According to the Millennium Research Group, approximately 1.5 million patients undergo spine, hip and knee surgery involving the use of implants each year in the United States, and this number is expected to grow primarily due to the rising incidence of arthritis. In 2005, an estimated 46 million U.S. adults suffered from doctor-diagnosed arthritis, and nearly two-thirds of those afflicted were younger than age 65.

The spine market is the fastest growing market for orthopedic implants, accounting for $3.3 billion in sales in the United States in 2006, and is projected to grow at an average annual rate of 12.0% through 2011 to approximately $5.9 billion. Spinal fixation surgeries currently represent the vast majority of procedures in this market. Approximately 500,000 spinal fixation surgery procedures were performed in the United States in 2006, accounting for approximately $3.2 billion of the total $3.3 billion in U.S. spine market sales.

Orthopedic implants used in hip and knee replacement surgeries generated approximately $5.6 billion in sales in 2006 in the United States, and such sales are projected to increase at an average annual rate of 9.4% through 2011 to approximately $8.8 billion. Approximately one million primary hip and knee replacement procedures were performed in the United States in 2006.

The Company has designed its Valeo family of spinal spacers, using silicon nitride ceramic, as intervertebral fixation implants for stabilizing the spine by replacing a portion of a vertebra that has collapsed, been damaged, or becomes unstable due to disease or trauma.

The Company is developing its Valeo Cervical Plate System as a titanium alloy supplemental fixation implant to be used in conjunction with its Valeo Spinal Spacers.

The Company is developing its Valeo Pedicle Screw System as a titanium alloy, low profile, and modular implant system to be used in conjunction with its Valeo Spinal Spacers for supplemental fixation of the lumbar spine.

The Company is developing its Valeo Cervical Disc, using both its MC2 and CSC technologies, as a silicon nitride ceramic implant to meet the unmet market need for a disc replacement implant that will restore natural motion and provide uncompromised wear resistance and favorable imaging characteristics in the cervical spine.

The Company is developing its Infinia Total Hip Implant for patients undergoing total hip replacement surgery for the treatment of degenerative joint disease.

The Company is developing its second generation Infinia Total Hip Implant II featuring its Infinia monoblock cup, an industry-first, one-piece, fully ceramic acetabular cup, its large diameter Infinia ceramic and metal femoral heads, and its Infinia femoral stem.

Since its inception, the Company has focused on the development of two technologies based on which it intends to commercialize advanced, high-performance orthopedic implant candidates. The ceramic that the Company produces for its MC2 implants is made from silicon nitride formulated with dopants such as yttria and alumina.

By integrating both load-bearing and porous structures, the Company’s CSC implant candidates are designed to provide structural integrity while at the same time facilitating the attachment of surrounding bone to the implant. The Company’s CSC implant candidates also incorporate a coating to promote bone attachment.

Interest income was $166,870 for the three months ended March 31, 2007 and $150,487 for the three months ended March 31, 2006, an increase of $16,383 million, or 11%.

Net loss was $5.6 million for the three months ended March 31, 2007 and $1.3 million for the three months ended March 31, 2006, an increase of $4.2 million, or 322%.