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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

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FORM 10-Q

|x  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|-- | ----------------------------------------------------------------------------------------
|   |                                                                                         
|   | For the quarterly period ended June 30, 2003                                            
|  
|or
|  
|o  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|   |                                                                                         
|   | For the transition period from ____________ to ____________                             

Commission File No.
0-22958

INTERPORE INTERNATIONAL, INC. (Exact name of registrant as specified in its charter)

|Delaware                                                       |  | 95-3043318                             
|-------------------------------------------------------------- |  | ---------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. employer identification number)
|                                                               |  |                                        
|181 Technology Drive, Irvine, California                       |  | 92618-2402                             
|(Address of Principal Executive Offices)                       |  | (Zip Code)                             

Registrants telephone number, including area code: 
(949) 453-3200

|Not applicable                                                                    
|----------------------------------------------------------------------------------
|                                                                                  
|(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the proceeding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

|Yes x | No o
|----- | ----

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

|Yes x | No o
|----- | ----

As of August 7, 2003, there were 17,829,957 shares of the registrants common stock issued and outstanding.

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Interpore International, Inc.

Index

|           |                                                                                                                                         | Page(s)
|---------- | --------------------------------------------------------------------------------------------------------------------------------------- | -------
|           |                                                                                                                                         |        
|PART I.    | FINANCIAL INFORMATION                                                                                                                   |        
|           |                                                                                                                                         |        
|Item 1.    | Financial Statements                                                                                                                    |        
|           |                                                                                                                                         |        
|           | Condensed Consolidated Balance Sheets as of December 31, 2002 and June 30, 2003 (unaudited)                                             | 3      
|           |                                                                                                                                         |        
|           | Condensed Consolidated Statements of Income (unaudited) for the three month and six month periods ended June 30, 2002 and June 30, 2003 | 4      
|           |                                                                                                                                         |        
|           | Condensed Consolidated Statements of Cash Flows (unaudited) for the six month periods ended June 30, 2002 and June 30, 2003             | 5      
|           |                                                                                                                                         |        
|           | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                        | 6      
|           |                                                                                                                                         |        
|Item 2.    | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                   | 10     
|           |                                                                                                                                         |        
|Item 3.    | Quantitative and Qualitative Disclosures about Market Risk                                                                              | 20     
|           |                                                                                                                                         |        
|Item 4.    | Controls and Procedures                                                                                                                 | 20     
|           |                                                                                                                                         |        
|PART II.   | OTHER INFORMATION                                                                                                                       |        
|           |                                                                                                                                         |        
|Item 1.    | Legal Proceedings                                                                                                                       | 20     
|           |                                                                                                                                         |        
|Item 4.    | Submission of Matters to a Vote of Security Holders                                                                                     | 21     
|           |                                                                                                                                         |        
|Item 6.    | Exhibits and Reports on Form 8-K                                                                                                        | 22     
|           |                                                                                                                                         |        
|Signatures |                                                                                                                                         | 23     

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

|                                                                                                                                                                        |  | December 31, 2002 |        | June 30, 2003 |            
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------ | ------------- | -----------
|                                                                                                                                                                        |  |                   |        |               |            
|                                                                                                                                                                        |  |                   |        |               | (unaudited)
|Assets                                                                                                                                                                  |  |                   |        |               |            
|Current assets:                                                                                                                                                         |  |                   |        |               |            
|Cash and cash equivalents                                                                                                                                               |  | $                 | 1,810  |               | $          
|Short-term investments                                                                                                                                                  |  |                   |       |               |            
|Accounts receivable, less allowance for doubtful accounts of $797 and $771 in 2002 and 2003, respectively                                                               |  |                   | 12,632 |               |            
|Inventories                                                                                                                                                             |  |                   | 31,995 |               |            
|Prepaid expenses                                                                                                                                                        |  |                   | 1,484  |               |            
|Deferred income taxes                                                                                                                                                   |  |                   | 2,154  |               |            
|                                                                                                                                                                        |  |                   |        |               |            
|Total current assets                                                                                                                                                    |  |                   | 50,075 |               |            
|Property, plant and equipment, net                                                                                                                                      |  |                   | 3,410  |               |            
|Deferred income taxes                                                                                                                                                   |  |                   | 799    |               |            
|Goodwill                                                                                                                                                                |  |                   | 20,201 |               |            
|Other intangible assets, net                                                                                                                                            |  |                   | 2,548  |               |            
|Other assets                                                                                                                                                            |  |                   | 209    |               |            
|                                                                                                                                                                        |  |                   |        |               |            
|Total assets                                                                                                                                                            |  | $                 | 77,242 |               | $          
|                                                                                                                                                                        |  |                   |        |               |            
|Liabilities and stockholders equity                                                                                                                                    |  |                   |        |               |            
|Current liabilities:                                                                                                                                                    |  |                   |        |               |            
|Accounts payable                                                                                                                                                        |  | $                 | 2,932  |               | $          
|Accrued compensation and related expenses                                                                                                                               |  |                   | 1,803  |               |            
|Accrued royalties                                                                                                                                                       |  |                   | 530    |               |            
|Income taxes payable                                                                                                                                                    |  |                   |       |               |            
|Other accrued liabilities                                                                                                                                               |  |                   | 943    |               |            
|                                                                                                                                                                        |  |                   |        |               |            
|Total current liabilities                                                                                                                                               |  |                   | 6,208  |               |            
|                                                                                                                                                                        |  |                   |        |               |            
|Long-term debt                                                                                                                                                          |  |                   | 5,818  |               |            
|Commitments and contingencies                                                                                                                                           |  |                   |        |               |            
|Stockholders equity:                                                                                                                                                   |  |                   |        |               |            
|Series E convertible preferred stock, voting, par value $.01 per share: Authorized shares - 594,000; issued and outstanding shares 
none                               |  |                   |       |               |            
|Preferred stock, par value $.01 per share: Authorized shares - 4,406,000; issued and outstanding shares  none                                                          |  |                   |       |               |            
|Common stock, par value $.01 per share: Authorized shares - 50,000,000; issued and outstanding shares  17,932,464 at December 31, 2002 and
18,303,772 at June 30, 2003 |  |                   | 179    |               |            
|Additional paid-in-capital                                                                                                                                              |  |                   | 64,855 |               |            
|Retained earnings                                                                                                                                                       |  |                   | 3,291  |               |            
|                                                                                                                                                                        |  |                   |        |               |            
|                                                                                                                                                                        |  |                   | 68,325 |               |            
|Less treasury stock, at cost - 605,000 shares at December 31, 2002 and June 30, 2003                                                                                    |  |                   | (3,109 | )             |            
|                                                                                                                                                                        |  |                   |        |               |            
|Total stockholders equity                                                                                                                                              |  |                   | 65,216 |               |            
|                                                                                                                                                                        |  |                   |        |               |            
|Total liabilities and stockholders equity                                                                                                                              |  | $                 | 77,242 |               | $          
|                                                                                                                                                                        |  |                   |        |               |            

See accompanying notes.

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

|                                     |  | Three months ended June 30, |        | Six months ended June 30, |  
|------------------------------------ |  | --------------------------- | ------ | ------------------------- | -
|                                     |  |                             |        |                           |  
|                                     |  | 2002                        |        | 2003                      |  
|                                     |  |                             |        |                           |  
|Net product sales                    |  | $                           | 14,663 |                           | $
|Royalty income                       |  |                             |       |                           |  
|                                     |  |                             |        |                           |  
|Total revenues                       |  |                             | 14,663 |                           |  
|                                     |  |                             |        |                           |  
|Cost of goods sold                   |  |                             | 4,125  |                           |  
|                                     |  |                             |        |                           |  
|Gross profit                         |  |                             | 10,538 |                           |  
|                                     |  |                             |        |                           |  
|Operating expenses:                  |  |                             |        |                           |  
|Research and development             |  |                             | 2,066  |                           |  
|Selling and marketing                |  |                             | 5,956  |                           |  
|General and administrative           |  |                             | 1,612  |                           |  
|                                     |  |                             |        |                           |  
|Total operating expenses             |  |                             | 9,634  |                           |  
|                                     |  |                             |        |                           |  
|Income from operations               |  |                             | 904    |                           |  
|                                     |  |                             |        |                           |  
|Interest income                      |  |                             | 15     |                           |  
|Interest expense                     |  |                             | (10    | )                         |  
|Legal settlement                     |  |                             |       |                           |  
|Other income                         |  |                             | 150    |                           |  
|                                     |  |                             |        |                           |  
|Total interest and other income, net |  |                             | 155    |                           |  
|                                     |  |                             |        |                           |  
|Income before taxes                  |  |                             | 1,059  |                           |  
|Income tax provision                 |  |                             | 408    |                           |  
|                                     |  |                             |        |                           |  
|Net income                           |  | $                           | 651    |                           | $
|                                     |  |                             |        |                           |  
|Net income per share:                |  |                             |        |                           |  
|Basic                                |  | $                           | .04    |                           | $
|Diluted                              |  | $                           | .04    |                           | $
|Weighted average shares:             |  |                             |        |                           |  
|Basic                                |  |                             | 17,245 |                           |  
|Diluted                              |  |                             | 18,197 |                           |  

See accompanying notes.

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

|                                                                                            |  | Six months ended June 30, |       
|------------------------------------------------------------------------------------------- |  | ------------------------- | ------
|                                                                                            |  |                           |       
|                                                                                            |  | 2002                      |       
|                                                                                            |  |                           |       
|Cash flows from operating activities                                                        |  |                           |       
|Net income                                                                                  |  | $                         | 1,296 
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                           |       
|Depreciation                                                                                |  |                           | 542   
|Amortization                                                                                |  |                           | 145   
|Stock-based compensation expense                                                            |  |                           | 184   
|Changes in operating assets and liabilities:                                                |  |                           |       
|Accounts receivable                                                                         |  |                           | (860  
|Inventories                                                                                 |  |                           | (7,317
|Prepaid expenses                                                                            |  |                           | (1,688
|Other assets                                                                                |  |                           | (7    
|Accounts payable and accrued liabilities                                                    |  |                           | 3,522 
|                                                                                            |  |                           |       
|Net cash provided by (used in) operating activities                                         |  |                           | (4,183
|                                                                                            |  |                           |       
|Cash flows from investing activities                                                        |  |                           |       
|Net cash paid for American OsteoMedix Corporation                                           |  |                           | (66   
|Capital expenditures                                                                        |  |                           | (1,513
|Expenditures for patent rights                                                              |  |                           | (560  
|Purchase of short-term investments                                                          |  |                           |      
|                                                                                            |  |                           |       
|Net cash used in investing activities                                                       |  |                           | (2,139
|                                                                                            |  |                           |       
|Cash flows from financing activities                                                        |  |                           |       
|Repayment of long-term debt                                                                 |  |                           |      
|Proceeds from exercise of stock options                                                     |  |                           | 885   
|Proceeds from employee stock purchase plan                                                  |  |                           | 60    
|                                                                                            |  |                           |       
|Net cash provided by (used in) financing activities                                         |  |                           | 945   
|                                                                                            |  |                           |       
|Net increase (decrease) in cash and cash equivalents                                        |  |                           | (5,377
|Cash and cash equivalents at beginning of period                                            |  |                           | 6,538 
|                                                                                            |  |                           |       
|Cash and cash equivalents at end of period                                                  |  | $                         | 1,161 
|                                                                                            |  |                           |       

See accompanying notes.

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Interpore International, Inc.Notes to Condensed Consolidated Financial Statements June 30, 2003 (unaudited)

1.     Organization and Description of
Business

Interpore International, Inc. (Interpore), together with its subsidiaries unless
the context implies otherwise, operates in one business segment: the design, manufacture and marketing of medical devices for the orthopedic marketplace.   Interpores products are distributed in the United States and
internationally.

2.     Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to Securities and Exchange Commission
regulations.  In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position
at June 30, 2003 and the consolidated results of operations and cash flows for the periods ended June 30, 2002 and 2003.

The accompanying condensed consolidated financial statements include the accounts of Interpore and its subsidiaries after elimination of
all significant intercompany transactions.

The results of operations and cash flows for the periods
ended June 30, 2003 are not necessarily indicative of results to be expected for future quarters or the full year.

These consolidated financial statements should be read in conjunction with the financial statements included in Interpores Annual
Report on Form 10-K for the year ended December 31, 2002, as filed with the Securities and Exchange Commission.

3.     Revenue Recognition

Revenue from sales of product where the customer immediately accepts title is recorded at the time of shipment.  Revenue
from sales of consigned inventory is recorded upon receipt of written acknowledgement from sales agents or customers that the product has been used in a surgical procedure.  Provision is made currently for estimated product returns based on
historical experience and other known factors.

Royalty income is recorded upon receipt of royalty
payments from third parties to which Interpore has granted licenses to certain of its spinal implant patents.  These licenses provide for royalties calculated at a negotiated percentage of sales of specified spinal implant products by the third
parties.

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4.     Earnings Per Share

Basic earnings per share (EPS) is calculated by dividing net earnings by the weighted average number of common shares outstanding for
the period.  Diluted EPS reflects the assumed conversion of all dilutive securities, consisting of employee stock options and warrants.  The following table presents the computation of net income per share (in thousands, except per share
data):

|                                                                                                                                            |  | Three months ended June 30, |        | Six months ended June 30, |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | ------------------------- | -
|                                                                                                                                            |  |                             |        |                           |  
|                                                                                                                                            |  | 2002                        |        | 2003                      |  
|                                                                                                                                            |  |                             |        |                           |  
|Net income                                                                                                                                  |  | $                           | 651    |                           | $
|                                                                                                                                            |  |                             |        |                           |  
|Shares used in computing net income per share - basic:                                                                                      |  |                             |        |                           |  
|Weighted average common shares outstanding                                                                                                  |  |                             | 17,245 |                           |  
|Effect of dilutive securities:                                                                                                              |  |                             |        |                           |  
|Common share equivalents outstanding                                                                                                        |  |                             | 952    |                           |  
|                                                                                                                                            |  |                             |        |                           |  
|Shares used in computing net income per share - diluted                                                                                     |  |                             | 18,197 |                           |  
|                                                                                                                                            |  |                             |        |                           |  
|Basic earnings per share                                                                                                                    |  | $                           | .04    |                           | $
|Diluted earnings per share                                                                                                                  |  | $                           | .04    |                           | $
|Stock option shares excluded from the diluted earnings per share calculation because their assumed conversion would have been
anti-dilutive |  |                             | 49     |                           |  

5.     Inventories

Inventories are stated at the lower of first-in, first-out average cost or market.  Inventories are comprised of the following (in
thousands):

|                |  | December 31, 2002 |        | June 30, 2003 |  
|--------------- |  | ----------------- | ------ | ------------- | -
|                |  |                   |        |               |  
|Raw materials   |  | $                 | 4,655  |               | $
|Work-in-process |  |                   | 874    |               |  
|Finished goods  |  |                   | 26,466 |               |  
|                |  |                   |        |               |  
|                |  | $                 | 31,995 |               | $
|                |  |                   |        |               |  

6.     Stock Option Plans

Interpore accounts for stock compensation to employees using the intrinsic value method provided for by Accounting Principles Board
Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees and related interpretations.   Interpore applies APB 25 and related interpretations in accounting for its employee stock options because, as discussed below,
the alternative fair value accounting provided for under Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation, requires use of option valuation models that were not developed for use in
valuing employee stock options.

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Pro forma information regarding net income and earnings per share is required by SFAS
123, and has been determined as if Interpore had accounted for employee stock options under the fair value method of SFAS 123.  The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions: a risk-free interest rate of 3% in 2002 and 2003, a volatility factor of the expected market price of Interpore common stock of .73 in 2002 and 2003, a weighted-average expected life of the options of
six years, and no dividend yield.

The following table illustrates the effect on net income per
share, had compensation expense for the employee stock-based plans been recorded based on the fair value method under SFAS 123 (in thousands, except per share data):

|                                                                                                                             |  | Three months ended June 30, |     | Six months ended June 30, |  
|---------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | --- | ------------------------- | -
|                                                                                                                             |  |                             |     |                           |  
|                                                                                                                             |  | 2002                        |     | 2003                      |  
|                                                                                                                             |  |                             |     |                           |  
|Net income, as reported                                                                                                      |  | $                           | 651 |                           | $
|Deduct: total stock based employee compensation expense determined under fair value based method, net of related tax effects |  |                             | 392 |                           |  
|                                                                                                                             |  |                             |     |                           |  
|Net income, as adjusted                                                                                                      |  | $                           | 259 |                           | $
|                                                                                                                             |  |                             |     |                           |  
|Basic net income per share:                                                                                                  |  |                             |     |                           |  
|As reported                                                                                                                  |  | $                           | .04 |                           | $
|As adjusted                                                                                                                  |  | $                           | .02 |                           | $
|Diluted net income per share:                                                                                                |  |                             |     |                           |  
|As reported                                                                                                                  |  | $                           | .04 |                           | $
|As adjusted                                                                                                                  |  | $                           | .01 |                           | $

7.     Income Taxes

The effective tax rates for the second quarters of 2002 and 2003 were 38.5% and 11.0%, respectively.  During the second quarter of
2003, Interpore revised its estimate of the expected effective tax rate for 2003 from 40% to 36%, and applied this revised rate to year-to-date pre-tax income.  The effective tax rates for the six months ended June 30, 2002 and 2003 were 38.5%
and 36.0%, respectively.

8.     Recent Accounting Pronouncements

In January 2003 the Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable Interest
Entities (FIN 46).  FIN 46 requires the primary beneficiary of a variable interest entity (VIE) to consolidate the entity and also requires majority and significant variable interest investors to provide certain
disclosures.  A VIE is an entity in which the equity investors do not have a controlling interest, equity investors participate in losses or residual interests of the entity on a basis that differs from its ownership interest, or the equity
investment at risk is insufficient to finance the entitys activities without receiving additional subordinated financial support from the other parties.  For arrangements entered into with VIEs created prior to January 31, 2003, the
provisions of FIN 46 are required to be adopted at the beginning of the first interim or annual period beginning after June 15, 2003.  Interpore is currently reviewing its investments and other arrangements to determine whether any of its
investee companies are VIEs.  Interpore does not expect to identify any significant VIEs that would be consolidated, but may be required to make additional disclosures.  The provisions of FIN 46 are effective immediately for all
arrangements entered into with new VIEs created after January 31, 2003.  Interpore has not invested in any new VIEs created after January 31, 2003.

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9.     Commitments and Contingencies

Interpore Cross v.
Biomet, Inc.

On December 20, 2002, in response to allegations by Biomet, Inc. of
misappropriation of certain trade secrets by Interpores wholly-owned subsidiary Interpore Cross International, Inc. (Interpore Cross) and its employee, Jens Peter Timm (a former employee of Biomet), Interpore, Interpore Cross,
Cross Medical Products, Inc. (Cross) and Mr. Timm filed a complaint for declaratory relief in the United States District Court for the Central District of California.  The complaint sought a declaration as to Interpore Crosss
rights in its GEO STRUCTURE device and all related products and technology.  On February 14, 2003, the Court dismissed the complaint without prejudice based on its findings that the declaratory relief action was unnecessary because there was no
threat of imminent or inevitable litigation at the time the complaint was filed.

On January 16, 2003,
Biomet filed an action in the United States District Court for the Northern District of Indiana, South Bend Division, against Interpore, Interpore Cross, Cross and Mr. Timm.  The complaint asserted claims alleging causes of action for
declaration of patent ownership, constructive trust, patent infringement, misappropriation of trade secrets and unjust enrichment.  Biomet sought an equitable ownership interest in Cross U.S. Patent Number 6,206,924 (the 924
patent), a constructive trust over the proceeds of any products relating to the 924 patent, including the GEO STRUCTURE device, an injunction against infringement of the 924 patent, damages (including treble damages for willful
conduct) and attorneys fees.  Biomet claimed damages (before trebling) in excess of $1 million.

In response to Biomets complaint Interpore filed three separate motions on March 10, 2003:  a motion to dismiss for lack of
personal jurisdiction on behalf of Interpore and Cross; a motion to transfer venue to California; a motion to strike the request for monetary damages for patent infringement and a motion for a more definite statement as to the allegedly
misappropriated trade secrets.

On June 10, 2003, Interpore entered into a confidential settlement
agreement with Biomet, which resolved the matter in its entirety.  On June 17, 2003, Biomet filed a dismissal with prejudice of the complaint.

Cross Medical
Products v. Medtronic Sofamor Danek

On May 1, 2003, Cross filed an amended complaint in the United
States District Court for the Central District of California against Medtronic Sofamor Danek, Inc. and Medtronic Sofamor Danek USA, Inc. (collectively, Medtronic), which complaint alleges that Medtronic has infringed and continues to
infringe Cross U.S. Patent Nos. 5,466,237, 5,474,555 and 5,624,442.  These patents relate to technology embodied in certain components of the SYNERGY Spinal System.  The complaint seeks damages for willful past and continuing
infringement of the patents.  The complaint also seeks a declaratory judgment against Medtronic that Cross is not infringing U.S. Patent Nos. 5,591,165, 4,641,636, 4,815,453 and 5,005,562.  On June 23, 2003, Medtronic filed
counterclaims for a declaratory judgment that it does not infringe Cross patents, and that the patents are invalid and unenforceable.  Cross is unable at this time to predict the outcome of this litigation.

Aside from these matters, the nature of Interpores business subjects it to product liability and various other legal proceedings
from time to time.  Interpore is currently involved in legal proceedings incidental to the normal conduct of our business.  Interpore does not believe that any liabilities relating to the legal proceedings to which it is a party are likely
to be, individually or in the aggregate, material to Interpores consolidated financial condition or results of operations.

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

Our revenues are generated from the sale of medical device products and from the receipt of royalty payments from third parties to which
we have granted licenses to certain of our spinal implant patents.  Our medical device products fall into three principal categoriesspinal implant products, orthobiologic products and minimally invasive surgery (MIS)
products.  Our spinal implant products consist of titanium or stainless steel hooks, rods, plates, spacers and screws and related instruments required for the surgeon to assemble a construct which restores the natural anatomy of the spine,
keeping it immobilized while a bone graft eventually fuses the vertebrae.  Our orthobiologic products consist of bone graft substitute materials and products used to derive Autologous Growth Factors® (AGF®).  AGF
fibrinogen-rich extract is used to provide faster, more complete bone growth and enhance the performance of our bone graft products.  Our M.I.S. products consist of instruments and devices used to deliver biocompatible materials into bony
structures in a minimally invasive procedure.

All of our operations are located in the United
States; however, we sell our products to customers both within and outside the United States.  Within the United States, we distribute our products through independent agencies and direct sales representatives.  The independent agencies
and our direct sales representatives provide delivery and consultative services to our surgeon and hospital customers and receive commissions based on sales in their territories.  The commissions are reflected in our income statement within
selling and marketing expense.

For our spinal implant products and M.I.S. products, we invoice
hospitals directly following a surgical procedure in which our products are used.  These products are made available to hospitals from consignment inventories maintained by our independent agencies and direct sales representatives, or from
loaner implant sets that we ship from our facility.  For our orthobiologic products, we generally ship directly to hospitals from our facility, and we invoice hospitals upon shipment.

Outside the United States, we sell our products directly to distributors who maintain an inventory of our products.  We record
revenue at the time of shipment to the distributor at prices reflecting a discount from our U.S. list prices.  The distributors provide service to the surgeons and hospitals, deliver products and invoice hospitals directly at prices determined
by the distributors.

Because our revenues from U.S. hospitals are primarily at list price, and our
revenues from international distributors are at a discount to U.S. list prices, our overall gross margin is subject to fluctuation based on our domestic versus international sales mix, with domestic gross margins being somewhat higher than
international gross margins.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses.  On an on-going basis, we evaluate our estimates including those related to product returns, bad debts, inventories, intangible assets, income taxes and litigation.  We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources.  Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our
financial statements:

| |  | Revenue from sales of product where the customer immediately accepts title is recorded at the time of shipment.  Revenue from sales of consigned inventory is recorded upon
receipt of written acknowledgement from independent agencies, direct sales representatives or customers that the product has been used in a surgical procedure.  Provision is made currently for estimated product returns based on historical
experience and other known factors.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | Royalty income is recorded upon receipt of royalty payments from third parties to which we have granted licenses to certain of our spinal implant patents.  These licenses
provide for royalties calculated at a negotiated percentage of sales of specified spinal implant products by the third parties.                                                                         
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                    
| |  | We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments.  If the financial condition of our
customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances would be required.                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                    
| |  | We provide an inventory reserve for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon
assumptions about future demand and market conditions.  If actual market conditions are less favorable than those projected by management, additional inventory write-downs would be required.
| |   |                                                                                                                                                                                                                                                                                                                                                                                    
| |  | We have significant intangible assets, including goodwill.  The determination of related estimated useful lives and whether or not these assets are impaired involves significant
judgments.  Changes in strategy or market conditions could significantly impact these judgments and require adjustments to recorded asset balances.                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                    
| |  | We currently have deferred tax assets, which are subject to periodic recoverability assessments.  Realization of our deferred tax assets is principally dependent upon our achievement
of projected future taxable income.  We evaluate the realizability of the deferred tax assets annually.                                                                                     

Results of Operations

The following table presents our results of operations as percentages:

|                           |  | Three months ended June 30,  |       | Six months ended June 30, | 
|-------------------------- |  | ---------------------------- | ----- | ------------------------- | 
|                           |  |                              |       |                           | 
|                           |  | Percentage of total revenues |       | Percentage change         | 
|                           |  |                              |       |                           | 
|                           |  | 2002                         |       | 2003                      | 
|                           |  |                              |       |                           | 
|Total revenues             |  |                              | 100.0 | %                         | 
|Cost of goods sold         |  |                              | 28.1  | %                         | 
|                           |  |                              |       |                           | 
|Gross profit               |  |                              | 71.9  | %                         | 
|                           |  |                              |       |                           | 
|Operating expense:         |  |                              |       |                           | 
|Research and development   |  |                              | 14.1  | %                         | 
|Selling and marketing      |  |                              | 40.6  | %                         | 
|General and administrative |  |                              | 11.0  | %                         | 
|                           |  |                              |       |                           | 
|Total operating expenses   |  |                              | 65.7  | %                         | 
|                           |  |                              |       |                           | 
|Income from operations     |  |                              | 6.2   | %                         | 
|                           |  |                              |       |                           | 

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For the quarter ended June 30, 2003, total revenues of $18.4 million were $3.7 million
or 25.4% higher than total revenues of $14.7 million for the same period of 2002.  Net product sales for the quarter ended June 30, 2003 of $17.3 million were $2.7 million or 18.1% higher than net product sales of $14.7 million for the quarter
ended June 30, 2002.  The following table presents total revenues by category (in thousands):

|                             |  | Three months ended June 30, |        | Change |  
|---------------------------- |  | --------------------------- | ------ | ------ | -
|                             |  |                             |        |        |  
|                             |  | 2002                        |        | 2003   |  
|                             |  |                             |        |        |  
|Spinal implant product sales |  | $                           | 8,909  |        | $
|Orthobiologic product sales  |  |                             | 4,496  |        |  
|M.I.S. product sales         |  |                             | 1,258  |        |  
|                             |  |                             |        |        |  
|Net product sales            |  |                             | 14,663 |        |  
|Royalty income               |  |                             |       |        |  
|                             |  |                             |        |        |  
|Total revenues               |  | $                           | 14,663 |        | $
|                             |  |                             |        |        |  

Sales of spinal
implant products for the quarter ended June 30, 2003 increased by $2.2 million or 24.4%, to $11.1 million, compared to $8.9 million for the quarter ended June 30, 2002.  The increase is primarily attributable to growth in sales of
SYNERGY, C-TEK® and GEO STRUCTURE products as well as sales of our recently released ALTIUS and TPS-TL products.

Sales of orthobiologic products increased by $618,000, or 13.8%, to $5.1 million for the quarter ended June 30, 2003, compared to $4.5
million for the quarter ended June 30, 2002.  This growth followed five consecutive quarters of year-over-year orthobiologic products sales declines, which we attribute primarily to the focus of our independent sales agencies on the spinal
implant market.  To combat the decline in sales of our orthobiologic products, our strategy has been to introduce new orthobiologic products and expand the direct sales force specifically responsible for sales of these products.  The
second quarter sales growth resulted primarily from sales of our INTERGRO allograft putty products, which were introduced in 2002 and 2003, and the initial sales of machines and disposables for ACCESS, our improved AGF processing system,
in 2003.  We anticipate that these strategic efforts may result in the continuation of the improved sales trend in our orthobiologic products; however, we cannot assure you that INTERGRO will achieve additional market acceptance, that we will
be able to successfully introduce ACCESS or that our efforts in hiring domestic direct sales representatives to focus on our orthobiologic products will be successful.

Sales of M.I.S. products decreased by $134,000, or 10.7%, to $1.1 million for the quarter ended June 30, 2003, compared to $1.3 million for the quarter ended June 30,
2002.  In the fourth quarter of 2002, we initiated significant organization changes in our M.I.S business, beginning with the closing of the M.I.S. related facility in Leesburg, Virginia.  In early 2003 we hired two domestic sales division
managers for our M.I.S. products and began to expand the direct sales force which is exclusively focused on sales of our M.I.S. products.  We believe these efforts resulted in the 17% increase in M.I.S. products sales for the second quarter
when compared to the first quarter of 2003, and we also believe that these efforts may continue to help generate continued growth in sales in this product category.  However, we cannot assure you that our efforts will ultimately result in the
sales growth we expect in M.I.S. products.

Domestic sales of all product categories increased
$1.1 million, or 9.3%, to $13.4 million for the quarter ended June 30, 2003, compared to $12.3 million for the same period of 2002.  International sales for the quarter ended June 30, 2003 increased by $1.5 million or 63.9%, to $3.9 million
from $2.4 million for the quarter ended June 30, 2002.

In January 2003 we settled our patent litigation
with DePuy AcroMed.  The settlement agreement provided that DePuy AcroMed pay us $15 million cash and also begin paying us royalties on all licensed spinal implants sold by its U.S. operations beginning after January 27, 2003.  During the
quarter ended June 30, 2003, we received the first quarterly royalty payment from DePuy AcroMed, which totaled $1.1 million.

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For the quarter ended June 30, 2003, gross profit was 71.7% of total revenues
compared to 71.9% of total revenues for the quarter ended June 30, 2002.  However, before accounting for the effect of the royalty income, the gross profit as a percentage of net sales declined from 71.9% in the quarter ended June 30, 2002 to
70.0% in the quarter ended June 30, 2003.  This decline reflects the comparatively higher percentage of international sales compared to the same quarter of 2002, which sales generate somewhat lower gross margins than domestic sales.

Total operating expenses for the quarter ended June 30, 2003 increased by $1.1 million, or 11.6%, to $10.8
million, compared to $9.6 million for the same quarter of 2002.  However, as a percentage of total revenue, total operating expenses decreased from 65.7% in the second quarter of 2002 to 58.5% in the second quarter of 2003.  Research and
development expenses increased by $251,000 or 12.2%, due primarily to efforts related to the development of potential new products and consulting fees.  Selling and marketing expenses increased $859,000 or 14.4% compared to the second quarter
of 2002 primarily due to our investment in additional direct sales personnel for our orthobiologic and M.I.S. products.  General and administrative expenses were approximately the same in both the second quarter 2003 and the second quarter of
2002.

Total interest and other income increased to $241,000 for the quarter ended June 30, 2003, compared
to $155,000 during the same period of 2002.  The increase is primarily the result of higher non-core product royalty income.

The effective tax rates for the second quarters of 2002 and 2003 were 38.5% and 11.0%, respectively.  During the second quarter of
2003, we revised our estimate of the expected effective tax rate for 2003 from 40% to 36%, and the application of this revised rate to year-to-date pre-tax income disproportionately lowered the effective rate for the second quarter of
2003.

Six months ended June 30, 2002 and 2003

For the six months ended June 30, 2003, total revenues of $34.2 million were $5.7 million or 20.2% higher than total revenues of $28.4
million for the same period of 2002.  Net product sales for the six months ended June 30, 2003 of $33.1 million were $4.7 million or 16.4% higher than net product sales of $28.4 million for the six months ended June 30, 2002.  The
following table presents total revenues by category (in thousands):

|                             |  | Six months ended  June 30, |        | Change |  
|---------------------------- |  | -------------------------- | ------ | ------ | -
|                             |  |                            |        |        |  
|                             |  | 2002                       |        | 2003   |  
|                             |  |                            |        |        |  
|Spinal implant product sales |  | $                          | 17,173 |        | $
|Orthobiologic product sales  |  |                            | 9,159  |        |  
|M.I.S. product sales         |  |                            | 2,117  |        |  
|                             |  |                            |        |        |  
|Net product sales            |  |                            | 28,449 |        |  
|Royalty income               |  |                            |       |        |  
|                             |  |                            |        |        |  
|Total revenues               |  | $                          | 28,449 |        | $
|                             |  |                            |        |        |  

Sales of spinal
implant products for the six months ended June 30, 2003 increased by $4.3 million, or 24.8%, to $21.4 million, compared to $17.2 million for the six months ended June 30, 2002.  The increase is primarily attributable to growth in sales of
SYNERGY, C-TEK and GEO STRUCTURE products as well as sales of our recently released ALTIUS  and TPS-TL products.

Sales of orthobiologic products increased by $441,000, or 4.8%, to $9.6 million for the six months ended June 30, 2003, compared to $9.1
million for the six months ended June 30, 2002.  The increase resulted primarily from sales of our INTERGRO allograft putty products and the initial sales of machines and disposables for ACCESS.

Sales of M.I.S. products were approximately $2.1 million in both six month periods ended June 30, 2003 and June 30, 2002.

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Domestic sales for all product categories increased $2.7 million, or 11.6%, to $26.1
million for the six months ended June 30, 2003, compared to $23.4 million for the same period of 2002.  International sales of $7.0 million for the six months ended June 30, 2003 were $2.0 million, or 39.2%, higher than sales of $5.0 million
for the same period of 2002.

During the quarter ended June 30, 2003, we received the first quarterly
royalty payment as provided for in the settlement agreement with DePuy AcroMed.  The royalty payment of $1.1 million is included in total revenues for the six months ended June 30, 2003.

For the six months ended June 30, 2003, the gross margin was 71.7% of total revenues, compared to 72.5% of total revenues for the six
months ended June 30, 2002.  However, before accounting for the effect of the royalty income, the gross profit as a percentage of net sales declined from 72.5% in the six months ended June 30, 2002 to 70.8% in the six months ended June 30,
2003.  This decline reflects the comparatively higher percentage of international sales compared to the same period of 2002, which sales generate somewhat lower gross margins than domestic sales.

Total operating expenses for the six months ended June 30, 2003 increased by $1.8 million or 9.6% to $20.6 million, compared to $18.8
million for the same period of 2002.  As a percentage of total revenues, total operating expenses decreased from 66.2% in the six months ended June 30, 2002 to 60.3% in the same period of 2003.  Research and development expenses increased
for the six months ended June 30, 2003 by $382,000, or 9.6%, as compared to the same period in 2002 due primarily to efforts related to the development of potential new products and consulting fees.  Selling and marketing expenses for the six
months ended June 30, 2003 increased $1.6 million, or 13.9%, compared to the six months ended June 30, 2002 primarily due to commissions on increased sales and our investment in additional direct sales personnel for our orthobiologic and M.I.S.
products.  General and administrative expenses decreased by $147,000, or 4.2%, compared to the six months ended June 30, 2002, primarily as a result of decreased legal expenses associated with the DePuy AcroMed litigation.

Total interest and other income increased to $15.5 million for the six months ended June 30, 2003, compared to $314,000 during
the same period of 2002.  Other income in 2003 includes the $15 million payment from DePuy AcroMed, received in January 2003, in settlement of patent litigation.

The effective tax rates for the six months ended June 30, 2002 and 2003 were 38.5% and 36.0%, respectively.

Liquidity and Capital Resources

At June 30, 2003, cash, cash
equivalents and short-term investments totaled $10.5 million, an increase of $8.7 million from $1.8 million at December 31, 2002.  We have a $10.0 million secured revolving bank line of credit which expires in June 2005.  At December 31,
2002, we had borrowed approximately $5.8 million under this facility to fund our 2002 working capital needs, which were driven primarily by significant investments in inventories to support new product launches.  On January 27, 2003, we
received a $15 million payment from DePuy AcroMed in settlement of patent litigation, some of which was used to pay off the outstanding balance on our line of credit.

We plan to continue making significant investments in initial inventory levels for new products.  We also intend to continue to
invest in the development of our business.  We believe we currently possess sufficient resources, including our revolving bank line of credit, to meet the cash requirements of our operations for at least the next year.  In addition, we
have used and may continue to use our cash, our common stock, or a combination of both to pay for purchased technologies, product lines, mergers and acquisitions.  Some of these activities may require resources in excess of those which we
currently possess, and we cannot assure you that we will be able to raise additional capital on satisfactory terms, if at all.

At June 30, 2003, we had no material commitments for capital expenditures.

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Cautionary Note Regarding Forward-Looking Statements

Investors are cautioned that certain statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q, or
which are otherwise made by us or on our behalf are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements include statements that are predictive in nature, which
depend upon or refer to future events or conditions, which include words such as believes, plans, anticipates, estimates, expects or similar expressions.  In addition, any statements
concerning future financial performance, ongoing business strategies or prospects, and possible future actions, which may be provided by our management, are also forward-looking statements.  Forward-looking statements are based on current
expectations and projections about future events and are subject to risks, uncertainties, and assumptions about our company, economic and market factors and the industry in which we do business, among other things.  These statements are not
guaranties of future performance and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors.  Factors
that could cause our actual performance and future events and actions to differ materially from such forward-looking statements, include, but are not limited to those discussed below and elsewhere in this Quarterly Report on Form 10-Q and in our
Annual Report on Form 10-K for the year ended December 31, 2002.

We are dependent on a few products which may be rendered obsolete.

A majority of our revenue currently comes from sales of our SYNERGY, C-TEK and PRO OSTEON® products.  We cannot assure you
that we will continue to market these products successfully or that we will be able to increase sales of these products in the future.  Any significant diminished sales of our SYNERGY, C-TEK or PRO OSTEON products would adversely affect our
business and results of operations.

If we fail to compete successfully against existing or potential competitors, our operating results may be adversely affected.

The market for our products is intensely competitive, subject to change and significantly affected by new product
introductions and other market activities of industry participants.  Our principal global competitors with respect to our spinal implant product line are Medtronic Sofamor Danek USA, DePuy AcroMed, Inc., a Johnson & Johnson company, and
SYNTHES-STRATEC, Inc.  Our principal global competitors with respect to our orthobiologic products include DePuy AcroMed, Medtronic Sofamor Danek USA, Osteotech, Inc., Orthovita, GenSci Regeneration Sciences, Regeneration Technologies and
Wright Medical Technology.  Our principal competitor with respect to our minimally invasive surgery products is Kyphon Inc.  We compete in all of our markets primarily on the basis of product performance and price, as well as customer
loyalty and service.  Many of our competitors have greater resources for product development, sales and marketing and patent litigation than we do.  Accordingly, they could substantially increase the resources they devote to the
development and marketing of products that are competitive with ours.  Many of our potential customers have existing relationships with our competitors that could make it difficult for us to continue to penetrate the markets for our
products.  Additionally, several of our competitors have broader product lines that we do.  Moreover, our competitors may develop and successfully commercialize medical devices that directly or indirectly accomplish what our products are
designed to accomplish in a superior and less expensive manner.  If our competitors products prove to be more successful than ours, our products could be rendered obsolete.  If we fail to compete successfully against our existing or
potential competitors, our operating results may be adversely affected.

We may not be able to develop new products that will be accepted by the market.

Our future growth will be dependent on our ability to develop and introduce new products, including enhancements to our existing
products.  We cannot assure you that we will be able to successfully develop or market new products or that any of our future products will be accepted by our customers.  If we do not develop new products in time to meet market demand or
if there is insufficient demand for these products, our revenues and

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profitability may be adversely affected.  The success of any new product offerings or enhancements to existing product offerings will depend on several factors, including
our ability to:

| |  | properly identify and anticipate customer needs;                                                                                                                                      
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | commercialize new products or enhancements in a timely manner;                                                                                                                        
| |  | develop an effective marketing and distribution network for new products or product enhancements;                                                                                     
| |  | manufacture and deliver products in sufficient volumes on time;                                                                                                                       
| |  | differentiate our offerings from competitors offerings;                                                                                                                              
| |  | achieve positive clinical outcomes for new products or product enhancements;                                                                                                          
| |  | satisfy the increased demands of healthcare payors, providers and patients for lower-cost procedures;                                                                                 
| |  | innovate and develop new materials, product designs and surgical techniques;                                                                                                          
| |  | obtain the necessary regulatory approvals for new products or product enhancements; and                                                                                               
| |  | provide adequate medical and/or consumer education relating to new products and product enhancements and attract key surgeons to advocate these new products and product
enhancements.

In addition, we have spent and expect to continue to spend significant
cash on the development, product launch and continued marketing of new products, and if there is insufficient demand for these new products, our cash flow could suffer and our liquidity would be adversely affected.

The long-term efficacy and market acceptance of AGF is uncertain.

Our
AGF related products were introduced under a 510(k) clearance, and we lack published long-term clinical data regarding the efficacy and long-term results of AGF.  If long-term studies or clinical experience indicate that procedures involving
AGF do not provide patients with improved clinical outcomes, anticipated sales of our AGF related products may never materialize.  Our success in selling our AGF related products will depend, in large part, on the medical communitys
acceptance of AGF.  The medical communitys acceptance of AGF will depend upon our ability to demonstrate the efficacy of AGF and its advantages, favorable clinical performance and cost-effectiveness.  The medical communitys
acceptance of AGF will also depend upon our ability to introduce ACCESS, a new processing system for AGF that greatly simplifies the process for collecting AGF from a patients blood.  We cannot predict whether the medical community will
accept AGF or ACCESS or, if accepted, the extent of the medical communitys use of these products.  If long-term studies or clinical experience indicate that AGF causes negative effects, we could be subject to significant liability.

Our minimally invasive surgery products business may not achieve the growth we expect and our results of operations and financial condition could be adversely affected.

To date, our M.I.S. revenues have been below our expectations.  To address this, we are investing significantly in
the hiring and training of a group of direct sales representatives that will be dedicated primarily to the sale of our M.I.S. products.  We believe that these efforts may allow us to achieve the expected growth in M.I.S. revenues. 
However, we cannot assure you that our efforts will be successful.  The creation of a direct sales force is very expensive, and if this sales force does not achieve the expected growth in M.I.S. revenues, our results of operations and financial
condition could be materially and adversely affected.

We face risks related to the maintenance, upgrading and expansion of our domestic distribution network.

In domestic markets, we primarily use independent sales agents for the distribution of our spinal implant products and
orthobiologic products.  However, because of the agents focus on selling only to spinal surgeons, our orthobiologic products sales have suffered.  Therefore, we have created an initial direct sales force to distribute our
orthobiologic products in certain underperforming territories, and we plan to significantly increase this sales force in the future.  However, we cannot assure you that we will be successful in our efforts to identify and hire qualified
candidates for these positions, or that such candidates, upon their hiring, will be successful in distributing our orthobiologic products.  Additionally, this effort requires a substantial investment and our profitability could be adversely
affected as a result.

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We expect to continue to rely primarily on independent agencies for the domestic
distribution of our spinal implant products.  Independent commissioned sales agencies may represent other medical devices for a variety of manufacturers and may not dedicate enough time or attention to selling our products.  Furthermore,
we expend significant resources to train and educate new independent agencies about our products and our marketing programs.  Our ability to recruit independent sales agencies has been aided by some of our competitors replacement of
independent agencies with direct sales representatives.  However, our competitors may not continue to utilize direct sales representatives and we cannot assure you that we will continue to be able to attract new or retain our current
independent sales agencies.  We also cannot assure you that we will be able to develop an effective distribution network or that our independent agencies will be able to continue to increase sales or maintain current sales levels of our
products.

We may face challenges to our patents and proprietary rights.

We rely on a combination of patents, trade secrets and nondisclosure agreements to protect our proprietary intellectual property. 
Our patent positions and those of other medical device companies are uncertain and involve complex and evolving legal and factual questions.  We cannot assure you that pending patent applications will result in issued patents, that patents
issued to or licensed by us will not be challenged or circumvented by competitors or that such patents will be found to be valid or sufficiently broad to protect our technology or to provide us with any competitive advantage.  Third parties
could also obtain patents that may require licensing for the conduct of our business, and there can be no assurance that the required licenses would be available.  We also rely on nondisclosure agreements with certain employees, consultants and
other parties to protect, in part, trade secrets and other proprietary technology.  We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach, that others will not independently develop
substantially equivalent proprietary information or that third parties will not otherwise gain access to our trade secrets and proprietary knowledge.  If our intellectual property is not adequately protected, our competitors could use the
intellectual property that we have developed to enhance their products and compete more directly with us, which could result in a decrease in our market share and profits.

The medical product industry is characterized by frequent and substantial intellectual property litigation and competitors may resort to
intellectual property litigation as a means of competition.  Intellectual property litigation is complex and expensive, and the outcome of such litigation is difficult to predict.  We cannot assure you that we will be successful in
defending against these claims.  This and any future litigation, regardless of the outcome, could result in substantial expense and significant diversion of the efforts of our technical and management personnel.  Additionally, an adverse
determination in any such proceeding could subject us to significant liabilities to third parties, or require us to seek licenses from third parties or pay royalties that may be substantial.  Accordingly, an adverse determination in a judicial
or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing or selling certain of our products which in turn would have a material adverse effect on our business, financial condition and results of
operations.  Litigation may also be necessary to enforce our patents and license agreements, to protect our trade secrets or know-how or to determine the enforceability, scope and validity of the proprietary rights of others.  We recently
filed suit against another medical device manufacturer claiming that certain of its products infringe several of our spinal implant patents and seeking a declaratory judgment that our products do not infringe its patents.  This and any future
litigation to protect or enforce our proprietary rights could result in substantial expense and significant diversion of managements attention from our business.

Product introductions or
modifications may be delayed or canceled as a result of the FDA regulatory process, which could cause our sales to decline.

The medical devices we manufacture and market are subject to rigorous regulation by the FDA and numerous other federal, state and
foreign governmental authorities.  Our failure to comply with such regulations could lead to the imposition of injunctions, suspensions or loss of regulatory approvals, product recalls, termination of distribution or product seizures.  In
the most egregious cases, criminal sanctions or closure of our manufacturing facilities are possible.  The process of obtaining regulatory approvals to market a medical device, particularly from the FDA, can be costly and time-consuming, and we
cannot assure you that such approvals will be granted on a timely basis, if at all.  The regulatory process may delay the marketing of new products for lengthy periods and impose substantial additional costs or it may prevent the introduction
of new products altogether.  In particular, the

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FDA permits commercial distribution of a new medical device only after the FDA has cleared a 510(k) premarket notification or has approved a Premarket Approval application, or
PMA, for such device.  The FDA will clear marketing of a medical device through the 510(k) process if it is demonstrated that the new product is substantially equivalent to other 510(k)-cleared products.  The PMA approval process is more
costly, lengthy and uncertain than the 510(k) premarket notification process.  We cannot assure you that any new products we develop will be subject to the shorter 510(k) clearance process and therefore significant delays in the introduction of
any new products that we develop may occur.  We anticipate that most of our products that are in final development will be eligible for the 510(k) premarket notification process.  If the FDA does not clear marketing of our products in
final development through the 510(k) clearance process, we will be forced to comply with the PMA approval process in order to obtain FDA approval for these products.  If we choose to go through the PMA approval process, there will be
significant costs and delays in the introduction of our new products, if they are approved at all.  Moreover, foreign governmental authorities have become increasingly stringent and we may be subject to more rigorous regulation by foreign
governmental authorities in the future.  Any inability or failure of our foreign independent distributors to comply with the varying regulations or the imposition of new regulations could restrict such distributors ability to sell our
products internationally and thereby adversely affect our business.  All products and manufacturing facilities are subject to continual review and periodic inspection by the FDA.  The discovery of previously unknown problems with our
company or our products or facilities may result in product labeling restrictions, recall or withdrawal of the products from the market.  In addition, the FDA actively enforces regulations prohibiting the promotion of medical devices for
unapproved indications.  If the FDA determines that we have marketed our products for off-label use, we could be subject to fines, injunctions or other penalties.

We may be subject
to product liability claims and our limited product liability insurance may not be sufficient to cover the claims, or we may be required to recall our products.

We manufacture medical devices that are used on patients in surgical procedures, and we may be subject to product liability claims and
product recalls.  The spinal implant industry has been historically litigious and we face an inherent business risk of financial exposure to product liability claims.  Since most of our products are implanted in the human body,
manufacturing errors or design defects could result in injury or death to the patient, and could result in a recall of our products and substantial monetary damages.  Any product liability claim brought against us, with or without merit, could
result in an increase to our product liability insurance premiums or our inability to secure coverage in the future.  We would also have to pay any amount awarded by a court in excess of our policy limits.  In addition, any recall of our
products, whether initiated by us or by a regulatory agency, may result in adverse publicity for us that could have a material adverse effect on our business, financial condition and results of operations.  Our product liability insurance
policies have various exclusions, and we may be subject to a product liability claim or recall for which we have no insurance coverage, in which case we may have to pay the entire amount of the award or costs of the recall.  Finally, product
liability insurance is expensive and may not be available in the future on acceptable terms, or at all.

Possible denial of third-party reimbursement could have a material adverse effect
on our future business, results of operations and financial condition.

In the United States,
our products are purchased by hospitals that are reimbursed for the devices provided to their patients by third-party payors, such as governmental programs (e.g., Medicare and Medicaid), private insurance plans and managed care programs.  These
third-party payors may deny reimbursement if they determine that a device used in a procedure was not used in accordance with cost-effective treatment methods, as determined by the third-party payor, or was used for an unapproved indication. 
Also, third-party payors are increasingly challenging the prices charged for medical products and services.  In addition, we believe the increasing emphasis on managed care in the United States may put pressure on the prices and usage of our
products, which may adversely affect product sales.  In international markets, reimbursement and healthcare payment systems vary significantly by country and many countries have instituted price ceilings on specific product lines.  We
cannot assure you that our products will be considered cost-effective by third-party payors, that reimbursement will be available or, if available, that the third-party payors reimbursement policies will not adversely affect our ability to
sell our products profitably.

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We are dependent on our suppliers and the loss of any of them could adversely affect our business.

We do not manufacture the components for our spinal implants or instruments or minimally invasive surgery products; rather, we are
dependent upon several suppliers for the manufacturing of such components.  Also, the specialized filter material contained in our UltraConcentrator was sole-sourced from a vendor that no longer supplies the material.  Although we have not
identified any alternate vendors of the filter material, we have a several year supply of the material in inventory and we believe there are suppliers that could supply alternate materials which may have equivalent function.  In the event that
a re-engineering of the product were necessary due to a conversion to an alternate material, delays in product availability could occur and significant costs could be incurred, either of which could have a material adverse effect on our
operations.

The harvesting of coral is subject to regulation which could affect our ability to obtain sufficient quantities of coral in the future.

The harvesting and import of the coral used for our coral-based orthobiologic products must comply with the requirements of the
Convention on International Trade of Endangered Species of Wild Fauna and Flora.  As a result, we must register and obtain licensure from the U.S. Department of Fish and Wildlife for both the import of raw coral and the export of finished
product.  In the future, regulations could make the import or export of coral or coral-derived products prohibitive and could interrupt our ability to supply product.  We cannot assure you that our supply of raw coral is sufficient, that
we will be able to obtain sufficient quantities of coral in the future or that future regulations will not prohibit its use altogether.

Our business could be materially adversely
impacted by risks inherent in international markets.

In 2002, approximately 18% of our
sales were generated outside the United States.  We expect that such sales will continue to account for a significant portion of our revenue in the future.  Our international sales subject us to other inherent risks, including the
following:

| |  | fluctuations in currency exchange rates;                                                                 
| | - | ---------------------------------------------------------------------------------------------------------
| |   |                                                                                                          
| |  | regulatory, product approval and reimbursement requirements;                                             
| |   |                                                                                                          
| |  | tariffs and other trade barriers;                                                                        
| |   |                                                                                                          
| |  | greater difficulty in accounts receivable collection and longer collection periods;                      
| |   |                                                                                                          
| |  | difficulties and costs of managing foreign distributors;                                                 
| |   |                                                                                                          
| |  | reduced protection for intellectual property rights in some countries;                                   
| |   |                                                                                                          
| |  | burdens of complying with a wide variety of foreign laws;                                                
| |   |                                                                                                          
| |  | the impact of recessions in economies outside the United States;                                         
| |   |                                                                                                          
| |  | political and economic instability; and                                                                  
| |   |                                                                                                          
| |  | seasonal reductions in business activity during the summer months in Europe and other parts of the world.

If we fail to successfully market and sell our products in international markets, our business, financial condition, results of
operations, and cash flows could be materially and adversely affected.

The information contained in
this report is as of June 30, 2003, unless expressly stated as of another date.  We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.  We also may
make additional disclosures in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we may file from time to time with

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the Securities and Exchange Commission.  Please also note that we provide a cautionary discussion of risks and uncertainties under the section entitled Certain
Business Considerations in our Annual Report on Form 10-K for the year ended December 31, 2002.  These are factors that we think could cause our actual results to differ materially from expected results.  Other factors besides those
listed here could also adversely affect us.  This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk for changes in interest rates related primarily to our cash and cash equivalent balances and marketable
securities.  However, as all of our investments are in short-term instruments, we believe that we have no material market risk exposure.  All of our international sales are denominated in U.S. dollars, and accordingly, we believe we have
no material foreign currency exchange rate risk.

Item 4.  Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act
reports is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and
procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with
the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this
report.  Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

There have been no changes in our internal controls over financial reporting during our most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect our internal controls over financial reporting.

|PART II - | OTHER INFORMATION
|--------- | -----------------
|          |                  
|Item 1.   | Legal Proceedings

Interpore Cross v. Biomet, Inc.

On December 20, 2002, in response to allegations by Biomet, Inc. of misappropriation of certain trade secrets by
Interpores wholly-owned subsidiary Interpore Cross International, Inc. (Interpore Cross) and its employee, Jens Peter Timm (a former employee of Biomet), Interpore, Interpore Cross, Cross Medical Products, Inc. (Cross)
and Mr. Timm filed a complaint for declaratory relief in the United States District Court for the Central District of California.  The complaint sought a declaration as to Interpore Crosss rights in its GEO STRUCTURE device and all
related products and technology.  On February 14, 2003, the Court dismissed the complaint without prejudice based on its findings that the declaratory relief action was unnecessary because there was no threat of imminent or inevitable
litigation at the time the complaint was filed.

On January 16, 2003, Biomet filed an action in the United
States District Court for the Northern District of Indiana, South Bend Division, against Interpore, Interpore Cross, Cross and Mr. Timm.  The complaint asserted claims alleging causes of action for declaration of patent ownership, constructive
trust, patent infringement,

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misappropriation of trade secrets and unjust enrichment.  Biomet sought an equitable ownership interest in Cross U.S. Patent Number 6,206,924 (the 924
patent), a constructive trust over the proceeds of any products relating to the 924 patent, including the GEO STRUCTURE device, an injunction against infringement of the 924 patent, damages (including treble damages for willful
conduct) and attorneys fees.  Biomet claimed damages (before trebling) in excess of $1 million.

In response to Biomets complaint Interpore filed three separate motions on March 10, 2003:  a motion to dismiss for lack of
personal jurisdiction on behalf of Interpore and Cross; a motion to transfer venue to California; a motion to strike the request for monetary damages for patent infringement and a motion for a more definite statement as to the allegedly
misappropriated trade secrets.

On June 10, 2003, Interpore entered into a confidential settlement
agreement with Biomet, which resolved the matter in its entirety.  On June 17, 2003, Biomet filed a dismissal with prejudice of the complaint.

Cross Medical
Products v. Medtronic Sofamor Danek

On May 1, 2003, Cross filed an amended complaint in the United
States District Court for the Central District of California against Medtronic Sofamor Danek, Inc. and Medtronic Sofamor Danek USA, Inc. (collectively, Medtronic), which complaint alleges that Medtronic has infringed and continues to
infringe Cross US Patent Nos. 5,466,237, 5,474,555 and 5,624,442.  These patents relate to technology embodied in certain components of the SYNERGY Spinal System.  The complaint seeks damages for willful past and continuing
infringement of the patents.  The complaint also seeks a declaratory judgment against Medtronic that Cross is not infringing US Patent Nos. 5,591,165, 4,641,636, 4,815,453 and 5,005,562.  On June 23, 2003, Medtronic filed
counterclaims for a declaratory judgment that it does not infringe Cross patents, and that the patents are invalid and unenforceable.  Cross is unable at this time to predict the outcome of this litigation.

Aside from these matters, the nature of Interpores business subjects it to product liability and various other legal proceedings
from time to time.  Interpore is currently involved in legal proceedings incidental to the normal conduct of our business.  Interpore does not believe that any liabilities relating to the legal proceedings to which it is a party are likely
to be, individually or in the aggregate, material to Interpores consolidated financial condition or results of operations.

|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

On May 16, 2003, Interpore held its 2003 Annual Meeting of Stockholders to vote on two proposals.  The number of shares entitled to
vote was 17,347,339.  The number of shares represented in person or by proxy was 14,892,808.

| | The following are the voting results for the proposals:
| | -------------------------------------------------------
| |                                                        
| | PROPOSAL 1:                                            

|Nominee               |  | Number of votes |  | Percentage of shares present and voting |  
|--------------------- |  | --------------- |  | --------------------------------------- | -
|                      |  |                 |  |                                         |  
|William A. Eisenecher |  |                 |  |                                         |  
|For                   |  | 12,507,970      |  | 84.0                                    | %
|Withheld              |  | 2,384,838       |  | 16.0                                    | %
|Daniel A. Funk, MD    |  |                 |  |                                         |  
|For                   |  | 12,508,652      |  | 84.0                                    | %
|Withheld              |  | 2,384,156       |  | 16.0                                    | %

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| | PROPOSAL 2: | To approve the adoption of the Interpore 2003 Equity Participation Plan, pursuant to which 400,000 share of Common Stock will be available for issuance:
| | ----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------

|            |  | Number of votes |  | Percentage of shares present and voting |  
|----------- |  | --------------- |  | --------------------------------------- | -
|            |  |                 |  |                                         |  
|For         |  | 13,137,425      |  | 88.2                                    | %
|Against     |  | 1,696,021       |  | 11.4                                    | %
|Abstain     |  | 59,362          |  | .4                                      | %
|Total Votes |  | 14,892,808      |  | 100.0                                   | %

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

| | a. | Exhibits.           
| | -- | --------------------
| |    |                     
| |    | 10.1                
| |    | 31.1                
| |    | 31.2                
| |    | 32.1                
| |    | 32.2                
| |    |                     
| |    |                     
| |    |                     
| | b. | Reports on Form 8-K.
| |    |                     
| |    | None.               

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SIGNATURES

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

|DATE:   August 8, 2003 | INTERPORE INTERNATIONAL, INC. |                                                                   
|---------------------- | ----------------------------- | ------------------------------------------------------------------
|                       | (Registrant)                  |                                                                   
|                       |                               |                                                                   
|                       |                               |                                                                   
|                       | By:                           | /s/ DAVID C. MERCER                                               
|                       |                               |                                                                   
|                       |                               | David C. Mercer, Chairman and Chief Executive Officer             
|                       |                               |                                                                   
|                       |                               |                                                                   
|                       | By:                           | /s/ RICHARD L. HARRISON                                           
|                       |                               |                                                                   
|                       |                               | Richard L. Harrison Sr. Vice President and Chief Financial Officer

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