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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 March 31, 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                                                                          
|(State or other jurisdiction of incorporation or organization)                    
|                                                                                  
|181 Technology Drive, Irvine, California                                          
|(Address of Principal Executive Offices)                                          
|                                                                                  
|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 May 9, 2003, there were 17,396,326 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 March 31, 2003 (unaudited)                                    | 3      
|                                                                         |                                                                                                                                  |        
|                                                                         | Condensed Consolidated Statements of Income (unaudited) for the  three month periods ended March 31, 2002 and March 31, 2003     | 4      
|                                                                         |                                                                                                                                  |        
|                                                                         | Condensed Consolidated Statements of Cash Flows (unaudited) for the  three month periods ended March 31, 2002 and March 31, 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                                                                       | 18     
|                                                                         |                                                                                                                                  |        
|Item 4.                                                                  | Controls and Procedures                                                                                                          | 18     
|                                                                         |                                                                                                                                  |        
|PART II.                                                                 | OTHER INFORMATION                                                                                                                |        
|                                                                         |                                                                                                                                  |        
|Item 1.                                                                  | Legal Proceedings                                                                                                                | 19     
|                                                                         |                                                                                                                                  |        
|Item 6.                                                                  | Exhibits and Reports on Form 8-K                                                                                                 | 20     
|                                                                         |                                                                                                                                  |        
|Signatures                                                               | 21                                                                                                                              
|                                                                         |                                                                                                                                 
|Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 22                                                                                                                              

2



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

|                                                                                                                                                                         |  | December 31, 2002 |        | March 31, 2003 |            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | ------ | -------------- | -----------
|                                                                                                                                                                         |  |                   |        |                |            
|                                                                                                                                                                         |  |                   |        |                | (unaudited)
|Assets                                                                                                                                                                   |  |                   |        |                |            
|Current assets:                                                                                                                                                          |  |                   |        |                |            
|Cash and cash equivalents                                                                                                                                                |  | $                 | 1,810  |                | $          
|Short-term investments                                                                                                                                                   |  |                   |       |                |            
|Accounts receivable, less allowance for doubtful accounts of $797 and $745 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 17,952,339 at March 31, 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 March 31, 2003                                                                                    |  |                   | (3,109 | )              |            
|                                                                                                                                                                         |  |                   |        |                |            
|Total stockholders equity                                                                                                                                               |  |                   | 65,216 |                |            
|                                                                                                                                                                         |  |                   |        |                |            
|Total liabilities and stockholders equity                                                                                                                               |  | $                 | 77,242 |                | $          
|                                                                                                                                                                         |  |                   |        |                |            

See accompanying notes.

3



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

|                                     |  | Three months ended March 31, |       
|------------------------------------ |  | ---------------------------- | ------
|                                     |  |                              |       
|                                     |  | 2002                         |       
|                                     |  |                              |       
|Net sales                            |  | $                            | 13,786
|Cost of goods sold                   |  |                              | 3,712 
|                                     |  |                              |       
|Gross profit                         |  |                              | 10,074
|                                     |  |                              |       
|Operating expenses:                  |  |                              |       
|Research and development             |  |                              | 1,913 
|Selling and marketing                |  |                              | 5,353 
|General and administrative           |  |                              | 1,919 
|                                     |  |                              |       
|Total operating expenses             |  |                              | 9,185 
|                                     |  |                              |       
|Income from operations               |  |                              | 889   
|                                     |  |                              |       
|Interest income                      |  |                              | 24    
|Interest expense                     |  |                              |      
|Legal settlement                     |  |                              |      
|Other income                         |  |                              | 135   
|                                     |  |                              |       
|Total interest and other income, net |  |                              | 159   
|                                     |  |                              |       
|Income before taxes                  |  |                              | 1,048 
|Income tax provision                 |  |                              | 403   
|                                     |  |                              |       
|Net income                           |  | $                            | 645   
|                                     |  |                              |       
|Net income per share:                |  |                              |       
|Basic                                |  | $                            | .04   
|Diluted                              |  | $                            | .04   
|Weighted average shares:             |  |                              |       
|Basic                                |  |                              | 17,128
|Diluted                              |  |                              | 18,300

See accompanying notes.

4



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

|                                                                                  |  | Three months ended March 31, |       
|--------------------------------------------------------------------------------- |  | ---------------------------- | ------
|                                                                                  |  |                              |       
|                                                                                  |  | 2002                         |       
|                                                                                  |  |                              |       
|Cash flows from operating activities                                              |  |                              |       
|Net income                                                                        |  | $                            | 645   
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                              |       
|Depreciation                                                                      |  |                              | 268   
|Amortization                                                                      |  |                              | 73    
|Stock-based compensation expense                                                  |  |                              | 99    
|Changes in operating assets and liabilities:                                      |  |                              |       
|Accounts receivable                                                               |  |                              | (556  
|Inventories                                                                       |  |                              | (3,060
|Prepaid expenses                                                                  |  |                              | (434  
|Other assets                                                                      |  |                              |      
|Accounts payable and accrued liabilities                                          |  |                              | 297   
|                                                                                  |  |                              |       
|Net cash provided by operating activities                                         |  |                              | (2,668
|                                                                                  |  |                              |       
|Cash flows from investing activities                                              |  |                              |       
|Net cash paid for American OsteoMedix Corporation                                 |  |                              | (57   
|Capital expenditures                                                              |  |                              | (500  
|Expenditures for patent rights                                                    |  |                              | (359  
|Purchase of short-term investments                                                |  |                              |      
|                                                                                  |  |                              |       
|Net cash used in investing activities                                             |  |                              | (916  
|                                                                                  |  |                              |       
|Cash flows from financing activities                                              |  |                              |       
|Repayment of long-term debt and capital lease obligations                         |  |                              |      
|Proceeds from exercise of stock options                                           |  |                              | 737   
|                                                                                  |  |                              |       
|Net cash used in financing activities                                             |  |                              | 737   
|                                                                                  |  |                              |       
|Net increase in cash and cash equivalents                                         |  |                              | (2,847
|Cash and cash equivalents at beginning of period                                  |  |                              | 6,538 
|                                                                                  |  |                              |       
|Cash and cash equivalents at end of period                                        |  | $                            | 3,691 
|                                                                                  |  |                              |       

See accompanying notes.

5



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Interpore International, Inc.Notes to Condensed Consolidated Financial Statements March 31, 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 March 31, 2003 and the consolidated results of operations and cash flows for the three month periods ended March 31, 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 three months ended March 31, 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.   Per Share Information

Basic earnings per share (EPS) is calculated by dividing net
income 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 March 31, |       
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------
|                                                                                                                                            |  |                              |       
|                                                                                                                                            |  | 2002                         |       
|                                                                                                                                            |  |                              |       
|Net income                                                                                                                                  |  | $                            | 645   
|                                                                                                                                            |  |                              |       
|Shares used in computing net income per share - basic:                                                                                      |  |                              |       
|Weighted average common shares outstanding                                                                                                  |  |                              | 17,128
|Effect of dilutive securities:                                                                                                              |  |                              |       
|Common share equivalents outstanding                                                                                                        |  |                              | 1,172 
|                                                                                                                                            |  |                              |       
|Shares used in computing net income per share - diluted                                                                                     |  |                              | 18,300
|                                                                                                                                            |  |                              |       
|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 |  |                              | 5     

6



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4.   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 |        | March 31, 2003 |  
|--------------- |  | ----------------- | ------ | -------------- | -
|                |  |                   |        |                |  
|Raw materials   |  | $                 | 4,655  |                | $
|Work-in-process |  |                   | 874    |                |  
|Finished goods  |  |                   | 26,466 |                |  
|                |  |                   |        |                |  
|                |  | $                 | 31,995 |                | $
|                |  |                   |        |                |  

5.   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.

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 in 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 March 31, |    
|---------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---
|                                                                                                                             |  |                              |    
|                                                                                                                             |  | 2002                         |    
|                                                                                                                             |  |                              |    
|Net income, as reported                                                                                                      |  | $                            | 645
|Deduct: total stock based employee compensation expense determined under fair value based method, net of related tax
effects |  |                              | 392
|                                                                                                                             |  |                              |    
|Net income, as adjusted                                                                                                      |  | $                            | 253
|                                                                                                                             |  |                              |    
|Basic net income per share:                                                                                                  |  |                              |    
|As reported                                                                                                                  |  | $                            | .04
|As adjusted                                                                                                                  |  | $                            | .01
|Diluted net income per share:                                                                                                |  |                              |    
|As reported                                                                                                                  |  | $                            | .04
|As adjusted                                                                                                                  |  | $                            | .01

7



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6.   Commitments and Contingencies

Cross Medical Products v. DePuy
AcroMed, Inc.

On September 5, 2000, Interpores wholly-owned subsidiary, Cross Medical Products, Inc. (Cross),
filed suit in the U.S. District Court, Central District of California, against DePuy AcroMed, Inc., a Johnson & Johnson company and Biedermann Motech GmbH, which suit alleged that DePuy AcroMed had infringed and continued to infringe Cross
U.S. Patent Nos. 5,466,237 and 5,474,555.  These patents relate to screw technology embodied in certain components of the SYNERGY Spinal System.  The complaint sought damages for willful past and continuing infringement of the
patents.  The Complaint also sought a declaratory judgment against DePuy AcroMed and Biedermann Motech that Cross was not infringing Biedermann Motechs Patent No. 5,207,678.  DePuy AcroMed responded to the Complaint alleging that
Cross patents are invalid and unenforceable, and alleging that it did not infringe.

On January 24, 2003, the parties settled this
case.  In connection with the confidential settlement agreement entered into between the parties, DePuy AcroMed paid Cross $15 million and agreed to pay a royalty on future sales of certain of DePuy AcroMeds products.  The $15
million settlement was recorded as other income in the quarter ended March 31, 2003.  As required by the settlement agreement, the parties filed a request to dismiss the lawsuit, which request was granted on February 7, 2003.

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 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 seeks an equitable ownership interest in Interpore Crosss 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 is claiming damages (before trebling) in excess of one million dollars.

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.  As of March 20, 2003, no date has been set for the hearing.

Interpore is unable at this time to predict the outcome of the litigation with Biomet. As of this date, Interpore does not believe that this litigation could
reasonably be expected to have a material adverse effect on its business or financial condition. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in
Interpores assumptions or the effectiveness of Interpores strategies related to these proceedings.

8



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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.  Cross expects Medtronic to respond to the complaint on or before May 22, 2003.  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.

9



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

Financial Overview

Our revenues are generated from the sale of medical devices in three principal categoriesspinal implant products, orthobiologic products and minimally invasive
surgery (M.I.S.) 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.  Additionally, the mix
between spinal implant products sales and orthobiologic products sales also affects our gross margins, with higher margins in orthobiologics.

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
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10



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| |   | has been used in a surgical procedure.  Provision is made currently for estimated product returns based on historical experience and other known factors.                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                    
| |  | 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:

|                           |  | Percentage of net sales Three months ended March 31, |       | Percentage change | 
|-------------------------- |  | ---------------------------------------------------- | ----- | ----------------- | 
|                           |  |                                                      |       |                   | 
|                           |  | 2002                                                 |       | 2003              | 
|                           |  |                                                      |       |                   | 
|Net sales                  |  |                                                      | 100.0 | %                 | 
|Cost of goods sold         |  |                                                      | 26.9  |                   | 
|                           |  |                                                      |       |                   | 
|Gross profit               |  |                                                      | 73.1  |                   | 
|                           |  |                                                      |       |                   | 
|Operating expenses:        |  |                                                      |       |                   | 
|Research and development   |  |                                                      | 13.9  |                   | 
|Selling and marketing      |  |                                                      | 38.8  |                   | 
|General and administrative |  |                                                      | 13.9  |                   | 
|                           |  |                                                      |       |                   | 
|Total operating expenses   |  |                                                      | 66.6  |                   | 
|                           |  |                                                      |       |                   | 
|Income from operations     |  |                                                      | 6.5   | %                 | 
|                           |  |                                                      |       |                   | 

For the quarter ended March 31,
2003, sales of $15.8 million were $2.0 million or 14.7% higher than net sales of $13.8 million for the same period of 2002.   The following table presents sales by category (in thousands):

|                             |  | Three months ended March 31, |        | Change |  
|---------------------------- |  | ---------------------------- | ------ | ------ | -
|                             |  |                              |        |        |  
|                             |  | 2002                         |        | 2003   |  
|                             |  |                              |        |        |  
|Spinal implant product sales |  | $                            | 8,264  |        | $
|Orthobiologic product sales  |  |                              | 4,663  |        |  
|M.I.S. product sales         |  |                              | 859    |        |  
|                             |  |                              |        |        |  
|Total sales                  |  | $                            | 13,786 |        | $
|                             |  |                              |        |        |  

11



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Sales of spinal implant products for the quarter ended March 31, 2003 increased by $2.1 million or 25.4% to $10.4
million, compared to $8.3 million for the quarter ended March 31, 2002.  The increase is attributable to increased sales of the SYNERGY Spinal System, increased sales of our C-TEK® Anterior Cervical Plate System and sales of our
recently released GEO STRUCTURE Device.

Sales of orthobiologic products decreased by $177,000, or 3.8%, to $4.5 million for
the quarter ended March 31, 2003, compared to $4.7 million for the quarter ended March 31, 2002.  We believe that the decline in sales of our orthobiologic products has resulted primarily from 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 to expand the direct sales force specifically responsible for sales of our orthobiologic
products.

To that end, in 2002 we introduced our INTERGRO allograft putty product, and in the first quarter of 2003 we began
initial shipments of  ACCESS, our improved AGF processing system, into the international marketplace.  Sales of INTERGRO and ACCESS in the first quarter of 2003 partially offset the decline in sales of our other orthobiologic
products, resulting in an overall decline in sales of orthobiologic products of 3.8%.  This represents a significant improvement over the average 10% quarterly orthobiologic products sales decline experienced in each of the four quarters of
2002 as compared to the same quarters in 2001.  We anticipate that these strategic efforts may continue to reduce the decline in sales of our orthobiologic products; however, we cannot assure you that INTERGRO will achieve market acceptance,
that we will be able to successfully introduce ACCESS or that our efforts to reverse the sales trend will be successful.

Sales of M.I.S.
products increased by $103,000, or 12.0%, to $962,000 for the quarter ended March 31, 2003, compared to $859,000 for the quarter ended March 31, 2002.

Domestic sales of all product categories increased $1.6 million, or 14.1%, to $12.7 million for the quarter ended March 31, 2003, compared to $11.1 million for the
same period of 2002.  International sales for the quarter ended March 31, 2003 increased by 17.2%, or $454,000, to $3.1 million from $2.6 million for the quarter ended March 31, 2002.

For the quarter ended March 31, 2003, gross profit was 71.7% of sales compared to 73.1% of sales for the quarter ended March 31, 2002.  The increase as a
percentage of sales represented by spinal implant products and the initial sales of ACCESS processors, both of which have lower gross margins than our synthetic bone graft products, was the primary cause of our slightly lower overall gross margin
for the quarter.

Total operating expenses for the quarter ended March 31, 2003 increased by $692,000, or 7.5%, to $9.9
million, compared to $9.2 million for the same quarter of 2002.  However, as a percentage of sales, total operating expenses decreased from 66.6% in the first quarter of 2002 to 62.5% in the first quarter of 2003, primarily the result of
decreased legal expenses associated with the DePuy AcroMed litigation which was settled in the first quarter of 2003.  Research and development expenses increased by $131,000 or 6.8%, due primarily to efforts related to the development of
potential new products.  Selling and marketing expenses increased $715,000 or 13.4% compared to the first quarter of 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 $154,000 or 8.0%, primarily as a result of decreased legal expenses associated with the DePuy AcroMed litigation.

Total interest and other income increased to $15.3 million for the quarter ended March 31, 2003, compared to $159,000 during the same period of 2002.  Other
income includes a $15 million payment from DePuy AcroMed, received in January 2003, in settlement of patent litigation.

The effective
tax rates for the first quarters of 2002 and 2003 were 38.5% and 40.0%, respectively.

12



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Liquidity and Capital Resources

At March 31, 2003,
cash, cash equivalents and short-term investments totaled $11.9 million, an increase of $10.1 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.  Additionally, the settlement agreement provides that DePuy AcroMed
will pay us a royalty on all licensed spinal implants it sells in the U.S. after January 27, 2003.

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.  In addition, we will use a significant amount of cash to pay estimated income taxes, much of
which are related to the receipt of the $15 million payment from DePuy AcroMed.  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 March 31, 2003, we had no material commitments for capital expenditures.

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.

13



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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 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

14



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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 profitability 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 profitability 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.

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.

15



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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 are currently responding to a
claim in which a third party is asserting an ownership interest in our GEO STRUCTURE device and its underlying patent, among other things, based on alleged misappropriation of trade secrets.  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 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.

16



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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.

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.

17



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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 March 31, 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 the Securities and Exchange Commission.  Please also note that we provide a cautionary discussion of risks and uncertainties under the
section entitled Risk Factors 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 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

18



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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.

Within 90 days prior to the date of this report, we carried out an evaluation, under
the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on the
foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

There have been no significant changes in our internal controls or in other factors that could significantly affect the internal controls subsequent to the date we
completed our evaluation.

PART II -          
OTHER INFORMATION

Item 1.               
Legal Proceedings

Cross Medical Products v. DePuy AcroMed, Inc.

On September 5, 2000, Interpores wholly-owned subsidiary, Cross Medical Products, Inc. (Cross), filed suit in the U.S. District Court, Central
District of California, against DePuy AcroMed, Inc., a Johnson & Johnson company and Biedermann Motech GmbH, which suit alleged that DePuy AcroMed had infringed and continued to infringe Cross U.S. Patent Nos. 5,466,237 and
5,474,555.  These patents relate to screw technology embodied in certain components of the SYNERGY Spinal System.  The complaint sought damages for willful past and continuing infringement of the patents.  The Complaint also sought a
declaratory judgment against DePuy AcroMed and Biedermann Motech that Cross was not infringing Biedermann Motechs Patent No. 5,207,678.  DePuy AcroMed responded to the Complaint alleging that Cross patents are invalid and
unenforceable, and alleging that it did not infringe.

On January 24, 2003, the parties settled this case.  In connection with the
confidential settlement agreement entered into between the parties, DePuy AcroMed paid Cross $15 million and agreed to pay a royalty on future sales of certain of DePuy AcroMeds products.  The $15 million settlement was recorded as other
income in the quarter ended March 31, 2003.  As required by the settlement agreement, the parties filed a request to dismiss the lawsuit, which request was granted on February 7, 2003.

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 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 seeks an equitable ownership interest in Interpore Crosss 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
is claiming damages (before trebling) in excess of one million dollars.

19



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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.  As of March 20, 2003, no date has been set for the hearing.

Interpore is unable at
this time to predict the outcome of the litigation with Biomet. As of this date, Interpore does not believe that this litigation could reasonably be expected to have a material adverse effect on its business or financial condition. It is possible,
however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in Interpores assumptions or the effectiveness of Interpores strategies related to these
proceedings.

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.  Cross expects Medtronic to respond to the complaint on or before May 22, 2003.  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 6. |  | Exhibits and Reports on Form 8-K
|------- |  | --------------------------------
|        |  |                                 
|a.      |  | Exhibits.                       
|        |  |                                 
|        |  | 99.1                            
|        |  |                                 
|b.      |  | Reports on Form 8-K.            
|        |  |                                 
|        |  | None.                           

20



---

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:  May 9, 2003 | INTERPORE INTERNATIONAL, INC.
|------------------ | -----------------------------
|                   | (Registrant)                 
|                   |                              
|                   | By:                          
|                   |                              
|                   |                              
|                   |                              
|                   | By:                          
|                   |                              
|                   |                              

21



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INTERPORE INTERNATIONAL, INC.

Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification

I, David C. Mercer, certify that:

| | 1. | I have reviewed this quarterly report on Form 10-Q of Interpore International, Inc.;                                                                                                                                                                                                                                                                                                     
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| | 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| | 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| | 4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| |    | a)                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| |    | b)                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| |    | c)                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| | 5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the equivalent function):                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| |    | a)                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| |    | b)                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| | 6. | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|Date:  May 9, 2003 | /s/ DAVID C. MERCER                      | 
|------------------ | ---------------------------------------- | 
|                   |                                          | 
|                   | David C. Mercer  Chief Executive Officer | 

22



---

INTERPORE INTERNATIONAL INC.

Certifications Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

Certification

I, Richard L. Harrison, certify that:

| | 1. | I have reviewed this quarterly report on Form 10-Q of Interpore International, Inc.;                                                                                                                                                                                                                                                                                                     
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| | 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| | 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| | 4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| |    | a)                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| |    | b)                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| |    | c)                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| | 5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the equivalent function):                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| |    | a)                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| |    | b)                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                          
| | 6. | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|Date:  May 9, 2003 | /s/ RICHARD L. HARRISON                      | 
|------------------ | -------------------------------------------- | 
|                   |                                              | 
|                   | Richard L. Harrison  Chief Financial Officer | 

23