result of the risks and uncertainties described herein and
elsewhere including, in particular, those factors described under
"Business" set forth in Part I of our Annual Report on Form 10-K for
the year ended January 1, 2000 and "ADDITIONAL FACTORS THAT MIGHT AFFECT
FUTURE RESULTS" set forth below.

We are a medical device company that develops,
manufactures and  markets products based on our patented
CoblationÒ
technology. Our
products allow surgeons to operate with increased precision and
accuracy, limiting damage to surrounding tissue thereby potentially
reducing pain and speeding recovery for the patient. Our products
operate at lower temperatures than traditional electrosurgical or
laser surgery tools and enable surgeons to ablate, sculpt, aspirate
or shrink soft tissue and to seal bleeding vessels. Our soft-tissue
surgery systems consist of a controller unit and an assortment of
disposable devices that are specialized for specific types of
surgery. We believe our Coblation technology can replace the multiple
surgical tools traditionally used in soft-tissue surgery procedures
with one multi-purpose surgical system.

Coblation technology is applicable across many soft-tissue
surgical markets. Our systems are used to perform many types of
arthroscopic surgery. Our strategy includes applying our patented
Coblation technology to a broad range of other soft-tissue markets,
including spinal surgery, neurosurgery, cosmetic surgery, ear nose
and throat ("ENT") surgery, and various cardiology applications.

In April 1998, we announced that we had entered the cosmetic
surgery market to commercialize Coblation technology in this field.
In early 1999, we entered into a license and distribution agreement
with Collagen Aesthetics, Inc., who has been purchased by Inamed
Corporation. Under this agreement, Inamed Corporation acquired
exclusive, worldwide, marketing rights for our cosmetic surgery line
of products for the dermatology and cosmetic surgery markets.

In May 1998, we announced that we had entered the ear, nose and
throat market and had formed a business unit called ENTec® to
commercialize Coblation technology in this field. In June 1998, we
entered into a license agreement with Xomed Surgical Products, Inc.
to market Coblation products in the ear, nose and throat market. In
February 1999, Xomed filed a suit against us alleging breach of
contract and seeking monetary damages. We then terminated this
agreement and have been marketing and selling the ENT surgery product
line through a network of distributors supported by regional sales
managers.

In early 1998, we formed a business unit, AngioCareTM, for the
purpose of further developing and for commercializing our technology
in specific applications in the field of cardiology. As part of those
efforts, in February 1998, we entered into a license agreement under
which Boston Scientific Corporation will help develop, obtain
regulatory approval for and market products based on Coblation
technology for myocardial revascularization procedures.

In September 1999, we announced that we had entered the spinal
surgery market.  We are marketing and selling the spinal surgery
products through a network of independent distributors supported by
regional managers worldwide.

We have received 510(k) clearance to market our Arthroscopic
System for use in arthroscopic surgery of the knee, shoulder, ankle,
elbow, wrist and hip, and our Arthroscopic System is CE marked for
use in arthroscopic surgery. Our Cosmetic Surgery System is CE marked
for general dermatology, skin resurfacing for the purpose of wrinkle
reduction procedures and we have received 510(k) clearance for use of
our Cosmetic Surgery System in general dermatology procedures and for
skin resurfacing for the purpose of wrinkle reduction in the United
States. Our ENT Surgery System is CE marked, and we have received
510(k) clearances for use of our ENT Surgery System in general head,
neck, oral and sinus, including snoring and tonsillectomy surgery
procedures in the United States. Our Spinal Surgery System is CE
marked and we have received 510(k) clearance in the United States to
market this system for spinal surgery. Our neurosurgery products are
CE marked. We have received 510(k) clearance to market Coblation
technology for general surgery.

In December 1995, we introduced our Arthroscopic System
commercially in the United States and have derived a significant
portion of our sales from this system. Our strategy includes placing
controller units, at substantial discounts, to generate future
disposable revenue. Our strategy also includes applying our patented
Coblation technology to a range of other soft-tissue surgical markets
including the products we have introduced in the fields of spinal
surgery, neurosurgery in Europe, cosmetic surgery and ear, nose and
throat surgery. We have received 510(k) clearance for use of our
technology in several fields. We cannot be sure that any of our
clinical studies in other fields will lead to 510(k) applications or
that the applications will be cleared by the FDA on a timely basis,
if at all. In addition, we cannot be sure that the products, if
cleared for marketing, will ever achieve commercial acceptance.

**Results of Operations**

Revenues:

Product sales for the three months ended April 1, 2000 were
$15.7 million, an increase of  $6.6 million or 73% from $9.1 million
from the prior year period. The increase in product sales resulted
primarily from an increase in the number of unit sales of both
controllers and disposable devices.  The higher unit volume of sales
resulted primarily from increased activity for newly introduced
models of disposable devices for arthroscopy, sales of disposable
devices for new product lines, sales of controllers and disposable
devices for our cosmetic surgery product line and increasing
international sales.  We attribute increasing disposable device sales
both domestically and internationally to our strategic plan to build
market share through continued promotional programs of controller
placements.

International product sales for the three months ended April 1, 2000
increased to 10% of total product sales compared to 5% of product
sales for the same period of the prior year. We believe that the
increase in international sales is attributable to our increasing
marketing presence overseas and the regulatory approval to market our
arthroscopic products in Japan.

Based upon the estimated number of arthroscopic procedures
performed each year, we believe that knee procedures represent the
largest segment of the arthroscopic market, while shoulder procedures
represent the fastest growing segment.  To achieve increasing
disposable device sales in arthroscopy over time, we believe we must
continue to penetrate the market in knee procedures, expand
physicians' education with respect to Coblation technology and
continue to work on new product development efforts specifically for
knee applications.  We believe that, in our four years of product
shipments, we have penetrated 30% to 35% of the hospitals that
perform arthroscopic procedures in the United States.  We believe
that approximately 60% of our arthroscopy disposable device sales is
being generated by the sale of disposables for use in knee
procedures.

License fees and royalty income increased to $2.1 million for the
three months ended April 1, 2000 from $0.6 million for the three
months ended April 3, 1999.  The increase in license fees and royalty
revenue in the current three-month period is primarily due to the
timing of licensing payments and milestones received from our
business partners. In January 1999, we entered into a license and
distribution agreement with Inamed Corporation, which was expanded in
February 1999, whereby Inamed Corporation acquired exclusive,
worldwide, marketing rights for our patented Coblation technology in
the cosmetic surgery market. Under the terms of the agreement, Inamed
Corporation pays us license fees based upon the achievement of
certain milestones and royalties on sales of product to end-users.
During the three months ended April 1, 2000, and April 3, 1999 the
vast majority of license fees and royalties we recognized were in
conjunction with this agreement.

We cannot assure you that we will be able to continue to be
able to recognize future license fees, or that products will be
developed, cleared for marketing and achieve sufficient commercial
acceptance, so that we may continue to receive licensing and royalty
revenues from our business partners.

Cost of Product Sales

Cost of product sales for the three months ended April 1, 2000
was $6.4 million or 41% of product sales, as compared with $3.9
million or 43% of product sales for the three months ended April 3,
1999.  The increase in cost of product sales for the three-month
periods ended April 1, 2000, compared to the same period of the prior
year, is attributable to increasing unit sales of both controllers
and disposable devices. The decrease in cost as a percentage of
product sales for the three month period ended April 1, 2000, as
compared to the prior year period is attributable to increased
manufacturing efficiency for established product lines and increased
production volume.

We cannot be sure that gross margins will remain at current
levels or show improvement in the future due to the distribution
channels used, product mix, and fluctuation in manufacturing
production levels as new products are introduced. We believe our
gross margin will depend upon the mix of disposable device sales
versus controller sales and/or placements and the various
distribution channels utilized to sell our products in all
commercialized fields. There can be no assurance that we will be
successful in maintaining the mix of disposable devices to
controllers or in increasing demand for our disposable devices. In
addition, inefficiencies in manufacturing new products and the
distribution channels utilized to sell those products may adversely
impact gross margin.

Operating Expenses

Research and development expense was $1.8 million for the three
months ended April 1, 2000 as compared to $1.0 million for the same
period of the previous fiscal year. In general, overall spending in
research and development increased as we continued to develop new
products in our currently commercialized markets, continued our
development efforts for potential additional products and continued
to maintain our patent position.   Salaries and related compensation
expenses continued to increase during the current year period,
including non-cash charges for stock options awarded to non-
employees, as we continued to increase headcount in order to support
our increasing research and development efforts.  Increases in
research and development expense have been partially offset by
funding received from business partners for continued product
development and by a decrease in the expenditures associated with
clinical trials.   We believe continued investment in Coblation
technology is essential for us to maintain our competitive position.
We expect to increase the dollar amount of research and development
spending through continued expenditures on new product development,
regulatory affairs, clinical studies and patents, as well as
increased non-cash charges for stock options granted to non-
employees, but anticipate expenses to continue to decrease as a
percentage of product sales.

Sales and marketing expense increased to $4.9 million or 31% of
product sales during the three months ended April 1, 2000, as
compared to $3.3 million or 37% of product sales during the same
period of the previous fiscal year. The increase in spending in
absolute dollars for the three-month periods was primarily due to
higher dealer commissions resulting from increased sales, increased
staffing and related expenditures as well as increased trade-show
related activities including marketing studies.

We anticipate that sales and marketing spending will continue
to increase in absolute dollars due to the expansion of our
distribution capabilities to address the spinal surgery market,
higher dealer commissions from increased sales, the additional cost
of penetrating international markets, higher promotional,
demonstration and sample expenses, additional investments in the
sales, marketing and support staff necessary to market our current
products and commercialize future products.

General and administrative expenses were $1.2 million or 8% of
product sales during the three months ended April 1, 2000, as
compared to $1.3 million or 15% of product sales during the same
period of the previous fiscal year.  The decrease in spending for the
three months ended April 1, 2000 as compared to the three months
ended April 3, 1999, is attributable to a reduction in legal fees
offset by an increase in spending during the current year associated
with international consulting and staffing and related expenditures.
We expect that general and administrative expenses as a percentage of
product sales will continue to decrease when compared to prior year
periods as a result of the settlement of patent litigation, offset
partially by an increase in additional business development
activities.

Interest and Other Income, net

Interest and other income, net increased to $1.1 million during
the three months ended April 1, 2000 from $0.1 million for the three
months ended April 3, 1999. The $1.0 million increase during the
current year period was attributable to the increase in our cash
and investment balances as a result of our secondary offering and cash flow.  We
anticipate that interest and other income, net, will continue to
increase due to our increased cash balances.

Income Tax Provision

The provision for income taxes was $229,000 and $11,000 for the
three-month periods ended April 1, 2000 and April 3, 1999,
respectively.  Because we use net operating loss carryforwards
generated in prior years, our tax rate is below the statutory rate.
We have federal net operating loss carryforwards which expire in the
years 2001 through 2018, and state net operating loss carryforwards
which expire in the years 2001 through 2003. We are subject to
certain alternative minimum tax requirements in the current year for
which an estimate is made based on the anticipated effective tax rate
at the end of the fiscal year.

Net Income

Net income was $4.3 million for the three months ended April 1,
2000 compared to $0.2 million for the period ended April 3, 1999.
Net income for the current period reflects an increase in product
sales, license fees and gross margin, partially offset by increased
spending in operating expenses. Although we have experienced
substantial revenue growth since inception and have been profitable
on a quarterly basis since the quarter ended April 3, 1999, due to
our short operating history and numerous other factors, we cannot be
sure that we can sustain revenue growth or profitability.

**Liquidity and Capital Resources**

On April 1, 2000, we had $79.7 million in working capital.  The
principal sources of liquidity consisted of $61.0 million in cash,
cash equivalents and available-for-sale securities.  The cash and
cash equivalents are highly liquid with original maturities of ninety
days or less. In addition, we had $21.1 million in long-term
investments respresenting cash investments with original maturity
dates of greater than one year. We also had $7.0 million available
under a line of credit. Available borrowings under this line of
credit are contingent upon and collateralized by some of our asset
balances and are subject to covenants related to financial ratios and
profits.  Borrowings under the line of credit bear interest at the
bank's prime rate plus one-quarter of one percentage point. At April
1, 2000 we were in compliance with these covenants and had no
borrowings outstanding.

Net cash provided by operating activities for the three months
ended April 1, 2000 was $1.2 million as compared to $0.7 million for
the three-month period ended April 3, 1999.  The increase in cash
provided by operating activities year-over-year was primarily due to
the net income of $4.3 million for the 2000 period compared to $0.2
million in the prior year, partially offset by increases in accounts
receivable and inventory.

Net accounts receivable increased to $17.2 million as of April
1, 2000 from $13.9 million as of January 1, 2000.  The increase in
accounts receivable is mainly attributable to the corresponding
increase in product sales along with the timing of sales during the
quarter.

Inventories increased to $8.8 million as of April 1, 2000 from
$7.0 million at January 1, 2000, due to the need to support higher
anticipated product sales activity.  We expect future inventory
levels to grow to support sales volume increases, as a result of our
expansion into the markets of spinal surgery, ear, nose and throat
surgery and cosmetic surgery.

Net property and equipment increased to $8.0 million as April
1, 2000 from $7.4 million at January 1, 2000.  The increase is
primarily attributable to the capitalization of controllers placed
under various promotional programs along with an increase of computer
software and equipment.

We believe that
 our current cash balances, cash equivalents, short and
long term investments and cash generated from our operations
will be sufficient to meet our operating and capital
requirements at least through the end of 2001. As of April 1, 2000, we had
committed to capital expenditures of approximately $0.4 million.  Our
future liquidity and capital requirements will depend on numerous
factors, including our success in commercializing our products,
development and commercialization of products in fields other than
arthroscopy, the ability of our suppliers to continue to meet our
demands at current prices, obtaining and enforcing patents important
to our business, the status of regulatory approvals and competition.

**Recent Accounting Pronouncements**

In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard 133, (SFAS No.
133), "Accounting for Derivative Instruments and Hedging Activities".
SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments,
embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. We must adopt this standard no later than
fiscal year 2001. To date, we do not engage in hedging activities.

In December 1999, the SEC issued Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements ("SAB101")."  SAB
101 requires that license and other upfront fees from research
collaborators be recognized over the term of the agreement unless the
fee is in exchange for products delivered or services performed that
represent the culmination of a separate earnings process. On March
24, 2000, the SEC issued Staff Accounting Bulletin No. 101A
"Amendment: Revenue Recognition Financial Statements".  SAB 101A
allows companies to defer the reporting of a change in accounting
principle, as required by SAB101 until the second quarter of the
current fiscal year. Accordingly, we may report a change in
accounting principle for the fiscal quarter ending July 1, 2000.  We
are still evaluating the application of SAB101 and believe that
certain revenue previously recognized may be deferred to future
periods.  The cumulative effect of this change in accounting
principle, which we anticipate adopting in the second quarter of
2000, may result in an increase of our accumulated deficit.

**ADDITIONAL FACTORS THAT MIGHT AFFECT FUTURE RESULTS**

We became a public company in February 1996.  Included here are
risk factors as updated from our Annual Report on Form 10-K, filed
March 31, 2000 for the year ended January 1, 2000. The following
factors represent current challenges to us that create risk and
uncertainty. Failure to adequately overcome any of the following
challenges, either singularly or in combination, could have a
material adverse effect on our results of operations, business, or
financial position.

We are Dependent Upon Our Arthroscopic System.

We commercially introduced our Arthroscopic System in December
1995. Since our Arthroscopic System accounts for the majority of our
product sales, we are highly dependent on its sales. Our spinal
surgery, cosmetic surgery, and ENT surgery products have only
recently become available, and to date, we have sold only a small
number of units. We cannot assure you that we will be able to
continue to manufacture arthroscopy products in commercial quantities
at acceptable costs, or that we will be able to continue to market
such products successfully.

To achieve increasing disposable device sales over time, we
believe we must continue to penetrate the market in knee procedures,
expand physicians' education with respect to Coblation technology and
continue working on new product development efforts specifically for
knee applications. Furthermore, in order to maintain and increase
current market penetration we must be aggressive in increasing our
installed base of controllers to generate increased disposable device
revenue. To date, we have placed our arthroscopic controllers at
substantial discounts in order to stimulate demand for our disposable
devices.

We believe that surgeons will not use our products unless they
determine, based on experience, clinical data and other factors, that
these systems are an attractive alternative to conventional means of
tissue ablation. There are only a few independently published
clinical reports and limited long-term clinical follow-up to support
the marketing efforts for our Arthroscopic System. We believe that
continued recommendations and endorsements by influential
arthroscopic surgeons are essential for market acceptance of our
Arthroscopic System. If our Coblation technology does not continue to
receive endorsement by influential surgeons or our long-term data
does not support our current claims of efficacy, our business,
financial condition, results of operations and future growth
prospects could be materially adversely affected.

Commercial Success of Our Non-Arthroscopic Products Is Uncertain

We have developed several new applications for our Coblation
technology in spinal and neurosurgery, cosmetic surgery and ENT
surgery. Additionally we have established a program to explore the
application of our Coblation technology in various areas within
cardiology. Our products for these non-arthroscopic indications are
in various stages of commercialization and development, and we may be
required to undertake time-consuming and costly commercialization,
development and additional regulatory approval activities. We are
awaiting 510(k) clearance in the United States to market our Spinal
Surgery System specifically for use in neurosurgery.  If we do not
receive this or future clearances we will be unable to market this
and future products for specific indications and our business,
financial condition, results of operations and future growth
prospects could be materially adversely affected. We cannot assure
you that product development will ever be successfully completed,
that regulatory clearances or approvals, if applied for, will be
granted by the FDA or foreign regulatory authorities on a timely
basis, if at all, or that the products will ever achieve commercial
acceptance.

We may have to make a significant investment in additional
preclinical and clinical testing, regulatory, physician training and
sales and marketing activities to further develop and commercialize
the spinal surgery, neurosurgery, cosmetic surgery, ENT surgery and
cardiology product lines. Although we believe that these products
offer certain advantages, we cannot assure you that these advantages
will be realized, or if realized, that these products will result in
any meaningful benefits to physicians or patients.

Development and commercialization of our current and future
non-arthroscopic products are subject to the risks of failure
inherent in the development of new medical devices. These risks
include the following: that such products will not be easy to use,
will require extensive training or will not be cost-effective; that
we will experience delays in testing or marketing; that such testing
or marketing will result in unplanned expenditures or in expenditures
above those anticipated by us; that our products will not be proven
safe or effective; that third parties will develop and market
superior or equivalent products; that such products will fail to
receive necessary regulatory clearances or approvals; that such
products will be difficult or uneconomical to manufacture on
commercial scale; and that proprietary rights of third parties will
preclude us and our collaborative partners from marketing such
products.

In addition, the success of our non-arthroscopic products will
depend on their adoption as alternatives to conventional means of
tissue ablation. Clinical experience and follow-up data for our non-
arthroscopic indications are limited, and we have sold only a small
number of units to date. We believe that recommendations and
endorsement of influential physicians are essential for market
acceptance of our products.

We Have Limited Marketing and Sales Experience

We currently have limited experience in marketing and selling
our products.  To the extent that we have established or will enter
into distribution arrangements for the sale of our products, we are
and will be dependent upon the efforts of third parties. We are
marketing and selling our arthroscopic surgery, spinal surgery and
ENT surgery product lines in the United States through a network of
independent distributors supported by regional sales managers and a
small direct sales force. These distributors sell arthroscopy, spinal
surgery and ENT surgery devices for a number of other manufacturers.
In addition, we are marketing and selling our neurosurgery products
internationally and will market in the United States after the
receipt of 510(k) clearance.  We plan to utilize existing spinal
surgery distributors, for the commercialization of these products
both domestically and internationally. We cannot assure you that
these distributors will commit the necessary resources to effectively
market and sell our arthroscopic surgery, spinal surgery, neuro-
surgery or ENT surgery product lines, or that they will be successful
in selling our products.

We have recently established a marketing presence in various
countries and we cannot assure you that these newly established
operations will be successful. In order to successfully market our
products internationally, we will need to address many issues with
which we have little or no experience, including the securing of
necessary regulatory approvals in international markets and the
potential reuse of our disposable devices by our customers. Even if
we are able to successfully deal with these issues, we cannot assure
you that we will be able to establish successful distribution
capabilities internationally or receive favorable pricing for our
products. In addition, we may face currency exchange risks as part of
our international expansion. To the extent our marketing and sales
efforts are unsuccessful, our business, financial condition, results
of operations and future growth prospects may be materially adversely
affected.

We Have Limited Manufacturing Experience

To be successful, we must manufacture our products in
commercial quantities in compliance with regulatory requirements at
acceptable costs. At the present time, we have limited manufacturing
experience. Our manufacturing operations consist of an in-house
assembly operation for the manufacture of disposable devices and
controllers. We currently produce 44 models of disposable devices
utilizing different functionalities, including suction and fluid
management. As we increase the number of product designs for our
disposable devices, the complexity of our manufacturing processes
will increase. We manufacture three different controller models.
Although the manufacturing processes for the controllers designed to
date are substantially the same, we cannot be certain that we will be
able to continue to manufacture these controllers without additional
expense and capabilities. We could also encounter difficulties in
manufacturing our current or future products which could reduce
yields, result in supply disruptions and adversely affect our gross
margins. If we have delays in manufacturing, we will not have
adequate finished inventory to meet our needs. If our quality
assurance programs do not continue to meet the demands of the
complexity and capacity of the products we manufacture, we may
experience product returns.

We Are Dependent on Key Suppliers

We depend on several sole source suppliers for some of
our product components, including one component that we include in
substantially all of our disposable devices. If the supply of
materials from a sole source supplier were interrupted, replacement
or alternative sources might not be readily obtainable due to the
regulatory requirements applicable to our manufacturing operations.
In addition, a new or supplemental filing with applicable regulatory
authorities may require clearance prior to our marketing a product
containing new material. This clearance process may take a
substantial period of time and we cannot assure you that we would be
able to obtain the necessary regulatory approval for the new material
to be used in our products on a timely basis, if at all. This could
create supply disruptions that would materially adversely affect our
business, financial condition, results of operations and future
growth prospects.

In addition, we use a single subcontractor to sterilize the
disposable devices. Although this subcontractor has sterilzation
facilities in several locations, we cannot assure you that we would
be able identify and qualify an alternate sterilizer. Our inability
to secure an alternative sterilizer, if required, would limit our
ability to manufacture disposable devices and could have a material
adverse effect on our business, financial condition, results of
operations and future growth prospects.

Our Operating Results Will Fluctuate

We only achieved profitability in the period ended April 3,
1999 and, as of April 1, 2000 had an accumulated deficit of $17.6
million. Results of operations may fluctuate significantly from
quarter to quarter due to many factors, including the following: the
introduction of new product lines; increased penetration in existing
applications; product returns; achievement of research and
development milestones; the amount and timing of receipt and
recognition of license fees; manufacturing or supply disruptions;
timing of expenditures; absence of a backlog of orders; receipt of
necessary regulatory approvals; the level of market acceptance for
our products; timing of the receipt of orders and product shipments;
and promotional programs for our products.

We cannot assure you that future quarterly fluctuations will
not adversely affect our business, financial condition, results of
operations or future growth prospects. Revenues and profitability
will be critically dependent on whether or not we can successfully
continue to market our Coblation-based technology product lines. We
cannot assure you that we will maintain or increase revenues or the
level of profitability.

We Face Intense Competition

The markets for our current and potential products are
intensely competitive. These markets include arthroscopy, spinal
surgery, neurosurgery, ENT surgery, cosmetic surgery, and certain
applications in the cardiology market. We cannot assure you that
other companies will not succeed in developing technologies and
products that are more effective than ours or that would render our
technology or products obsolete or uncompetitive in these markets.

In arthroscopy, we compete against companies such as Johnson &
Johnson, Smith & Nephew, Inc., Conmed Corporation, Stryker Corp. and
Oratec Interventions, Inc. which market products to remove or shrink
tissue. Specifically, Johnson & Johnson is currently marketing
worldwide a bipolar electrosurgical system for tissue ablation. We
are also aware of additional competitors that may commercialize
products using technology similar to ours. In spinal surgery, we
compete against companies which market products to remove tissue and
treat spinal disorders. In ENT surgery, we compete against companies
that offer manual instruments, such as Smith & Nephew, Inc., Stryker
Corp., Conmed Corporation, and Xomed Surgical Products, Inc., which
was recently acquired by Medtronic, Inc. In addition, we compete with
companies that develop and market lasers for various ENT surgery
applications, including ESC Medical Systems Ltd. Smaller companies,
including Somnus Medical Technologies Inc., Elmed Inc. and Ellman
International, Inc. also sell medical devices for the treatment of
various ENT disorders including snoring and obstructive sleep apnea.
In cosmetic surgery, we compete against companies such as Coherent
Medical Group, and ESC Medical Systems Ltd. which market lasers for
use in this field. In addition, other large companies manufacture and
sell medical devices that use radio frequency energy for certain
applications in dermatology and cosmetic surgery. In cardiology, we
may compete with companies which use lasers to treat cardiovascular
disease. Other approaches to alleviating cardiovascular disease,
including drugs or other surgical approaches, may also be
competitive.

Many of our competitors have significantly greater financial,
manufacturing, marketing, distribution and technical resources than
we do. Some of these companies offer broad product lines that they
may offer as a single package and frequently offer significant
discounts as a competitive tactic. For example, in order to compete
successfully, we anticipate that we may have to continue to offer
substantial discounts on our controllers in order to increase demand
for our disposable devices, and that this competition could have a
material adverse effect on our business, financial condition, results
of operations and future growth prospects. Furthermore, some of our
competitors utilize purchasing contracts that link discounts on the
purchase of one product to purchases of other products in their broad
product lines. Many of the hospitals in the United States have
purchasing contracts with our competitors. Accordingly, customers may
be dissuaded from purchasing our products rather than the products of
these competitors to the extent the purchase would cause them to lose
discounts on products.

We Face Uncertainty Over Reimbursement

Failure by physicians, hospitals and other users of our
products to obtain sufficient reimbursement from health care payors
for procedures in which our products are used or adverse changes in
governmental and private third-party payors' policies toward
reimbursement for such procedures would have a material adverse
effect on our business, financial condition, results of operations
and future growth prospects. Reimbursement for arthroscopic, spinal
surgery and ENT surgery procedures performed using devices that have
received FDA approval has generally been available in the United
States. Typically, cosmetic surgery procedures are not reimbursed.

We are unable to predict what changes will be made in the
reimbursement methods used by third-party health care payors. In
addition, some health care providers are moving toward a managed care
system in which providers contract to provide comprehensive health
care for a fixed cost per person. Managed care providers are
attempting to control the cost of health care by authorizing fewer
elective surgical procedures. We anticipate that in a prospective
payment system, such as the diagnosis related group system utilized
by Medicare, and in many managed care systems used by private health
care payors, the cost of our products will be incorporated into the
overall cost of the procedure and that there will be no separate,
additional reimbursement for our products. We anticipate that
hospital administrators and physicians will justify the use of our
products by the apparent cost savings and clinical benefits that we
believe will be derived from the use of our products. However, we
cannot assure you that this will be the case.

If we obtain the necessary international regulatory approvals,
market acceptance of our products in international markets would be
dependent, in part, upon the availability of reimbursement within
prevailing health care payment systems. Reimbursement and health care
payment systems in international markets vary significantly by
country and include both government-sponsored health care and private
insurance. We intend to seek international reimbursement approvals,
although we cannot assure you that any such approvals will be
obtained in a timely manner, if at all.

Our Business Depends on Attracting and Retaining Collaborators and  Licensors

In order to successfully develop and commercialize
certain products, we may enter into collaborative or licensing
arrangements with medical device companies and other entities to fund
and complete our research and development activities, pre-clinical
and clinical testing, manufacturing, regulatory approval activities
and to achieve successful commercialization of future products. We
have signed an exclusive, worldwide distribution agreement with
Inamed Corporation for our cosmetic surgery products. We have also
entered into a license agreement under which Boston Scientific
Corporation will help develop, obtain regulatory approval for and
market products based on our Coblation technology for myocardial
revascularization procedures.

Our participation in collaborative and licensing arrangements
with third parties subjects us to a number of risks. Collaborative
partners typically have significant discretion in electing whether to
pursue any of the planned activities. We cannot control the amount
and timing of resources our collaborative partners may devote to our
products, and we cannot assure you that our partners will perform
their obligations as expected. Business combinations or significant
changes in a corporate partner's business strategy may adversely
affect that partner's ability to meet its obligations under the
arrangements. If a collaborative partner were to terminate or breach
its agreement with us, or otherwise fail to complete its obligations
in a timely manner, our business, financial condition, results of
operations and future growth prospects would be materially adversely
affected. To the extent that we are not able to establish further
collaborative arrangements or that any or all of our existing
collaborative arrangements are terminated, we would be required to
seek new collaborative arrangements or to undertake commercialization
at our own expense, which could significantly increase our capital
requirements, place additional strain on our human resource
requirements and limit the number of products which we would be able
to develop and commercialize. In addition, we cannot assure you that
our existing and future collaborative partners will not pursue
alternative technologies or develop alternative products either on
their own or in collaboration with others, including our competitors.

We cannot assure you that disputes will not arise in the future
with respect to the ownership of rights to any technology or products
developed with any collaborative partner. Lengthy negotiations with
potential new collaborative partners or disagreements between
established collaborative partners and us could lead to delays in or
termination of the research, development or commercialization of
certain products or result in litigation or arbitration that would be
time consuming and expensive. Failure by any collaborative partner to
commercialize successfully any product to which it has obtained
rights from us, or the decision by a collaborative partner to pursue
alternative technologies or commercialize or develop alternative
products, either on its own or in collaboration with others, could
have a material adverse effect on our business, financial condition,
results of operations and future growth prospects.

We May Be Unable to Effectively Protect Our Intellectual Property

Our ability to compete effectively depends in part on
developing and maintaining the proprietary aspects of our Coblation
technology. We believe that our issued patents are directed at, among
other things, the core technology used in our soft-tissue surgery
systems, including both multi-electrode and single-electrode
configurations of our disposable devices, as well as the use of
Coblation technology in specific surgical procedures.

We cannot assure you that the patents we have obtained, or any
patents we may obtain as a result of our pending U.S. or
international patent applications, will provide any competitive
advantages for our products. We also cannot assure you that those
patents will not be successfully challenged, invalidated or
circumvented in the future. In addition, we cannot assure you that
competitors, many of which have substantial resources and have made
substantial investments in competing technologies, have not already
applied for or obtained, or will not seek to apply for and obtain,
patents that will prevent, limit or interfere with our ability to
make, use and sell our products either in the United States or in
international markets. Patent applications are maintained in secrecy
for a period after filing. We may not be aware of all of the patents
and patent applications potentially adverse to our interests.

A number of medical device and other companies and universities
and research institutions have filed patent applications or have
issued patents relating to monopolar and/or bipolar electrosurgical
methods and apparatus. We have received, and we may receive in the
future, notifications of potential conflicts of existing patents,
pending patent applications and challenges to the validity of
existing patents. In addition, we have become aware of, and may
become aware of in the future, patent applications and issued patents
that relate to our products and/or the surgical applications and
issued patents and, in some cases, have obtained internal and/or
external opinions of counsel regarding the relevance of certain
issued patents to our products. We do not believe that our products
currently infringe any valid and enforceable claims of the issued
patents that we have reviewed. However, if third-party patents or
patent applications contain claims infringed by our technology and
such claims are ultimately determined to be valid, we may not be able
to obtain licenses to those patents at a reasonable cost, if at all,
or be able to develop or obtain alternative technology. Our inability
to do either would have a material adverse effect on our business,
financial condition, results of operations and prospects. We cannot
assure you that we will not have to defend ourselves in court against
allegations of infringement of third-party patents, or that such
defense would be successful.

In addition to patents, we rely on trade secrets and
proprietary know-how which we seek to protect, in part, through
confidentiality and proprietary information agreements. We require
our key employees and consultants to execute confidentiality
agreements upon the commencement of an employment or consulting
relationship with us. These agreements generally provide that all
confidential information, developed or made known to the individual
during the course of the individual's relationship with us, is to be
kept confidential and not disclosed to third parties. These
agreements also generally provide that inventions conceived by the
individual in the course of rendering services to us shall be our
exclusive property. We cannot assure you that employees will not
breach such agreements, that we would have adequate remedies for any
breach or that our trade secrets will not otherwise become known to
or be independently developed by competitors.

We May Become Subject to Patent Litigation

The medical device industry has been characterized by
extensive litigation regarding patents and other intellectual
property rights, and companies in the medical device industry have
employed intellectual property litigation to gain a competitive
advantage. We cannot assure you that we will not become subject to
patent infringement claims or litigation or interference proceedings
declared by the United States Patent and Trademark Office, the USPTO,
to determine the priority of inventions. On February 13, 1998, we
filed a lawsuit against Ethicon, Inc., Mitek Surgical Products, a
division of Ethicon, Inc., and GyneCare, Inc. alleging, among other
things, infringement of several of our patents. The parties
subsequently settled this lawsuit. Under the terms of the settlement,
Ethicon, Inc. has licensed our U.S. patents for current products in
the arthroscopy and gynecology markets. The settlement agreement also
established a procedure for resolution of certain potential
intellectual property disputes in these two markets without
litigation. Under this procedure, the licenses granted in the Ethicon
settlement have been extended to Australia and Canada in February
2000.

Defending and prosecuting intellectual property suits, USPTO
interference proceedings and related legal and administrative
proceedings are costly and time-consuming. Further litigation may be
necessary to enforce our patents, to protect our trade secrets or
know-how or to determine the enforceability, scope and validity of
the proprietary rights of others. Any litigation or interference
proceedings will be costly and will result in significant diversion
of effort by technical and management personnel. An adverse
determination in any of the litigation or interference proceedings to
which we may become a party could subject us to significant
liabilities to third parties, require us to license disputed rights
from third parties or require us to cease using such technology,
which would have a material adverse effect on our business, financial
condition, results of operations and future growth prospects. Patent
and intellectual property disputes in the medical device area have
often been settled through licensing or similar arrangements, and
could include ongoing royalties. We cannot assure you that we can
obtain the necessary licenses on satisfactory terms, if at all.

The Market Price of Our Stock May Be Highly Volatile

Within the last 12 months, our common stock closing price
has traded between a range of $14.94 and $123.50 per share. The
market price of our common stock could continue to fluctuate
substantially due to a variety of factors, including: quarterly
fluctuations in results of our operations; our ability to
successfully commercialize our products;  announcements regarding
results of regulatory approval filings, clinical studies or other
testing, technological innovations or new commercial products by us
or our competitors;  developments concerning government regulations,
proprietary rights or public concern as to the safety of technology;
the execution of new collaborative agreements and material changes in
our relationships with our business partners; market reaction to
acquisitions and trends in sales, marketing, and research and
development; changes in earnings estimates by analysts; sales of
common stock by existing stockholders; and economic and political
conditions.

The market price for our common stock may also be affected by
our ability to meet analysts' expectations. Any failure to meet such
expectations, even slightly, could have an adverse effect on the
market price of our common stock.  In addition, the stock market is
subject to extreme price and volume fluctuations. This volatility has
had a significant effect on the market prices of securities issued by
many companies for reasons unrelated to the operating performance of
these companies. In the past, following periods of volatility in the
market price of a company's securities, securities class action
litigation has often been instituted against the company. If similar
litigation were instituted against us, it could result in substantial
costs and a diversion of our management's attention and resources,
which could have an adverse effect on our business, results of
operations and financial condition.

We Are Involved In Legal Proceedings

We are currently involved in ongoing litigation.  In June 1998,
we announced that we had entered into an exclusive worldwide
marketing and distribution agreement with Xomed Surgical Products
Inc. ("Xomed") for our products in the ENT surgery market. On
February 4, 1999, Xomed filed a complaint against us alleging breach
of contract. On February 5, 1999, we terminated this agreement.  If
legal proceedings are adversely adjudicated or settled, they could
have an adverse effect on the financial condition, results of
operations and future growth prospects. The defense of this type of
action is expensive and may divert management's attention from the
core business.

Delaware Law, Provisions in Our Charter and Our Stockholder Rights
Plan Could Make the Acquisition of Our Company By Another Company
More Difficult

Our stockholder rights plan and certain provisions of our
certificate of incorporation and bylaws may have the effect of making
it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of our company. This
could limit the price that certain investors might be willing to pay
in the future for shares of our common stock. Some provisions of our
certificate of incorporation and bylaws allow us to issue preferred
stock without any vote or further action by the stockholders, to
eliminate the right of stockholders to act by written consent without
a meeting, to specify procedures for director nominations by
stockholders and submission of other proposals for consideration at
stockholder meetings, and to eliminate cumulative voting in the
election of directors. Some provisions of Delaware law applicable to
us could also delay or make more difficult a merger, tender offer or
proxy contest involving us, including Section 203, which prohibits a
Delaware corporation from engaging in any business combination with
any interested stockholder for a period of three years unless certain
conditions are met. Our stockholder rights plan, the possible
issuance of preferred stock, the procedures required for director
nominations and stockholder proposals and Delaware law could have the
effect of delaying, deferring or preventing a change in control of
ArthroCare, including without limitation, discouraging a proxy
contest or making more difficult the acquisition of a substantial
block of our common stock.

We Must Obtain Governmental Clearances Or Approvals Before We Can  Sell Our Products; We Must
Continue To Comply With Applicable Laws and Regulations.

**United States**

Our products are considered medical devices and are subject to
extensive regulation in the United States. We must obtain premarket
clearance or approval by the FDA for each of our products and
indications before they can be commercialized. FDA regulations are
wide ranging and govern, among other things: product design and
development; product testing; product labeling; product storage;
premarket clearance or approval; advertising and promotion; and
product sales and distribution.

Noncompliance with applicable regulatory requirements can
result in enforcement action, which may include: warning letters;
fines, injunctions and civil penalties against us; recall or seizure
of our products; operating restrictions, partial suspension or total
shutdown of our  production; refusing our requests for premarket
clearance or approval of new products; withdrawing product approvals
already granted; and criminal prosecution.

Unless an exemption applies, generally, before we can introduce
a new medical device into the United States market, we must obtain
FDA clearance of a 510(k) premarket notification or approval of a
premarket approval application, or PMA application. If we can
establish that our device is "substantially equivalent" to a
"predicate device," i.e., a legally marketed Class I or Class II
device or a preamendment Class III device (i.e., one that was in
commercial distribution before May 28, 1976) for which the FDA has
not called for PMAs, we may seek clearance from the FDA to market the
device by submitting a 510(k) premarket notification. The 510(k)
premarket notification will need to be supported by appropriate data,
including, in some cases, clinical data, establishing the claim of
substantial equivalence to the satisfaction of the FDA.

We have received 510(k) clearance to market our Arthroscopic
System for surgery of the knee, shoulder, elbow, wrist, hip and ankle
joints. We have received 510(k) clearance in the United States to
market our Spinal Surgery System. In addition, we have received
510(k) clearance to market our Cosmetic Surgery System in general
dermatology procedures and for skin resurfacing for the purpose of
wrinkle reduction. We have received 510(k) clearance to market the
ENT Surgery System in general head and neck surgical procedures as
well as snoring, minimally-invasive sinus surgery and tonsill
treatments. We cannot assure you that we will be able to obtain
necessary clearances or approvals to market any other products, or
existing products for new intended uses, on a timely basis, if at
all. Delays in receipt or failure to receive clearances or approvals,
the loss of previously received clearances or approvals, or failure
to comply with existing or future regulatory requirements could have
a material adverse effect on our business, financial condition,
results of operations and future growth prospects.

After a device receives 510(k) clearance, any modification that
could significantly affect its safety or effectiveness, or that would
constitute a major change in the intended use of the device, requires
a new 510(k) clearance. The FDA requires each manufacturer to make
this determination in the first instance, but the FDA can review any
such decision. If the FDA disagrees with a manufacturer's decision
not to seek a new 510(k) clearance, the agency may retroactively
require the manufacturer to submit a premarket notification
requesting 510(k) clearance. The FDA also can require the
manufacturer to cease marketing and/or recall the modified device
until 510(k) clearance is obtained. We have modified some of our
marketed devices, but have determined that, in our view, new 510(k)
clearances are not required. No assurance can be given that the FDA
would agree with any of our decisions not to seek 510(k) clearance.
If the FDA requires us to seek 510(k) clearance for any modification,
the FDA also may require us to cease marketing and/or recall the
modified device until we obtain a new 510(k) clearance.

If we cannot establish that a proposed device is substantially
equivalent to a legally marketed device, we must seek premarket
approval through submission of a PMA application. A PMA application
must be supported by extensive data, including, in many instances,
preclinical and clinical trial data, as well as extensive literature
to prove the safety and effectiveness of the device. If necessary, we
will file a PMA application for approval to sell our potential
products. The PMA process can be expensive, uncertain and lengthy. We
cannot assure you that we will be able to obtain PMA approvals on a
timely basis, if at all, and delays in receipt or failure to receive
approvals, could have a material adverse effect on our business,
financial condition, results of operations and future growth
prospects.

We are also required to demonstrate and maintain compliance
with the Quality System Regulation, or QSR. The QSR incorporates the
requirements of Good Manufacturing Practice and relates to product
design, testing, and manufacturing quality assurance, as well as the
maintenance of records and documentation. The FDA enforces the QSR
through inspections. We cannot assure you that we or our key
component suppliers are or will continue to be in compliance, will
not encounter any manufacturing difficulties, or that we or any of
our subcontractors or key component suppliers will be able to
maintain compliance with regulatory requirements. Failure to do so
will have a material adverse effect on our business, financial
condition, results of operations and future growth prospects.

We may not promote or advertise our products for uses not
within the scope of our clearances or approvals or make unsupported
safety and effectiveness claims. These determinations can be
subjective. We cannot assure you that the FDA would agree that all of
our promotional claims are permissible or that the FDA will not
require us to revise our promotional claims or take enforcement
action against us based upon our labeling and promotional materials.

**International**

International sales of our products are subject to strict
regulatory requirements. The regulatory review process varies from
country to country. We have obtained regulatory clearance to market
the Arthroscopic System in Europe, Japan, Australia, Taiwan, Korea,
Canada and Mexico, to market our cosmetic surgery products in Europe
and Canada and to market our ENT surgery products and our spinal
surgery and neurosurgery products in Europe, but we have not obtained
any other international regulatory approvals in other international
markets. We cannot assure you that we will obtain such clearances and
approvals on a timely basis, or at all.

For European distribution, we have received ISO 9001/EN46001
certification and the EC Certificate pursuant to the European Union
Medical Device Directive 93/42/EEC, allowing us to CE mark our
products after assembling appropriate documentation. ISO 9001/EN46001
certification standards for quality operations have been developed to
ensure that companies know the standards of quality on a worldwide
basis. Failure to maintain the CE Mark will preclude us from selling
our products in Europe. We cannot assure you that we will be
successful in maintaining certification requirements.

We Face Product Liability Risks and May Not Be Able to Obtain  Adequate Insurance

The development, manufacture and sale of medical products
involves significant risk of product liability claims. Our current
product liability insurance coverage limits are $10.0 million per
occurrence and $10.0 million in the aggregate. We cannot assure you
that such coverage limits are adequate to protect us from any
liabilities we might incur in connection with the development,
manufacture and sale of our products. In addition, we may be required
to increase our product liability coverage as potential products are
successfully commercialized. Product liability insurance is expensive
and may not be available to us in the future on acceptable terms, if
at all. We have not received any product liability claims to date.
However, a successful product liability claim or series of claims
brought against us in excess of our insurance coverage could have a
material adverse effect on our business, financial condition, results
of operations and future growth prospects.

We May Be Unable to Attract and Retain Personnel

We are dependent upon a number of key management and technical
personnel. The loss of the services of one or more key employees or
consultants could have a material adverse effect on our business,
financial condition, results of operations and future growth
prospects. Our success will also depend on our ability to attract and
retain additional highly qualified management and technical
personnel. We face intense competition for qualified personnel, many
of whom are often subject to competing employment offers, and we
cannot assure you we will be able to attract and retain such
personnel. Furthermore, our scientific advisory board members are all
otherwise employed on a full-time basis. As a result, the scientific
advisory board members are not available to devote their full time or
attention to our business.

Future Sales By Current Stockholders Could Cause Our Common Stock  Price to Decline

The market price of our common stock could decline as a result
of sales of a large number of shares in the market after this
offering or the perception that such sales could occur. These sales
could also make it more difficult for us to sell equity securities in
the future at a time and at a price that we deem appropriate to raise
funds through future offerings of common stock.

Lack of Dividends

We have not paid any dividends and do not anticipate paying any
dividends in the foreseeable future.

**Item 3.  Quantitative and Qualitative Disclosures About Market Risk**

We have an investment portfolio of fixed income securities that
are classified as "available-for-sale securities."  These securities,
like all fixed income instruments, are subject to interest rate risk
and will fall in value if market interest rates increase.  We attempt
to limit this exposure by investing primarily in short-term
securities.

**PART II. OTHER INFORMATION**

**Item 1.  Legal Proceedings**

On February 4, 1999, Xomed Surgical Products, Inc. ("Xomed") of
Jacksonville, Florida filed a complaint against us in the Fourth
Judicial Circuit, Duval County, Florida, alleging breach of contract
by us. In the complaint, Xomed has demanded a full refund of the
amounts paid for certain products bought by Xomed from us, and for a
portion of an exclusive license fee paid by Xomed pursuant to an
exclusive license and distribution agreement between Xomed and us. We
terminated this license and distribution agreement on February 5,
1999. We believe the suit is without merit, and filed a Motion to
Dismiss and Answer to the Complaint on May 3, 1999.  In addition, we
filed two counterclaims against Xomed for damages caused by Xomed's
failure to perform under the contract and for a certain milestone
payment owed to us by Xomed.

**Item 2.  Changes in Securities and Use of Proceeds**

None

**Item 3.  Defaults upon Senior Securities**

None

**Item 4.  Submission of Matters to a Vote of Security Holders**

None

**Item 5.  Other Information**

None

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

(a) Exhibits.

|        |                                                                                                                                                                                                                                                                                                                                                                                
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Desription                                                                                                                                                                                                                                                                                                                                                                     
|3.1     | Restated Certificate of Incorporation of the
Registrant. (Incorporated herein by reference to the same-numbered exhibit filed
previously with the Registrant's Registration Statement on Form 8-A
(Registration No. 000-27422)).                                                                                                                                               
|3.2     | Amended and Restated Bylaws of the Registrant.
(Incorporated herein by reference to the same-numbered exhibit filed previously
with the Registrant's Quarterly Report on Form 10-Q for the period ended October
3, 1998).                                                                                                                                                      
|4.1     | Specimen Common Stock Certificate. (Incorporated
herein by reference to the same-numbered exhibit filed previously with the
Registrant's Registration Statement on Form 8-A (Registration No. 000-27422)).                                                                                                                                                                     
|10.1    | Form of Indemnification Agreement between the
Registrant and each of its directors and officers. (Incorporated herein by
reference to the same-numbered exhibit filed previously with the Registrant's
Registration Statement on Form S-1 (Registration No. 33.80453)).                                                                                                        
|10.2    | Incentive Stock Plan and form of Stock Option
Agreement thereunder. (Incorporated herein by reference to the same-numbered
exhibit filed previously with the Registrant's Registration Statement on Form S-1
(Registration No. 33.80453)).                                                                                                                                     
|10.3    | Director Option Plan and form of Director Stock
Option Agreement thereunder. (Incorporated herein by reference to the same-numbered exhibit
filed previously with the Registrant's Registration Statement
on Form S-1 (Registration No. 33.80453)).                                                                                                                            
|10.4    | Employee Stock Purchase Plan and forms of
agreements thereunder. (Incorporated herein by reference to the same-numbered
exhibit filed previously with the Registrant's Registration Statement on Form S-1
(Registration No. 33.80453)).                                                                                                                                        
|10.5    | Form of Exclusive Distribution Agreement,
(Incorporated herein by reference to the same-numbered exhibit filed previously
with our Registration Statement on Form S-1 (Registration No. 33-80453))                                                                                                                                                                             
|10.6    | Form of Exclusive Sales Representative
Agreement. (Incorporated herein by reference to the same-numbered exhibit filed
previously with the Registrant's Registration Statement on Form S-1
(Registration No. 33.80453)).                                                                                                                                                       
|10.7    | Consulting Agreement, dated May 10, 1993,
between the Registrant and Philip E. Eggers, and amendment thereto.
(Incorporated herein by reference to the same-numbered exhibit filed previously
with the Registrant's Registration Statement on Form S-1 (Registration No.
33.80453)).                                                                                           
|10.8    | Consulting Agreement, dated May 20, 1993,
between the Registrant and Eggers & Associates, Inc., and amendment thereto.
(Incorporated herein by reference to the same-numbered exhibit filed previously
with the Registrant's Registration Statement on Form S-1 (Registration No.
33.80453)).                                                                                  
|10.9    | Lease Agreement, dated September 15, 1994,
between Registrant and The Arrillaga Foundation and the Perry Foundation for the
Registrant's facility located at 595 North Pastoria Avenue, Sunnyvale,
California 94086. (Incorporated herein by reference to Exhibit 10.10 filed
previously with the Registrant's Registration Statement on Form S-1
(Registration No. 33.80453)).
|10.10   | Employment Letter Agreement, dated July 18,
1995, between the Registrant and Robert T. Hagan. (Incorporated herein by
reference to Exhibit 10.16 filed previously with the Registrant's Registration
Statement on Form S-1 (Registration No. 33.80453)).                                                                                                                       
|10.11   | Restricted Stock Purchase and Security
Agreement, dated August 1, 1995, between the Registrant and Robert T. Hagan.
(Incorporated herein by reference to Exhibit 10.17 filed previously with the
Registrant's Registration Statement on Form S-1 (Registration No.
33.80453)).                                                                                                 
|10.12+  | Radiation Services Agreement, dated September
13, 1995, between the Registrant and SteriGenics International. (Incorporated
herein by reference to Exhibit 10.19 filed previously with the Registrant's
Registration Statement on Form S-1 (Registration No. 33.80453)).                                                                                                       
|10.13   | Amended and Restated Stockholder Rights
Agreement, dated October 16, 1995, between the Registrant and certain holders of
the Registrant's securities. (Incorporated herein by reference to Exhibit 10.20
filed previously with the Registrant's Registration Statement on Form S-1
(Registration No. 33.80453)).                                                               
|10.14   | Contribution Agreement, dated March 31, 1995, by
and among Philip E. Eggers, Robert S. Garvie, Anthony J. Manlove, Hira V.
Thapliyal and the Registrant. (Incorporated herein by reference to Exhibit 10.21
filed previously with the Registrant's Registration Statement on Form S-1
(Registration No. 33.80453)).                                                            
|10.15   | Amended and Restated Stockholder Rights
Agreement, dated October 2, 1998, between the Registrant and Norwest Bank
Minnesota, N.A. (Incorporated herein by reference to Exhibit 10.20 filed
previously with the Registrant's Registration Statement on Form 8-A filed
October 21, 1998 (Registration No. 000-27422)).                                                           
|10.16   | Exclusive Distributor Agreement, dated April 15,
1997, between the Registrant and Arthrex, GmbH. and Amendment dated October 2,
1998. (Incorporated herein by reference to Exhibit 10.20 filed previously with
the Registrant's Quarterly Report on Form 10-Q for the period ended April 3,
1999).                                                                             
|10.17   | Employment Letter Agreement, dated June 20,
1997, between the Registrant and Michael A. Baker. (Incorporated herein by
reference to Exhibit 10.24 filed previously with the Registrant's Quarterly
Report on Form 10-Q for the period ended June 28, 1997).                                                                                                                    
|10.18+  | Exclusive Distributor Agreement, dated August
21, 1997, between the Registrant and Kobayashi Pharmaceutical Company, Ltd.
(Incorporated herein by reference to Exhibit 10.25 filed previously with the
Registrant's Quarterly Report on Form 10-Q for the period ended September 27,
1997).                                                                                    
|10.19+  | License Agreement dated February 9, 1998,
between the Registrant and Boston Scientific Corporation. (Incorporated herein
by reference to Exhibit 10.26 filed previously with the Registrant's Annual
Report on Form 10-K for the period ended January 3, 1998).                                                                                                                
|10.20+  | Development and Supply Agreement dated February
9, 1998, between the Registrant and Boston Scientific Corporation. (Incorporated
herein by reference to Exhibit 10.27 filed previously with the Registrant's
Annual Report on Form 10-K for the period ended January 3, 1998).                                                                                                 
|10.21   | Lease Agreement date March 25, 1998 between the
Registrant and Aetna Life Insurance Company for the Registrant's facility
located at 840 Del Rey Avenue, Sunnyvale, California 94086. (Incorporated herein
by reference to Exhibit 10.28 filed previously with the Registrant's Annual
Report on Form 10-K for the period ended January 3, 1998).                              
|10.22+  | Term sheet for License and Distribution
Agreement between Xomed Surgical Products and the Registrant dated June 25,
1998. (Incorporated herein by reference to Exhibit 10.29 filed previously with
the Registrant's Quarterly Report on Form 10-Q for the period ended October 3,
1998).                                                                                       
|10.23+  | License Agreement dated February 9, 1999 between
the Registrant and Collagen Aesthetics. (Incorporated herein by reference to
Exhibit 10.27 filed previously with the Registrant's Annual Report on Form 10-K
for the period ended January 2, 1999).                                                                                                                           
|10.24   | Change of Control Agreement between the
Registrant and the CEO. (Incorporated herein by reference to Exhibit 10.28 filed
previously with the Registrant's Annual Report on Form 10-K for the period ended
January 2, 1999).                                                                                                                                                    
|10.25   | The Form of "VP Continuity Agreement" between
the Registrant and its Vice Presidents. (Incorporated herein by reference to
Exhibit 10.29 filed previously with the Registrant's Annual Report on Form 10-K
for the period ended January 2, 1999).                                                                                                                              
|10.26   | Letter Agreement dated February 9, 1999 between
the Registrant and Collagen Aesthetics. (Incorporated herein by reference to
Exhibit 10.30 filed previously with the Registrant's Annual Report on Form 10-K/A for the
period ended January 2, 1999).                                                                                                                          
|10.27   | Employment Letter Agreement, between the
Registrant and John R. Tighe dated January 26,1999. (Incorporated herein by
reference to Exhibit 10.30 filed previously with the Registrant's Quarterly
Report on Form 10-Q for the period ended April 3, 1999).                                                                                                                      
|10.28   | Employment Letter Agreement, between the
Registrant and Christine Hänni amended May 19, 1999. (Incorporated herein
by reference to Exhibit 10.31 filed previously with the Registrant's Quarterly
Report on Form 10-Q for the period ended April 3, 1999).                                                                                                                     
|10.29   | Employment Letter Agreement, between the
Registrant and Bruce Prothro amended May 19, 1999. (Incorporated herein by
reference to Exhibit 10.32 filed previously with the Registrant's Quarterly
Report on Form 10-Q for the period ended April 3, 1999).                                                                                                                       
|10.30+  | Litigation Settlement Agreement, between the
Registrant and ETHICON,
Inc. dated June 24, 1999 (Incorporated herein by reference to
Exhibit 10.33 previously filed with the Registrant's Quarterly Report on Form
10-Q for the period ended July 3, 1999).                                                                                                                      
|10.31   | Relocation Loan Agreement, between the
Registrant and John R. Tighe dated 5/1/99. (Incorporated herein by reference to
Exhibit 10.34 previously filed with the Registrant's Quarterly Report on Form
10-Q for the period ended July 3, 1999).                                                                                                                                  
|10.32   | Line of Credit Agreement with Silicon Valley
Bank dated June 11, 1999 filed herewith. Incorporated herein by reference to
Exhibit 10.35 previously filed with the Registrant's Quarterly Report on Form
10-Q for the period ended July 3, 1999.)                                                                                                                               
|10.33++ | Amendment to License Agreement between
ArthroCare Corporation and Inamed Corporation dated October 1, 1999.
(Incorporated herein by reference to Exhibit 10.33 previously filed with the
Registrant's Registration Statement on Form S-3. (Registration No. 333-87187))                                                                                                        
|10.34   | First Amendment to Rights Agreement between the
ArthroCare Corporation and Norwest Bank Minnesota, N.A. (the "Rights Agent") dated
March 10, 2000.  (Incorporated herein by reference to Exhibit 99.1 previously file
with the Registrant's Form 8-K filed March 10, 2000.)                                                                                                    
|10.35   | Nonstatuatory Stock Option Plan and form of Stock
Option Agreement thereunder. (Incorporated herein by reference to the same-numbered
exhibit filed previously with this the Registrant's Annual Report on Form 10-K for
the period ended January 1, 2000.)                                                                                                                    
|27.1    | Financial Data Schedule.                                                                                                                                                                                                                                                                                                                                                       
|        |                                                                                                                                                                                                                                                                                                                                                                                



+	Confidential treatment granted.

++	Confidential treatment requested.







(b) Reports on Form 8-K.

The Company filed a Current Report on Form 8-K on March 10,
2000, reporting under Item 5 the amendment to its stockholders'
rights plan.

---

**ARTHROCARE CORPORATION
                                   SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Dated: May 8, 2000



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | ARTHROCARE CORPORATION
                                    a Delaware corporation

| |             
| | ------------
| | (Registrant)

Date: May 8, 2000



| |     |                    
| | --- | -------------------
| | By: | /s/ CHRISTINE HANNI

| |                                                                           
| | --------------------------------------------------------------------------
| |                                                                           
| | Christine Hanni                                                           
| | Vice President of Finance,
Chief Financial Officer and
Assistant Secretary
| | (Principal Financial Officer
and Accounting Officer)                      

Date: May 8, 2000



| |     |                      
| | --- | ---------------------
| | By: | /s/  MICHAEL A. BAKER

| |                                                   
| | --------------------------------------------------
| |                                                   
| | Michael A. Baker                                  
| | President, Chief Executive
Officer and Director   
| | Officer and Director
(Principal Executive Officer)

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**EXHIBIT INDEX**

|       |                         
|------ | ------------------------
|Number | Desription              
|27.1   | Financial Data Schedule.

---