As filed with the Securities and Exchange Commission on March , 2000
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

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Delaware 3842 95-3043318
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)

181 Technology Drive
Irvine, California, 92618-2402
(949) 453-3200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

--------------

Richard L. Harrison
Senior Vice President--Finance, Chief Financial Officer and Secretary
Interpore International, Inc.
181 Technology Drive,
Irvine, California, 92618-2402
(949) 453-3200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

Copies to:
Charles K. Ruck David B. Miller
David B. Allen Laura Bednarski
Latham & Watkins Elizabeth Westman
650 Town Center Drive, 20th Floor Faegre & Benson LLP
Costa Mesa, California 92626-1925 2200 Norwest Center
(714) 540-1235 90 South Seventh Street
Minneapolis, Minnesota 55402-3901
(612) 336-3000

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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is declared effective.

If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_] ___________

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_] ___________

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] ___________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ___________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_] ___________

CALCULATION OF REGISTRATION FEE

===========================================================================================================
Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of Securities to be Amount to be Offering Price Offering Price Registration
Registered Registered(1) per share (2) (1)(2) Fee
- -----------------------------------------------------------------------------------------------------------

Common Stock, par value $.01 per share........ 4,600,000 shares $12.625 $58,075,000 $15,331.80
- -----------------------------------------------------------------------------------------------------------
Series A Junior Participating Preferred
Stock Purchase Rights(3)..................... * * * *
===========================================================================================================

(1) Includes 600,000 shares that the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, solely for the purpose of computing the amount of the
registration fee, based upon the average of the high and low trading
prices of the Common Stock on the Nasdaq National Market on March 8, 2000.
(3) The rights are initially carried with the common stock. The value
attributable to the rights, if any, is reflected in the value of the
common stock.

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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this Prospectus is not complete and may be changed. We may +
+not sell these securities until the Securities and Exchange Commission +
+declares our registration statement effective. This Prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to completion, dated , 2000

4,000,000 Shares

INTERPORE INTERNATIONAL, INC.
Common Stock
[LOGO OF INTERPORE CROSS INTERNATIONAL APPEARS HERE]

$ per share

- --------------------------------------------------------------------------------

. Interpore . Closing price on March
International, Inc. is 13, 2000: $12.50 per
offering 3,500,000 share.
shares and selling
shareholders are
offering 500,000
shares.

. Trading symbol: Nasdaq
National Market--BONZ

----------------------

This investment involves risks. See "Risk Factors" beginning on page 5.

================================================================================

Per Share Total
--------- ----------

Public offering price..................................... $ $
Underwriting discount..................................... $ $
Proceeds to Interpore International, Inc. ................ $ $
Proceeds to selling shareholders.......................... $ $

================================================================================

The underwriters have a 30-day option to purchase up to 600,000 additional
shares of common stock from us to cover over-allotments, if any.

Neither the Securities and Exchange Commission nor any state securities
commission has approved of anyone's investment in these securities or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.

U.S. Bancorp Piper Jaffray Chase H&Q

The date of this prospectus is , 2000.

[INSIDE FRONT COVER]

Graphic depicting the appearance of Pro Osteon(R) 500R, BonePlast(TM) and
Autologous Growth Factor(TM) when combined with Pro Osteon. Depiction of some of
the components which make up the Synergy(TM) Spinal System.

TABLE OF CONTENTS

Page
----

Summary.................................................................. 1
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 11
Price Range of Common Stock.............................................. 12
Dividend Policy.......................................................... 12
Forward-Looking Statements............................................... 12
Capitalization........................................................... 13
Selected Consolidated Financial Data..................................... 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 15
Business................................................................. 21
Management............................................................... 36
Principal and Selling Stockholders....................................... 38
Description of Capital Stock............................................. 39
Underwriting............................................................. 41
Legal Matters............................................................ 43
Experts.................................................................. 43
Where You Can Find Additional Information................................ 43
Index to Consolidated Financial Statements............................... F-1

-------------------------------

You should rely only on the information contained in this prospectus and
incorporated by reference into this prospectus. We have not, and the
underwriters have not, authorized any other person to provide you with
different information. This prospectus is not an offer to sell, nor is it
seeking an offer to buy, these securities in any state where the offer or sale
is not permitted. The information in this prospectus is complete and accurate
as of the date on the front cover of this prospectus, but the information may
have changed since that date.

SUMMARY

The items in the following summary are described in more detail later in this
prospectus. This summary provides an overview of selected information and does
not contain all the information you should consider. Therefore, you should also
read the more detailed information set out in this prospectus, the financial
statements and the other information incorporated by reference into this
prospectus. Unless otherwise specified, all information in this prospectus
assumes no exercise of the underwriters' over-allotment option.

Interpore International, Inc.

We develop, manufacture and market spinal implant devices and orthobiologic
products primarily used in the treatment of spine disorders. The spinal implant
and orthobiologics markets are two of the fastest growing areas in the medical
device industry. We currently market the Synergy(TM) Spinal System, products to
derive Autologous Growth Factors(TM) (AGF(TM)) and our Pro Osteon(R) and
BonePlast(TM) synthetic bone graft products. With our spinal implant and
orthobiologic product lines, we offer surgical solutions to orthopedic surgeons
and neurosurgeons for the majority of spine fusion procedures that utilize
implants.

Interpore International, formed in 1975, developed and marketed synthetic bone
graft materials. In May 1998, Interpore merged with Cross Medical Products,
Inc., a company offering a broad line of spinal implants. The merger created a
medical device company with a complementary combination of spinal implant and
orthobiologic technologies, increased presence with surgeons and broader
distribution capabilities specifically addressing the spinal surgery market. In
1999, the first full year following the merger, our combined revenue increased
nearly 30%, to $38.9 million. We believe this increase is primarily
attributable to our expanded and enhanced distribution network and its ability
to cross-sell our spinal implants and orthobiologic products and the
introduction of our AGF related products.

Spine fusion procedures are performed to correct advanced cases of spine
disorders. These spine disorders often occur as a result of degenerative
conditions, deformities such as scoliosis, trauma and injury, or tumors. We
estimate over 260,000 spine fusion procedures were performed during 1999 in the
United States. Virtually all spine fusion procedures require the use of bone
graft and the majority also use spinal implants.

Our Synergy Spinal System consists of rods, hooks and screws that are attached
to vertebrae adjacent to an injured or defective area of the spine in order to
stabilize the spine and allow the bone to heal. The implants are designed for
surgeon ease of use, universal application, resistance to fatigue and to have a
lower profile than competing systems. We are expanding our spinal implant
product line and are currently in late stages of developing cervical implants
and improvements to our system for use in the lower back. In March 2000, we
received FDA clearance for our cervical corpectomy cage, an expandable titanium
cage used to replace vertebrae removed due to tumor.

We were the first to market FDA cleared devices used to extract and concentrate
autologous growth factors intraoperatively to levels shown in studies to
stimulate bone growth. Our proprietary AGF technology is used to produce a
concentrated growth factor "gel" created from the patient's own blood. When
combined with bone graft material, AGF has been shown to encourage faster and
more complete bone healing that may be safer and more economical than synthetic
growth factors under development by other companies. We believe that the
combination of growth factors with bone grafts is the next major advancement in
bone grafting. Our AGF related products were cleared via the 510(k) pathway in
December 1998 and commercially launched in June 1999.

Our Pro Osteon line of synthetic bone graft substitute products provides a
unique matrix, derived from coral, that facilitates new bone ingrowth. More
than 17 years of clinical experience has demonstrated the efficacy of

our Pro Osteon products. We offer Pro Osteon in both resorbable and non-
resorbable versions. Our BonePlast is a resorbable calcium sulfate bone void
filler which is replaced by the patient's own bone during the healing process.

Our goal is to establish a leadership position in the development of products
for the surgical treatment of spine disorders. In order to achieve this goal,
we are undertaking the following strategies:

. Capitalize on "first-to-market" with our AGF technology;

. Expand and enhance our spinal implant product portfolio;

. Continue to expand and strengthen our distribution network; and

. Expand our clinical leadership base.

Our domestic sales organization consists of independent agents and direct sales
representatives. As of March 3, 2000, we had contracts with 43 independent
agents which employed approximately 135 sales representatives and we employed
six direct sales representatives. Outside of the United States, we distribute
products only through independent distributors. As of March 3, 2000, we had
arrangements with 54 distributors in 41 countries. International sales were
approximately 22% of our total sales in 1999.

The products we currently market have either received 510(k) clearance to
market, Premarket Approval, Humanitarian Device Exemption or are exempt from
the FDA requirements. As of March 3, 2000, we had eight issued U.S. patents
related to our Synergy Spinal System and eleven issued patents related to our
orthobiologics products, including three patents related to our AGF technology.

Corporate Information

We were incorporated in California in 1975 and reincorporated in Delaware in
May 1998. Our principal executive offices are located at 181 Technology Drive,
Irvine, California 92618-2402, and our telephone number is (949) 453-3200. Our
website is www.interpore.com. The information on our website is not intended to
be part of this prospectus, and you should not rely on any of the information
provided there in making your decision to invest in our common stock.

The Offering

Common Stock Offered:

By Interpore International, Inc. ......... 3,500,000 shares
By selling shareholders................... 500,000 shares
---------
Total................................. 4,000,000 shares

Common stock outstanding after the offering.. 17,250,282 shares

Offering price............................... $ per share

Use of proceeds.............................. To fund expansion of our product
lines through research and
development, to fund scientific
and clinical studies, possible
acquisitions and general
corporate purposes, including
working capital. See "Use of
Proceeds."

Nasdaq National Market symbol................ BONZ

The number of shares of our common stock outstanding after the offering does
not take into account, as of March 3, 2000:

. 2,808,380 shares of common stock issuable upon the exercise of
outstanding stock options at a weighted average exercise price of $5.79
per share;

. 200,000 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $7.88 per share;

. 208,624 shares of common stock available for issuance under our Employee
Stock Purchase Plan; and

. 1,429,125 shares of common stock available for grant under our eight
stock option and equity participation plans.

Summary Consolidated Financial Data
(in thousands, except per share data)

In the table below, we provide you with summary consolidated financial data of
Interpore International, Inc. We have prepared this information using the
consolidated financial statements of Interpore International, Inc. for the
three years ended December 31, 1999. The table also sets forth, as of December
31, 1999, financial data (1) on an actual basis, and (2) on an as adjusted
basis to give effect to the sale of the 3,500,000 shares we are offering by
this prospectus at an assumed public offering price of $12.50 per share, after
deducting underwriting discounts and the estimated offering expenses. Interpore
International, Inc. and Cross Medical Products, Inc. merged in May 1998. The
merger was accounted for as a pooling-of-interests. Accordingly, data for the
year ended December 31, 1997 have been restated to include financial
information of both companies.

Year Ended December 31,
----------------------------------
1997 1998 1999
-------- -------- -------

Statement of Operations Data:
Net sales.................................. $28,429(/1/) $30,209 $38,856
Cost of goods sold......................... 9,110(/2/) 8,552 11,645
-------- -------- -------
Gross profit............................. 19,319 21,657 27,211
Total operating expenses................... 20,095(/1/) 24,528(/3/) 22,521
-------- -------- -------
Income (loss) from operations............ (776) (2,871) 4,690
Total interest and other income, net....... 566 506 515
-------- -------- -------
Income (loss) before taxes................. (210) (2,365) 5,205
Income tax provision (benefit)(/4/)........ (2,119) 59 407
-------- -------- -------
Income (loss) from continuing opera-
tions................................... $ 1,909 $(2,424) $ 4,798
======== ======== =======
Income (loss) from continuing operations
per share:
Basic.................................... $ 0.14 $ (0.17) $ 0.36
Diluted.................................. $ 0.14 $ (0.17) $ 0.35
Shares used in computing income (loss) from
continuing operations per share:
Basic.................................... 13,460 13,904 13,506
Diluted.................................. 14,111 13,904 13,876

As of December
31, 1999
----------------
As
Actual Adjusted
Balance Sheet Data: ------- --------

Total cash, cash equivalents and short-term investments....... $ 9,774 $50,399
Total assets.................................................. 40,793 81,418
Short-term obligations........................................ 15 15
Long-term obligations......................................... 3,165 3,165
Total stockholders' equity.................................... 33,237 73,862

- ------------------------------
(/1/)Our dental implant business was sold in May 1997. The transaction,
including associated costs, resulted in a net charge to operating expenses of
$617,000 in 1997. Net sales from the dental business were approximately $1.7
million in 1997.

(/2/)In 1997, we recognized an inventory valuation adjustment of $925,000 for
inventory made obsolete by our Synergy Spinal System enhancements.

(/3/)Amount includes $5.0 million of non-recurring charges related to the May
1998 merger with Cross, the subsequent restructuring associated with the
closing of the Dublin, Ohio facility and the relocation of employees and
assets from Dublin to Irvine, California.

(/4/)In 1997, 1998 and 1999, we recognized deferred tax assets of $2.0 million,
$211,000 and $1.6 million, respectively, which had previously been fully
reserved in accordance with Statement of Financial Accounting Standards No.
109.

RISK FACTORS

You should carefully consider the following risk factors before you decide to
buy our common stock. You should also consider the other information in this
prospectus and information incorporated by reference in this prospectus. In
addition, the risks and uncertainties described below are not the only ones
facing us because we are also subject to additional risks and uncertainties not
presently known to us. If any of these risks actually occur, our business,
financial condition, operating results or cash flows could be harmed. This
could cause the trading price of our common stock to decline, and you may lose
part or all of your investment.

Risks Related to Our Business

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

We anticipate that most of our revenue growth in the future, if any, will come
from our spinal implant products and from our orthobiologic products. There can
be no assurance that we will be successful in increasing sales of our current
product offering. Additionally, there can be no assurance that our efforts to
develop new products will be successful. If our development efforts are
successful, there can be no assurance that we will be successful in marketing
and selling our new products. 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. As a result, we may not be able
to produce sufficient sales to maintain profitability.

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

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 Osteotech, Inc., GenSci
Regeneration Technologies and Wright Medical Technology. Many of these
companies have broader product lines than we do. Many potential customers have
relationships with our competitors that could make it difficult for us to
continue to penetrate the markets for our products. In addition, many of our
competitors have significantly greater resources than we do. Accordingly, they
could substantially increase the resources they devote to the development and
marketing of products that are competitive with ours.

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

Because our AGF related products were introduced only recently under a 510(k)
clearance, we lack long-term clinical data regarding the efficacy and long-term
results of AGF. To date, we have completed no long-term clinical studies 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. We cannot
predict whether the medical community will accept AGF or, if accepted, the
extent of its use. If long-term studies or clinical experience indicate that
AGF causes negative effects, we could be subject to significant

liability. Our strategy to increase sales of AGF is to market these products
primarily to our spinal implant customers. There is no assurance that the
strategy will work, however, and no assurance that sales of our AGF related
products will increase.

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

We have recently made significant changes to our domestic distribution network
for the sale of our products. We have decreased the number of direct sales
representatives and increased the number of and expanded the territories of
independent agents. We expect to continue to increase our reliance on
independent agents for the domestic distribution of both orthobiologic and
spinal implant products. Independent commissioned sales agents 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 agents about our
products and our marketing programs. Our ability to increase our use of
independent sales agents has been aided by some of our competitors' replacement
of independent agents with direct sales representatives. However, our
competitors may not continue to utilize direct sales representatives and we can
therefore give no assurance that we will continue to be able to attract new or
retain our current independent sales agents. There can be no assurance that we
will be able to develop an effective distribution network or that our sales
force will be able to continue to increase sales or maintain current sales
levels of our products.

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
facility are possible. The process of obtaining regulatory approvals to market
a medical device, particularly from the FDA, can be costly and time-consuming,
and there can be no assurance 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. There can be no assurance 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 our products that are in final development will be
eligible for the 510(k) premarket notification process. If the FDA does not
clear marketing of our products in final development through the 510(k)
clearance process, we will be forced to comply with the PMA approval process in
order to obtain FDA approval for these products. If we choose to go through the
PMA approval process, there will be significant costs and delays in the
introduction of our new products, if they are approved at all. Moreover,
foreign governmental authorities have become increasingly stringent and we may
be subject to more rigorous regulation by foreign governmental authorities in
the future. Any inability or failure of our foreign independent distributors to
comply with the varying regulations or the imposition of new regulations could
restrict such distributors' ability to sell our products internationally and
thereby adversely affect our business. All products and manufacturing
facilities are subject to continual review and periodic inspection by the FDA.
The discovery of previously unknown problems with our company or our products
or facilities may result in product labeling restrictions, recall, or
withdrawal of the products from the market. In addition, the FDA actively
enforces regulations prohibiting the promotion of medical devices for
unapproved indications. If the FDA determines that we have marketed our
products for off-label use, we could be subject to fines, injunctions or other
penalties.

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

We manufacture medical devices that are used on patients in surgical
procedures, and we may be subject to product liability claims and product
recalls. The spinal implant industry has been historically litigious and we
face an inherent business risk of financial exposure to product liability
claims. Since our spinal products are often 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. Prior to our merger with Cross, Cross had been named as a defendant in
approximately 800 cases alleging principally that it had participated in an
industry-wide conspiracy to market pedicle screw implants for off-label use,
although none of the four remaining conspiracy lawsuits involve any of our
products. 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.

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. There can be no assurance 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. There can be no assurance that these agreements will not be
breached, that we will have adequate remedies for any breach, that others will
not independently develop substantially equivalent proprietary information or
that third parties will not otherwise gain access to our trade secrets and
proprietary knowledge. If our intellectual property is not adequately
protected, our competitors could use the intellectual property that we have
developed to enhance their products and compete more directly with us, which
could result in a decrease in our market share and profits.

The medical product industry is characterized by frequent and substantial
intellectual property litigation and competitors may resort to intellectual
property litigation as a means of competition. Intellectual property litigation
is complex and expensive, and the outcome of such litigation is difficult to
predict. Any future litigation, regardless of the outcome, could result in
substantial expense and significant diversion of the efforts of our technical
and management personnel. 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. 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.

Possible denial of third-party reimbursement could materially adversely affect
our future business, results of operations and financial condition.

In the United States, our products are purchased by hospitals, who 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 international markets, reimbursement and healthcare payment
systems vary significantly by country and many countries have instituted price
ceilings on specific product lines. There can be no assurance 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 these suppliers could
adversely affect our business.

We do not machine the components for our spinal implants or instruments;
rather, we are dependent upon several suppliers for the machining of such
components. Also, the UltraConcentrator(TM), one of our products used to
collect AGF, is manufactured under an exclusive supply agreement with a vendor
that itself has a sole source of supply for filter material, a key component of
the UltraConcentrator. In the event that we are unable to obtain components for
any of our products, or obtain such components on commercially reasonable
terms, we may not be able to manufacture or distribute our products on a timely
and competitive basis, or at all. Any delays in product availability or costs
incurred in locating alternative suppliers could have a material adverse effect
on our operations.

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

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

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

In 1999, approximately 22% 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.

Future acquisitions could adversely affect our operations or financial results.

From time to time, we consider acquisition of technology product lines or
businesses to supplement our current product offering. Any such future
acquisitions involve risks such as the following:

. we may be exposed to unknown liabilities of acquired companies;

. our acquisition and integration costs may be higher than we anticipated
and may cause our quarterly and annual operating results to fluctuate;

. we may experience difficulty and expense in assimilating the operations
and personnel of the acquired businesses, disrupting our business and
diverting management's time and attention; and

. our relationships with key customers of acquired businesses may be
impaired, due to changes in management and ownership of the acquired
businesses.

Risks Related to the Purchase of Our Common Stock in the Offering

Some provisions of our charter and bylaws may make a takeover difficult.

Some of the provisions of our charter and bylaws, including new amendments
recently approved by our stockholders, might enable our management to resist a
takeover. These provisions include:

. staggered election of our board of directors;

. limitations on persons authorized to call a special meeting of
stockholders;

. supermajority voting requirements with respect to some business
combination transactions;

. advance notice procedures required for stockholders to make nominations
of candidates for election as directors or to bring matters before an
annual meeting of stockholders; and

. the inability of stockholders to take action by written consent.

In addition, our board of directors has adopted a stockholders' rights plan
providing for discount purchase rights to some of our stockholders upon some
acquisitions of our common stock. We are also subject to Section 203 of the
Delaware General Corporation Law, an anti-takeover law. These provisions might
discourage, delay or prevent a change of control or a change in our management.
These provisions could also discourage proxy contests and make it more
difficult for you and other stockholders to elect directors and take other
corporate actions. A combination of these and other factors could result in any
attempted takeover, tender offer, merger or similar transaction being
unsuccessful.

Our stock price may be volatile.

Our stock price has been and is likely to continue to be highly volatile,
particularly due to our relatively limited trading volume. Our stock price
could fluctuate significantly due to a number of factors, including:

. variations in our actual operating results, changes in securities
analysts' estimates of our performance, or our failure to meet analysts'
expectations;

. sales of substantial amounts of our stock;

. announcements about us or our competitors, including technological
innovations or new products or services;

. litigation and other developments relating to our patents or other
proprietary rights or those of our competitors;

. conditions in the life sciences, biomaterials or medical device markets;

. governmental regulation and legislation; and

. price and volume fluctuations in the stock markets in general, and the
Nasdaq National Market and the market for small-cap, life sciences and
technology companies in particular.

Many of these factors are beyond our control. In the past, companies that have
experienced volatility in the market prices of their stock have been the object
of securities class action litigation. If we are the object of securities class
action litigation, it could result in substantial costs and a diversion of
management's attention and resources.

Our management has broad discretion in spending the proceeds of the offering.

Our management will have broad discretion in spending the proceeds of the
offering. Because of the number and variability of factors that determine our
use of the proceeds of the offering, future uses may vary from our current
intentions and stockholders may not agree with the uses we have chosen.

USE OF PROCEEDS

The net proceeds to us from the sale of the shares we are offering, after
deducting underwriting discounts and estimated offering expenses, are estimated
to be approximately $40.6 million, assuming a public offering price of $12.50
per share. We will not receive any proceeds from the sale of shares by the
selling stockholders.

We intend to use the net proceeds of this offering to fund expansion of our
spinal implant and orthobiologic product lines through research and
development, to fund scientific and clinical studies involving the use of our
AGF technology and for general corporate purposes, including increases in
working capital. In addition, we may also use a portion of the net proceeds to
acquire businesses, assets, technologies or product lines that complement our
existing business if these transactions could be effected on terms which we
deem to be favorable.

Our management will have significant flexibility in applying the net proceeds
of the offering. Pending any use as described above, we intend to invest the
net proceeds in interest-bearing investment grade instruments.

PRICE RANGE OF COMMON STOCK

Our common stock commenced trading on the Nasdaq National Market under the
symbol "BONZ" on December 20, 1993. The following table sets forth, for the
periods indicated, the intra-day high and low sales prices per share of common
stock on the Nasdaq National Market:

High Low
------ -----

Year Ended December 31, 1998
First Quarter..................................................... $ 9.13 $5.50
Second Quarter.................................................... $ 7.75 $5.00
Third Quarter..................................................... $ 5.50 $3.69
Fourth Quarter.................................................... $ 6.13 $2.38

Year Ended December 31, 1999
First Quarter..................................................... $ 5.97 $4.06
Second Quarter.................................................... $ 5.38 $3.88
Third Quarter..................................................... $ 8.25 $4.13
Fourth Quarter.................................................... $ 8.00 $4.94

Year Ended December 31, 2000
First Quarter through March 13, 2000.............................. $14.25 $7.63

As of March 3, 2000, there were approximately 611 stockholders of record of our
common stock.

DIVIDEND POLICY

We currently do not pay any dividends on our preferred or common stock and our
Board of Directors has no intention to pay cash dividends in the foreseeable
future. The Board of Directors intends to use any earnings for the development
and expansion of our business.

FORWARD-LOOKING STATEMENTS

This prospectus contains certain "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995 and information relating to us
that are based on the beliefs of our management, as well as assumptions made by
and information currently available to our management. When used in this
prospectus, the words "estimate," "project," "believe," "anticipate," "intend,"
"expect" and similar expressions are intended to identify forward-looking
statements. These forward-looking statements reflect our current views with
respect to future events and are subject to risks and uncertainties that could
cause actual results to differ materially from those contemplated in these
forward-looking statements, including those risks discussed in this prospectus.

You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date on this prospectus. We have no
obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date of this prospectus
or to reflect the occurrence of unanticipated events.

CAPITALIZATION
(in thousands, except per share data)

The following table sets forth, as of December 31, 1999, our capitalization (1)
on an actual basis, and (2) on an as adjusted basis to give effect to the sale
of the 3,500,000 shares we are offering by this prospectus at an assumed public
offering price of $12.50 per share, after deducting underwriting discounts and
the estimated offering expenses.

As of
December 31,
1999
-----------------
As
Actual Adjusted
------- --------

Long-term obligations, less current portion.................. $ 3,165 $ 3,165
Stockholders' equity:
Series E convertible preferred stock, voting, $.01 par val-
ue; 594,000 shares authorized; 25,573 shares issued and
outstanding, with aggregate liquidation value of $192 .... -- --
Preferred stock, $.01 par value; 4,406,000 shares autho-
rized; no shares issued and outstanding(/1/).............. -- --
Common stock, $.01 par value; 50,000,000 shares authorized;
14,272,279 shares issued and outstanding, actual;
17,167,279 shares issued and outstanding, as adjust-
ed(/2/)................................................... 143 172
Additional paid-in capital................................. 45,451 82,938
Accumulated deficit........................................ (9,244) (9,244)
Accumulated other comprehensive loss....................... (4) (4)
Treasury stock, at cost, 605,000 shares, actual; no shares,
as adjusted(/3/).......................................... (3,109) --
------- --------
Total stockholders' equity............................... $33,237 $73,862
------- --------
Total capitalization................................... $36,402 $77,027
======= ========

- -------------------------------
(/1/)On March 1, 2000, all of our Series E Preferred Stock was automatically
converted into common stock pursuant to our Certificate of Incorporation.

(/2/)The number of shares as adjusted for this offering excludes, as of
December 31, 1999:

. 2,402,930 shares of our common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $5.41 per
share;

. 200,000 shares of our common stock issuable upon the exercise of
outstanding warrants at a weighted average exercise price of $7.875 per
share;

. 208,624 shares of our common stock available for issuance under our
Employee Stock Purchase Plan; and

. 852,125 shares of our common stock available for grant pursuant to our
seven stock option plans.

(/3/)The 605,000 shares held in treasury at December 31, 1999 are assumed to be
sold as part of the shares offered by us.

SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)

In the table below, we provide you with selected consolidated financial data of
Interpore International, Inc. We have prepared this information using the
consolidated financial statements of Interpore International, Inc. as of and
for the years ended December 31, 1995, 1996, 1997, 1998 and 1999. Interpore
International, Inc. and Cross Medical Products, Inc. merged in May 1998. The
merger was accounted for as a pooling-of-interests. Accordingly, data as of and
for the years ended December 31, 1995, 1996 and 1997 have been restated to
include the financial information of both companies.

Year ended December 31,
------------------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- -------- -------

Statement of Operations
Data:
Net sales............... $21,194(/1/) $28,489(/1/) $28,429(/1/) $ 30,209 $38,856
Cost of goods sold...... 6,793 9,497 9,110(/2/) 8,552 11,645
------- ------- ------- -------- -------
Gross profit.......... 14,401 18,992 19,319 21,657 27,211
Total operating ex-
penses................. 16,415 19,396 20,095(/1/) 24,528(/3/) 22,521
------- ------- ------- -------- -------
Income (loss) from op-
erations............. (2,014) (404) (776) (2,871) 4,690
Total interest and other
income, net............ 560 324 566 506 515
------- ------- ------- -------- -------
Income (loss) before
taxes.................. (1,454) (80) (210) (2,365) 5,205
Income tax provision
(benefit)(/4/)......... (2,050) (788) (2,119) 59 407
------- ------- ------- -------- -------
Income (loss) from
continuing opera-
tions................ $ 596 $ 708 $1,909 $(2,424) $4,798
======= ======= ======= ======== =======
Income (loss) from con-
tinuing operations
per share:
Basic................. $ 0.05 $ 0.05 $ 0.14 $ (0.17) $ 0.36
Diluted............... $ 0.04 $ 0.05 $ 0.14 $ (0.17) $ 0.35
Shares used in computing
income (loss) from
continuing operations
per share:
Basic................. 12,695 13,080 13,460 13,904 13,506
Diluted............... 13,478 14,530 14,111 13,904 13,876

As of December 31,
------------------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- -------- -------

Balance Sheet Data:
Total cash, cash
equivalents and short-
term investments....... $11,629 $10,480 $16,590 $ 7,908 $ 9,774
Total assets............ 31,203 39,869 41,483 34,147 40,793
Short-term obligations.. 3,194 1,664 95 15 15
Long-term obligations... 85 5,482 5,124 3,181 3,165
Total stockholders' eq-
uity................... 22,579 24,179 31,634 26,951 33,237

- -------------------------------
(/1/)Our dental implant business was sold in May 1997. The transaction,
including associated costs, resulted in a net charge to operating expenses of
$617,000 in 1997. Net sales from the dental business were approximately $8.1
million, $7.1 million and $1.7 million in 1995, 1996 and 1997, respectively.

(/2/)In 1997, we recognized an inventory valuation adjustment of $925,000 for
inventory made obsolete by our Synergy Spinal System enhancements.

(/4/)In 1995, 1996, 1997, 1998 and 1999, we recognized deferred tax assets of
$1.6 million, $683,000, $2.0 million, $211,000 and $1.6 million, respectively,
which had previously been fully reserved in accordance with Statement of
Financial Accounting Standards No. 109.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with the consolidated
financial statements and related notes appearing elsewhere in this prospectus.

Financial Overview

Our revenues are generated from the sale of products in two principal product
categories--spinal implant products and orthobiologic products. Our spinal
implant products consist of titanium or stainless steel hooks, rods 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
synthetic bone graft substitute materials and products used to derive AGF. AGF
is used to provide faster, more complete bone growth and enhance the
performance of our bone graft products.

In May 1998, Interpore International, Inc. merged with Cross Medical Products,
Inc., combining Interpore's orthobiologics expertise and product offering with
Cross' spinal implant expertise and products. The merger was accounted for as a
pooling-of-interests, and all financial information related to periods prior to
the merger has been restated to reflect the financial information of both
companies as if we had always been a combined entity.

All of our operations are located in the United States, however, we sell our
products to customers both within and outside the United States. In 1999, our
domestic sales were 78% of total sales and our international sales were 22% of
total sales. Within the United States, we distribute our products primarily
through independent agents. These independent agents provide a delivery and
consultative service 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, we invoice hospitals directly following a
surgical procedure in which our products are used. Our spinal implant products
are made available to hospitals from consignment inventories maintained by our
larger independent agents, 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 generally ranging from 40% to 70% of our
U.S. list prices. The distributors service 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 gross margins are 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 sales
and orthobiologic sales also affects our gross margins, with higher margins in
orthobiologics.

Financial Trends

We experienced operating losses in the years 1995 through 1998. Factors
contributing to the losses through 1997 include our significant investment in
the development of our spinal implant business and declining sales and
profitability in our former dental implant business, which was sold in May
1997. The $776,000 loss from operations in 1997 included a $617,000 loss on the
sale of our dental implant business and a $925,000

unfavorable adjustment for inventory made obsolete by our Synergy Spinal System
enhancements. In 1998, we had a $2.9 million operating loss which included
approximately $5 million in non-recurring charges, including charges related to
our merger with Cross. However, without the non-recurring charges, we would
have had operating profit of $2.1 million in 1998, representing 7% of sales.

In 1999, our revenue grew by 29%, and we had an operating profit of $4.7
million, or 12% of sales. We believe the improved performance was primarily the
result of the following:

. The successful recruiting of more experienced independent agents and
sales managers from our larger spinal implant competitors, which
improved our revenue growth rate;

. Incremental profit from increased revenues, including over $2.8 million
in sales of newly-introduced AGF related products; and

. Cost reductions and operating efficiencies resulting from the
consolidation of operations following the merger of Interpore and Cross.

Despite our operating losses in the years 1995 through 1997, we reported
positive income from continuing operations. This resulted from the recognition
of deferred tax assets which had previously been fully reserved in accordance
with Statement of Financial Accounting Standards No. 109. In 1998, despite a
pre-tax loss, taxable income was recognized as a result of some disallowed
merger cost deductions. This coupled with the reduction of the valuation
allowance resulted in a net tax provision of $59,000. In 1999, our increased
profitability eliminated the remaining valuation allowance against our deferred
tax assets. This resulted in the need to record an income tax provision for the
quarter and year ended December 31, 1999, and we expect to record tax
provisions going forward. Therefore, the recording of tax provisions will
negatively affect net income for the year 2000 in comparison to 1999. Had we
recorded an income tax provision in 1999 at an effective tax rate of 39%, our
diluted earnings per share would have been $0.23 versus the $0.35 that we
reported.

All of the information set forth above relates to our continuing operations.
However, discontinued operations contributed significantly to net income in
1996 and 1997. Income from discontinued operations was $1.2 million in 1996 and
$2.5 million in 1997, including a $2.2 million gain on the sale of our recovery
products segment in March 1997.

Results of Operations

The following table presents our results of operations as percentages:

Percentage Change
Percentage of Net Sales -----------------
Year ended December 31,
------------------------- 1998 vs. 1999 vs.
1997 1998 1999 1997 1998
-------- -------- ------- -------- --------

Net sales.......................... 100.0% 100.0% 100.0% 6.3% 28.6%
Cost of goods sold................. 32.0% 28.3% 30.0% (6.1%) 36.2%
-------- -------- ------- ------- ------
Gross profit..................... 68.0% 71.7% 70.0% 12.1% 25.7%
-------- -------- ------- ------- ------
Operating expenses:
Research and development......... 11.3% 12.1% 10.7% 13.4% 14.9%
Selling and marketing............ 40.7% 39.1% 36.0% 2.2% 18.2%
General and administrative....... 16.5% 13.4% 11.2% (13.8%) 7.8%
Merger-related expenses.......... -- 10.0% -- -- --
Restructuring charges............ -- 5.0% -- -- --
Non-recurring charges............ -- 1.6% -- -- --
Loss on sale of dental business.. 2.2% -- -- -- --
-------- -------- ------- ------- ------
Total operating expenses....... 70.7% 81.2% 57.9% 22.1% (8.2%)
-------- -------- ------- ------- ------
Income (loss) from opera-
tions....................... (2.7%) (9.5%) 12.1% -- --
======== ======== ======= ======= ======

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

For the year ended December 31, 1999, sales of $38.9 million were $8.6 million,
or 28.6%, higher than sales of $30.2 million for the previous year. The
following table presents sales by category (in thousands):

Year ended December 31, Change
----------------------- --------------
1998 1999 Amount Percent
----------- ----------- ------ -------

Spinal implant product sales............. $ 15,367 $ 20,807 $5,440 35.4%
Orthobiologic product sales.............. 14,842 18,049 3,207 21.6%
----------- ----------- ------ -----
Total sales............................ $ 30,209 $ 38,856 $8,647 28.6%
=========== =========== ====== =====

Sales of spinal implant products increased in the year ended December 31, 1999
by $5.4 million, or 35.4%, to $20.8 million, compared to $15.4 million for the
year ended December 31, 1998. The increase reflects continued market
penetration of the Synergy Spinal System, aided by improved distribution and
territory coverage.

Sales of orthobiologic products increased by $3.2 million, or 21.6%, to $18.0
million for the year ended December 31, 1999, compared to $14.8 million for the
year ended December 31, 1998. Our new AGF related products, which were launched
on a nationwide basis during the second quarter of 1999, accounted for
$2.8 million of orthobiologic products sales during 1999. Sales of synthetic
bone products remained relatively level for the two periods.

Total domestic sales of spinal products and orthobiologic products increased
30.2%, or $7.0 million, to $30.1 million for the year ended December 31, 1999,
compared to $23.1 million for the same period of 1998. International sales
increased $1.6 million, or 23.4%, to $8.7 million for the twelve months ended
December 31, 1999, compared to $7.1 million for the same period of 1998.

For the year ended December 31, 1999, gross margin as a percentage of sales was
70.0%, compared to 71.7% for the year ended December 31, 1998. Spine products
sales, which have a lower gross margin than orthobiologic products sales,
comprised a greater percentage of total sales in 1999 than in 1998.

Total operating expenses for the year ended December 31, 1999 decreased by $2.0
million, or 8.2%, to $22.5 million, compared to total operating expenses of
$24.5 million during the same period of 1998. Excluding merger related
expenses, restructuring charges and non-recurring charges recorded in 1998,
operating expenses increased $3.0 million, or 15.4%, but decreased as a
percentage of sales from 64.6% in 1998 to 57.9% in 1999. Research and
development expenses increased by 14.9%, or $542,000, in 1999 due primarily to
salaries for additional engineers hired for spinal implant development
projects. Selling and marketing expenses in 1999 increased $2.2 million, or
18.2%, compared to 1998, primarily due to increased commissions on higher
domestic sales in 1999 and the hiring of additional sales and marketing staff.
General and administrative expenses increased by $316,000, or 7.8%, in 1999,
primarily as the result of increased corporate bonus expense and higher product
liability insurance premiums resulting from increased sales offset partially by
a decrease in property taxes resulting from the closure of the Ohio facility.

Total interest and other income were approximately the same in the two periods,
as reduced interest income on lower average cash, cash equivalents and short-
term investments balances in 1999 was mostly offset by reduced interest
expense. We had lower average cash, cash equivalents and short-term investments
balances in 1999 compared to 1998 due to the payment of merger-related
expenses, restructuring charges and non-recurring charges, the repurchase of
605,000 shares of our common stock and the redemption of convertible
debentures. Interest expense was lower in 1999 than in 1998 due primarily to
the write-off of prepaid debt issuance costs associated with convertible
debentures which were redeemed during 1998. This redemption also lowered
interest expense in 1999.

In 1998, despite a pre-tax loss, taxable income was recognized as a result of
some disallowed merger cost deductions. This coupled with the reduction of the
valuation allowance resulted in a net tax provision of $59,000. In 1999, our
increased profitability eliminated the remaining valuation allowance against
our deferred tax assets. This resulted in the need to record an income tax
provision for the year ended December 31, 1999 at an effective tax rate of
approximately 7.8%. We expect to record an income tax provision in 2000.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

For the year ended December 31, 1998, net sales of $30.2 million were $1.8
million, or 6.3%, higher than net sales of $28.4 million for the previous year.
However, 1997 included $1.7 million of sales from the dental business which was
sold in May 1997. Excluding dental products, net sales increased $3.5 million,
or 13.0%, in 1998 compared to 1997. The following table presents sales by
category (in thousands):

Year ended
December 31, Change
--------------- ----------------
1997 1998 Amount Percent
------- ------- ------- --------

Spinal implant product sales................... $12,918 $15,367 $2,449 19.0%
Orthobiologic product sales.................... 13,805 14,842 1,037 7.5%
------- ------- ------- --------
Sub-total.................................... 26,723 30,209 3,486 13.0%
Dental product sales........................... 1,706 -- (1,706) (100.0%)
------- ------- ------- --------
Total sales.................................. $28,429 $30,209 $1,780 6.3%
======= ======= ======= ========

Sales of spinal implant products increased in the year ended December 31, 1998
by $2.4 million, or 19.0%, to $15.4 million, compared to $12.9 million for the
year ended December 31, 1997. The increase reflects continued market
penetration of this relatively new system, aided by the improved distribution
and greater domestic territory coverage following the merger.

Sales of orthobiologic products increased by $1.0 million, or 7.5%, to $14.8
million for the year ended December 31, 1998, compared to $13.8 million for the
year ended December 31, 1997. Pro Osteon sales increased by $1.7 million, due
to the introduction of the resorbable version, Pro Osteon 500R, in the fourth
quarter of 1998, along with improved distribution following the merger and
resultant consolidation of sales forces. OEM sales, which are dependent upon
the ordering patterns of two customers, decreased by $624,000 in 1998 versus
1997.

Total domestic sales of spinal products and orthobiologics increased 15.6%, or
$3.1 million, to $23.1 million for the year ended December 31, 1998, compared
to $20.0 million for the same period of 1997. International sales increased
$363,000, or 5.4%, to $7.1 million for the twelve months ended December 31,
1998, from $6.7 million for the same period of 1997.

For the year ended December 31, 1998, gross margin as a percentage of sales was
71.7%, compared to 68.0% for the year ended December 31, 1997. The 1997 gross
margin was lower as a result of an inventory valuation adjustment of $925,000
that was recognized for inventory made obsolete by our Synergy Spinal System
enhancements. Additionally, domestic sales, which have a higher gross margin
than international sales, comprised a greater percentage of total sales in 1998
than in 1997.

Total operating expenses for the year ended December 31, 1998 increased by $4.4
million, or 22.1%, to $24.5 million, compared to total operating expenses of
$20.1 million during the same period of 1997. The increase in operating
expenses was primarily due to $5.0 million of merger-related expenses,
restructuring charges and non-recurring charges incurred in 1998. Excluding
these charges and the 1997 loss on the sale of the dental business, total
operating expenses remained relatively level between the two periods. Research
and development expenses increased by 13.4%, or $430,000, in 1998 as a result
of increased spinal product development efforts and increased regulatory
expenses related to obtaining FDA clearances for Pro Osteon 500R and AGF
related products. Selling and marketing expenses in 1998 increased $251,000, or
2.2%, compared to 1997 due primarily to increased commissions on higher
domestic sales in 1998, offset partially by the elimination of selling and
marketing expenses related to the dental business. General and administrative
expenses decreased by $648,000, or 13.8%, in 1998, primarily as the result of
cost reductions following the sale of the dental business and the merger with
Cross.

The $60,000, or 10.6%, decrease in net interest and other income relates to a
reduction in interest income due to lower cash, cash equivalents and short-term
investments. The decrease was partially offset by increased royalty income.

Liquidity and Capital Resources

In 1999, our operations generated positive cash flow of approximately $2.9
million. We invest our excess cash in U.S. Treasury securities and high-grade
marketable securities. At December 31, 1999, cash, cash equivalents and short-
term investments totaled $9.8 million, up $1.9 million from $7.9 million at
December 31, 1998. We also have a $5.0 million revolving line of credit
available to us that had no amount outstanding at December 31, 1999 and which
expires in June 2000. We currently intend to seek an extension of that
facility.

Other significant sources of cash in the past included $8.2 million in proceeds
from the sale of our recovery products segment in 1997 and $1.5 million in net
proceeds in 1997 and 1998 from the sale of our dental business.

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. We also intend to continue to invest in the development of
our business. In 1998, we merged with Cross and exchanged approximately 6.7
million shares of our common stock for all of the outstanding common stock of
Cross. In 1999, we purchased all of the intellectual property of Quantic
Biomedical, Inc., which included all of the AGF patents and technology, for
$500,000 in cash, 100,000 unregistered shares of our common stock and warrants
to purchase 200,000 shares of our common stock.

We believe we currently possess sufficient resources to meet the cash
requirements of our operations for at least the next year. However, some of the
aforementioned activities may require cash in excess of that which we currently
possess, and we can give no assurance that we will be able to raise the
additional capital on satisfactory terms, if at all.

At December 31, 1999, we had no material commitments for capital expenditures.

Impact of Year 2000

Year 2000 problems are the result of computer programs being written using two
digits rather than four to define the applicable year. If not corrected, many
computer applications could fail or create erroneous results by not recognizing
"00" to mean the year 2000.

In 1999, we completed our testing of all critical software and hardware systems
and determined that all are Year 2000 compliant. Vendor certifications were
received from all critical vendors indicating that they were either currently
compliant or that they would be compliant by December 31, 1999. To date, we
have not needed to implement any major system or software replacements due to
the Year 2000 issue. We have not incurred and do not expect to incur any
material direct costs associated with Year 2000 issues.

We have not experienced and do not expect to experience any significant Year
2000 problems or interruptions. We cannot assure you that mission critical
vendors and customers will not incur a Year 2000 problem or interruption, but
we believe we have adequate computer file backup procedures and manual
operating procedures that will enable us to continue the critical processes of
our business.

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.

BUSINESS

Overview

Prior to our merger with Cross, Interpore International developed and marketed
a line of synthetic bone graft materials. In May 1998 we merged with Cross, a
company offering a broad line of spinal implants. Our merger with Cross created
a medical device company with a complementary combination of spinal implant and
orthobiologic technologies, an expanded product portfolio and distribution
channels specifically addressing the spinal surgery market. Our combined
product portfolio addresses two of the fastest growing areas in the medical
device industry--spinal implants and orthobiologics.

In the spinal implant product category, we offer the Synergy Spinal System
which is used in spine fusion procedures. Our current product offering is
applicable to lumbar and thoracic fusions, which represent over 58% of spine
fusion procedures. We believe our Synergy Spinal System enhancements, cervical
devices and spine cages, which are in late stage development, will provide us
with the products necessary to address the remaining spine fusion procedures
that utilize spinal implants.

Our principal orthobiologic offering includes synthetic bone graft products and
AGF related products. Our Pro Osteon products are implanted in a bone deficit
and provide a matrix that facilitates new bone ingrowth. Pro Osteon was the
first synthetic bone graft substitute to obtain FDA approval for orthopedic
applications. We estimate that it has been used in more than 150,000 patients
since its introduction. Our BonePlast is a resorbable bone void filler that is
replaced by the patient's own bone during the healing process. We commercially
launched our AGF related products in the second quarter of 1999 and estimate
that approximately 5,000 patients have been treated with AGF since the
beginning of 1999. AGF is a concentrate of growth factors derived from
platelets in a patient's own blood which is used to accelerate bone repair. We
believe AGF will have application in a wide variety of bone and soft tissue
procedures.

Virtually all spine fusion procedures require the use of a bone graft and a
majority of these procedures also use spinal implants. AGF can be applied
wherever bone grafts are used. We offer three distinct product lines which can
be used in combination for spinal fusions: spinal implants, synthetic bone
graft materials and products used to derive growth factors. Because spine
surgeons are the primary customers for each of our product lines, we believe
our complementary product portfolio provides substantial cross selling
opportunities to our distribution network. We plan to develop and commercialize
new products which will allow us to offer our customers a more comprehensive
solution for spine fusion procedures.

Spine Anatomy

The spinal column consists of 24 separate bones called vertebrae that are
connected together to permit a normal range of motion. The spinal cord, the
body's central nerve column, is enclosed within the spinal column. Vertebrae
are paired into what are called motion segments that move by means of three
joints: two facet joints and one spinal disc. The typical spine, as it relates
to spinal implants, is made up of the following four main regions:

. Cervical vertebrae are the first seven vertebrae in the neck;

. Thoracic vertebrae are the next twelve vertebrae in the chest or rib
cage;

. Lumbar vertebrae are the next five vertebrae in the lower back; and

. The sacrum.

[Graphic depicting the anatomy of the spine.]

Spine Disorders

The following are the four major categories of spine disorders:

. Degenerative conditions. Degenerative conditions in the facet joints and
disc can result in instability and impingement on the nerve roots as
they exit the spinal canal, causing back pain or radiating pain in the
arms or legs.

. Deformities. Deformities, such as scoliosis, are deviations in the
normal curvature and alignment of the spine. Deformities range in
severity from cosmetic issues through varying levels of pain, discomfort
or reduced function.

. Trauma. Trauma, or injuries to the spine, if not corrected, can result
in instability, pain, damage to the spinal cord and/or nerve roots,
paralysis and deformity.

. Tumors. Tumors in the spine typically occur in the vertebral body and
eventually result in fracture of the vertebral body, causing
instability, pain and deformity.

Surgical Treatment of Spine Disorders

The prescribed treatment for spine disorders depends on the severity and
duration of the disorder and the success or failure of non-operative therapies.
Non-operative therapies include bed rest, medication, lifestyle modification,
exercise, physical therapy, chiropractic care and steroid injections. However,
non-operative treatment options are not effective in many cases, and we
estimate that over 500,000 patients undergo spinal surgery, such as spine
fusions and spinal discectomies, each year in the United States.

Advanced cases of spine disorders can require that surgeons remove all or part
of a damaged disc and/or fuse two or more adjoining vertebrae together. A
fusion involves the placement of bone graft material between two vertebrae and
may involve the use of spinal implants to immobilize the vertebrae while they
fuse together. The bone graft is intended to provide a matrix that facilitates
new bone ingrowth. Complete formation of new bone may take six to eighteen
months. For many years, surgeons have sought a means to increase the rate of
new bone formation at a surgical site. However, until recently, no growth
inducing agents were commercially available.

We estimate that approximately 42% of the spine fusion procedures are performed
in the cervical spine, approximately 52% are performed in the lumbar spine, and
approximately 6% are performed in the thoracic spine. Our current spinal
implants address the lumbar and thoracic regions of the spine.

Spinal Implant Market Overview

The number of spine fusion procedures performed annually in the United States
is estimated to exceed 260,000. In 1998, the U.S. market for spinal implants,
one of the fastest-growing markets in the medical device industry, grew over
25%, and sales exceeded $670 million. We believe that the number of spine
fusion procedures will continue to grow, primarily as a result of demonstrated
better outcomes, surgeons' familiarity with spinal implants and the overall
aging of the population.

Our Spinal Implant Products

Synergy Spinal System. Our Synergy Spinal System consists of rods, hooks and
screws that are attached to vertebrae adjacent to an injured or defective area
of the spine. Our system is a "universal" implant system that allows surgeons
to treat both the thoracic and lumbar portions of the spine.

We believe our Synergy Spinal System offers a number of benefits, including the
following:

. Ease of Use. Our Synergy Spinal System was engineered to be easy for
surgeons to use, reducing surgical time and requiring less manipulation.
The screws and hooks are top tightening, the rods do not require pre-
loading of additional components, and all implants allow for free rod
rotation.

. Our patented variable locking screw design allows the surgeon to angle
and tighten screws in any plane, reducing the amount of required rod
bending and facilitating rod placement.

. The patented design of the external hexagonal head of our double hex
set screw shears off at a predetermined torque, allowing the surgeon
to consistently tighten screws to the right tension. However, an
internal hexagonal cavity remains to allow the surgeon to remove the
set screw if necessary.

. Universal Application. Synergy implants come in various sizes and types
to meet the surgeon's preferences and the patient's anatomy, providing a
secure anatomic fit for virtually any pathology. The Synergy Spinal
System does not require that surgeons follow a single surgical protocol,
but provides several options, and can be used in both anterior and
posterior applications, in both adults and children.

. Smaller and Stronger. We offer Synergy implants in either nitrogen-
strengthened stainless steel or titanium. The strength of the Synergy
implants provides resistance to fatigue and allows the implants to be
produced smaller than competing products. Titanium implants are
preferred in many foreign markets and are being used increasingly in the
United States because titanium allows magnetic resonance imaging of the
spinal area.

. Low Profile. Profile describes the prominence of implants above the
normal bony surfaces of the spine. The Synergy Spinal System was
designed to minimize the height and bulk of its implants, reducing the
risk of irritation, inflammation and infection for the patient. It is
consistently ranked as having one of the lowest profiles of commonly
available spinal implant systems.

Our Spinal Implant Products in Late Stages of Development

We continue to expand and enhance our spinal implant product line and are in
the late stages of developing :

. Cervical Implants. Implants are in development that will be applicable
to the cervical region of the spine, an area not currently addressed by
the Synergy Spinal System. We plan to submit a 510(k) application for
our cervical implants in mid-2000.

. Synergy Low Back Improvements. Planned improvements to our Synergy
Spinal System include screw and nut designs intended to reduce the space
taken up by screws along a rod, making the system easier to use in the
lower back. We have received 510(k) clearance for these improvements and
are in the process of commercially releasing the products.

. Corpectomy Cage. We have developed an expandable titanium cage intended
to replace one or two vertebral bodies in the cervical spine that have
been removed because of tumor. We have received a Humanitarian Device
Exemption from the FDA for the cervical version of our Telescopic Plate
Spacer (TPS(TM)). We are developing a version of the TPS for use in the
lumbar and thoracic regions of the spine, and plan to seek FDA approval
later in 2000.

Other products that we are currently developing are described in "Research and
Development."

Description of Orthobiologics

Orthobiologic products are used to replace bone damaged due to degenerative
conditions, deformities, trauma or tumors, or to provide supplemental bone
required in spine fusion procedures or in revision total joint procedures.

There are three types of orthobiologic products:

. Osteoconductive materials, which act as a scaffold for bone and tissue
growth while healing occurs;

. Osteoinductive materials, which promote or stimulate bone or tissue
growth; and

. Combination materials with both osteoconductive and osteoinductive
characteristics.
Bone is a composite material made up of bone cells and ceramic particles. Bone
continuously remodels itself, thereby repairing the small imperfections formed
due to everyday activity. Bone will often spontaneously repair minor fractures
without surgical intervention. However, major skeletal deficiencies from
trauma, spinal instability, degenerative conditions and tumor will frequently
require a surgical procedure involving bone graft.

Bone Grafts. Bone grafts are used in 400,000 to 500,000 procedures annually in
the United States. They are used for a wide variety of indications including
spine fusions, total joint surgery, maxillofacial applications and other
surgical procedures. There are currently three major categories of bone grafts:
autograft, allograft, and synthetic bone graft substitutes. We estimate that
more than half of the bone graft procedures performed in the United States are
autograft procedures, with the remaining procedures divided approximately
equally between allografts and synthetic bone graft substitutes.

Autograft bone is bone harvested from another part of the patient's skeleton,
typically the iliac crest or hip. Once harvested, the bone is grafted to the
site of the bone deficit. Harvesting bone typically requires a second surgical
procedure, increases total operating time and expense, and can lead to
complications such as infection, chronic pain, deformity and excess blood loss.
Autograft bone can have both osteoinductive and osteoconductive properties.

Allograft bone is bone obtained from a cadaver and is available in a variety of
forms, including chips, paste, blocks, gels and putties. While allograft bone
is available from numerous bone banks, its use carries risks of implant
rejection and transmission of infectious agents such as hepatitis B and HIV.
Also, allograft bone is not always readily available due to the storage,
processing and donor screening required, and patients are often reluctant to
have allograft implanted in their bodies. Allograft bone can have
osteoconductive and osteoinductive properties, however, we believe growth
factors may be destroyed in commonly used sterilization procedures.

Synthetic bone graft substitutes are artificially produced and can be used as
bone substitutes in place of autograft or allograft or mixed with autograft or
allograft. Synthetic bone graft substitutes are available in a wide range of
forms, including granules, blocks, strips, gels, slurries and injectable bone
graft cements. Synthetic bone graft substitutes generally have osteoconductive
properties.

Growth Factors. Specific proteins, called growth factors, regulate bone
generation by stimulating either the formation of new bone cells or the
replication of existing cells. We believe that the combination of growth
factors with bone grafts is the next major advancement in bone grafting. To
derive growth factors, a number of methods are under development, including
recombinant DNA technology and advanced filtration technologies. With
recombinant DNA technology, the desired human growth protein gene is introduced
into a production host, usually an animal, bacterial or yeast cell, and the
host makes the human protein along with its own. These proteins are then
concentrated and made into a usable form. Using filtration methods, the human
growth factor proteins are removed from the patient's own blood. These proteins
can be concentrated and combined with any of the three major categories of bone
graft.

Our Orthobiologic Products

Bone Graft Substitutes. Our Pro Osteon bone graft substitute products are
derived from the exoskeleton of two specific genera of coral and chemically
converted into a material with porosity, architecture and chemical composition
similar to that of human bone, using our proprietary manufacturing process. Due
to its structure, the graft provides a matrix that facilitates new bone
ingrowth. Our BonePlast bone void filler is a calcium sulfate (plaster-of-
paris) material that resorbs and is replaced with bone during the healing
process. Our line of osteoconductive bone graft products and, in the case of
Pro Osteon 200R, products awaiting regulatory approval, includes:

U.S. Regulatory
Product Description Indication Status
- ----------------------- -------------------- -------------------- --------------------

Pro Osteon 500 Bone graft Repair skeletal PMA approved in
(hydroxyapatite) substitute. 500 defects in 1992.
micron pore size extremities.
blocks and granules.

Pro Osteon 500R Patented resorbable Repair all skeletal 510(k) cleared in
(hydroxyapatite/calcium bone graft defects, including 1998.
carbonate composite) substitute. 500 spine.
micron pore size
granules.

Pro Osteon 200/ Bone graft Repair skeletal 510(k) cleared in
Interpore 200 substitute. 200 defects in 1985.
(hydroxyapatite) micron pore size oral/maxillofacial
blocks and granules. areas.

BonePlast (calcium Fast resorbing, Fill voids in bone. 510(k) cleared in
sulfate) moldable bone void Used in extremities, 1999.
filler. spine and pelvis.

Pro Osteon 200R Patented resorbable Proposed for repair 510(k) submitted in
(hydroxyapatite/calcium bone graft of skeletal defects 2000.
carbonate composite) substitute. 200 in oral/
micron pore size maxillofacial areas.
granules.

Our Pro Osteon and BonePlast products compare favorably with autograft,
allograft and other synthetic bone grafts used today. Our products:

. Eliminate morbidity and cost associated with autograft harvesting;

. Eliminate disease transmission and host rejection risk;

. Require no special handling or storage conditions;

. Can be prepared simultaneously with surgery;

. Contain no fillers such as glycerol, which can inhibit bone growth;

. Are easily shaped by surgeons to fill bone voids; and

. Can be easily combined with AGF.

AGF (Autologous Growth Factors). AGF is a concentrate of growth factors derived
from platelets in a patient's blood which is used to encourage more complete
and rapid bone growth in bone defects. We were the first to market FDA-cleared
devices that extract and concentrate autologous growth factors intraoperatively
to levels shown in studies to stimulate bone growth. Our two key products used
to collect AGF are the UltraConcentrator Permeability Hemodialyzer and the
Automated Processor. Cleared via the 510(k) pathway in the fourth quarter of
1998, these products are used to produce a concentrated growth factor "gel"
from platelets in the patient's own blood. Our AGF related products were
commercially launched in June 1999, and we estimate that approximately 5,000
patients have been treated with AGF since the beginning of 1999.

In the AGF collection process, blood from the patient is separated into
different component layers using a device called a cell washer, which is
routinely available in the operating room during spine fusion and revision
total joint replacement procedures. The layer of platelet-rich plasma is then
processed using a proprietary filtering technology which super-concentrates the
platelets, releasing fibrinogen and a "cocktail" of growth factors, including
Platelet-Derived Growth Factor and Transforming Growth Factor Beta. With the
addition of thrombin, the fibrinogen is converted into fibrin, giving AGF a
gel-like consistency. AGF can be combined directly with a bone graft material,
such as our Pro Osteon and BonePlast products, as well as autograft and
allograft, and placed at the bone graft site.

We believe that AGF provides the surgeon with the growth factors desired for
faster and more complete bone graft healing that may be safer and more
economical than synthetic growth factors being developed by other companies due
to factors which include the following:

. Many surgeons prefer autologous solutions, such as AGF, that are derived
from the patient's own tissue;

. AGF's gel-like consistency discourages migration from the bone defect
site to other areas in the body;

. Using the patient's own growth factors eliminates dosage concerns; and

. Lower cost than that anticipated for competitive products under
development.

[Graphic depicting the process by which the Autologous Growth Factors
are collected and concentrated from platelet-rich plasma.]

Business Strategy

Expand and Enhance our Spinal Implant Product Portfolio. We currently offer
products targeted at the thoracic and lumbar regions of the spine. Spinal
procedures often involve treatments in multiple regions of the spine including
the cervical region. We are enhancing our product portfolio through the
development of Synergy Spinal System improvements, cervical devices and spine
cages. This will allow us to offer physicians a comprehensive surgical
solution. We plan to invest significant resources in research and development
in an effort to introduce technological advancements in the spinal market. We
will also consider the acquisition of companies and products to complement our
current product platform.

Capitalize on "First to Market" with our AGF Technology. Our AGF related
products received market clearance in December 1998 and were nationally
launched in June 1999. Other synthetically derived growth factors are being
developed and are in late stages of clinical trials or the Premarket Approval
process, but none are yet approved for use in the United States. We plan to
capitalize on our position as the first company making growth factors available
domestically by increasing the number of our field technical specialists,
increasing product promotion, and conducting numerous clinical studies to prove
the effectiveness of AGF.

Continue to Expand and Strengthen our Distribution Network. In the United
States, we have selected independent agents as the primary channel to
distribute our product portfolio. Other companies in our industry are
attempting to transition from independent agents to a direct sales force. We
have been the beneficiary of such transitions, as many highly qualified agents
prefer to remain independent and find our product offering attractive. We
intend to attract and retain independent agents who have many years of
experience selling spinal products and strong relationships with spine surgeons
and can distribute both of our product lines. Our product offering presents
cross-selling opportunities for our distribution network. We provide extensive
technical training programs on new and current products and demonstrate how
these products can be used in combination. We believe these efforts will enable
us to further penetrate the spine market.

Expand our Clinical Leadership Base. We intend to increase market awareness of
our products through a combination of symposia, VIP tours and extensive
training and education programs for leading spine surgeons and key opinion
leaders. We also intend to enlist these leading physicians in various studies
involving our products. Upon completion of these studies, we will seek to
publish the results in well-known industry journals.

Research and Development.
As of March 1, 2000, our research and development department consisted of 24
full-time employees. We also engage outside consultants and academic research
facilities for assistance with our new product development and will license
technology from third parties under appropriate circumstances. We plan to
continue to use outside resources for product research. In 1992, we formed the
Synergy System Advisors, a group of prominent spine surgeons, that assisted in
the development of the Synergy Spinal System. We have agreements with the
advisors under which we pay royalties ranging from 5% to 7% of net revenues
generated from the sale of certain products within the Synergy Spinal System.
Our expenditures for research and development were $3.2 million in 1997, $3.7
million in 1998 and $4.2 million in 1999.

Additional spinal implant and orthobiologic products which we currently have
under development include:

. Additional Cervical Implants. These include an occipital-cervical plate
which will allow surgeons to extend constructs of implants to the skull
from the cervical region of the spine, and a cervical plate spacer, a
single implant to replace the use of a separate spacer and plate in
cases where a discectomy is performed. We expect to submit 510(k)
applications for these products by year-end 2000.

. Geo(TM) Structure. This unique titanium spacer has a geometric design
which provides very high strength with a minimum amount of metal in the
implant. This design will allow the surgeon to place a larger quantity
of graft material at the graft site, which increases the probability of
a successful fusion. It will also allow better radiographic
visualization of the graft site postoperatively for better assessment of
fusion. We expect to submit a 510(k) application for this product by
year-end 2000.

. Intervertebral Cages. We are currently conducting mechanical testing on
several alternative designs. Our objective is to develop a cage which
would be a stand-alone device, expandable to optimize anatomic fit, and
radiolucent. Intervertebral cages are currently Class III devices, and
would require PMA approval.

. Artificial Disc. Our simple design, with no moving parts, could allow a
surgeon to replace a diseased disc while maintaining motion of the spine
in the affected segment, eliminating the need for fusion. We expect to
begin animal studies on this device later this year.

. Applications of BonePlast for Vertebroplasty. Vertebroplasty is a
treatment for compression fractures of the vertebrae, a common
occurrence among osteoporotic patients. In a vertebroplasty, material is
inserted into the vertebral body to restore the height of the vertebra
and reduce pain. BonePlast could potentially be used to perform this
procedure in a minimally-invasive manner. We are currently conducting
feasibility studies in this area.

. Polymer-reinforced Pro Osteon Material. We have development efforts
underway for a polymer-reinforced Pro Osteon material. We believe that
increasing the strength of our resorbable version of Pro Osteon in
various configurations, combined with AGF, holds promise for potential
use as a natural, resorbable alternative to titanium and composite
spinal implants currently available in the market. Such a product would
be several years from the market, if developed at all.

We currently have a number of prospective randomized clinical studies underway
at a variety of institutions to demonstrate the efficacy of our AGF-related
products for multiple indications.

Intellectual Property

As part of our ongoing research, development and manufacturing activities, we
have a policy of seeking patent protection. Patents relating to particular
products, uses or procedures, however, do not preclude other manufacturers from
employing alternative processes or from successfully marketing substitute
products. We believe that although patents often are necessary to protect our
technology and products, the lengthy FDA approval process and certain
manufacturing processes are more significant barriers to entry. Moreover, much
of the proprietary technology and manufacturing processes developed by us
reside in our key scientific and technical personnel and such technology and
processes are not easily transferable to other scientific and technical
personnel. The loss of the services of key scientific, technical and
manufacturing personnel could have a material adverse effect on our business
and results of operations.

Spinal Implant Products. We own eight U.S. patents related to various aspects
of our spinal implant products, including the bone anchor, the rod/anchor
interface, instrumentation and transverse connectors. We have four U.S. patents
pending concerning enhancements to our Synergy Spinal System and for several
new products.

Orthobiologic Products. We own eleven U.S. patents related to our orthobiologic
products. Of these, two relate to our Pro Osteon 500R resorbable bone graft
substitute, and three are for our AGF related products. We have two U.S.
patents pending, and one relates to our polymer-reinforced Pro Osteon material.

In the fourth quarter of 1999, we purchased all of the intellectual property of
Quantic Biomedical, Inc. Quantic previously had licensed to us the right to
design, manufacture and market orthopedic products incorporating technology to
produce AGF. We acquired this technology in order to preserve our access to all
markets for our AGF related products.

We require our employees, consultants and advisors to execute nondisclosure
agreements in connection with their employment, consulting or advisory
relationships with us. We also require our employees, consultants and some
advisors to agree to disclose and assign to us all inventions conceived during
the work day, using our property or which relate to our business. Despite any
measures taken to protect our intellectual property, unauthorized parties may
attempt to copy aspects of our products or to obtain and use information that
we regard as proprietary. Finally, our competitors may independently develop
similar technologies.

Our trademarks include "Interpore(R)," "Cross Medical(R)," "Cross(R)," "Pro
Osteon(R)," "Pro Osteon 500(R)," "Interpore 200(R)," "AGF(TM)," "Autologous
Growth Factors(TM)," "Synergy(TM)," "BonePlast(TM)," "TPS(TM)," "Geo(TM)
Structure," and "Integral(TM)."

Customers, Sales and Marketing

The decision to use our products is made by the orthopedic surgeon or the
neurosurgeon. We direct our domestic marketing efforts to the approximately
14,000 practicing orthopedic surgeons in the United States in private practice,
hospitals and orthopedic treatment centers. Of the 14,000 practicing orthopedic
surgeons, we estimate there are over 2,000 fellowship trained spine surgeons.
In addition to the orthopedic surgeons, we estimate that there are over 1,000
neurosurgeons performing spine fusion procedures that utilize implants.

Our domestic sales organization consists of a combination of independent agents
and direct sales representatives. As of March 3, 2000, we had contracts with 43
independent agents which employed approximately 135 sales representatives and
we employed six direct sales representatives. We are decreasing our reliance on
direct sales representatives and are increasing our reliance on independent
sales agents because
we believe we can attract independent agents that desire our complementary
product portfolio and that possess strong surgeon relationships, an important
factor for competing in our industry. The domestic sales organization is
managed by a Vice President of North American Sales and five division managers
manage the domestic sales organization. We invoice hospitals directly,
generally at list prices, and pay commissions to the agents and direct sales
representatives. We provide consignment inventories to our independent agents,
direct sales representatives and hospitals. We select agent organizations and
direct sales representatives for their expertise in spinal implant, orthopedic
or medical device sales, their reputation within the surgeon community and
their sales coverage within a geographic area. Each agent organization and
direct sales representative is given an exclusive sales territory for some or
all of our products and is subject to periodic performance reviews. In
addition, each new independent sales agent and direct sales representative goes
through training programs before initiating sales of our products. We also
require each independent agent and direct sales representative to attend
periodic sales and product training.

Outside of the United States, we distribute products only through independent
distributors. We have a Vice President of International Sales, one Latin
America sales manager and a European business liaison and have established
distribution arrangements with 54 distributors in 41 countries. Our
international sales represented approximately 24% of sales in 1997, 23% of
sales in 1998 and 22% of sales in 1999. Sales to our international customers
are denominated in U.S. dollars.

In the United States, there are no significant customer concentrations, as we
invoice hospitals directly for product used or shipped. However, in the
international markets, we have two significant distributors that on a combined
basis accounted for approximately 31% of our 1999 international sales and 7% of
our 1999 worldwide sales.

In order to improve shipping efficiencies and service to our international
customers, in January 1998, we entered into an agreement with a contract
warehouse in the Netherlands to ship bone graft products to customers in
countries outside of North America.

We participate in over two dozen professional meetings including the American
Academy of Orthopaedic Surgeons Meeting, the North American Spine Society
Meeting and the Congress of Neurological Surgeons. We also participate in
scientific presentations and professional seminars at hospitals.

Third-Party Reimbursement

We expect that sales volumes and prices of our products will continue to be
dependent in large measure on the availability of reimbursement from third-
party payors. In the United States, our products are purchased by hospitals,
who 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 international markets, reimbursement and healthcare payment
systems vary significantly by country and many countries have instituted price
ceilings on specific product lines. There can be no assurance 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.

Particularly in the United States, third-party payors carefully review, and
increasingly challenge, the prices charged for procedures and medical products.
In addition, an increasing percentage of insured individuals are receiving
their medical care through managed care programs, which monitor and often
require pre-approval of the services that a member will receive. Many managed
care programs are paying their providers on a capitated basis, which puts the
providers at financial risk for the services provided to their patients by
paying them a predetermined payment per member per month. The percentage of
individuals covered by managed care programs is expected to grow in the United
States over the next decade.

We believe that the overall escalating cost of medical products and services
has led to, and will continue to lead to, increased pressures on the healthcare
industry to reduce the costs of products and services. There can be no
assurance that third-party reimbursement and coverage will be available or
adequate, or that future legislation, regulation, or reimbursement policies of
third-party payors will not adversely affect the demand for our products in
development or our ability to sell these products on a profitable basis. The
unavailability or inadequacy of third-party payor coverage or reimbursement
could have a material adverse effect on our business, operating results and
financial condition.

Manufacturing

Spinal Implants. Implantable grade stainless steel and titanium bar stocks are
the primary raw materials used to manufacture our spinal implants. We purchase
and inventory these materials, which are available from several sources and
currently have a purchase order lead time of approximately two months, so that
we can best control the quality and consistency of material used to manufacture
our spinal implant products. We resell the raw material to our contracted
outside vendors for the manufacture of our spinal implants based on our
specifications. Following the receipt of product at our facility, we conduct
inspection, packaging and labeling operations. Our spinal implant products are
distributed in a non-sterile condition, which is customary in the spinal
implant market.

Orthobiologics. Coral is the primary raw material used to manufacture our Pro
Osteon products. The coral used in our products is sourced from two genera
located in a wide variety of geographic locations. We presently harvest coral
in tropical areas of the Pacific and Indian Oceans. We believe we have an
adequate supply of coral for the foreseeable future. Coral is covered under an
international treaty entitled Convention on International Trade of Endangered
Species of Wild Fauna and Flora, which regulates the import/export of raw coral
and products derived therefrom in approximately 140 nations around the world.
To date, the limitations

imposed by this treaty have not affected our ability to source raw coral. The
manufacturing process for our Pro Osteon line of bone graft substitute products
involves coral qualification and cutting, hydrothermal conversion, testing,
packaging and sterilization of the product, all of which, with the exception of
sterilization, are performed at our facilities.

Some of the products and materials supplied by our vendors are currently sole-
sourced, but we believe that we could locate alternative vendors for supply of
these components. However, the UltraConcentrator, one of our products used to
collect AGF, is manufactured under an exclusive supply agreement with a vendor
that itself has a sole source of supply of the contained filter material.
Although the filter material is not readily available through alternative
sources, we believe that there are suppliers that could supply alternate
materials with probable equivalent function. In the event that a re-engineering
of the product were necessary due to an interruption in supply from our current
vendor, delays in product availability could occur and significant costs could
be incurred, either of which could have a material adverse effect on our
operations.

Competition

Spinal Implant Market. Many companies compete in the spinal implant market and
competition is intense. We believe that our largest competitors in the United
States offering spinal implants are Medtronic Sofamor Danek USA, DePuy Acromed,
Inc., a Johnson & Johnson company, and SYNTHES-STRATEC, Inc., each of which has
substantially greater sales and financial resources than we do. Medtronic
Sofamor Danek, in particular, has a broader spinal implant line. Other
companies have developed and are marketing products based on technologies that
are different from ours, including spine fusion cages, spinal implants designed
to be used with minimally invasive or laparoscopic surgery, and allograft bone
dowels.

Orthopedic Bone Graft Substitute Market. Our synthetic bone products compete
with natural bone obtained from autograft procedures, which is the physician's
"gold standard," with allograft bone obtained from cadavers and with other
synthetic bone products. Autograft and allograft bone have been used for graft
material for a much longer period than synthetic bone graft materials, and in
order to maintain and increase our future sales of our synthetic bone graft
products, we will have to continue to demonstrate to the medical community the
surgical and patient advantages, safety, efficacy, cost effectiveness and
clinical results of our synthetic bone graft products. Competitive bone
substitute products include: Grafton(R) demineralized bone products from
Osteotech, DynaGraft demineralized bone products from GenSci Regeneration
Technologies, OsteoSet(TM) calcium sulfate from Wright Medical Technology, as
well as other bone substitute products used in non-orthopedic applications.
Several other companies are pursuing additional synthetic bone graft materials
for orthopedic applications which could ultimately compete with our synthetic
bone graft products in the United States.

Growth Factors. There is significant development activity ongoing that, if
successful, would potentially produce products competitive with our AGF
technology. Creative Biomolecules has a recombinant human bone morphogenetic
protein (OP-1), which is in human clinical studies under an FDA-approved
Investigational Device Exemption. Genetics Institute, Inc. has a recombinant
human bone morphogenetic protein (rhBMP-2) in human clinical studies. Sulzer
Orthopedics Biologics, a subsidiary of SulzerMedica of Switzerland, has an
extract of bovine (cow)-derived bone growth protein that is in preclinical
animal studies and may be in clinical evaluation.

We compete in all of our markets primarily on the basis of product performance
and price, as well as customer loyalty and service.

Government Regulation

Our products are regulated by the FDA under the federal Food, Drug and Cosmetic
Act, as well as other federal, state and local governmental authorities and
similar regulatory agencies in other countries. 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 for such medical
device. In general, the FDA will clear marketing of a medical device through
the 510(k) premarket notification process if it is demonstrated that the new
product is substantially equivalent, in terms of safety and intended use to
certain 510(k) cleared products which are already commercially available and
legally sold on the market.

The Premarket Approval process is lengthier and more burdensome than the 510(k)
premarket notification process. The Premarket Approval process generally
requires detailed animal and clinical studies, as well as manufacturing data
and other information. If clinical studies are required by the FDA, an
Investigational Device Exemption is also required. An Investigational Device
Exemption restricts the investigational use of the device to a limited number
of investigational sites, investigators and patients. Its purpose is to prove
safety and efficacy of the device. FDA approval of a Premarket Approval
application indicates that the FDA concurs that a device has been
scientifically proven, through the completion and submission of animal data, a
completed Investigational Device Exemption and other pertinent information, to
be safe and effective for its intended use.

Our Synergy Spinal System received 510(k) marketing clearance from the FDA. We
received 510(k) clearance from the FDA to market the anterior portion of the
Synergy Spinal System in October 1994 and for the posterior portion of the
system in July 1995. In September 1996, we developed a titanium version of the
Synergy Spinal Implant System for international distribution. We received FDA
marketing clearance for the anterior portion of the titanium version in October
1995 and the posterior portion in January 1997.

In March 2000, the Food and Drug Administration approved a Humanitarian Device
Exemption (HDE) for the cervical version of our corpectomy cage, the Telescopic
Plate Spacer (TPS). An HDE is designed to encourage the discovery and use of
devices intended to benefit patients in the treatment or diagnosis of diseases
or conditions that affect or are manifested in fewer than 4000 individuals in
the United States per year. In the case of the TPS cage, the approved
indication is for the replacement of normal body structures following a
vertebrectomy or corpectomy of the spine for metastatic disease in the cervical
or cervical-thoracic spine.

In October 1992, we received FDA approval to market Pro Osteon 500 for certain
defects in the wide part of long bones. We subsequently received FDA approval
to market it in granular forms and a wide variety of block configurations up to
30 cc's in total volume, and for additional indications including the treatment
of cysts and tumors in long bones. Our Pro Osteon 200 and Interpore 200 were
cleared for marketing for certain oral surgery, periodontal defects,
craniofacial and orthognathic indications through 510(k) premarket
notifications.

In July 1997, the FDA cleared the use of a competitive synthetic bone graft
substitute product with a 510(k). Prior to clearance of this device, companies
were required to obtain marketing approval from the FDA for bone graft
substitutes via the Premarket Approval process. It is possible that some
clearances of other bone graft substitute products may now be obtained through
the less burdensome 510(k) premarket notification process. This may increase
competition. In September 1998, we received a 510(k) clearance from the FDA for
our Pro Osteon 500R resorbable bone graft substitute product. The approved
indications include use in bony voids or gaps of the skeletal system, such as
the extremities, spine and pelvis.

In September, 1999, we received FDA 510(k) clearance for our BonePlast bone
void filler for use in the extremities, spine and pelvis.

In December 1998, we received FDA 510(k) clearances for the two key products
used to collect AGF, the UltraConcentrator Permeability Hemodialyzer and the
Automated Processor.

Other FDA requirements govern product labeling and prohibit a manufacturer from
marketing an approved device for unapproved applications. If the FDA believes
that a manufacturer is not in compliance with the law, it can institute
proceedings to detain or seize products, issue a recall, enjoin future
violations and assess civil and criminal penalties against the manufacturer,
its officers and employees.

We are registered as a medical device manufacturer with the FDA, with state
agencies such as the Food and Drug Branch of the California Department of
Health Services and with the European Community. These agencies inspect our
facilities from time to time to determine whether we are in compliance with
various regulations relating to medical device manufacturing, including the
FDA's Quality System Regulations and ISO 9001, which govern design,
manufacturing, testing, quality control, sterilization and labeling of medical
devices. We believe we are in compliance with the regulations established by
these agencies applicable to our business. The European Community Notified
Body, the FDA and the California Department of Health Services have inspected
our manufacturing facilities and quality assurance procedures in the past and
we expect them to continue to do so in the future.

With respect to our bone graft substitute products, we must also comply with
the requirements of the Convention on International Trade of Endangered Species
of Wild Fauna and Flora, or CITES. This is an international agreement signed by
approximately 140 nations which regulates the import and export of products
which are derived from endangered wildlife. Although the coral we use is not an
endangered species, all harvested coral is subject to regulation under CITES.
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. We maintain several years' supply of coral to minimize the risk of
supply interruptions. Because each shipment of product exported outside of the
United States or its possessions requires individual permitting, and also to
improve shipping efficiencies and service to our international customers, we
entered into an agreement with a contract warehouse in the Netherlands for the
purpose of international distribution of our products.

We must also comply with registration requirements of foreign governments and
with import and export regulations when distributing our products to foreign
nations. Each foreign country's regulatory requirements for product approval
and distribution are unique and may require the expenditure of substantial
time, resources and effort to obtain and maintain approvals for marketing. In
September 1995, we received approval to use the "CE" mark for our entire line
of orthopedic and oral/maxillofacial synthetic bone graft materials. We
received approval to use the "CE" mark for our spinal implant systems in 1998.
The CE mark indicates that the products are approved for sale within 18
countries in the European Community and European Free Trade Association and
that we are in compliance with the ISO 9001 and EN 46001 standards which govern
medical device manufacturers that are marketing products in Europe. The CE mark
is now also accepted by several countries outside of the European Community.

Employees

As of March 1, 2000, we had 122 full-time employees, of whom 38 were engaged in
marketing and sales, 31 in manufacturing, 16 in regulatory affairs and quality
assurance, 13 in general administration and finance and 24 in research and
development. None of these employees is represented by a union, and we have
never experienced a work stoppage. We consider our relations with our employees
to be good.

Properties

We are headquartered in Irvine, California where we lease a 35,528 square foot
facility. The annual average lease expense over the ten year term of the lease,
which expires January 31, 2003, is $387,000. The lease provides a right to
extend the term for an additional five years at the fair market lease rate of
the facility on the extension date, but not less than the rate we paid during
the month immediately preceding the commencement of the extension period. We
also lease a 2,700 square foot warehouse facility in Santa Ana, California, a
4,274 square foot facility in Irvine, California to provide additional
warehousing, laboratory and office space, an 1,800 square foot prototype
machine shop in Irvine, California and a sales office with approximately
200 square feet in Miami, Florida. We believe our current facilities will be
adequate to serve our operational needs through 2000.

We also lease a 27,680 square foot facility in Dublin, Ohio that is vacant. The
lease term began on April 1, 1996 and terminates on June 1, 2001.

Legal Proceedings

Cross Medical Products and a number of other spinal implant manufacturers were
named as defendants in various products liability lawsuits alleging injuries
from spinal implants supplied by Cross and others. Approximately 800 such suits
were filed in which a large number of plaintiffs claimed, in addition to
damages from spinal implants, a conspiracy among manufacturers, physicians and
other spinal implant industry members to defraud the public and market products
without the proper regulatory approvals. We have been dismissed as a defendant
from all but four of the pedicle screw conspiracy cases, none of which involves
our products.

Aside from the pedicle screw conspiracy litigation, the nature of our business
subjects us to products liability and various other legal proceedings from time
to time. We are currently involved in legal proceedings incidental to the
normal conduct of our business. We do not believe that any liabilities relating
to the legal proceedings to which we are a party are likely to be, individually
or in the aggregate, material to our consolidated financial condition or
results of operations.

Insurance

We maintain general liability and products liability insurance policies, among
others. We believe that we have adequate insurance for our businesses, however,
there can be no assurance that the limits of coverage will be sufficient to
cover the cost of defending all lawsuits or the payment of any amounts that may
be paid in satisfaction of any settlements or judgments. Further, there can be
no assurance that we will continue to be able to obtain sufficient amounts of
general liability and products liability insurance coverage at commercially
reasonable premiums. Future operating results could be materially adversely
affected by the cost of defending litigation or the formal resolution of
pending cases or future claims, whether or not such defense costs, cases or
claims are covered by insurance.

MANAGEMENT

Executive Officers, Directors, Key Employees

The following table sets forth, as of March 3, 2000, the name, age and position
of our directors, executive officers and other key employees.

Name Age Title
- ---- --- -----

David C. Mercer......... 58 Chairman of the Board and Chief Executive Officer
Joseph A. Mussey........ 51 President and Chief Operating Officer
Richard L. Harrison..... 43 Senior Vice President, Finance, Chief Financial Officer
and Secretary
Maxwell R. Simmonds..... 44 Senior Vice President, Sales and Marketing
William A. Franklin, 54 Vice President, Operations
Jr.....................
Philip A. Mellinger..... 36 Vice President, Product Development
Edwin C. Shors, Ph.D.... 54 Vice President, Research and New Technology
William A. Eisenecher... 57 Director
Daniel A. Funk, M.D..... 44 Director
G. Bradford Jones....... 45 Director
Robert J. Williams...... 67 Director

David C. Mercer has served as Chairman of our Board of Directors since April
1997, as Chief Executive Officer since March 1992 and also served as President
from March 1992 through May 1998. Mr. Mercer was President, Orthopaedic
Division, of Kirschner Medical Corporation, a manufacturer of orthopedic
devices, from October 1988 through March 1992, and Senior Vice President,
Marketing, Orthopaedic Implant Division of Zimmer, Inc., a manufacturer of
orthopedic devices, from April 1986 through October 1988. From April 1983 to
April 1986, he was President of Aspen Labs, Inc., the arthroscopic and
electrosurgical product subsidiary of Zimmer, Inc.

Joseph A. Mussey has served as our President and Chief Operating Officer since
May 1998. Mr. Mussey had served as President and Chief Executive Officer of
Cross from November 1991 through May 1998, as President from April 1991 through
November 1991, and as Vice President and Chief Financial Officer from August
1990 through April 1991. Mr. Mussey was previously Executive Vice President of
the Process Automation Business of Combustion Engineering, Inc., a division of
Asea Brown Boveri from 1987 until joining Cross in August 1990. From 1984 to
1987, he was Vice President, Operations of the Engineered Systems and Controls
Group of Combustion Engineering.

Richard L. Harrison has served as our Senior Vice President, Finance, Chief
Financial Officer and Secretary since May 1998, and as Vice President, Finance,
Chief Financial Officer and Secretary from November 1994 through May 1998.
Prior to joining us, Mr. Harrison worked for Kirschner Medical Corporation, a
manufacturer of orthopedic devices, in a variety of financial positions
starting in 1987, most recently as Corporate Controller from February 1992
through October 1994. Mr. Harrison is a Certified Public Accountant.

Maxwell R. Simmonds has served as our Senior Vice President, Sales and
Marketing, since May 1998, as Vice President, Sales and Marketing from August
1991 through May 1998, and from December 1989 through August 1991, he served as
Director of Sales and Marketing. From September 1988 through October 1989, Mr.
Simmonds served as Vice President, Sales and Marketing for Implant Technology,
Inc., a manufacturer of reconstructive hip implants. From November 1985 through
August 1988, he served as Regional Manager, National Sales Manager and Trauma
Group Marketing Manager for Kirschner Medical Corporation.

William A. Franklin, Jr. has served as our Vice President, Operations since
August 1994 and as Vice President, Quality Assurance and Regulatory Affairs
from February 1992 to August 1994. Mr. Franklin was Director,

Quality Assurance, of Allergan Optical, an ophthalmic products manufacturing
division of Allergan, Inc., from December 1988 through October 1991, and Vice
President, Quality Assurance and Regulatory Affairs, of Quest Medical, Inc., a
medical device manufacturer, from March 1983 through October 1988.

Philip A. Mellinger, has served as our Vice President, Product Development
since the merger with Cross in May 1998. Prior to the Merger, Mr. Mellinger was
the Vice President, Research and Development for Cross from January 1997 to May
1998. From 1987 to January 1997, Mr. Mellinger was employed by Cross in its
research and development department. Prior to 1987, Mr. Mellinger attended
Northwestern University, where he received his Bachelor of Science degree in
Biomedical and Mechanical Engineering.

Edwin C. Shors, Ph.D., has served as our Vice President, Research and New
Technology since May 1998, and as Vice President, Research and Development from
1983 to May 1998. Dr. Shors was Executive Vice President from 1978 to 1983,
during which time he was responsible for establishing the manufacturing
procedures, animal evaluations and clinical trials leading to the FDA approval
and marketing of coralline hydroxyapatite. Prior to joining us, he was Director
of the Thoracic and Cardiovascular Laboratory at Harbor/UCLA Medical Center.
Dr. Shors obtained a Masters in Biology and a Doctorate in Physiology and
Biophysics from the University of Southern California.

William A. Eisenecher is a business consultant. From 1987 to 1993, Mr.
Eisenecher was the President and Chief Executive Officer of Rehabilitation
Technologies, Inc. He is also a director of several privately-held companies.

Daniel A. Funk, M.D. is the Orthopedic Service Line Director for The Health
Alliance of Cincinnati, Ohio as well as a practicing partner in the firm of
Reconstructive Orthopedics and Sportsmedicine. Dr. Funk obtained his Medical
Doctor degree from the University of Cincinnati in 1981 and completed a five
year residency in Orthopedic Surgery at The Mayo Clinic in 1986. Dr. Funk
served as a member of Cross's Technical Advisory Board from 1984 through 1990
and as the Medical Advisor of Cross from 1990 to 1998.

G. Bradford Jones is a founding General Partner of Redpoint Ventures, a venture
capital fund which invests in Internet communications, media and commerce
companies. Prior to founding Redpoint Ventures in 1999, Mr. Jones was a General
Partner with Brentwood Venture Capital, which he joined in 1981. Mr. Jones also
currently serves on the board of directors of Onyx Acceptance Corporation, a
specialized consumer finance company, Stamps.com, an Internet postage company,
Digital Island, a global e-Business delivery network, and several privately
held companies. Mr. Jones received a B.S. in Chemistry from Harvard University,
a M.S. degree in Physics from Harvard University and a J.D./M.B.A. from
Stanford University.

Robert J. Williams has been the Chairman of the Board, President and Chief
Executive Officer of ARTEC, Inc. since 1988. ARTEC is an Indianapolis-based
manufacturer of disposable anesthesia and respiratory products.

Directors' Terms

In accordance with the terms of our certificate of incorporation, the terms of
office of the board of directors are divided into three classes: the Class I
term will expire at the annual meeting of stockholders to be held in 2002; the
Class II term will expire at the annual meeting of stockholders to be held in
2000; and the Class III term will expire at the annual meeting of stockholders
to be held in 2001. The Class I directors are G. Bradford Jones and Robert J.
Williams, the Class II directors are William A. Eisenecher and Daniel A. Funk,
M.D. and the Class III directors are David C. Mercer and Joseph A. Mussey. In
addition, our certificate of incorporation provides that the authorized number
of directors will be designated by our bylaws. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of
one-third of the directors. This classification of the board of directors may
have the effect of delaying or preventing a change in control or change in
management. Our directors may be removed, with or without cause, by the
affirmative vote of the holders of a majority of the shares entitled to vote at
an election of directors. There are no family relationships among any of our
directors and executive officers.

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth the amount and percentage of the outstanding
shares of our common stock, which, according to the information supplied to us,
are beneficially owned by (1) each person who, to our knowledge based
exclusively on Schedules 13G filed with the Commission, is the beneficial owner
of more than 5% of the outstanding common stock, (2) each person who is
currently a director, (3) our Chief Executive Officer and our four other most
highly compensated executive officers whose annual salary and bonus exceeded
$100,000 in 1999, and (4) all current directors and executive officers as a
group. Except for information based on Schedules 13G, as indicated in the
footnotes, beneficial ownership is stated as of March 3, 2000. Except to the
extent indicated in the footnotes to the following table, to our knowledge, the
person or entity listed has sole voting or dispositive power to the shares
which are deemed beneficially owned by such person or entity.

Shares Shares
Beneficially Number of Beneficially
Owned Prior to Shares to Owned After the
the Offering(/2/) be Sold Offering(/2/)
----------------- in the -----------------
Name of Beneficial Owner(/1/) Number Percent Offering Number Percent
- ----------------------------- --------- ------- --------- --------- -------

Directors and Named Executive
Officers:
William A. Eisenecher.......... 47,625 * -- 47,625 *
William A. Franklin, Jr........ 204,000 1.5 -- 204,000 1.2
Daniel A. Funk, M.D.(/7/)...... 306,926 2.2 -- 306,926 1.8
Richard L. Harrison............ 128,069 * -- 128,069 *
G. Bradford Jones.............. 110,667 * -- 110,667 *
Phillip A. Mellinger........... 73,214 * -- 73,214 *
David C. Mercer................ 414,000 2.9 -- 414,000 2.3
Joseph A. Mussey............... 304,300 2.2 -- 304,300 1.8
Edwin C. Shors, Ph.D........... 246,750 1.8 -- 246,750 1.4
Maxwell R. Simmonds............ 243,750 1.7 -- 243,750 1.4
Robert J. Williams............. 21,275 * -- 21,275 *
All directors and executive
officers as a group
(11 persons): 2,100,576 13.9 -- 2,100,576 11.3
5% Beneficial Owners and Selling
Shareholders:
Heartland Advisors, Inc.(/3/).. 1,749,800 12.7 -- 1,749,800 10.1
Edward R. Funk(/4/)............ 316,179 2.3 100,000 216,179 1.3
Edward R. Funk Irrevocable
Generation Skipping Trust
dated 11/16/87(/5/)........... 254,251 1.8 100,000 154,251 *
Ingeborg V. Funk(/4/).......... 447,211 3.3 200,000 247,211 1.4
Ingeborg V. Funk Irrevocable
Generation Skipping Trust
dated 12/20/87 FBO Robert H.
Peitz(/5/).................... 124,003 * 50,000 74,003 *
Ingeborg V. Funk Irrevocable
Generation Skipping Trust
dated 12/30/87 FBO Christina
H. Schultheis(/5/)............ 124,003 * 50,000 74,003 *
John Hancock Advisers,
Inc.(/6/)..................... 869,250 6.3 -- 869,250 5.0

- -------------------------------
*less than 1%

(/1/)The address of the directors and officers listed in this table is 181
Technology Drive, Irvine, California 92618.

(/2/)Percentage of beneficial ownership as of March 3, 2000, for each person
includes shares subject to options exercisable within 60 days after March 3,
2000, as if such shares were outstanding on March 3, 2000.

(/3/)Based on Schedule 13G filed by Heartland Advisors, Inc. The address of
Heartland Advisors is 789 North Water Street, Milwaukee, Wisconsin 53202.

(/4/)Edward R. Funk and Ingeborg V. Funk are husband and wife. Under the rules
of the Securities and Exchange Commission, each may be deemed to beneficially
own the shares of the other; consequently, the number reported in the table
above for each includes 392,178 and 579,611 shares held of record by Dr. Funk
and Mrs. Funk, respectively, and 25,500 shares which could have been acquired
by Dr. Funk under stock options exercisable within 60 days of March 3, 2000.
Dr. and Mrs. Funk expressly disclaim beneficial ownership of shares held by
the other. The address of Edward and Ingeborg Funk is c/o Superconductive
Components Inc., 1145 Chesapeake Avenue, Columbus, Ohio 43212.

(/5/)The address of the Edward R. Funk Generation Skipping Trust dated
11/16/87, the Ingeborg V. Funk Generation Skipping Trust dated 12/20/87 FBO
Robert H. Peitz, and the Ingeborg V. Funk Generation Skipping Trust dated
12/30/87 FBO Christina A. Schultheis is 41 South High Street, Suite 2800,
Columbus, Ohio 43215. Curtis A. Loveland is the trustee for each of these
trusts.

(/6/)The address for John Hancock Advisers, Inc. is 101 Huntington Avenue,
Boston, Massachusetts, 02199.

(/7/)Daniel A. Funk, one of our directors, is the son of Edward R. Funk. He has
no voting power or beneficial interest with respect to the shares held by
Edward R. Funk or Ingeborg V. Funk.

DESCRIPTION OF CAPITAL STOCK

The following summary description of our capital stock is qualified in its
entirety by the complete text of our Certificate of Incorporation and Bylaws,
as amended, which are incorporated herein by reference and copies of which are
available to investors upon request.

Our authorized capital stock consists of 50,000,000 shares of common stock, par
value $0.01, and 5,000,000 shares of preferred stock, par value $0.01. As of
March 3, 2000, and after giving effect to the issuance of 3,500,000 shares of
common stock in this offering, there will be:

. 17,250,282 shares of common stock outstanding;

. no shares of preferred stock outstanding;

. 500,000 reserved shares of junior participating preferred stock
(pursuant to our Shareholder Rights Agreement);

. outstanding options to purchase 2,808,380 shares of common stock; and

. outstanding warrants to purchase 200,000 shares of common stock.

Common Stock

Holders of our common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Subject to preferences that may be
applicable to the holders of outstanding shares of our preferred stock, if any,
the holders of our common stock are entitled to receive the lawful dividends as
may be declared by the Board of Directors. In the event of our liquidation,
dissolution or winding up, and subject to the rights of the holders of
outstanding shares of our preferred stock, if any, the holders of shares of our
common stock shall be entitled to receive pro rata all of our remaining assets
available for distribution to our stockholders. There are no redemption or
sinking fund provisions applicable to our common stock. All outstanding shares
of our common stock are fully paid and nonassessable.

Preferred Stock

Our Board of Directors has the authority, without further action by our
stockholders, to issue up to 4,406,000 shares of our preferred stock in one or
more series and to fix the rights, preferences and privileges thereof,
including the dividend rights, dividend rates, conversion rights, voting rights
terms of redemption (including sinking fund provisions), redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of the series. Although it presently has no intention to do so, our
Board of Directors, without shareholder approval, could issue our preferred
stock with voting and conversion rights that could adversely affect the voting
powers of the holders of our common stock and the market price of our common
stock. Issuance of our preferred stock may also have the effect of delaying,
deferring or preventing the change of control of Interpore without further
action by our stockholders and may discourage bids for our common stock at a
premium over the market price.

Preferred Stock Purchase Rights

On November 15, 1998, our Board of Directors declared a dividend of one
preferred share purchase right for each share of common stock, $0.01 par value,
outstanding at the close of business on November 27, 1998, the record date. As
long as the rights are attached to our common stock, we will issue one right
(subject to adjustment) with each new share of common stock so that all shares
of common stock will have attached rights. When exercisable, each right will
entitle the registered holder to purchase from us one one-hundredth of a share
of Series A Junior Participating Preferred Stock at a price of $30.00 per one
one-hundredth of a Series A preferred share, subject to adjustment. The
description and terms of the rights are set forth in a rights agreement, dated
as of November 17, 1998, as the same may be amended from time to time, between
us and U.S. Stock Transfer Corporation, as Rights Agent which is incorporated
herein by reference.

Stock Options

As of March 3, 2000 we have outstanding options, issued pursuant to our eight
option plans, to purchase 2,808,380 shares of common stock at a weighted
average exercise price of $5.79 per share. In addition, at March 3, 2000, the
board had reserved an additional 1,429,125 shares for issuance under our stock
option plans.

Warrants

We have eight outstanding warrants to purchase a total of 200,000 shares of our
common stock. The warrants were initially issued to Quantic Biomedical, Inc.
for consideration in connection with our acquisition of the assets of Quantic
Biomedical through our subsidiary Interpore Orthopaedics. On June 8, 2000, two
warrants become exercisable for a total of 50,000 shares of common stock at an
exercise price of $7.13 per share. On December 8, 2000, another two warrants
become exercisable for an additional 50,000 shares of common stock at an
exercise price of $7.63 per share. On June 8, 2001, another two warrants become
exercisable for an additional 50,000 shares of common stock at an exercise
price of $8.13 per share. On December 8, 2001, the final two warrants become
exercisable for an additional 50,000 shares of common stock at an exercise
price of $8.63 per share. No warrant may be exercised in increments of less
than 10,000 shares.

Convertible Debentures

We have 8.5% Convertible Subordinated Debentures due June 1, 2003 that are
convertible at any time before maturity, unless previously redeemed, into
shares of our common stock at a conversion price of $6.37 per share. On July 1
of each year, we are obligated to redeem any debentures tendered by June 1 of
that year at 100% of the principal amount plus accrued interest, subject to an
annual limitation of $25,000 per holder and an annual aggregate limitation of
$262,500. During 1998, $97,000 of debentures were converted into 15,221 shares
of our common stock. There were no conversions recorded in 1999. The indenture
permits us to call for the redemption of all or part of the debentures at any
time at prices ranging from 100% to 105% of the principal amount, depending on
the date of redemption, plus accrued interest through the date of redemption.

Registration Rights

The holders of our common stock issued upon the conversion of our Series E
Preferred Stock are entitled to registration rights. Under the terms of the
purchase agreements between us and the initial purchasers of our Series E
Preferred Stock, if we propose to register an offering of any of our common
stock under the Securities Act, the holders of registrable shares are entitled
to require us to include all or a portion of their shares in that registration,
subject to conditions. The underwriters of that offering have the right to
limit the number of shares included in that registration. We will pay all fees,
costs and expenses of that registration, other than underwriting discounts.
Additionally, under the terms of the purchase agreements, the holders of at
least 33 1/3% (or a lesser percentage if the aggregate offering price of those
shares would exceed $5,000,000) of the registrable shares then outstanding may
demand that we file a registration statement under the Securities Act with
respect to those shares. We would be required to effect the registration,
subject to conditions and limitations, and we would pay all fees, costs and
expenses of the registration, other than underwriting discounts. Concurrently
with the filing of this prospectus, we have notified Series E holders of the
offering and they have twenty days to request inclusion of their shares in this
offering.

In connection with the December 1999 acquisition of the assets of Quantic
Biomedical, we granted registration rights to two former principals of Quantic
with respect to 100,000 shares of our common stock and with respect to 200,000
shares of common stock issuable upon exercise of warrants granted to the
Quantic principals. Under the registration rights agreement between us and
these individuals, if we propose to register an offering of any of our common
stock under the Securities Act, these individuals are entitled to require us to
include all or a portion of their shares in that registration, subject to
certain conditions. The underwriters of that offering have the right to limit
the number of shares included in the registration. The former principals of
Quantic have waived their rights to participate in this offering.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is U.S. Stock Transfer
Corporation, Glendale, California.

UNDERWRITING

The underwriters named below have agreed to buy, subject to the terms of the
purchase agreement, the number of shares listed opposite their names below. The
underwriters are committed to purchase and pay for all of the shares if any are
purchased.

Number
of
Underwriters Shares
------------ --------

U.S. Bancorp Piper Jaffray Inc................................
Chase Securities Inc..........................................
--------
Total.......................................................
========

The underwriters have advised us and the selling stockholders that they propose
to offer the shares to the public at $ per share. The underwriters
propose to offer the shares to certain dealers at the same price less a
concession of not more than $ per share. The underwriters may allow and the
dealers may reallow a concession of not more than $ per share on sales to
certain other brokers and dealers. After the offering, these figures may be
changed by the underwriters.

We have granted to the underwriters an option to purchase up to an additional
600,000 shares of common stock from us, on a pro rata basis, at the same price
to the public, and with the same underwriting discount, as set forth in the
table above. The underwriters may exercise this option any time during the 30-
day period after the date of this prospectus, but only to cover over-
allotments, if any. To the extent the underwriters exercise the option, each
underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of the additional shares as it was obligated
to purchase under the purchase agreement.

The following table shows the underwriting fees to be paid to the underwriters
in connection with this offering. These amounts are shown assuming both no
exercise and full exercise of the over-allotment option.

No Exercise Full Exercise
----------- -------------

Per share..................................... $xx.xx $xx.xx
Total......................................... $xx.xx $xx.xx

We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including civil liabilities under the Securities
Act, or to contribute to payments that the underwriters may be required to make
in respect of those liabilities.

We and each of our directors and executive officers and the selling
stockholders have agreed to certain restrictions on our ability to sell
additional shares of our common stock for a period of 90 days after the date of
this prospectus. We have agreed not to directly or indirectly offer for sale,
sell, contract to sell, grant any option for the sale of, or otherwise issue or
dispose of, any shares of common stock, options or warrants to acquire shares
of common stock, or any related security or instrument, without the prior
written consent of U.S. Bancorp Piper Jaffray. The agreements provide
exceptions for sales to underwriters pursuant to the purchase agreement, sales
of shares acquired in the public market after the date of this offering and
transfers by gift.

To facilitate the offering, the underwriters may engage in transactions that
stabilize, maintain or otherwise affect the price of the common stock during
and after the offering. Specifically, the underwriters may over-allot or
otherwise create a short position in the common stock for their own account by
selling more shares of common stock than have been sold to them by us and the
selling stockholders. The underwriters may elect to cover any such short
position by purchasing shares of common stock in the open market or by
exercising the over-allotment option granted to the underwriters. In addition,
the underwriters may stabilize or maintain the price of the common stock by
bidding for or purchasing shares of common stock in the open market and may

impose penalty bids. If penalty bids are imposed, selling concessions allowed
to syndicate members or other broker-dealers participating in the offering are
reclaimed if shares of common stock previously distributed in the offering are
repurchased, whether in connection with stabilization transactions or
otherwise. The effect of these transactions may be to stabilize or maintain the
market price of the common stock at a level above that which might otherwise
prevail in the open market. The imposition of a penalty bid may also affect the
price of the common stock to the extent that it discourages resales of the
common stock. The magnitude or effect of any stabilization or other
transactions is uncertain. These transactions may be effected on the Nasdaq
National Market or otherwise and, if commenced, may be discontinued at any
time.

In connection with this offering, some underwriters (and selling group members)
may also engage in passive market making transactions in the common stock on
the Nasdaq National Market. Passive market making consists of displaying bids
on the Nasdaq National Market limited by the prices of independent market
makers and effecting purchases limited by those prices in response to order
flow. Rule 103 of Regulation M promulgated by the SEC limits the amount of net
purchases that each passive market maker may make and the displayed size of
each bid. Passive market making may stabilize the market price of the common
stock at a level above that which might otherwise prevail in the open market
and, if commenced, may be discontinued at any time.

LEGAL MATTERS

The validity of the issuance of the shares of common stock to be sold in the
offering will be passed upon for us by Latham & Watkins, Costa Mesa,
California. Certain legal matters in connection with the issuance of the common
stock to be sold in the offering will be passed upon for the underwriters by
Faegre & Benson LLP, Minneapolis, Minnesota.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at December 31, 1998 and 1999, and for each
of the three years in the period ended December 31, 1999, as set forth in their
reports, which are based in part on the reports of PricewaterhouseCoopers LLP,
independent accountants. Such reports are included in this prospectus and
incorporated by reference in the related registration statement. We have
included our financial statements in the prospectus and our financial statement
schedule is incorporated by reference in the registration statement in reliance
upon such reports given on the authority of such firms as experts in accounting
and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file with the SEC at its public reference facilities at
450 Fifth Street, N.W., Washington, D.C. 20549, 7 World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. You can also obtain copies of the
documents at prescribed rates by writing to the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
facilities. Our SEC filings are also available at the offices of the Nasdaq
National Market. For further information on obtaining copies of our public
filings at the Nasdaq National Market, you should call (212) 656-5060.

We "incorporate by reference" into this prospectus the information we file with
the SEC, which means that we can disclose important information to you by
referring you to those documents. The information we incorporate by reference
is an important part of this prospectus and information that we file
subsequently with the SEC will automatically update this prospectus. We
incorporate by reference our Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, our Current Report on Form 8-K dated December 1, 1998
and any filings we make with the SEC under Sections 13(a), 13(c), 14, or 15(d)
of the Securities Exchange Act of 1934 after the initial filing of the
registration statement that contains this prospectus and prior to the time that
we sell all the securities offered by this prospectus.

You may request copies of these filings (other than an exhibit to a filing
unless that exhibit is specifically incorporated by reference into that filing)
at no cost, by writing to or telephoning us at the following address:

Interpore International, Inc.
Attention: Investor Relations
181 Technology Drive
Irvine, California 92618
Telephone No. (949) 453-3200

INTERPORE INTERNATIONAL, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Report of Independent Auditors........................................... F-2

Report of Independent Accountants........................................ F-3

Consolidated Balance Sheets at December 31, 1998 and 1999................ F-4

Consolidated Statements of Operations for the Years Ended December 31,
1997, 1998 and 1999..................................................... F-5

Consolidated Statements of Shareholders' Equity for the Years Ended De-
cember 31, 1997, 1998 and 1999.......................................... F-6

Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999..................................................... F-7

Notes to Consolidated Financial Statements............................... F-8

F-1

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Interpore International, Inc.

We have audited the accompanying consolidated balance sheets of Interpore
International, Inc. as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Cross Medical
Products, Inc., which statements reflect total assets of $18,762,000 as of
December 31, 1997, and total revenues of $12,918,000 for the year ended
December 31, 1997. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to the data
included for Cross Medical Products, Inc., is based solely on the report of the
other auditors.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports of
other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Interpore International, Inc.
at December 31, 1998 and 1999, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.

/s/ Ernst & Young LLP

Orange County, California
February 4, 2000, except for
the first paragraph of note 6,
as to which the date is March 1, 2000

F-2

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Cross Medical Products, Inc. and Subsidiary

We have audited the consolidated statements of income, shareholders' equity,
and cash flows of Cross Medical Products, Inc. and Subsidiary (formerly
Danninger Medical Technology, Inc. and Subsidiaries) (the Company) for the year
in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations, cash flows, and
changes in shareholders' equity of Cross Medical Products, Inc. and Subsidiary
for the year in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.

/s/ PricewaterhouseCoopers L.L.P.

Coopers & Lybrand L.L.P.
Columbus, Ohio
February 4, 1998, except for
Note 11 to the consolidated
financial statements for which
the date is February 11, 1998

F-3

INTERPORE INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

December 31,
-------------------
1998 1999
--------- ---------

Assets
Current assets:
Cash and cash equivalents................................. $ 7,908 $ 6,315
Short-term investments.................................... -- 3,459
Accounts receivable, less allowance for doubtful accounts
of $506 and $516 in 1998 and 1999, respectively.......... 6,418 8,887
Inventories............................................... 12,115 13,070
Prepaid expenses.......................................... 1,205 995
Deferred income taxes..................................... 1,426 1,750
Other current assets...................................... 436 129
--------- ---------
Total current assets....................................... 29,508 34,605
Property, plant and equipment, net......................... 1,467 1,349
Deferred income taxes...................................... 2,504 2,333
Intangible assets, net..................................... 338 2,274
Other assets............................................... 330 232
--------- ---------
Total assets............................................... $ 34,147 $ 40,793
========= =========
Liabilities and stockholders' equity
Current liabilities:
Current portion of capital lease obligations.............. $ 15 $ 15
Accounts payable.......................................... 609 1,046
Accrued compensation and related expenses................. 1,010 1,615
Accrued royalties......................................... 300 339
Reserve for products liability claims..................... 232 183
Accrued disposition costs................................. 250 118
Accrued merger-related expenses and restructuring
charges.................................................. 726 324
Income taxes payable...................................... -- 326
Other accrued liabilities................................. 873 425
--------- ---------
Total current liabilities.................................. 4,015 4,391
--------- ---------
Long-term obligations:
Long-term debt............................................ 3,152 3,152
Obligations under capital leases, net..................... 29 13
--------- ---------
Total long-term obligations................................ 3,181 3,165
--------- ---------
Commitments and contingencies
Stockholders' equity:
Series E convertible preferred stock, voting, par value
$.01 per share: Authorized--594,000; issued and outstand-
ing shares -- 32,906 at December 31, 1998 and 25,573 at
December 31, 1999; aggregate liquidation value of $247 at
December 31, 1998 and $192 at December 31, 1999.......... -- --
Preferred stock, par value $.01 per share: Authorized
shares -- 4,406,000; outstanding shares -- none.......... -- --
Common stock, par value $.01 per share: Authorized
shares -- 50,000,000; issued and outstanding shares --
14,059,690 at December 31, 1998 and 14,272,279 at Decem-
ber 31, 1999............................................. 141 143
Additional paid-in-capital................................ 43,961 45,451
Accumulated deficit....................................... (14,042) (9,244)
Accumulated other comprehensive loss...................... -- (4)
--------- ---------
30,060 36,346
Less treasury stock, at cost -- 605,000 shares at December
31, 1998 and December 31, 1999........................... (3,109) (3,109)
--------- ---------
Total stockholders' equity................................. 26,951 33,237
--------- ---------
Total liabilities and stockholders' equity................. $ 34,147 $ 40,793
========= =========

See accompanying notes.

F-4

INTERPORE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

Year ended December 31,
-------------------------
1997 1998 1999
------- ------- -------

Net sales.......................................... $28,429 $30,209 $38,856
Cost of goods sold................................. 9,110 8,552 11,645
------- ------- -------
Gross profit....................................... 19,319 21,657 27,211
------- ------- -------
Operating expenses:
Research and development......................... 3,220 3,650 4,192
Selling and marketing............................ 11,575 11,826 13,978
General and administrative....................... 4,683 4,035 4,351
Merger-related expenses.......................... -- 3,031 --
Restructuring charges............................ -- 1,512 --
Non-recurring charges............................ -- 474 --
Loss on sale of dental business.................. 617 -- --
------- ------- -------
Total operating expenses........................... 20,095 24,528 22,521
------- ------- -------

Income (loss) from operations...................... (776) (2,871) 4,690
------- ------- -------
Interest income.................................... 835 744 457
Interest expense................................... (580) (600) (342)
Other income....................................... 311 362 400
------- ------- -------
Total interest and other income, net............... 566 506 515
------- ------- -------
Income (loss) before taxes and discontinued opera-
tions............................................. (210) (2,365) 5,205
Income tax provision (benefit)..................... (2,119) 59 407
------- ------- -------

Income (loss) from continuing operations........... 1,909 (2,424) 4,798
------- ------- -------
Income from discontinued operations (net of income
taxes of $168).................................... 290 -- --
Gain on sale of discontinued operations (net of in-
come taxes of $1,400)............................. 2,180 -- --
------- ------- -------
Income from discontinued operations................ 2,470 -- --
------- ------- -------
Net income (loss).................................. $ 4,379 $(2,424) $ 4,798
======= ======= =======

Basic earnings per share:
Income (loss) from continuing operations......... $ 0.14 $ (0.17) $ 0.36
Income from discontinued operations.............. 0.19 -- --
------- ------- -------
Net income (loss)................................ $ 0.33 $ (0.17) $ 0.36
======= ======= =======

Shares used in computing earnings per share...... 13,460 13,904 13,506

Diluted earnings per share:
Income (loss) from continuing operations......... $ 0.14 $ (0.17) $ 0.35
Income from discontinued operations.............. 0.17 -- --
------- ------- -------
Net income (loss)................................ $ 0.31 $ (0.17) $ 0.35
======= ======= =======

Shares used in computing earnings per share...... 14,111 13,904 13,876
======= ======= =======

See accompanying notes.

F-5

INTERPORE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)

Series E
Convertible
Preferred Accumulated
Stock Common Stock Additional Other Total
------------- ------------- Paid-In Comprehensive Accumulated Treasury Stockholders
Shares Amount Shares Amount Capital Loss Deficit Stock Equity
------ ------ ------ ------ ---------- ------------- ----------- -------- ------------

Balance at December 31,
1996................... 77 $ 1 13,239 $132 $40,195 $ -- $(15,997) $ (152) $24,179
Net income and compre-
hensive income....... -- -- -- -- -- -- 4,379 -- 4,379
Retirement of treasury
stock................ -- -- -- -- (152) -- -- 152 --
Exercise of stock op-
tions................ -- -- 155 1 401 -- -- -- 402
Conversion of pre-
ferred stock into
common stock......... (44) (1) 44 1 -- -- -- -- --
Issuances under em-
ployee stock
purchase plan........ -- -- 21 -- 90 -- -- -- 90
Options granted in ex-
change for services.. -- -- -- -- 172 -- -- -- 172
Sale of common stock.. -- -- 280 3 2,239 -- -- -- 2,242
Debentures converted
into common stock.... -- -- 27 1 169 -- -- -- 170
--- ----- ------ ---- ------- ----- -------- ------- -------
Balance at December 31,
1997................... 33 -- 13,766 138 43,114 -- (11,618) -- 31,634
Net loss and compre-
hensive loss......... -- -- -- -- -- -- (2,424) -- (2,424)
Exercise of stock op-
tions................ -- -- 252 3 647 -- -- -- 650
Issuances under em-
ployee stock
purchase plan........ -- -- 27 -- 127 -- -- -- 127
Debentures converted
into common stock.... -- -- 15 -- 73 -- -- -- 73
Repurchase of common
stock................ -- -- -- -- -- -- -- (3,109) (3,109)
--- ----- ------ ---- ------- ----- -------- ------- -------
Balance at December 31,
1998................... 33 -- 14,060 141 43,961 -- (14,042) (3,109) 26,951
Unrealized loss on
short-term invest-
ments (including tax
benefit of $2)....... -- -- -- -- -- (4) -- -- (4)
Net income............ -- -- -- -- -- -- 4,798 -- 4,798
--- ----- ------ ---- ------- ----- -------- ------- -------
Comprehensive income
(loss) .............. -- -- -- -- -- (4) 4,798 -- 4,794
Exercise of stock op-
tions................ -- -- 81 1 178 -- -- -- 179
Conversion of pre-
ferred stock into
common stock......... (7) -- 7 -- -- -- -- -- --
Issuances under em-
ployee stock
purchase plan........ -- -- 24 -- 103 -- -- -- 103
Shares issued in
purchase of AGF
technology........... -- -- 100 1 1,209 -- -- -- 1,210
--- ----- ------ ---- ------- ----- -------- ------- -------
Balance at December 31,
1999................... 26 $ -- 14,272 $143 $45,451 $ (4) $ (9,244) $(3,109) $33,237
=== ===== ====== ==== ======= ===== ======== ======= =======

See accompanying notes.

F-6

INTERPORE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year ended December 31,
-------------------------
1997 1998 1999
------- ------- -------

Cash Flows From Operating Activities:
Income (loss) from continuing operations.......... $ 1,909 $(2,424) $ 4,798
Adjustments to reconcile income (loss) from con-
tinuing operations
to net cash provided by (used in) operating ac-
tivities:
Depreciation and amortization................... 714 724 852
Loss on sale of dental business................. 617 -- --
Loss on disposal of property, plant and equip-
ment........................................... -- 229 --
Changes in operating assets and liabilities:
Accounts receivable............................ 431 172 (2,469)
Inventories.................................... (3,888) (1,741) (955)
Prepaid expenses............................... (70) (767) 43
Other assets................................... (89) 6 405
Deferred income taxes.......................... (1,873) 108 (151)
Accounts payable and accrued liabilities....... (568) (630) 376
------- ------- -------
Net cash used in continuing operations............ (2,817) (4,323) 2,899
Net cash provided by discontinued operations...... 92 -- --
------- ------- -------
Net cash provided by (used in) operating activi-
ties........................................... (2,725) (4,323) 2,899
------- ------- -------
Cash Flows From Investing Activities:
Purchases of short-term investments............... (3,775) (3,937) (3,465)
Sales of short-term investments................... 3,146 8,718 --
Capital expenditures.............................. (673) (796) (621)
Expenditures for patent rights.................... (60) (30) (146)
Purchase of AGF technology........................ -- -- (526)
Proceeds from sale of dental business, net........ 741 749 --
------- ------- -------
Net cash provided by (used in) continuing opera-
tions........................................... (621) 4,704 (4,758)
Net cash used in discontinued operations......... (91) -- --
Cash received from sale of recovery products seg-
ment............................................ 8,177 -- --
------- ------- -------
Net cash provided by (used in) investing activi-
ties........................................... 7,465 4,704 (4,758)
------- ------- -------
Cash Flows From Financing Activities:
Repurchase of common stock........................ -- (3,109) --
Repayment of long-term debt and capitalized lease
obligations...................................... (1,796) (1,950) (16)
Proceeds from exercise of stock options........... 402 650 179
Proceeds from employee stock purchase plan........ 90 127 103
Proceeds from sale of common stock................ 2,242 -- --
------- ------- -------
Net cash provided by (used in) continuing opera-
tions........................................... 938 (4,282) 266
Net cash used in discontinued operations......... (197) -- --
------- ------- -------
Net cash provided by (used in) financing activi-
ties........................................... 741 (4,282) 266
------- ------- -------
Net increase (decrease) in cash and cash equiva-
lents.............................................. 5,481 (3,901) (1,593)
Cash and cash equivalents at beginning of year...... 6,328 11,809 7,908
------- ------- -------
Cash and cash equivalents at end of year............ $11,809 $ 7,908 $ 6,315
======= ======= =======

See accompanying notes.

F-7

INTERPORE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1999

1. Summary of Significant Accounting Policies

Organization and Description of Business

Interpore International, Inc. ("Interpore"), doing business as Interpore Cross
International ("Interpore Cross") operates in one business segment: the design,
manufacture and marketing of medical devices for the orthopedic marketplace.
The products are distributed in the United States and internationally.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of
Interpore Cross and its subsidiaries after elimination of all significant
intercompany transactions. In February 1998, Interpore entered into an
agreement to merge with Cross Medical Products, Inc. ("Cross"), a publicly
traded Ohio-based worldwide supplier of spinal implant systems used to treat
degenerative conditions and deformities of the spine. This merger has been
accounted for as a pooling-of-interests. Accordingly, financial information for
1997 has been restated to include the financial information of each company.
Certain amounts have been reclassified to conform to the 1999 presentation.

Discontinued Operations

In March 1997, substantially all of the assets and liabilities related to
Cross' recovery products segment were sold. The accompanying consolidated
financial statements reflect the reclassification of the recovery products
segment as discontinued operations. Income from discontinued operations has
been adjusted for the effect of the allocation of certain general corporate
overhead costs associated with continuing operations. Interest expense has been
allocated to continuing operations based upon specific identification of
indebtedness that was retained. Unless otherwise stated, the notes to the
financial statements disclose information related to continuing operations.

Revenue Recognition

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

F-8

INTERPORE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Per Share Information

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

Year ended December 31,
--------------------------
1997 1998 1999
------- -------- -------

Income (loss) from continuing operations............ $ 1,909 $(2,424) $ 4,798
Income from discontinued operations................. 2,470 -- --
------- -------- -------
Net income (loss)................................... $ 4,379 $(2,424) $ 4,798
======= ======== =======
Shares used in computing net income (loss) per
share--basic Weighted average common shares
outstanding...................................... 13,460 13,904 13,506
Effect of dilutive securities:
Weighted average convertible preferred stock...... 67 --(/1/) 31
Common share equivalents outstanding.............. 584 --(/1/) 339
------- -------- -------
Shares used in computing net income (loss) per
share--diluted..................................... 14,111 13,904 13,876
======= ======== =======
Basic earnings per share:
Income (loss) from continuing operations.......... $ 0.14 $ (0.17) $ 0.36
Income from discontinued operations............... 0.19 -- --
------- -------- -------
Net income (loss)................................. $ 0.33 $ (0.17) $ 0.36
======= ======== =======
Diluted earnings per share:
Income (loss) from continuing operations.......... $ 0.14 $ (0.17) $ 0.35
Income from discontinued operations............... 0.17 -- --
------- -------- -------
Net income (loss)................................. $ 0.31 $ (0.17) $ 0.35
======= ======== =======

- -------------------------------
(/1/)Effect would have been anti-dilutive, accordingly, the amounts are
excluded from shares used in computing diluted earnings per share. Weighted
average convertible preferred stock would have been 33 shares and common share
equivalents outstanding would have been 346 shares.

Shares issuable from the convertible subordinated debentures were excluded from
the calculation of diluted earnings per share in all years because their effect
would have been anti-dilutive.

Concentrations of Business and Credit Risk

Interpore Cross operates in worldwide markets which are subject to rapid
technological advancement and significant government regulation. The
introduction of technologically advanced products by competitors and increased
regulatory or trade barriers could have a material impact on the future
operations of Interpore Cross.

In the normal course of business, Interpore Cross provides credit to its
customers. At December 31, 1999, 59% of Interpore Cross' accounts receivable
are from domestic customers, and 41% are from foreign customers. Interpore
Cross performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses which, when realized, have been within
the range of management's expectations. As of December 31, 1999, Interpore
Cross had no significant concentrations of credit risk. Sales to domestic
customers were 76%, 77% and 78% of total sales in 1997, 1998 and 1999,
respectively, and sales to foreign customers were 24%, 23% and 22% of total
sales in 1997, 1998 and 1999, respectively. All sales to foreign customers for
the periods presented were denominated in United States dollars.

F-9

INTERPORE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In the U.S., there are no significant customer concentrations, as Interpore
Cross invoices hospitals directly for product used or shipped. However, in the
international markets, Interpore Cross has two significant distributors that on
a combined basis accounted for approximately 31% of its 1999 international
sales and 7% of our 1999 worldwide sales.

Some of the products and materials supplied by Interpore Cross' vendors are
currently sole-sourced, but the Company believes that it could locate
alternative vendors for supply of these components. However, the
UltraConcentrator, one of the products used to collect AGF, is manufactured
under an exclusive supply agreement with a vendor that itself has a sole source
of supply of the contained filter material. Although the filter material is not
readily available through alternative sources, Interpore Cross believes that
there are suppliers that could supply alternate materials with probable
equivalent function. In the event that are-engineering of the product were
necessary due to an interruption in supply from our current vendor, delays in
product availability could occur and significant costs could be incurred, both
of which would have a material adverse effect on Interpore Cross' operations.

Stock Option Plans

Interpore Cross accounts for stock compensation to employees using the
intrinsic value method provided for by Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees and related interpretations, and
provides supplementary disclosures in the notes to the consolidated financial
statements of the differences between using this method and the fair value
method as required by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation.

Advertising

Interpore Cross expenses as incurred the costs of advertising which totaled
$162,000, $201,000 and $219,000 for the years ended December 31, 1997, 1998 and
1999, respectively.

Research and Development

Expenditures for research and development are expensed as incurred.

Cash, Cash Equivalents and Short-term Investments

Interpore Cross invests excess cash in United States Treasury securities and
high grade corporate marketable securities. Highly liquid investments with a
maturity of three months or less at the date of purchase are classified as cash
equivalents. Short-term investments consist of highly liquid investments with a
maturity of more than three months when purchased. Pursuant to Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities, Interpore Cross' short-term investments are
classified as available-for-sale securities and are reported at fair market
value.

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,
---------------
1998 1999
------- -------

Raw material............................................. $ 1,024 $ 1,159
Work-in-process.......................................... 279 442
Finished goods........................................... 10,812 11,469
------- -------
$12,115 $13,070
======= =======

F-10

INTERPORE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Property, Plant and Equipment

Property, plant and equipment are stated at cost and are comprised of the
following (in thousands):

December 31,
----------------
1998 1999
------- -------

Machinery and equipment................................ $ 3,056 $ 3,418
Furniture and fixtures................................. 441 644
Leasehold improvements................................. 571 627
------- -------
Property, plant and equipment, at cost................. 4,068 4,689
Less accumulated depreciation and amortization......... (2,601) (3,340)
------- -------
Property, plant and equipment, net..................... $ 1,467 $ 1,349
======= =======

Depreciation is provided using the straight-line method over the following
estimated useful lives:

Machinery and equipment......................... 3 to 5 years
Furniture and fixtures.......................... 5 years
Leasehold improvements.......................... Lesser of estimated
useful life or term of
lease

Intangible Assets

Intangible assets include patents and license rights. The patents and license
rights are amortized on a straight-line basis over their useful lives.
Amortization begins at the time the patents are issued. Management periodically
evaluates the recoverability of intangible assets based on undiscounted future
cash flows. Amortization expense for the years ended December 31, 1997, 1998
and 1999 was $6,000, $75,000 and $113,000, respectively. Accumulated
amortization of intangible assets was $84,000 and $197,000 at December 31, 1998
and 1999, respectively.

Consolidated Statements of Cash Flows

Interpore Cross paid income taxes of $129,000, $1,053,000 and $163,000 and
interest of $604,000, $416,000 and $294,000 in 1997, 1998 and 1999,
respectively.

Long-Lived Assets

In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets, Interpore Cross reviews
long-lived assets and certain intangibles whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Interpore Cross believes no impairment of the carrying value of
its long-lived assets existed at December 31, 1999.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.

Comprehensive Income

Effective January 1, 1998, Interpore Cross adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS
130 establishes new rules for the reporting and display of comprehensive income
and its components. The adoption of SFAS 130 had no impact on Interpore Cross'

F-11

INTERPORE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

net income or shareholders' equity. SFAS 130 requires unrealized gains or
losses on available-for-sale-securities to be included in other comprehensive
income. All periods presented have been reclassified to conform to the
requirements of SFAS 130.

2. Business Combination

The merger of Interpore and Cross was approved by the stockholders of both
companies on May 6, 1998 and became effective on May 7, 1998. Shareholders of
Cross received 1.275 shares of Interpore common stock for each share of issued
and outstanding Cross common stock. Accordingly, Interpore issued 6.7 million
shares of its common stock to Cross shareholders in exchange for all of the
outstanding common stock of Cross. In addition, approximately 895,000 shares of
Interpore Cross common stock were reserved for issuance upon the exercise of
assumed Cross stock options. The merger has been accounted for as a pooling-of-
interests.

During the second quarter of 1998, Interpore Cross recorded merger-related
expenses and restructuring charges of $3.0 million and $1.5 million,
respectively. The merger-related expenses included legal, accounting and
administrative costs incurred in connection with the merger of Interpore and
Cross. The restructuring charges were associated with the closing of the
Dublin, Ohio facility and included severance benefits for 23 employees not
remaining with Interpore Cross, the write-off of fixed assets which were not
transferred to Interpore Cross' Irvine, California headquarters, and the
accrual of remaining lease payments for the Dublin facility. During the third
and fourth quarters of 1998, Interpore Cross recorded $474,000 of non-recurring
charges related to the relocation of assets and employees from the Dublin, Ohio
facility to the Irvine, California headquarters.

Restructuring costs and related liabilities for the two years in the period
ended December 31, 1999 are summarized below (in thousands):

Severance Remaining lease Write-off of
benefits payments fixed assets Total
--------- --------------- ------------ ------

Restructuring costs............. $ 782 $ 501 $ 229 $1,512
1998 write-offs, payments....... 498 76 229 803
------ ------ ------ ------
Accrued restructuring costs at
December 31, 1998.............. 284 425 -- 709
1999 payments................... 196 189 -- 385
------ ------ ------ ------
Accrued restructuring costs at
December 31, 1999.............. $ 88 $ 236 $ -- $ 324
====== ====== ====== ======

Interpore Cross expects that the accrued restructuring costs of $324,000 at
December 31, 1999 is adequate to cover remaining exposures and will be paid
over the next 16 months.

F-12

INTERPORE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Selected financial information for the combining entities included in the
consolidated statements of operations for the year ended December 31, 1997 and
four months ended April 30, 1998 are as follows (in thousands):

For the period ended
----------------------
December 31, April 30,
1997 1998
------------ ---------

Net sales
Interpore............................................... $15,511 $ 4,664
Cross................................................... 12,918 4,647
-------- -------
Combined................................................. $28,429 $ 9,311
======== =======

Income (loss) from continuing operations
Interpore............................................... $ 2,771 $ 770
Cross................................................... (862) 74
-------- -------
Combined................................................. $ 1,909 $ 844
======== =======

Income from discontinued operations
Interpore............................................... $ -- $ --
Cross (net of income taxes of $1,568)................... 2,470 --
-------- -------
Combined................................................. $ 2,470 $ --
======== =======

Net income
Interpore............................................... $ 2,771 $ 770
Cross................................................... 1,608 74
-------- -------
Combined................................................. $ 4,379 $ 844
======== =======

3. Acquisition of AGF Technology

In December, 1999, Interpore Cross purchased all the intellectual property of
Quantic Biomedical, Inc. which included the patents and technology for making
AGF(TM) ("Autologous Growth Factors(TM)"). The purchase price of $1.9 million
included a cash payment of $500,000, 100,000 unregistered shares of Interpore
Cross common stock with a fair market value of $551,000 and 200,000 stock
purchase warrants which vest over a two-year period at exercise prices ranging
from $7.13 to $8.63 with a fair market value of $659,000. Additionally,
previously paid unamortized license fees of $167,000 were reallocated to the
purchase price. The total purchase price has been recorded as an intangible
asset and is being amortized over a ten-year period.

4. Fair Value of Financial Instruments

The estimated fair value of financial instruments (in thousands):

December 31, December 31,
1998 1999
--------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- ------

Assets:
Cash and cash equivalents................... $7,908 $7,908 $6,315 $6,315
Short-term investments...................... -- -- 3,459 3,459
Liabilities:
Long-term debt.............................. $3,152 $3,152 $3,152 $3,897

F-13

INTERPORE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Due to the short-term nature of cash, cash equivalents and short-term
investments, the carrying amount approximates the fair value. The fair value of
the long-term debt, consisting of Convertible Subordinated Debentures, is based
upon the greater of the fair market value of Interpore Cross common stock into
which the Debentures are convertible, or the carrying amount.

5. Long-Term Obligations

Long-term debt consisted of the following (in thousands):

December 31,
-------------
1998 1999
------ ------

Convertible Subordinated Debentures, due in June 2003 plus
interest at 8.5%, payable semi-annually........................ $3,152 $3,152
Obligations under capital leases................................ 44 28
------ ------
3,196 3,180
Less current maturities......................................... 15 15
------ ------
$3,181 $3,165
====== ======

The 8.5% Convertible Subordinated Debentures (the "Debentures") due June 1,
2003 are convertible at any time before maturity, unless previously redeemed,
into shares of Interpore Cross common stock at a conversion price of $6.37 per
share. Pursuant to the terms of the underlying indenture, upon the merger of
Interpore and Cross, Debenture holders were allowed to request redemption until
June 26, 1998 at 101% of the principal amount thereof, plus accrued interest.
Requests for redemption totaling $1.8 million were made. Beginning July 1, 1999
and on July 1 of each succeeding year, Interpore Cross will be obligated to
redeem any Debentures tendered by June 1, 1999 or June 1 of any succeeding
year, respectively, at 100% of the principal amount thereof plus accrued
interest, subject to an annual limitation of $25,000 per holder and an annual
aggregate limitation of $262,500. During 1998, $97,000 of Debentures were
converted into 15,221 shares of Interpore Cross common stock. There were no
conversions recorded in 1999. The indenture permits Interpore Cross to call for
the redemption of all or part of the Debentures at any time at prices ranging
from 100% to 105% of the principal amount thereof, depending on the date of
redemption, plus accrued interest through the date of redemption. The fair
value of the Debentures approximated the book value at December 31, 1998 and
was approximately $3.9 million at December 31, 1999.

Other assets include $573,000 of offering costs related to issuance of the
Debentures. Amortization of offering costs of $83,000, $206,000 and $48,000 for
the years ended December 31, 1997, 1998 and 1999, respectively, are included in
interest expense. Accumulated amortization was $359,000 and $407,000 as of
December 31, 1998 and 1999, respectively.

Interpore Cross has available a $5 million line of credit facility with its
primary bank. The line is secured by substantially all of the assets of
Interpore Cross, bears interest at the bank's prime rate (8.25% at December 31,
1999), and matures June 2000. The facility contains certain financial covenants
with which Interpore Cross was in compliance at December 31, 1999. No amount
was outstanding under the facility at December 31, 1999.

F-14

INTERPORE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Long-term debt matures as follows (in thousands):

2000............................................................. $ 15
2001............................................................. 13
2002............................................................. --
2003............................................................. 3,152
Thereafter....................................................... --
------
$3,180
======

6. Stockholders' Equity

Series E Convertible Preferred Stock

The terms of the Series E Convertible Preferred Stock provide for noncumulative
dividends to be paid at the times and in the amounts paid per share on the
common stock and a liquidation preference at an amount no greater than $7.50
per share. The Series E Convertible Preferred Stock has no redemption rights
(although Interpore Cross may redeem the stock in certain circumstances) and is
convertible into common stock at conversion ratios averaging 1.005 shares of
common stock for each share of preferred stock, subject to certain antidilution
provisions. On March 1, 2000, Interpore Cross common stock closed above $10.00
for the twentieth day out of 30 consecutive trading days and accordingly, as
provided in the Series E Preferred Stock Agreement, all of the outstanding
Series E Preferred Stock converted into common stock.

Common Stock

In connection with the merger discussed in Note 2, Interpore Cross was
reincorporated from California to Delaware on May 6, 1998, and the total number
of common shares authorized was increased from 20 million no par value shares
to 50 million shares with $.01 par value per share.

Stock Options

Interpore Cross has seven stock option plans that provide for the granting of
incentive stock options or non-qualified stock options to officers, key
employees, directors and consultants. The 1995 Stock Option Plan (the "1995
Plan"), the Stock Option Plan for Non-Employee Directors (the "Directors Plan")
and the 1999 Consultants Stock Option Plan (the "Consultants Plan") are the
only plans with stock option awards available for grant. The other four plans
have either expired or have been terminated with respect to future option
grants, but have shares exercisable at December 31, 1999. Options outstanding
under Interpore Cross' seven stock option plans generally vest over a four- or
five-year period, and expire either six years or ten years from the date of
grant.

The number of shares reserved for issuance under the 1995 Plan increases
annually by an amount equal to 3% of the number of shares of common stock
issued and outstanding as of the close of business on December 31 of the
immediately preceding year, up to the plan maximum of 1.5 million shares. At
December 31, 1999 there were 433,625 shares available for grant under the 1995
Plan, all of which may be granted in 2000.

The Directors Plan provides for a maximum of 200,000 shares to be issued
pursuant to options granted under the plan. At December 31, 1999, there were
approximately 118,500 shares available for grant under the Directors Plan.

The Consultants Plan provides for a maximum of 300,000 shares to be issued
pursuant to options granted under the plan. All 300,000 shares are available
for grant at December 31, 1999.

F-15

INTERPORE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following is a summary of stock option activity and weighted average
exercise price per share for periods indicated:

Weighted
Average
Shares Exercise Price
--------- --------------

Outstanding at December 31, 1996.................... 2,051,556 $4.72
Granted........................................... 552,277 6.48
Exercised......................................... (154,673) 2.78
Forfeited and Expired............................. (53,482) 5.35
---------
Outstanding at December 31, 1997.................... 2,395,678 5.24
Granted........................................... 305,818 5.41
Exercised......................................... (260,961) 2.66
Forfeited and Expired............................. (219,788) 5.77
---------
Outstanding at December 31, 1998.................... 2,220,747 5.52
Granted........................................... 428,000 4.76
Exercised......................................... (80,937) 2.21
Forfeited and Expired............................. (164,880) 6.72
---------
Outstanding at December 31, 1999.................... 2,402,930 5.41
=========

Options exercisable at:
December 31, 1997................................. 1,294,588 $4.58
December 31, 1998................................. 1,704,684 5.49
December 31, 1999................................. 1,706,805 5.54

Estimated fair value per share of options granted
during year
1997.............................................. $3.48
1998.............................................. 3.80
1999.............................................. 3.13

The weighted average remaining contractual life of stock options outstanding at
December 31, 1997, 1998 and 1999 were approximately 4.9, 5.2 and 5.4 years,
respectively.

Summary information about stock options outstanding at December 31, 1999
follows:

Exercisable at December
Outstanding at December 31, 1999 31, 1999
------------------------------------ ------------------------
Weighted
Average
Remaining
Range of Contractual Weighted Weighted
Exercise Life Average Average
Price Number (in Years) Exercise Price Number Exercise Price
- ------------ --------- ----------- -------------- --------- --------------

$1.00--$3.00 310,760 2.3 $1.71 310,760 $1.71
$3.01--$5.00 705,800 7.9 4.57 196,925 4.47
$5.01--$7.00 847,970 4.7 5.84 708,845 5.91
$7.01--$9.00 538,400 5.1 7.96 490,275 7.87
--------- ---------

$1.00--$9.00 2,402,930 5.4 $5.41 1,706,805 $5.54
========= =========

F-16

INTERPORE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Employee Stock Purchase Plan

Interpore Cross has a qualified employee stock purchase plan which allows
employees to purchase shares of Interpore Cross common stock every six months
through payroll deductions. The purchase price for the shares is 85% of the
lesser of the fair market value of such shares on the first or last day of each
six-month period. The plan provides for a maximum of 300,000 shares to be
issued pursuant to the plan. As of December 31, 1999, 91,376 shares of common
stock had been issued pursuant to the plan.

Stockholder Rights Plan

Under Interpore Cross' Stockholder Rights Plan, every share of Interpore Cross
common stock currently issued or to be issued is accompanied by one right, and
every common share issued upon conversion of Interpore Cross preferred stock
also will be accompanied by one right. The plan provides for the rights to
become exercisable upon the earlier to occur of (i) ten days following the
announcement that a person or group of persons has acquired or obtained the
right to acquire 15% or more of Interpore Cross common stock, or (ii) ten days
following the announcement or commencement of a tender offer which would result
in ownership of 15% or more of the common stock.

If any person or group of persons acquires 15% or more of Interpore Cross
common stock, each right, once exercisable and excluding any rights acquired by
the 15% holder, will entitle its holder to purchase that number of additional
shares of Interpore Cross common stock having a market value of twice the
rights' exercise price. If Interpore Cross is involved in a merger or other
business combination involving the exchange of Interpore Cross common stock for
stock of an acquiring company at any time after the rights become exercisable,
each right will entitle its holder to purchase that number of the acquiring
company's common stock having a market value of twice the rights' exercise
price.

The rights' current exercise price is $33.00. The exercise price and the number
of shares issuable upon exercise are subject to adjustment from time to time to
prevent dilution. The rights will expire on November 17, 2007, subject to
Interpore Cross' right to extend such date, unless earlier redeemed or
exchanged by Interpore Cross or terminated. Interpore Cross is entitled to
redeem the rights at one cent per right at any time before they become
exercisable.

Treasury Stock

In November 1998, Interpore Cross' Board of Directors approved a plan to
repurchase up to 4.0 million shares of Interpore Cross common stock. Through
December 31, 1998, Interpore Cross repurchased and placed into treasury 605,000
shares at a cost of approximately $3.1 million under this program. The
repurchase approval terminated following the 605,000 share repurchase.

Accounting for Stock-Based Compensation

Interpore Cross applies Accounting Principles Board Opinion No. 25 (APB 25),
Accounting for Stock Issued to Employees, 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. Under APB 25, because the exercise
price of Interpore Cross' employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

Pro forma information regarding net income and earnings per share is required
by SFAS 123, and has been determined as if Interpore Cross had accounted for
employee stock options granted on or after January 1, 1995

F-17

INTERPORE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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
6% for Interpore or 7% for Cross in 1997 and 6% in 1998 and 1999, a volatility
factor of the expected market price of Interpore Cross common stock of .51 for
Interpore or .57 for Cross in 1997, .75 in 1998 and .67 in 1999, a weighted-
average expected life of the options of five years in 1997 and six years in
1998 and 1999, and no dividend yield.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting periods. Interpore Cross' pro
forma information, which reflects the charges related to options issued in
1997, 1998 and 1999 and may not be indicative of such charges in future
periods, is as follows:

Year Ended December
31,
----------------------
1997 1998 1999
------ -------- ------

Pro forma net income (loss) (in thousands).............. $3,559 $(3,138) $3,958
Pro forma basic net income (loss) per share............. $ 0.26 $ (0.23) $ 0.29
Pro forma diluted net income (loss) per share........... $ 0.25 $ (0.23) $ 0.29

7. Income Taxes

Interpore Cross uses the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Under this method, deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Deferred tax assets are recognized and
measured based on the likelihood of realization of the related tax benefit in
the future.

A reconciliation of the income tax provision (benefit) using the federal
statutory rate to the book provision for income taxes follows (in thousands):

Year Ended December 31,
------------------------
1997 1998 1999
-------- ------ --------

Statutory federal provision (benefit) for income tax-
es.................................................. $ (72) $(804) $ 1,770
Increase (decrease) in taxes resulting from:
State tax, net of federal benefit................... 100 26 131
Research and development tax credits................ (58) -- 35
Reduction in valuation allowance.................... (2,029) (211) (1,609)
Permanent differences and other..................... (60) 1,048 80
-------- ------ --------
Income tax provision (benefit)....................... $(2,119) $ 59 $ 407
======== ====== ========

F-18

INTERPORE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Significant components of the income tax provision (benefit) are as follows (in
thousands):

Year Ended
December 31,
--------------------
1997 1998 1999
------- ---- -----

Current expense:
Federal.................................................. $(1,657) $(54) $ 277
State.................................................... (293) 5 281
------- ---- -----
Total current............................................. (1,950) (49) 558
------- ---- -----
Deferred benefit:
Federal.................................................. (102) 85 (68)
State.................................................... (67) 23 (83)
------- ---- -----
Total deferred............................................ (169) 108 (151)
------- ---- -----
Total income tax provision (benefit)...................... $(2,119) $ 59 $ 407
======= ==== =====

At December 31, 1999, Interpore Cross has unused net operating loss
carryforwards of approximately $6.2 million for federal income tax purposes
which expire beginning in 2005. Interpore Cross also has research and
development tax credit and alternative minimum tax credit carryforwards of
approximately $325,000 for federal tax purposes and $120,000 for California tax
purposes. The research and development tax credit carryforward began to expire
in 1999. Prior to 1995, a valuation allowance was recorded to entirely offset
the tax benefits of the federal carryforwards. In 1997, 1998 and 1999, the
valuation allowance was reduced, and ultimately eliminated, to recognize the
future tax benefits which management believes are more likely than not to be
realized.

The Tax Reform Act of 1986 includes provisions which significantly limit the
potential use of net operating losses and tax credit carryforwards in
situations where there is a change in ownership, as defined, of more than 50%
during a cumulative three-year period. Accordingly, if a change in ownership
occurs, the ultimate benefit realized from these carryforwards may be
significantly reduced in total, and the amount that may be utilized in any
given year may be significantly limited. California has enacted similar
legislation. Interpore Cross has had stock issuances during the past three
years and as a result of the merger with Cross, a greater than 50% change in
ownership occurred during the year ended December 31, 1998. Accordingly, the
use of these carryforwards will be limited to approximately $2.3 million per
year.

In addition to the net operating losses discussed above, Interpore Cross has
net operating loss carryforwards and research and development tax credit
carryforwards at December 31, 1999 of approximately $4.2 million and $20,000,
respectively, for federal income tax purposes resulting from the acquisition of
Interpore Orthopaedics, Inc. ("Orthopaedics"). As a result of the acquisition,
Orthopaedics experienced a more than 50% ownership change. Accordingly, under
the provisions of the 1986 Tax Reform Act, the use of Orthopaedics' net
operating loss carryforwards is limited to approximately $300,000 per year.
These carryforwards expire beginning in the year 2001. As a result of the
annual limitation, it is estimated that a maximum of $1.6 million in net
operating loss carryforwards will be available for use prior to expiration. The
ultimate realization of the benefits of these loss carryforwards is dependent
on future profitable operations of Orthopaedics.

F-19

INTERPORE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of the
net deferred tax asset consist of the following (in thousands):

December 31,
----------------
1998 1999
-------- -------

Deferred tax assets:
Interpore net operating loss carryforwards................... $ 2,943 $ 2,095
Orthopaedics net operating loss carryforwards................ 981 538
Research and development and alternative minimum tax credit
carryforwards............................................... 382 448
Orthopaedics research and development tax credit
carryforward................................................ 55 20
Reserves and accruals not currently deductible for tax pur-
poses....................................................... 917 489
Inventory capitalization..................................... 281 361
Depreciation not currently deductible for tax purposes....... (20) 130
-------- -------
Total deferred tax assets..................................... 5,539 4,081
Less valuation allowance..................................... (1,609) --
-------- -------
Net deferred tax asset........................................ $ 3,930 $ 4,081
======== =======

8. Commitments and Contingencies

License Agreements

Interpore Cross has agreements with its Synergy System Advisors under which it
pays royalties ranging from 5% to 7% of net revenues generated from the sale of
certain products within the Synergy Spinal System. Royalties are paid to the
developers of the AGF technology at a rate of 5% of certain products within
this product group.

Litigation

Cross Medical Products and a number of other spinal implant manufacturers were
named as defendants in various products liability lawsuits alleging injuries
from spinal implants supplied by Cross and others. Approximately 800 such suits
were filed in which a large number of plaintiffs claimed, in addition to
damages from spinal implants, a conspiracy among manufacturers, physicians and
other spinal implant industry members to defraud the public and market products
without the proper regulatory approvals. Cross has been dismissed as a
defendant from all but four of the pedicle screw conspiracy cases, none of
which involves its products.

Aside from the conspiracy litigation, the nature of Interpore Cross' business
subjects it to products liability and various other legal proceedings from time
to time. In the opinion of management, the amount of ultimate liability with
respect to any known proceedings or claims will not materially affect the
financial position or results of operations of Interpore Cross.

F-20

INTERPORE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

9. Lease Commitments

Future minimum rentals under noncancelable operating leases for manufacturing
and office facilities and equipment at December 31, 1999 are as follows (in
thousands):

2000.............................................................. $ 788
2001.............................................................. 635
2002.............................................................. 504
2003.............................................................. 41
Thereafter........................................................ --
------
$1,968
======

Rent expense was $792,000, $706,000 and $640,000 in 1997, 1998 and 1999,
respectively.

The lease for Interpore Cross' principal office and manufacturing facility,
which expires January 31, 2003, provides a right to extend the lease for an
additional five years at the fair market lease rate of the facility on the
extension date, but not less than the rate paid by Interpore Cross during the
month immediately preceding the commencement of the extension period.

10. Sale of Assets

In April 1997, Interpore entered into a definitive agreement for the sale of
its dental implant business. In May 1997, the sale was completed, and Interpore
received an initial cash payment of $1.5 million. A deferred cash payment of
$749,000 was received in March 1998. The transaction, including associated
costs, resulted in a net charge of $617,000 in the second quarter of 1997.

11. Sale of Recovery Products Segment

On March 12, 1997, Cross entered into an agreement to sell its recovery
products segment for approximately $8.2 million in cash and the assumption of
approximately $5.0 million of debt and other liabilities. The buyer also
acquired 30,000 shares of Cross' common stock for $242,000. Cross recognized a
gain of $2.2 million, net of related income taxes of $1.4 million. Revenues for
the recovery products segment were $2.5 million through the date of disposal
for the year ended December 31, 1997.

F-21

INTERPORE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

12. Quarterly Results (unaudited)

The following table presents a summary of the quarterly results of operations
for 1998 and 1999 (in thousands, except per share data):

Quarter
------------------------------------------
First Second Third Fourth
------- --------- ------- -------

1998
Net sales..................... $ 7,370 $ 7,333 $ 7,343 $ 8,163
Gross profit.................. 5,534 5,119 5,213 5,791
Net income (loss)............. 943 (4,321)(/1/) 166(/1/) 788(/1/)
Net income (loss) per share--
basic........................ $ 0.07 $ (0.31) $ 0.01 $ 0.06
Net income (loss) per share--
diluted...................... $ 0.07 $ (0.31) $ 0.01 $ 0.05

1999
Net sales..................... $ 8,986 $ 9,642 $ 9,549 $10,679
Gross profit.................. 6,177 6,696 6,898 7,440
Net income.................... 1,082 1,083 1,394 1,239
Net income per share--basic... $ 0.08 $ 0.08 $ 0.10 $ 0.09
Net income per share--dilut-
ed........................... $ 0.08 $ 0.08 $ 0.10 $ 0.09

- -------------------------------
(/1/)In May 1998, Interpore and Cross merged and subsequently closed the
Dublin, Ohio facility. Merger-related expenses and restructuring charges
associated with the merger totaling $4.5 million were recorded in the second
quarter of 1998. Non-recurring charges related to the consolidation of
operations to the Irvine, California facility amounting to $381,000 and
$93,000 were recorded in the third and fourth quarters of 1998, respectively.

F-22

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

4,000,000 Shares

INTERPORE INTERNATIONAL, INC.

Common Stock

[LOGO OF INTERPORE CROSS INTERNATIONAL]

--------------------
PROSPECTUS
--------------------

U.S. Bancorp Piper Jaffray

Chase H&Q

, 2000

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
the common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees. None of these expenses will be borne by
the selling stockholders.

Amount to
Be Paid
---------

SEC registration fee............................................... $
NASD filing fee....................................................
Legal fees and expenses............................................
Accounting fees and expenses.......................................
Printing and engraving.............................................
Blue sky fees and expenses (including legal fees)..................
Transfer agent fees................................................
Miscellaneous......................................................
-------
Total............................................................
=======

Item 15. Indemnification of Directors and Officers

Our Certificate of Incorporation in effect as of the date hereof, (the
"Certificate") eliminates the personal liability of our directors to the
fullest extent permitted by the Delaware General Corporation Law, as amended
(the "DGCL"). Under the DGCL, the directors have a fiduciary duty to us which
is not eliminated by this provision of the Certificate and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to the Registrant, for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are prohibited by the DGCL.
This provision also does not affect the directors' responsibilities under any
other laws, such as the Federal securities laws or state or Federal
environmental laws. We maintain liability insurance for our officers and
directors.

Section 145 of the DGCL empowers a corporation to indemnify its directors and
officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director: (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. The DGCL provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. Our
Certificate eliminates the personal liability of directors to the fullest
extent permitted by Section 102(b)(7) of the DGCL and provides that we may
fully indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the
fact that such person is or was one or our directors or officers, or is or was
serving at our request as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding.

At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate. We are not aware of any threatened
litigation or proceeding that may result in a claim for such indemnification.

II-1

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

Exhibit
Number Description
------- -----------

1.01 Underwriters Agreement*
3.01 Certificate of Incorporation of Interpore International, Inc., as
amended(/1/)
3.02 Bylaws of Registrant(/1/)
3.03 Amendment Number One to Bylaws(/16/)
4.01 Rights Agreement dated November 19, 1998, between Interpore
International, Inc. and U.S. Stock Transfer Corporation, which
includes the form of Certificate of Designations of the Series A
Junior Participating Preferred Stock of Interpore International, Inc.
as Exhibit A, the form of Right Certificate as Exhibit B and the
Summary of Rights to Purchase Preferred Shares as Exhibit C(/2/)
4.02 Registration Rights Agreement dated December 8, 1999 by and between
Interpore International, Inc., John A. Dawdy and Andrew G. Hood(/17/)
5.01 Opinion of Latham & Watkins
10.01 Cancellation and Release Agreement dated March 1, 1993 among
Registrant, Interpore Orthopaedics, Inc., Pfizer, Inc. and Howmedica,
Inc.(/3/)
10.02 Series E Preferred Stock and Common Stock Warrant Purchase Agreement
dated December 19, 1991(/3/)
10.03 Series E Preferred Stock Purchase Agreement dated October 30,
1992(/3/)
10.04 Single Tenant Lease dated July 25, 1991 between Registrant and The
Irvine Company as amended by a Third Amendment to Lease dated December
11, 1996(/4/)
10.05 Amended and Restated Loan and Security Agreement dated June 22, 1999
among Registrant, Interpore Orthopaedics, Inc., Cross Medical
Products, Inc., Interpore Cross International, Inc., and Silicon
Valley Bank(/20/)
10.06 Amended and Restated Stock Option Plan dated March 19, 1991(/6/),
First Amendment to the Amended and Restated Stock Option Plan,
effective October 15, 1991(/3/); Amendment to the Amended and Restated
Stock Option Plan dated September 17, 1994(/7/)
10.07 1995 Stock Option Plan(/8/)
10.08 Stock Option Plan for Non-Employee Directors of Interpore
International(/9/)
10.09 Danninger Medical Technology, Inc. Amended and Restated 1984 Non-
Statutory Stock Option Plan(/10/)
10.10 Danninger Medical Technology, Inc. Amended and Restated 1984 Incentive
Stock Option Plan(/10/)
10.11 Cross Medical Products Inc. Amended and Restated 1994 Stock Option
Plan(/10/)
10.12 Asset Purchase Agreement dated March 12, 1997, among Cross Medical
Products, Inc., Danninger Healthcare, Inc. and OrthoLogic Corp.(/11/)
10.13 Indenture concerning 8.5% Convertible Subordinated Debentures between
Cross Medical Products, Inc. and Fifth Third Bank(/12/)
10.14 Supplemental Indenture between Interpore International, Inc. and Cross
Medical Products, Inc. and Fifth Third Bank(/5/)
10.15 Form of Indemnification Agreement(/13/)
10.16 Schedule of Parties to Form of Indemnification Agreement(/14/)
10.17 Agreement between Dr. Edward Funk and Cross Medical Products, Inc.
dated February 11, 1998(/15/)
10.18 Form of Employment Agreement dated August 17, 1998 between Interpore
International, Inc. and its executive officers(/14/)
10.19 Schedule of Parties to Form of Employment Agreement dated August 17,
1998(/14/)
10.20 1999 Consultants Stock Option Plan(/18/)
10.21 Amended and Restated Employee Qualified Stock Purchase Plan dated
November 13, 1993(/19/)
10.22 Asset Purchase Agreement dated December 8, 1999, by and among
Interpore Orthopaedics, Inc., Quantic Biomedical, Inc., Quantic
Biomedical Partners, John A. Dawdy and Andrew G. Hood(/17/)
23.01 Consent of Ernst & Young LLP, Independent Auditors
23.02 Consent of PricewaterhouseCoopers, LLP, Independent Accountants
27.01 Financial Data Schedule

II-2

- -------------------------------
* To be filed by amendment.
(/1/)Incorporated by reference from our Registration Statement on Form S-4,
Registration No. 333-49487.
(/2/)Incorporated by reference from our Current Report on Form 8-K dated
December 1, 1998.
(/3/)Incorporated by reference from our Registration Statement on Form S-1,
Registration No. 33-69872.
(/4/)Incorporated by reference from our Current Report on Form 8-K dated
February 11, 1998.
(/5/)Incorporated by reference from our Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1998.
(/6/)Incorporated by reference from our Registration Statement on Form S-8,
Registration No. 33-77426.
(/7/)Incorporated by reference from our Registration Statement on Form S-8,
Registration No. 33-86290.
(/8/)Incorporated by reference from our Proxy Statement for the 1994 Annual
Meeting of Shareholders.
(/9/)Incorporated by reference from our Proxy Statement for the 1995 Annual
Meeting of Shareholders.
(/10/)Incorporated by reference from our Registration Statement on Form S-8,
Registration No. 33-53775.
(/11/)Incorporated by reference from the Cross Medical Products, Inc. Annual
Report on Form 10-K for the year ended December 31, 1996.
(/12/)Incorporated by reference from the Cross Medical Products, Inc.
Registration Statement on Form S-2, Registration No. 333-02273.
(/13/)Incorporated by reference from our Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1998.
(/14/)Incorporated by reference from our Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1998.
(/15/)Incorporated by reference from the Cross Medical Products, Inc. Annual
Report on Form 10-K for the year ended December 31, 1997.
(/16/)Incorporated by reference from our Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
(/17/)Incorporated by reference from our Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.
(/18/)Incorporated by reference from our Proxy Statement for the 1999 Annual
Meeting of Stockholders.
(/19/)Incorporated by reference from our Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1999.
(/20/)Incorporated by reference from our Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1999.

Item 17. Undertakings

The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

The undersigned undertakes to deliver or cause to be delivered with the
prospectus, to each person to whom the prospectus is sent or given, the latest
annual report, to security holders that is incorporated by reference in the
prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3
or Rule 14d-3 under the Securities Exchange Act of 1934; and, where interim
financial information required to be presented by Article 3 of Regulation S-X
is not set forth in the prospectus, to deliver, or cause to be delivered to
each person to whom the prospectus is sent or given, the latest quarterly
report that is specifically incorporated by reference in the prospectus to
provide such interim financial information.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the

II-3

Registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Irvine, State of California, on this 14th day of
March, 2000.

Interpore International, Inc.

/s/ David C. Mercer
By:__________________________________
Name:David C. Mercer
Title:Chairman and Chief Executive
Officer

Power of Attorney

Each person whose signature appears below constitutes and appoints David C.
Mercer and Richard L. Harrison, and each of them individually, as attorney-in-
fact, with the power of substitution, for him or her in any and all capacities,
to sign any amendment to this Registration Statement (including post-effective
amendments and registration statements filed pursuant to Rule 462 and
otherwise), and to file the same, with exhibits thereto and other documents in
connection therewith, with the SEC, granting to said attorneys-in-fact, and
each of them individually, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact or each of them
individually, or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933 this registration
statement has been signed by the following persons on March 14, 2000, in the
capacities indicated:

Title
-----

/s/ David C. Mercer Chairman of the Board, Chief Executive
___________________________________________ Officer
David C. Mercer and Director (Principal Executive Officer)

/s/ Joseph A. Mussey President, Chief Operating Officer and
___________________________________________ Director
Joseph A. Mussey

/s/ Richard L. Harrison Sr. Vice President--Finance,
___________________________________________ Chief Financial Officer and Secretary
Richard L. Harrison (Principal Financial and Accounting Officer)

/s/ William A. Eisenecher Director
___________________________________________
William A. Eisenecher

/s/ Daniel A. Funk, M.D. Director
___________________________________________
Daniel A. Funk, M.D.

/s/ G. Bradford Jones Director
___________________________________________
G. Bradford Jones

/s/ Robert J. Williams Director
___________________________________________
Robert J. Williams

II-5

EXHIBIT INDEX

Exhibit
Number Description
------- -----------

1.01 Underwriters Agreement*
3.01 Certificate of Incorporation of Interpore International, Inc., as
amended(/1/)
3.02 Bylaws of Registrant(/1/)
3.03 Amendment Number One to Bylaws(/16/)
4.01 Rights Agreement dated November 19, 1998, between Interpore
International, Inc. and U.S. Stock Transfer Corporation, which
includes the form of Certificate of Designations of the Series A
Junior Participating Preferred Stock of Interpore International, Inc.
as Exhibit A, the form of Right Certificate as Exhibit B and the
Summary of Rights to Purchase Preferred Shares as Exhibit C(/2/)
4.02 Registration Rights Agreement dated December 8, 1999 by and between
Interpore International, Inc., John A. Dawdy and Andrew G. Hood(/17/)
5.01 Opinion of Latham & Watkins
10.01 Cancellation and Release Agreement dated March 1, 1993 among
Registrant, Interpore Orthopaedics, Inc., Pfizer, Inc. and Howmedica,
Inc.(/3/)
10.02 Series E Preferred Stock and Common Stock Warrant Purchase Agreement
dated December 19, 1991(/3/)
10.03 Series E Preferred Stock Purchase Agreement dated October 30,
1992(/3/)
10.04 Single Tenant Lease dated July 25, 1991 between Registrant and The
Irvine Company as amended by a Third Amendment to Lease dated December
11, 1996(/4/)
10.05 Amended and Restated Loan and Security Agreement dated June 22, 1999
among Registrant, Interpore Orthopaedics, Inc., Cross Medical
Products, Inc., Interpore Cross International Inc., and Silicon Valley
Bank(/20/)
10.06 Amended and Restated Stock Option Plan dated March 19, 1991(/6/),
First Amendment to the Amended and Restated Stock Option Plan,
effective October 15, 1991(/3/); Amendment to the Amended and Restated
Stock Option Plan dated September 17, 1994(/7/)
10.07 1995 Stock Option Plan(/8/)
10.08 Stock Option Plan for Non-Employee Directors of Interpore
International(/9/)
10.09 Danninger Medical Technology, Inc. Amended and Restated 1984 Non-
Statutory Stock Option Plan(/10/)
10.10 Danninger Medical Technology, Inc. Amended and Restated 1984 Incentive
Stock Option Plan(/10/)
10.11 Cross Medical Products Inc. Amended and Restated 1994 Stock Option
Plan(/10/)
10.12 Asset Purchase Agreement dated March 12, 1997, among Cross Medical
Products, Inc., Danninger Healthcare, Inc. and OrthoLogic Corp.(/11/)
10.13 Indenture concerning 8.5% Convertible Subordinated Debentures between
Cross Medical Products, Inc. and Fifth Third Bank(/12/)
10.14 Supplemental Indenture between Interpore International, Inc. and Cross
Medical Products, Inc. and Fifth Third Bank(/5/)
10.15 Form of Indemnification Agreement(/13/)
10.16 Schedule of Parties to Form of Indemnification Agreement(/14/)
10.17 Agreement between Dr. Edward Funk and Cross Medical Products, Inc.
dated February 11, 1998(/15/)
10.18 Form of Employment Agreement dated August 17, 1998 between Interpore
International, Inc. and its executive officers(/14/)
10.19 Schedule of Parties to Form of Employment Agreement dated August 17,
1998(/14/)
10.20 1999 Consultants Stock Option Plan(/18/)
10.21 Amended and Restated Employee Qualified Stock Purchase Plan dated
November 13, 1998(/19/)
10.22 Asset Purchase Agreement dated December 8, 1999, by and among
Interpore Orthopaedics, Inc., Quantic Biomedical, Inc., Quantic
Biomedical Partners, John A. Dawdy and Andrew G. Hood(/17/)
23.01 Consent of Ernst & Young LLP, Independent Auditors
23.02 Consent of PricewaterhouseCoopers, LLP, Independent Accountants
27.01 Financial Data Schedule

- -------------------------------
*To be filed by amendment.
(/1/)Incorporated by reference from our Registration Statement on Form S-4,
Registration No. 333-49487.
(/2/)Incorporated by reference from our Current Report on Form 8-K dated
December 1, 1998.
(/3/)Incorporated by reference from our Registration Statement on Form S-1,
Registration No. 33-69872.
(/4/)Incorporated by reference from our Current Report on Form 8-K dated
February 11, 1998.
(/5/)Incorporated by reference from our Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1998.
(/6/)Incorporated by reference from our Registration Statement on Form S-8,
Registration No. 33-77426.
(/7/)Incorporated by reference from our Registration Statement on Form S-8,
Registration No. 33-86290.
(/8/)Incorporated by reference from our Proxy Statement for the 1994 Annual
Meeting of Shareholders.
(/9/)Incorporated by reference from our Proxy Statement for the 1995 Annual
Meeting of Shareholders.
(/10/)Incorporated by reference from our Registration Statement on Form S-8,
Registration No. 33-53775.
(/11/)Incorporated by reference from the Cross Medical Products, Inc. Annual
Report on Form 10-K for the year ended December 31, 1996.
(/12/)Incorporated by reference from the Cross Medical Products, Inc.
Registration Statement on Form S-2, Registration No. 333-02273.
(/13/)Incorporated by reference from our Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1998.
(/14/)Incorporated by reference from our Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1998.
(/15/)Incorporated by reference from the Cross Medical Products, Inc. Annual
Report on Form 10-K for the year ended December 31, 1997.
(/16/)Incorporated by reference from our Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
(/17/)Incorporated by reference from our Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.
(/18/)Incorporated by reference from our Proxy Statement for the 1999 Annual
Meeting of Stockholders.
(/19/)Incorporated by reference from our Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1999.
(/20/)Incorporated by reference from our Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1999.