Surgical cutting and stapling devices are essential in a wide variety of open and endoscopic surgical procedures. In 2004, the United States market for these products totaled approximately $725.0 million, and was expected to grow to $1.6 billion over the next ten years, according to MedMarkets Diligence, LLC. Overall market growth is being driven by demographic trends, including the increasing incidence of disease within the growing and aging worldwide population, as well as the development of new surgical techniques for treating these conditions.

According to the American Cancer Society, colorectal cancer is the second leading cause of cancer death in the United States, resulting in approximately 55,000 deaths in 2006. Colorectal cancer is treated through a surgical procedure known as a colectomy, which is performed using open or laparoscopic techniques to remove diseased tissue and reconnect healthy tissue. According to Medtech Insight, 246,500 colorectal surgical procedures were performed in the United States in 2006.

According to the American Obesity Association, nine million Americans are morbidly obese, a condition that leads to premature death and, on average, a 20-year shorter life span. Due to its long-lasting effects, surgical intervention has become the standard of care for morbidly obese patients and is performed through open or laparoscopic techniques to reduce stomach volume. According to Medtech Insight, 170,000 gastric bypass procedures were performed using the common Roux-en-Y gastric bypass in the United States in 2006.

The Company’s SurgASSIST surgical platform includes cutting and stapling devices in a variety of sizes and linear, right angle and circular configurations designed for differing surgical needs. These are currently connected through a flexible shaft, or FlexShaft, to a power console. The Company’s Intelligent Surgical Instruments are available as disposable, single-patient devices as well as in a reusable multiple-patient format, using disposable cutting and stapling cartridges.

The Company currently offers a suite of 12 Intelligent Surgical Instruments to accommodate a range of surgical procedures.

The Company offers a reloadable single-patient linear stapler, typically used in open surgical procedures, as well as a reloadable multiple-patient linear stapler, intended for use in MIS procedures.

The Company offers two types of disposable single-use right angle linear cutters, which are designed to enable clinicians to access difficult-to-reach areas of anatomy, such as in low anterior colorectal resections. It also offers a right angle linear cutter designed specifically for the vascular market, which features three rows of staggered staples on either side of the cut line.

The Company offers two lines of disposable single-use circular staplers. Each model creates a double staggered row of titanium staples in a circular pattern to facilitate tissue resection and anastomosis.

The following ancillary components are also currently included in the Company’s SurgASSIST platform to enable the use of the Intelligent Surgical Instruments:

- Power console – a mobile unit that can be moved from one operating room to another; it houses communications and control circuitry, an operator display and the drive motors that provide the system\\\'s actuating power;

- FlexShaft – a flexible shaft, two meters in length, that provides for power transmission and acts as a data conduit between the Intelligent Surgical Instrument and the power console; available in steerable and non-steerable configurations;

- Remote control unit – a hand held wired or wireless controller that enables push button digital control of the instrument.

Cost of sales decreased by 18.5%, from $12.3 million in 2005 to $10.1 million in 2006.

Research and development expenses decreased by 14.6%, from $5.5 million in 2005 to $4.7 million in 2006.

Sales and marketing expenses decreased by 8.6%, from $14.6 million in 2005 to $13.4 million in 2006.

Interest income increased by 101.3%, from $270,000 in 2005 to $544,000 in 2006.

Interest expense increased by 38.5%, from $916,000 in 2005 to $1.3 million in 2006.