The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes appearing elsewhere herein.

Overview of the Company

We develop, manufacture, market and sell orthopaedic implant devices, related surgical instrumentation, supplies and biologic materials to hospitals and physicians in the United States and internationally. Our revenues are derived from sales of knee, hip, and extremity joint replacement systems and spinal fusion products. Revenues from the worldwide distribution of biologic materials contributes to our total reported sales and has been a key component of growth over the last few years. Our continuing research and development projects will enable us to continue the introduction of new, advanced biologic materials and other products and services. Revenue from sales of other products, including surgical instrumentation, Cemex® bone cement, the InterSpace™ pre-formed, antibiotic cement hip, knee and shoulder spacers have contributed to revenue growth and are expected to continue to be an important part of our anticipated future revenue growth.

Our operating expenses consist of sales and marketing expenses, general and administrative expenses, research and development expenses, and depreciation expenses. The largest component of operating expenses, sales and marketing expenses, primarily consists of payments made to independent sales representatives for their services to hospitals and surgeons on our behalf. These expenses tend to be variable in nature and related to sales growth. Research and development expenses primarily consist of expenditures on projects concerning knee, extremities, spine and hip implant product lines and biologic materials and services.

In marketing our products, we use a combination of traditional targeted media marketing together with our primary marketing focus, direct customer contact and service to orthopaedic surgeons. Because surgeons are the primary decision maker when it comes to the choice of products and services that best meet the needs of their patients, our marketing strategy is focused on meeting the needs of the orthopaedic surgeon community. In cooperation with our organization of independent sales agencies in the United States and network of independent distributors and subsidiaries internationally, we conduct this marketing effort through continuing education forums, training programs and product development advisory panels.

Overview of the Three Months Ended March 31, 2009

During the quarter ended March 31, 2009, sales increased 9% to $43.3 million from $39.8 million in the comparable quarter ended March 31, 2008, as we continue to expand in the market despite the current economic downturn. Gross margins increased to 66.5% from 62.9% as a result of growth in our domestic market, and international sales with a more stable margin, as opposed to the prior year where we experienced low margin international sales as a result of stocking product at several new distributors. Operating expenses increased 20% from the quarter ended March 31, 2008, and as a percentage of sales, operating expenses increased to 57% during the first quarter of 2009 as compared to 52% for the same quarter in 2008. This increase was partially due to $1.4 million in legal and other charges related to a Department of Justice, or DOJ, inquiry. We also incurred additional sales and marketing expenses and depreciation and amortization expenses as a result of our acquisitions during 2008. Net income for the quarter ended March 31, 2009 decreased 12% and diluted earnings per share were $0.19 as compared to $0.23 last year. Net income was also affected by the DOJ inquiry, which had a net of tax impact of $874,000 on net income and $0.07 effect on earnings per share. Excluding the impact of the DOJ inquiry costs, net income increased 12% to $3.3 million.

During the three months ended March 31, 2009, we acquired $4.3 million in property and equipment, including new production equipment and surgical instrumentation. Cash flow from operations was $4.4

million for the three months ended March 31, 2009 as compared to a net cash flow from operations of $2.5 million during the three months ended March 31, 2008.

The following table includes the net sales and percentage of net sales for each of our product lines for the three month periods ended March 31, 2009 and March 31, 2008:

                                             Sales by Product Line
                                                 ($ in 000's)
                                              Three Months Ended
                                     March 31, 2009        March 31, 2008
              Knee                  $  18,480    42.7 %   $  18,516    46.5 %
              Hip                       6,546    15.1         6,360    16.0
              Biologics and Spine       7,062    16.3         6,674    16.8
              Extremity                 5,788    13.4         3,688     9.3
              Other                     5,428    12.5         4,553    11.4

              Total                 $  43,304   100.0 %   $  39,791   100.0 %

The following table includes items from the unaudited Condensed Statements of Income for the three months ended March 31, 2009 as compared to the three months ended March 31, 2008, the dollar and percentage change from period to period and the percentage relationship to net sales (dollars in thousands):