Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes included in the financial statement contained elsewhere in this annual report.

Introduction

Patents and Product Development

We are an international biomaterials "tissue-engineering" company specializing in the research, development and commercialization of patented high biotechnologies and biomaterials in the health care area. The Company's management is primarily focused on securing our existing patents, continuing the development, manufacture and commercialization of products under our patents and pursuing patent titles in additional countries and for additional applications.

Biocoral(R), our primary product, is a natural coral "carbonate calcium" derived, wholly mineral bone graft substitute and is used by surgeons and practitioners because of its biocompatibility, resorbability, osseo conduction and safety. Since 2000, we have worked with an accredited European university research group on purification of our raw material, coral, in order to produce a natural wholly mineral product. After a long-term collaboration we have finalized the development of a method for purification of our raw material coral which will allow us to offer Biocoral(R) as a natural wholly mineral bone substitute. We have received patents for this purification method in France and the European Union and expect to receive additional patents on it in the near future. According to our French subsidiary, Biocoral(R) has been used in approximately 500,000 patients in various countries, principally in Europe, Asia and Canada.

Through our subsidiaries, we have developed twelve additional patent titles, in various countries in Europe, Switzerland, Canada, Japan, Australia and United States, for various applications and uses of our products, including, among others, osteoporosis remediation and combination of Biocoral(R) with growth factor. As result of these twelve patent titles, we own, various patents covering our technologies which have been granted by various countries official government patent office, including most European Union countries, Canada, Australia, Japan and in the United States by the US Department of Commerce Patent and Trademark Office.

We believe that the pursuit of additional patents and continuing to work toward commercialization of Biocoral(R) and related products presents our greatest opportunity for revenue generation. To a lesser extent we have devoted some resources to development of the additional application for our product in particular the treatment of bone disease associated with demineralization of bone such as osteoporosis fracture and their prevention.

We have encountered challenges to our attempts to protect our patents and develop, manufacture and commercialize our products primarily from companies seeking to infringe our patents and also in our reliance on an outside manufacturer. We intend to defend our patents vigorously to the extent that our funding permits. In addition, where our reliance on an outside manufacturer to produce our autologous fibrin glue resulted in the failure of this product, we have now commenced a lawsuit against this manufacturer for approximately
(euro)110,000,000 in lost profits which is based upon our written proposal, which was accepted by the manufacturer and which estimated profits during the commercialization period at approximately (euro)220,000,000. Under the proposal, we were to receive a royalty of 50% of this amount.

Summary of Significant Accounting Policies and Estimates

This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to accounts receivable, property and equipment, stock based compensation and contingencies. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The assumptions and bases for estimates used in preparing our consolidated financial statements are set forth as significant accounting policies in Note 3 of the notes to the consolidated financial statements included in this annual report and are summarized below:

Intangible Assets. Intangible assets consist primarily of developed technology and patents (developed and purchased), trademarks, trade names and customer relationships. Intangible assets with an indefinite life, including certain trademarks and trade names, are not amortized. The useful life of indefinite life intangible assets is assessed annually to determine whether events and circumstances continue to support an indefinite life. Amortization is computed using the

straight-line method over the estimated period of benefit. The valuation of these intangible assets is based upon estimates as to the current value of each patent and the period of benefit and such estimates are subject to fluctuations. The value of a particular patent could fluctuate based upon factors, such as competing technology or the creation of new applications, which are not accounted for in making, but could affect, the estimates used.

Allowance for Doubtful Accounts. We estimate uncollectibility of trade accounts receivable by analyzing historical bad debts, customer concentrations, customer creditworthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. We consider these factors to be the best available indicators of the likelihood of collection of trade accounts receivable. However, they are subject to uncertainty, and collectibility cannot be precisely determined.

Investment in Limited Partnership. We own an investment in a limited partnership, which is accounted for under the equity method of accounting. Under this method, the initial investment is recorded at cost. Subsequently, the investment is increased or decreased for our pro-rata share of the partnership's income and losses. No ready trading market exists for this partnership interest by which we can determine with any certainty its value. Moreover, because it is initially valued at cost, which in turn is based upon negotiations between us and the limited partnership, this initial valuation may or may not reflect the value which an independent third party would assign to the partnership interest. This investment is illiquid, and, should we determine to liquidate it, we may be unable to do so at a price that equals or approximates the valuation reflected on our balance sheet.

Results of Operations

As discussed below, our operations are conducted outside the United States of America, and as such, our functional currency is the Euro and not the US Dollar. In order to comply with accounting principles generally accepted in the United States of America, our financial statements, as well as the following discussion regarding our results of operations are in terms of U.S. dollars. Accordingly, part of the variance in revenues and expenses discussed below may partially differ as a result of the fluctuating exchange rates in addition to the other factors discussed.

Fiscal 2008 vs. 2007

Net sales, which are solely attributable to our wholly owned European subsidiaries, totalled approximately $499,400 for the year ended December 31, 2008, an increase of approximately $35,200 or approximately 7.5% from approximately $464,200 for the year ended December 31, 2007. This increase is partially attributable to an increase in sales of products in the orthopaedic surgery area in export.

Cost of sales was approximately $211,300 for the year ended December 31, 2008, a decrease of approximately $34,500 or approximately 14% from approximately $245,800 for the year ended December 31, 2007. The gross profit percentage for the year ended December 30, 2008 and 2007 was approximately $288,200 or 57% and $218,400 or 47%, respectively. The main factor contributing to this increase in gross profit was an increase in sales and a decrease in costs of sales.

Operating expenses were approximately $676,400 during the year ended December 31, 2008, an increase of approximately $19,800 or approximately 3% from approximately $656,600 for the year ended December 31, 2007. This increase was primarily due to an increase in the company's depreciation and amortization, consulting and professional fees and research and development activities.

Consulting and professional fees during the year ended December 31, 2008 were approximately $215,400 an increase of $4,800 or approximately 2% compared to approximately $210,600 during the year ended December 31, 2007. This increase is attributable to an increase in the fees needed during 2008 for the development of next generation of products.

Other income (net of expenses) totalled approximately $(198,100) of expense for the year ended December 31, 2008 as compared to approximately $(192,500) of expense for the year ended December 31, 2007. This increase was primarily due to increase in interest expense on our short and long terms notes payables.

As a result of the above, our net loss for the year ended December 31, 2008 totalled approximately $586,400 or $.05 per share compared to a net loss of approximately $630,700 or $.06 per share for the year ended December 31, 2007.

These losses per share were based on weighted average common shares outstanding of 11,421,842 & 11,353,787 for the years ended December 31, 2008 and 2007 respectively.

Fiscal 2007 vs. 2006

Net sales, which are solely attributable to our wholly owned European subsidiaries, totalled approximately $464,200 for the year ended December 31, 2007, an increase of approximately $56,000 or approximately 14% from approximately $408,200 for the year ended December 31, 2006. This increase is partially attributable to an increase in sales of products in the maxillocraniofacial surgery area in France and the dental market area in export.

Cost of sales was approximately $245,800 for the year ended December 31, 2007, an increase of approximately $124,600 or approximately 103% from approximately $121,200 for the year ended December 31, 2006. The gross profit percentage for the year ended December 30, 2007 and 2006 was approximately $218,400 or 47% and $287,000 or 70%, respectively. The main factor contributing to this increase was an increase in costs to acquire part of current inventory.

Operating expenses were approximately $656,600 during the year ended December 31, 2007, an increase of approximately $99,900 or approximately 18% from approximately $556,700 for the year ended December 31, 2006. This increase was primarily due to an increase in the company's research and development activities and in administrative expenses in general.

Consulting and professional fees during the year ended December 31, 2007 were approximately $210,600, a decrease of $11,400 or approximately 5% compared to approximately $222,000 during the year ended December 31, 2006. This decrease is attributable to a decrease in the fees needed during 2007 for the development of next generation of products.

Other income (net of expenses) totalled approximately $(192,500) of expense for the year ended December 31, 2007 as compared to approximately $(1,203,700) of expense for the year ended December 31, 2006. This increase was primarily due to the sale of all of the available for sale securities during December 2006 and we realized a loss of approximately $433,500 and the increase in the loss on the embedded derivative in our long term debt that was called in December 2006 of approximately $582,400.

As a result of the above, our net loss for the year ended December 31, 2007 totalled approximately $630,700 or $.06 per share compared to a net loss of approximately $1,473,400 or $.13 per share for the year ended December 31, 2006.

These losses per share were based on weighted average common shares outstanding of 11,353,787 & 11,353,817 for the years ended December 31, 2007 and 2006 respectively.

Financial Condition, Liquidity and Capital Resources

Fiscal 2008 vs. 2007

As shown in the accompanying consolidated financial statements, we had net losses of approximately $586,400 and $630,700 in 2008 and 2007, respectively. Management believes that it is likely that we will continue to incur net losses through at least 2009. We had a working capital deficiency of approximately $1,217,500 and $898,400 at December 31, 2008 and 2007 respectively. We also had a stockholders' deficiency of approximately $3,549,500 and $3,946,800 at December 31, 2008 and 2007, respectively.

We had a negative cash flow from operating activities of approximately $251,500 and $195,500 at December 31, 2008 and 2007 respectively. We also had cash provided by financing activities of $178,500 and $250,000 at December 31, 2008 and 2007 respectively. Our net loss of approximately $586,400 and $630,700 increased our accumulated deficit to approximately $22,268,000 and $21,682,000 at December 31, 2008 and 2007 respectively.

These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company will need additional working capital and plans to pursue strategic alliances with well capitalized entities to improve its financial condition. Also the Company will seek additional financing from prospective investors as it has successfully done in years 2008, 2007, 2006 and prior years. However, there is no assurance that it will be successful in accomplishing these objectives. In March 2008, the Company received a commitment from an "accredited investor" to provide the company with funds up to $250,000, of which the Company received $128,500 in 2008 (See Note 8), and has $121,500 available for use in 2009. Management believes that these funds, together with the funds to be raised from the efforts described above, will provide sufficient working capital to operate through 2009.

In additional, during 2008, we issued additional 7% non-convertible promissory notes payable (the "7% Non- Convertible Promissory Notes") in the original principal amount of $100,000.

Fiscal 2007 vs. 2006

As shown in the accompanying consolidated financial statements, we had net losses of approximately $630,700 and 1,473,000 in 2007 and 2006, respectively. We had a working capital deficiency of approximately $898,400 and $495,200 at December 31, 2007 and 2006 respectively. We also had a stockholders' deficiency of approximately $3,946,800 and $3,362,200 at December 31, 2007 and 2006, respectively.

We had a negative cash flow from operating activities of approximately $195,500 and $212,000 at December 31, 2007 and 2006 respectively. We also had cash provided by financing activities of $250,000 and $400,000 at December 31, 2007 and 2006 respectively. Our net loss of approximately $630,700 and $1,473,000 increased our accumulated deficit to approximately $21,682,000 and $21,051,000 at December 31, 2007 and 2006 respectively.

During 2007, we received $200,000 in connection with the additional subscription of the new 7% non-convertible promissory notes payable. We also received during 2006, the total amount of $400,000 of additional funds which were converted on December 31, 2006 to 7% non-convertible notes payable. In addition, during 2006, we received proceeds of approximately $210,000 from the sale of marketable securities.

Long-term Debt

As described in the notes to our financial statements and under Financial Condition, Liquidity and Capital Resources above, our long-term debt consists entirely of 7% promissory notes. As of December 31, 2008, the outstanding balance of principal due on such notes was $3,000,000. Such notes mature in December 2012 at which time we will have the option of either paying the balance of principal and interest on the notes in cash or in shares of our common stock.

Forward-Looking Statements

In this annual report, we include some forward-looking statements that involve substantial risks and uncertainties and other factors that may cause our operational and financial activity and results to differ from those expressed or implied by these forward-looking statements. In many cases, you can identify these statements by forward-looking words such as "may," "expect," "anticipate," "believe," "estimate," "plan," "intend" and "continue," or similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial condition, or state other "forward-looking" information. Statements relating to restarting of clinical trials for certain of its products or receiving certain revenues or proceeds constitute forward-looking statements under the federal securities laws. Such statements are subject to certain risks and uncertainties that could cause the actual timing of such revenues, clinical trials or other events to differ materially from those projected.

You should not place undue reliance on these forward-looking statements. The section captioned "Management's Discussion and Analysis of Financial Condition and Plan of Operations," as well as any cautionary language in this annual report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from our expectations.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Because of the risks and uncertainties, the forward-looking events and circumstances discussed in this annual report might not occur.