Orthovita (VITA) 10-Q 2011 Q1 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, 2011.

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from            to            .

Commission File Number 0-24517.

ORTHOVITA, INC.

(Exact Name of Registrant as Specified in its Charter)

Pennsylvania	23-2694857
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

77 Great Valley Parkway, Malvern, PA	19355
(Address of principal executive offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code: (610) 640-1775

Not Applicable.

Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ¨  Yes    ¨  No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

Applicable only to corporate issuers:

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

Class

Outstanding as of May 3, 2011

Common Stock, par value $.01

77,028,457 Shares

ORTHOVITA, INC. AND SUBSIDIARIES

INDEX

		Page Number
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets – March 31, 2011 and December 31, 2010		3
	Consolidated Statements of Operations – Three months ended March 31, 2011 and 2010		4
	Consolidated Statements of Cash Flows –Three months ended March 31, 2011 and 2010		5
	Notes to Consolidated Interim Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		26
Item 4.	Controls and Procedures		26
PART II – OTHER INFORMATION
Item 6.	Exhibits		27
	Signatures		28

PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

ORTHOVITA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands except per share data)

(Unaudited)

	March 31, 2011			December 31, 2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	8,332		$	11,059
Short-term investments		14,793			11,305
Accounts receivable, net of allowance for doubtful accounts of $340 and $282, respectively		12,624			11,877
Inventories		23,293			22,035
Other current assets		706			631
Total current assets		59,748			56,907
Property and equipment, net		16,463			16,809
License and technology intangible assets, net		9,511			9,884
Other assets		581			475
Total assets	$	86,303		$	84,075
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	2,649		$	1,191
Accrued compensation and related expenses		1,605			1,106
Other accrued expenses		5,960			5,403
Total current liabilities		10,214			7,700
LONG-TERM LIABILITIES:
Notes payable, net of debt discount of $500 and $585, respectively		34,500			34,415
Other long-term liabilities		396			387
Total long-term liabilities		34,896			34,802
Total liabilities		45,110			42,502
COMMITMENTS (Note 12)
SHAREHOLDERS’ EQUITY:
Common stock, $.01 par value, 100,000 shares authorized, 77,028 and 76,881 shares issued and outstanding		770			769
Additional paid-in capital		228,180			227,569
Accumulated deficit		(187,449	)		(186,284	)
Accumulated other comprehensive loss		(308	)		(481	)
Total shareholders’ equity		41,193			41,573
Total liabilities and shareholders’ equity	$	86,303		$	84,075

The accompanying notes are an integral part of these consolidated interim financial statements.

3

ORTHOVITA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)

(Unaudited)

	Three Months Ended March 31,
	2011			2010
PRODUCT SALES	$	23,787		$	24,077
COST OF SALES		7,875			7,399
GROSS PROFIT		15,912			16,678
OPERATING EXPENSES:
General and administrative		3,157			3,432
Selling and marketing		11,911			12,374
Research and development		1,018			1,282
Total operating expenses		16,086			17,088
OPERATING LOSS		(174	)		(410	)
Interest expense		(989	)		(771	)
Interest income		12			10
LOSS BEFORE INCOME TAXES		(1,151	)		(1,171	)
Income taxes		(14	)		(15	)
NET LOSS	$	(1,165	)	$	(1,186	)
NET LOSS PER COMMON SHARE, BASIC AND DILUTED	$	(0.02	)	$	(0.02	)
SHARES USED IN COMPUTING BASIC AND DILUTED NET LOSS PER COMMON SHARE		76,821			76,502

The accompanying notes are an integral part of these consolidated interim financial statements.

4

ORTHOVITA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three months Ended March 31,
	2011			2010
OPERATING ACTIVITIES:
Net loss	$	(1,165	)	$	(1,186	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Amortization of premiums related to investments		77			94
Depreciation and amortization of property and equipment		922			516
Amortization of license rights and technology intangible assets		373			373
Amortization of debt discount		85			76
Compensation related to restricted stock awards, restricted stock units and stock option accounting for employees and non-employees		571			494
Provision for doubtful accounts		85			45
Increase in inventory reserves		100			255
(Increase) decrease in —
Accounts receivable		(647	)		(281	)
Inventories		(1,492	)		(1,300	)
Other current assets		(69	)		(62	)
Other assets		(176	)		73
Increase (decrease) in —
Accounts payable		1,398			(1,269	)
Accrued compensation and related expenses		612			(1,094	)
Other accrued expenses		397			(421	)
Other long-term liabilities		9			16
Net cash provided by (used in) operating activities		1,080			(3,671	)
INVESTING ACTIVITIES:
Purchase of investments		(10,033	)		(2,743	)
Proceeds from sale and maturity of investments		6,470			5,725
Purchases of property and equipment		(409	)		(559	)
Net cash (used in) provided by investing activities		(3,972	)		2,423
FINANCING ACTIVITIES:
Proceeds from issuance of common stock		39			751
Net cash provided by financing activities		39			751
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		126			(30	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(2,727	)		(527	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		11,059			7,757
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	8,332		$	7,230

The accompanying notes are an integral part of these consolidated interim financial statements.

5

ORTHOVITA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(All amounts in thousands except per share data)

(Unaudited)

1. The Company:

Orthovita, Inc. (we, us, our, Orthovita or the Company) is a specialty spine and orthopedic company with a portfolio of orthobiologic and biosurgery products. Our products are based on novel and unique proprietary biomaterials that have innovative mechanisms of action in the body. Our orthobiologic platform offers products for the fusion, regeneration and fixation of human bone. Our biosurgery platform offers products for controlling intra-operative bleeding, also known as hemostasis. In the U.S., we primarily market our products through a direct sales force but also utilize distributors and independent sales agents for certain geographical areas, customer accounts and certain products. Outside the U.S., we market our products through a direct sales force in the United Kingdom and through distributors in other countries.

Orthobiologics

Vitoss™ Bone Graft Substitute is our primary fusion and regeneration product, and Cortoss™ Bone Augmentation Material is our primary fixation product. Our Vitoss product line, which includes Vitoss Foam and Vitoss Bioactive Foam products, provides the non-structural bone graft market with synthetic, bioactive alternatives to patient- and cadaver-derived bone tissue. Cortoss is an injectable polymer composite which mimics the mechanical characteristics of human cortical bone and provides the vertebral compression fracture market with a synthetic, bioactive alternative to polymethylmethacrylate bone cement.

Biosurgery

The primary products in our hemostasis portfolio are Vitagel™ Surgical Hemostat, a proprietary, collagen-based matrix that controls bleeding and facilitates healing, and Vitasure™ Absorbable Hemostat, a proprietary, plant-based product that can be deployed quickly throughout surgery.

We also market accessories and delivery products which complement the orthobiologic and biosurgery platforms. In addition, we seek to expand our product portfolio through internal product development efforts, co-development efforts with strategic partners, and acquisition and in-licensing opportunities.

2. Summary of Significant Accounting Policies:

Basis of Presentation

The consolidated interim financial statements include the accounts of Orthovita and its wholly-owned subsidiaries. We have eliminated all intercompany balances in consolidation.

The financial statements of our international operations are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities, and an average exchange rate for each period of revenues, expenses, and gain and losses. The functional currency of our non-U.S. operations is the local currency. Adjustments resulting from the translation of financial statements are reflected in accumulated other comprehensive loss. Transaction gains and losses are charged to operations.

Preparation of Financial Statements and Use of Estimates

The accompanying unaudited consolidated interim financial statements of Orthovita were prepared in accordance with accounting principles generally accepted in the U.S. and the interim financial statements rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in annual financial statements have been omitted pursuant to such rules and regulations relating to interim financial statements. In the opinion of management, these consolidated interim statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the consolidated interim financial statements. The interim operating results are not necessarily indicative of the results for a full year or for any interim period. The consolidated interim financial statements included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-Q and with the Company’s consolidated financial statements and notes thereto included in the Company’s 2010 Annual Report on Form 10-K.

We evaluated all subsequent events through the date and time our financial statements were issued. No subsequent events occurred during this reporting period that require recognition or disclosure in this filing.

6

ORTHOVITA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(All amounts in thousands except per share data)

(Unaudited)

The preparation of the consolidated interim financial statements requires us to make assumptions, estimates and judgments that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities as of the date of the consolidated interim financial statements, and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates, including, but not limited to, those related to accounts receivable, inventories and recoverability of long-lived assets. We use historical experience and other assumptions as the basis for making estimates. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates will be reflected in the financial statements for those future periods.

Cash and Cash Equivalents and Short-Term Investments

We consider all highly liquid instruments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents consist of deposits that are readily convertible into cash (see note 3).

For financial reporting purposes, our entire short-term investment portfolio is classified as available-for-sale and is stated at fair value as determined by quoted market values. Accordingly, any unrealized holding gains and losses are included in accumulated other comprehensive loss as a separate component of shareholders’ equity. Discounts and premiums are amortized over the term of the security and reported in interest income. The investments are reviewed on a periodic basis for other-than-temporary impairments (see notes 3 and 4).

Fair Value Measurements

The Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) Topic 820,Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. The guidance applies under other accounting pronouncements that require or permit fair value measurements and indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. ASC Topic 820 defines fair value based upon an exit price model.

Our financial instruments are categorized into a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. Financial assets recorded at fair value on our consolidated balance sheets are categorized as follows:

• Level 1: Observable inputs such as quoted prices in active markets;

• Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

• Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Concentrations of Credit Risk

Our policy is to limit the amount of credit exposure to any one financial institution and place investments with financial institutions evaluated as being creditworthy, or in short-term money market funds that are exposed to minimal credit risk. Currently, our short-term money market investments yield minimal interest rates. We maintain our cash primarily in investment accounts within large financial institutions. Currently, the Federal Deposit Insurance Corporation insures these balances up to $250 per bank. We have not experienced any losses on our bank deposits and we believe these deposits do not expose us to any significant credit risk.

We grant credit, generally without collateral, to our customers, which are primarily in the health care market. Consequently, we are subject to potential credit risk related to changes in economic conditions within that market. However, we believe that our billing and collection policies are adequate to minimize the potential credit risk.

7

ORTHOVITA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(All amounts in thousands except per share data)

(Unaudited)

Concentrations of Supply Risk

We are highly dependent on Kensey Nash Corporation (Kensey) as a sole source provider of certain raw materials used in the manufacture of Vitoss Foam products and as the sole manufacturer of our Vitoss Foam products (see note 12). We also source other raw materials and a majority of the disposable components that accompany and are used with our products from a limited number of third party manufacturers, and we are highly dependent upon these manufacturers.

Inventories

Inventories are stated at the lower of cost or market value using the first-in first-out basis, or FIFO. A provision is recorded to reduce the cost of inventories to the estimated net realizable values, if required. The costs of producing inventory in the reporting periods prior to the receipt of regulatory approval or clearance are recorded as research and development expense (see note 5).

Property and Equipment

Property and equipment are recorded at cost. Depreciation is calculated on a straight-line basis over the estimated useful life of each asset, generally three to five years. The useful life for leasehold improvements is generally the term of the facility lease. Expenditures for major renewals and improvements are capitalized, and expenditures for maintenance and repairs are charged to operations as incurred. Property and equipment includes assets designated as construction in-progress and not placed in service. We begin to record depreciation expense on these assets when they are placed into service or, if the property and equipment requires approval from regulatory agencies such as the U.S. Food and Drug Administration (FDA), when such approval is obtained and the asset is placed in service (see note 6).

Interest cost that is incurred on borrowed funds used to expand our manufacturing facilities is capitalized, recorded as part of the asset to which it relates, and amortized over the asset’s estimated useful life.

Impairment of Long-Lived Assets and Intangible Assets

We evaluate the recoverability of long-lived assets and intangible assets whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. Such circumstances could include, but are not limited to (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset. We measure the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. If the sum of the expected future net cash flows is less than the carrying value of the asset being evaluated, an impairment charge would be recognized. The impairment charge would be calculated as the amount by which the carrying value of the asset exceeds its fair value. The determination of fair value is based on quoted market prices, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including the discounted value of estimated future cash flows. We did not recognize any impairment charges related to our long-lived assets, property and equipment or intangible assets for the three months ended March 31, 2011 and 2010 as the carrying amounts were not impaired.

Amortization of Intangible Assets

The carrying values of intangible assets, which consist of acquired license and technology, are generally amortized on a straight line basis or the unit of sales method, whichever results in the shorter amortization period (see note 7).

Revenue Recognition

Revenue is not recognized until persuasive evidence of an arrangement exists, performance or shipment has occurred, the sales price is fixed or determinable and collection is probable. In the U.S. and the U.K., we recognize product sales revenue upon either shipment of purchased product to the customer, or receipt of documentation from the customer indicating its consumption of product from consigned inventory. Outside the U.S. and the U.K., revenue from product sales is recognized upon shipment of the product to the customer.

We have no obligations to our customers once title has been transferred but allow the return or exchange of ambient temperature products within five days after their original delivery. Subsequent to the end of every quarter we adjust sales, cost of sales, inventory and accounts receivable for the effect of such returns. We generally require each of our U.S. and U.K. customers to pay on a net 30-day basis. Outside of the U.S. and the U.K., independent stocking distributors are generally required to pay on a net 60-day basis.

8

ORTHOVITA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(All amounts in thousands except per share data)

(Unaudited)

Stock-based Compensation

Stock-based compensation is accounted for at grant-date fair value and amortized on a straight-line basis over the vesting terms of the awards in the consolidated statements of operations based upon the portion of the awards that are expected to vest. We estimate pre-vesting forfeitures by analyzing historical data and revise those estimates in subsequent periods if actual forfeitures differ from those estimates.

The following table sets forth the total stock-based compensation expense included in our consolidated interim statements of operations for the three months ended March 31, 2011 and 2010.

	Three Months Ended March 31,
	2011		2010
Cost of Sales	$	19	$	10
General and administrative		286		210
Selling and marketing		210		184
Research and development		58		62
Total	$	573	$	466

We estimated the fair value of stock option awards granted to employees using the Black-Scholes option pricing model on the date of grant using the following weighted average assumptions for the three months ended March 31, 2011 and 2010:

	Three Months Ended March 31,
	2011			2010
Risk-free interest rate		2.99	%		3.04	%
Expected volatility		56	%		55	%
Dividend yield		0	%		0	%
Expected life		6 years			6 years

The weighted average fair value of options granted during the three months ended March 31, 2011 and 2010 was $1.35 and $2.26 per share, respectively.

For the three months ended March 31, 2011 and 2010, we calculated expected volatility based upon the historical daily closing prices of our common stock as quoted on the NASDAQ Global Market (NASDAQ) over a prior period having a term equal to the expected life of the stock options.

Net Loss Per Common Share

Basic net loss per share excludes securities exercisable for or convertible into shares of common stock, and it is computed by dividing net loss applicable to common shareholders by the weighted average number of shares of common stock outstanding for the period. Diluted net loss per common share data is computed assuming the conversion or exercise of all dilutive securities such as common stock options and warrants.

Equity awards and warrants to purchase an aggregate of 11,330 and 9,979 common shares were excluded from our computation of diluted net loss per common share for the three month periods ended March 31, 2011 and 2010, respectively, because the inclusion of the shares in the calculation would have been anti-dilutive due to our losses.

9

ORTHOVITA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(All amounts in thousands except per share data)

(Unaudited)

Comprehensive Loss

We classify items of other comprehensive loss separately in the shareholders’ equity section of our consolidated interim balance sheets. For the three months ended March 31, 2011 and 2010, comprehensive loss was:

	Three Months Ended March 31,
	2011			2010
Net loss	$	(1,165	)	$	(1,186	)
Unrealized gain on investments		2			—
Foreign currency translation gain(loss)		171			(171	)
Total other comprehensive gain (loss)		173			(171	)
Comprehensive loss	$	(992	)	$	(1,357	)

Supplemental Cash Flow Information

	Three Months Ended March 31,
	2011		2010
Property and equipment purchases included in accounts payable and accrued expenses		95		142
Cash paid for interest, net of amount capitalized		875		695

Recently Issued Pronouncements

Recently issued accounting pronouncements did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.

3. Cash, Cash Equivalents and Short-Term Investments:

At March 31, 2011 and December 31, 2010, cash, cash equivalents and short-term investments consisted of the following:

	Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Market Value
March 31, 2011:
Cash and cash equivalents	$	8,332	$	—	$	—	$	8,332
Short-Term Investments:
Corporate debt securities		1,720		—		—		1,720
U.S. Treasury securities		4,061		1		—		4,062
Government-sponsored enterprise debt securities		9,010		1		—		9,011
		14,791		2		—		14,793
Total	$	23,123	$	2	$	—	$	23,125

10

ORTHOVITA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(All amounts in thousands except per share data)

(Unaudited)

	Gross Unrealized
	Amortized Cost		Gains		Losses		Fair Market Value
December 31, 2010:
Cash and cash equivalents	$	11,059	$	—	$	—	$	11,059
Short-Term Investments:
Corporate debt securities		2,006		—		—		2,006
U.S. Treasury securities		2,022		—		—		2,022
Government-sponsored enterprise debt securities		7,277		—		—		7,277
		11,305		—		—		11,305
Total	$	22,364	$	—	$	—	$	22,364

Amortization of discounts and premiums related to investments resulted in expense of $77 and $94 for the three months ended March 31, 2011 and 2010, respectively.

As of March 31, 2011 and December 31, 2010, all short-term investments mature within one year of the balance sheet date.

4. Fair Value Measurements:

The following tables provide the assets carried at fair value measured on a recurring basis as of March 31, 2011 and December 31, 2010:

	Carrying Value		Fair Value Measurement at March 31, 2011
			Level 1		Level 2		Level 3
Cash and Cash Equivalents:
Bank deposits	$	2,634	$	2,634	$	—	$	—
U.S. Treasury security money market fund		5,698		5,698		—		—
	$	8,332	$	8,332	$	—	$	—
Short-Term Investments:
Corporate debt securities	$	1,720	$	1,720	$	—	$	—
U.S. Treasury Securities		4,062		4,062		—		—
Government-sponsored enterprise debt securities		9,011		9,011		—		—
	$	14,793	$	14,793	$	—	$	—

11

ORTHOVITA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(All amounts in thousands except per share data)

(Unaudited)

	Carrying Value		Fair Value Measurement at December 31, 2010
			Level 1		Level 2		Level 3
Cash and Cash Equivalents:
Bank deposits	$	3,703	$	3,703	$	—	$	—
Corporate debt securities		500		500		—		—
U.S. Treasury security money market fund		5,152		5,152		—		—
Government-sponsored enterprise debt securities		1,704		1,704		—		—
	$	11,059	$	11,059	$	—	$	—
Short-Term Investments:
Corporate debt securities	$	2,006	$	2,006	$	—	$	—
U.S. Treasury Securities		2,022		2,022		—		—
Government-sponsored enterprise debt securities		7,277		7,277		—		—
	$	11,305	$	11,305	$	—	$	—

5. Inventories:

As of March 31, 2011 and December 31, 2010, inventories consisted of the following:

	March 31, 2011		December 31, 2010
Raw materials	$	4,523	$	3,618
Work-in-process		8,301		8,781
Finished goods		10,469		9,636
	$	23,293	$	22,035

6. Property and Equipment:

As of March 31, 2011 and December 31, 2010, property and equipment consisted of the following:

	March 31, 2011			December 31, 2010
Machinery and equipment	$	10,872		$	10,778
Furniture and computer, sales, marketing and office equipment		6,903			6,782
Leasehold improvements		16,310			16,305
Construction in-progress		703			329
		34,788			34,194
Less—Accumulated depreciation and amortization		(18,325	)		(17,385	)
	$	16,463		$	16,809

We capitalize interest cost incurred on borrowed funds used to expand our manufacturing facilities. Capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life. Interest cost capitalized was $0 and $180 for the three months ended March 31, 2011 and 2010, respectively.

Depreciation and amortization expense relating to property and equipment was $922 and $516 for the three months ended March 31, 2011 and 2010, respectively.

12

ORTHOVITA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(All amounts in thousands except per share data)

(Unaudited)

7. License and Technology Intangible Assets:

As of March 31, 2011 and December 31, 2010, license and technology intangible assets consisted of the following:

	Life		March 31, 2011			December 31, 2010
Acquired technology-Vitagel and CellPaker products		11 years	$	9,000		$	9,000
Collagen-processing technology		9 years		5,199			5,199
Other-licensed technology		8 years		515			515
				14,714			14,714
Less — Accumulated amortization				(5,203	)		(4,830	)
			$	9,511		$	9,884

Acquired technology – Vitagel and CellPaker products represents an intangible asset relating to our cash payment of $9,000 in 2006 to Angiotech Pharmaceuticals, Inc. (Angiotech) in order to eliminate any further obligations to pay royalties on future sales of Vitagel and CellPaker products under our license agreement with Angiotech. This intangible asset is being amortized based upon the greater of (a) straight-line amortization through July 31, 2017, or (b) actual units sold in a given period in relation to the total estimated units to be sold over the expected life of the applicable patent, which is through July 31, 2017. Under the license agreement with Angiotech, we have exclusive rights to manufacture, market and sell Vitagel products throughout the world for orthopedic indications, and non-exclusive rights to manufacture, market and sell CellPaker products throughout the world for all indications through July 31, 2017. Additionally, under the license agreement, Angiotech has an option for co-exclusive rights outside the orthopedic field which, if exercised, would permit Angiotech to manufacture, market and sell an Angiotech-branded Vitagel product throughout the world. Until Angiotech elects to exercise its option for co-exclusive rights, we have exclusive rights to manufacture, market and sell Vitagel outside of the orthopedic field throughout the world. If Angiotech elects to exercise its option, we would then have co-exclusive rights to manufacture, market and sell Vitagel outside of the orthopedic field throughout the world.

Collagen-processing technology – In 2008, we purchased collagen raw materials, equipment and a technology license from Allergan, Inc. and its affiliate Allergan Sales, LLC. We accounted for the purchase of the assets and the related business at fair value with the purchase price being allocated among the assets purchased. The raw materials, equipment and license acquired from Allergan relate primarily to the production of the Vitagel Surgical Hemostat product. The purchase price was allocated to the fair value of the assets purchased as follows: $980 of raw material inventory, $373 of equipment, and $5,199 of acquired technology. The purchase price allocation was based upon a third party independent valuation.

Amortization expense was $373 for each of the three month periods ended March 31, 2011 and 2010, respectively, and has been recorded as follows:

	Three months ended March 31,
	2011		2010
Cost of sales	$	357	$	357
Research and development		16		16
Total	$	373	$	373

8. Senior Secured Note Purchase Facility:

We have $35,000 in outstanding principal indebtedness under a senior secured note purchase facility. Notes issued under the facility are due July 30, 2012. Outstanding principal amounts under the notes bear annual interest at 10%, except that during the continuance of any event of defaults, interest would accrue at the rate of 12% per year and the notes would be payable on demand. In connection with entering into the facility, we issued to the note purchaser five-year warrants to purchase 1,466 shares of our common stock at an exercise price of $3.41 per share. Of these warrants, warrants to purchase 1,100 shares of our common stock have vested and, as of January 30, 2010, the remaining 366 warrants were no longer eligible to vest and are no longer considered outstanding. All warrants expire in July 2012.

13

ORTHOVITA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(All amounts in thousands except per share data)

(Unaudited)

Borrowings under the facility are guaranteed by us and certain of our wholly-owned subsidiaries. The facility is secured by a first priority lien on substantially all of our assets (including intellectual property) other than those exclusively related to Cortoss and Aliquot. We are required to make quarterly interest-only payments to the note holder. Upon the occurrence of various events, including our receipt of (i) proceeds in excess of 5% of our total assets for certain asset dispositions; (ii) more than $1,000 in aggregate cash insurance proceeds for damaged or destroyed property that is not applied to the repair or replacement of the property within one year; or (iii) more than $7,500 in gross cash proceeds from judgment awards or settlements, the note holders are entitled to prepayment of the outstanding principal amount of the notes to the extent of the net cash proceeds that we receive. We may prepay at any time any part of the outstanding balance under the notes, in a minimum amount of $2,000 and in increments of at least $1,000 in excess of such minimum, together with interest accrued thereon. Both mandatory and optional prepayments are subject to a prepayment premium of up to 16% of the principal balance of the notes then outstanding, depending on the timing of the prepayment. The unpaid principal amount under the notes and accrued interest and all other obligations shall become due and payable immediately if we are insolvent, are in bankruptcy proceedings or have a custodian or receiver appointed for any substantial part of our property. If an event of default not described in the preceding sentence occurs and is continuing (including a change of control of the Company), then the holders of at least two-thirds in principal amount of notes then outstanding may declare the unpaid principal amount of the notes, accrued interest and all other obligations due and payable immediately. In addition, if the notes become due and payable, whether automatically or by declaration, by reason of any of the following events of default, then we must pay a prepayment premium depending on the timing of the prepayment:

• failure to pay any principal on any note or prepayment premiums, if any, when due and payable;

• failure to pay any interest on any note or other amount (other than principal or prepayment premiums) for more than three business days after becoming due and payable;

• we become insolvent, are in bankruptcy proceedings or have a custodian or receiver appointed for any substantial part of our property; or

• the occurrence of a change of control of the Company as defined in the facility.

Under the facility, we must comply with various financial and non-financial covenants. Under the financial covenant, we are required to maintain a minimum cash balance equal to at least 25% of the then-outstanding principal amount under the notes in a separate interest-bearing deposit or other similar demand investment account that is pledged as collateral for the loan. As of March 31, 2011, we must maintain a minimum cash, cash equivalent, and short-term investment balance of $8,750. If the balance in the separate account falls below an amount equal to 40% of the principal amount outstanding under the notes, we must obtain and maintain for the benefit of the note holder a letter of credit in the amount of 25% of the principal amount outstanding under the notes. As of March 31, 2011, we must maintain a minimum balance of $14,000 in cash, cash equivalents, and short-term investments in order to avoid obtaining a letter of credit. Currently, we are not required to obtain a letter of credit. The primary non-financial covenants limit our ability to incur indebtedness or liens, sell assets, conduct mergers or acquisitions as defined in the facility terms, make investments and pay dividends.

Interest expense on notes payable, net of amounts capitalized (see note 6), was $989 and $771 for the three months ended March 31, 2011 and 2010, respectively.

We are currently seeking to refinance this obligation; however, there is no assurance that we will be able to execute this refinancing or, if we are able to refinance this indebtedness, that the terms of such a refinancing would be equal to or better than the terms of the existing senior secured note purchase facility. Additionally, our cash flows and cash resources would be negatively impacted if we elected to repay the existing outstanding principal indebtedness with a combination of our existing cash and cash equivalents and new borrowings. If this obligation had been prepaid in full on March 31, 2011, the prepayment premium would have been $1,866. The amount of the prepayment premium decreases quarterly by $400. In addition to the prepayment premium, if we prepay this indebtedness in full or in part prior to July 30, 2012, we would be required to write off all or a portion of the unamortized debt discount and debt issuance costs remaining on our balance sheet at the date of such prepayment and recognize a non-cash loss. Assuming this debt was fully repaid on May 31, 2011, we would expect to recognize a charge of approximately $2,200 in connection with the early extinguishment of debt.

14

ORTHOVITA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(All amounts in thousands except per share data)

(Unaudited)

9. Other Accrued Expenses:

As of March 31, 2011 and December 31, 2010, other accrued expenses consisted of the following:

	March 31, 2011		December 31, 2010
Commissions payable	$	2,332	$	2,238
Interest payable		875		875
Royalties		564		488
Professional fees		645		428
Other		1,544		1,374
	$	5,960	$	5,403

10. Shareholders’ Equity:

The following table summarizes the changes in the shares of common stock outstanding and in total shareholders’ equity for the period from December 31, 2010 to March 31, 2011:

	Shares		Total Shareholders’ Equity
Balance, December 31, 2010		76,881	$	41,573
Common Stock purchased under the employee stock purchase plan		20		39
Issuance of shares upon vesting of restricted common stock units		127		13
Stock-based compensation expense		—		560
Net loss		—		(1,165	)
Change in accumulated other comprehensive loss		—		173
Balance, March 31, 2011		77,028	$	41,193

Equity Compensation Plan

Our equity compensation plan (the Plan) provides for incentive and nonqualified stock options, restricted stock awards, restricted stock units and other equity incentives to be granted to directors, employees, and consultants. Our shareholders have approved the Plan.

At March 31, 2011, there were 17,850 shares authorized for issuance under the Plan. The following table shows the number of shares underlying outstanding awards under the Plan at March 31, 2011 and the number of shares remaining available for grant under the Plan:

Shares authorized for issuance under the Plan	17,850
Common stock options currently issued and outstanding	(10,119	)
Restricted common stock currently issued and outstanding	(110	)
Shares issued upon exercise of common stock options and vesting of restricted stock units	(4,997	)
Shares available for grant under the Plan at March 31, 2011	2,624

Restricted Common Stock and Restricted Common Stock Units

During the three months ended March 31, 2011, we issued 127 shares of our common stock upon the vesting of previously issued restricted stock units. As of March 31, 2011, there was $115 of unrecognized compensation expense related to unvested restricted common stock which is expected to be recognized over a weighted average period of approximately one year. Compensation expense related to restricted common stock and restricted common stock units was $37 and $44 for the three months ended March 31, 2011 and 2010, respectively, and is included in stock-based compensation expense. As of March 31, 2011, 78 restricted common shares are scheduled to vest in the future in accordance with the terms of the awards.

15

ORTHOVITA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(All amounts in thousands except per share data)

(Unaudited)

Common Stock Options

Options are granted with exercise prices equal to or greater than the fair market value of the underlying common stock on the date of grant. Generally, incentive stock options become exercisable in equal installments over a four-year period and nonqualified stock options granted to non-employee consultants are fully vested on the date of grant. The options generally remain exercisable for a maximum period of ten years. Upon exercise of options, new shares of common stock are issued.

During the three months ended March 31, 2011, we granted options to purchase 2,204 shares of common stock under the Plan to our employees, including 877 options that are subject to forfeiture in the event that certain performance conditions are not achieved for the year ending December 31, 2011 (Performance Options). The aggregate fair value of grants made during the first quarter of 2011 was $2,789. The Performance Options are being amortized from their date of grant through December 31, 2014 in accordance with the vesting terms of the awards. The remaining options granted during the three months ended March 31, 2011 are being amortized over their four-year vesting term. Total compensation expense related to common stock options was $536 and $422 for the three months ended March 31, 2011 and 2010, respectively

The following table summarizes stock option activity from December 31, 2010 through March 31, 2011:

Outstanding, December 31, 2010	8,136
Granted	2,204
Cancelled	(42	)
Expired	(179	)
Outstanding, March 31, 2011	10,119

During the three months ended March 31, 2011, there were no exercises of stock options. During the three months ended March 31, 2010, stock options to purchase 211 shares of common stock were exercised for proceeds of $685.

There was $5,907 of unrecognized compensation cost related to unvested employee stock options as of March 31, 2011, which is expected to be recognized over a weighted average period of approximately 2.62 years.

Employee Stock Purchase Plan

During the three months ended March 31, 2011 and 2010, 20 and 16 shares of common stock were purchased under our Employee Stock Purchase Plan for proceeds of $39 and $66, respectively.

Common Stock Purchase Warrants

In connection with entering into our debt facility (see note 8), we issued warrants to the note purchaser with a term of five years. As a result, warrants to purchase 1,100 shares of our common stock at an average exercise price of $3.41 per share were outstanding at March 31, 2011 and will expire in July 2012.

11. Product Sales:

For the three months ended March 31, 2011 and 2010, product sales by geographical market were as follows:

	Three Months Ended March 31,
	2011		2010
United States	$	22,354	$	22,771
Outside the United States		1,433		1,306
Total product sales	$	23,787	$	24,077

Approximately 69% and 64% of product sales during the three months ended March 31, 2011 and 2010, respectively, were from products based upon the Vitoss Foam platform co-developed with Kensey, including Vitoss Bioactive Foam products (see note 12).

16

ORTHOVITA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(All amounts in thousands except per share data)

(Unaudited)

12. Commitments:

Operating Leases

Operating lease expense was $230 and $222 for the three months ended March 31, 2011 and 2010, respectively. At March 31, 2011, future minimum rental payments under operating leases are as follows:

Remainder of 2011	$	667
2012		925
2013		962
2014		989
2015 and thereafter		2,694
	$	6,237

Agreement with Kensey Nash Corporation

We have an agreement with Kensey to jointly develop and commercialize certain biomaterials-based products based upon the Vitoss platform. The products developed under this agreement are based on our internally developed proprietary Vitoss bone void filler material in combination with proprietary resorbable Kensey biomaterials. Kensey has the exclusive right to manufacture any approved or cleared jointly developed product under the agreement, and we will market and sell the product worldwide. Under the agreement, we are obligated to pay Kensey both a transfer price for manufacturing products and royalties based on the net sales of such products. These rights and obligations extend until February 2014 for the Vitoss Foam product platform and until February 2024 for the Vitoss Bioactive Foam product platform, which includes Vitoss Bioactive Foam-2X and Vitoss BA Bimodal.

Separate from the royalty payment obligation described above, we also pay royalties to Kensey pursuant to a contractual royalty obligation that Kensey purchased from a co-inventor of the Vitoss technology. Under this arrangement, we are obligated to pay no more than $5,000 in aggregate royalties on Vitoss product sales. For the three months ended March 31, 2011 and 2010, we recognized $139 and $172, respectively, as royalty expense under this contractual arrangement. From inception of the royalty arrangement through March 31, 2011, we have made aggregate royalty payments of $4,004.

For the three months ended March 31, 2011 and 2010, we purchased $1,705 and $1,171, respectively, of product inventory manufactured by Kensey. As of March 31, 2011 and December 31, 2010, we owed Kensey $1,466 and $946, respectively, for manufactured product inventory and royalties under both arrangements described above. These amounts are included in accounts payable and other accrued expenses on our consolidated balance sheets. All product royalty expense payable to Kensey is included in cost of sales on our consolidated interim statements of operations as we recognize product sales revenue from ours customers.

Product Development Milestones

In 2009, we contractually agreed to make milestone payments upon achievement of specified goals in connection with the development of new products with one or more business partners. The timing and actual amount of these payments can be difficult to determine as these payments depend upon satisfactory achievement of product development and other milestones, which will be determined based on events that may occur in the future. If these products under development are brought to market, we may be obligated to make certain launch-related milestone payments of up to $1,000, as well as additional payments which may be made depending upon the potential achievements of clinical and sales milestones in the future.

Employment Agreements

Under the terms of employment agreements with two executive officers, extending through April 2012 and May 2012, subject to renewal, we are required to pay each individual a base salary for continuing employment with us. The agreements currently require aggregate payments of $519 through the remainder of 2011 and $255 in 2012. The agreements also provide for other benefits, including certain obligations that may be triggered by a change in control, termination without cause or resignation for good reason.

17

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This discussion and analysis contains forward-looking statements that provide our current expectations, forecasts of future events or goals. You can identify these statements as those that do not relate strictly to historical or current facts. These statements could include words such as “may,” “will,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “seek” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. Any or all of our forward-looking statements in this Form 10-Q may turn out to be incorrect. They can be affected by inaccurate assumptions we might make, or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. There are many important factors that could cause actual events or results to differ materially from those expressed or implied by forward-looking statements including, without limitation, the development, demand, market acceptance and hospital approval of our products; our ability to compete with the growing number of physician-owned distributors; third party reimbursement and health care reform; our ability to compete in increasingly price-sensitive markets; our ability to grow revenues by leveraging our existing infrastructure and sales force, including management of our distribution channels; the development of our sales network; our ability to manage our manufacturing facilities and requirements; the ability of our competitors to develop more technically advanced products; the regulatory approval or clearance of our products, including label expansion for existing products; sales product mix and related margins; capital expenditures; future liquidity; our ability to refinance our existing debt, uses of cash; cost and availability of raw materials; inventory levels; development costs for existing and new products; equity compensation expense; foreign currency exchange rates; fluctuations in our stock price; and the other risk factors addressed in ITEM 1A. “RISK FACTORS” in our Annual Report on Form 10-K for the year ended December 31, 2010, which was filed with the U.S. Securities and Exchange Commission (SEC).

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our filings with the SEC. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.

EXECUTIVE LEVEL OVERVIEW

We are a specialty spine and orthopedic company with a portfolio of orthobiologic and biosurgery products based on novel and unique proprietary biomaterials that have innovative mechanisms of action in the body. While we continue to develop new products and product iterations, there is no assurance that we will successfully commercialize these products and we cannot guarantee the pricing levels at which we may sell any of these products that are commercialized.

Our orthobiologic platform includes products for the fusion, regeneration and fixation of human bone. Our orthobiologic products are based on our proprietary Vitoss™ Bone Graft Substitute technology and include the Imbibe™ Bone Marrow Aspiration System. Vitoss is the market-leading synthetic bone graft in the United States and has been used in more than 375,000 implantations worldwide. Several of our Vitoss products incorporate our proprietary ceramic glass technology which accelerates bone healing. We continue to develop next generation Vitoss products which we believe will result in improved patient outcomes and maintain Vitoss average selling prices in an increasingly competitive market. In December 2010, the FDA granted regulatory clearance for our Vitoss BA2X Bone Graft Substitute product, which has the same structure and porosity as Vitoss Bioactive products, but contains increased levels of bioactive glass. In February 2011, the FDA granted regulatory clearance for Vitoss BA Bimodal, a new Vitoss product iteration that differs from previous versions by modifying the size distribution of the bioactive glass particles to accelerate the resorption of the bioactive glass. We launched Vitoss BA2X in the U.S. in February 2011 and expect to launch Vitoss BA Bimodal in the U.S. by the first quarter of 2012.

Our orthobiologic products also include our Cortoss™ Bone Augmentation Material and the Aliquot™ Delivery System. These products were first available for sale in the U.S. in the second half of 2009. Cortoss is an advanced synthetic biomaterial which has regulatory clearance in the U.S. for both vertebroplasty and kyphoplasty. Although the Aliquot system is exempt from regulatory clearance in the U.S., it is currently designed to deliver Cortoss in vertebroplasty procedures only. Following injection into spinal vertebrae, Cortoss hardens to mimic weight-bearing, cortical bone. Cortoss is the first clinically-proven, injectable FDA-cleared alternative to polymethylmethacrylate (PMMA) bone cement for the treatment of vertebral compression fractures, an often extremely painful condition that occurs in patients with osteoporosis and cancer. In addition to extensive clinical data showing statistically significant improvements in pain relief (at three months following implantation) and function (at twenty-four months following implantation) from the use of Cortoss in comparison to PMMA, we believe that Cortoss has significant ease-of-use advantages over current vertebral augmentation technology. We believe that the U.S. launch of Cortoss and Aliquot has been negatively affected by several factors, including two small studies published inThe New England Journal of Medicinein August 2009 that questioned the effectiveness of vertebroplasty, a procedure in which Cortoss is used, by uncertainty created by the pending reimbursement review of vertebroplasty and kyphoplasty by a few of Medicare’s local contractors, and by the issuance of clinical practice guidelines in September 2010 by the American Academy of Orthopedic Surgeons (AAOS) that did not support the use of vertebroplasty to treat

18

vertebral compression fractures. While these studies did not evaluate or discuss Cortoss and no reimbursement decisions have yet been announced, we believe that the publication of the studies, the ongoing reimbursement review and the AAOS guidelines have resulted in a notable decrease in the number of vertebroplasty procedures nationwide. We also believe that a recent shift for vertebral augmentation procedures from the hospital in-patient to out-patient settings has adversely affected our launch of Cortoss and Aliquot in the U. S. because the historic call pattern of our sales force is within the in-patient setting. The economic pressure causing this shift was exacerbated during 2009 and 2010 following the imposition of significant fines by the U.S. government on a number of hospitals that treated patients with vertebral compression fractures in the in-patient setting when these patients could have been treated more cost-effectively in the out-patient setting. As a result of these pressures, as well as negative overall economic conditions and health care reform initiatives to reduce costs, we believe the number of vertebral augmentation procedures performed by spine surgeons and neurosurgeons, our primary target audience, has decreased, and a greater number of procedures are being performed in an out-patient setting by interventional radiologists and neuroradiologists, which is a new target physician group for us. We also expect that the vertebral augmentation market will continue to face economic and other pressures at least in the near-term. We believe that these factors have resulted in U.S. Cortoss and Aliquot sales that are significantly below our initial expectations for the launch of these products.

We are currently developing a suite of cavity creation devices that are designed to expand the use of Cortoss in the treatment of vertebral compression fractures for physicians who prefer kyphoplasty over vertebroplasty. In April 2011, we launched the Aliquot Directional Bone Tamp, a channel creation device that allows safe and targeted placement of Cortoss into the vertebral body. We are also developing a balloon device that can be used with Aliquot to address the needs of the kyphoplasty market, which device must receive 510(k) clearance from the FDA.

Over the longer term, we plan to seek U.S. regulatory clearance of Cortoss for additional indications that could expand its usage within the hospital in-patient surgery setting. We expect to file a revised 510(k) application for the use of Cortoss in cranial defect repair by the end of 2011.

Our biosurgery products include Vitagel™ Surgical Hemostat, Vitasure™ Absorbable Hemostat, and the CellPaker™ Plasma Collection System used in conjunction with Vitagel, and other accessories and delivery products that complement our Vitagel product. These products incorporate advanced biosurgical materials and product engineering to help control bleeding during surgeries. In an effort to increase our biosurgery sales, in the first quarter of 2011 we launched new marketing programs to promote the use of our Vitagel products in orthopedic joint reconstruction, obstetrics/gynecology and vascular surgery.

We sell our products worldwide and focus on the United States orthopedic and spine market. In the United States our products are sold through our direct sales force, third-party distributors and sales agents. Our “hybrid” distribution organization focuses its marketing efforts on orthopedic surgeons, interventional radiologists, neuroradiologists and hospital administrators. Our products can be used in hospital in-patient procedures, hospital out-patient procedures and ancillary surgical center procedures. Outside the United States we use a direct sales force to sell our products in the United Kingdom and third-party distributors to sell our products in other parts of the world.

We manufacture the majority of our products at our headquarters in Malvern, Pennsylvania. We are highly dependent on Kensey Nash Corporation (Kensey) as a sole source provider of certain raw materials used in the manufacture of Vitoss Foam products. We co-developed the Vitoss Foam platform with Kensey and our cost of goods sold includes royalty expense to Kensey. We obtain from a limited number of other third party manufacturers additional raw materials and a majority of the disposable components that accompany and are used with our products. We expect to continue to use third party manufacturers for these elements in order to reduce costs and increase product gross margins.

We manage our orthobiologic and biosurgery platforms as a single business unit. These platforms are marketed and sold by a single sales force to the same customer base. Accordingly, we report our financial results under a single operating segment – the development, manufacture and sale of specialty spine and orthopedic products.

In addition to the impact ofThe New England Journal of Medicine articles and reimbursement review discussed above, our business has been negatively affected by macroeconomic and other key factors that could continue to affect us in 2011 and beyond:

• Continued high unemployment and the slow economic recovery have resulted in a drop in spine procedures nationwide, which has contributed to a decline in Vitoss revenues.

• Increased focus on the general cost of healthcare has triggered notable changes in payer and hospital behavior. Payers and hospitals are becoming increasingly price sensitive and are aggressively seeking price concessions and allowances and, in some cases, seek lower cost alternatives to our products. This price pressure has and will continue to place pressure on our average selling prices.

• We are facing increasing competition from physician-owned distributors, or PODs, in the United States, predominantly in California and surrounding western states. PODs derive all or part of their revenues from the

19

sale of medical devices ordered by physician-investors at hospitals that agreed to purchase from the POD. PODs typically purchase products at prices significantly below manufacturers’ average selling prices and these savings are shared between the hospital and the physician investors of the POD. We believe that the number of PODs in the spine and orthopedic markets will continue to grow as economic pressures increase through the industry, causing hospitals to seek ways to reduce costs and physicians to seek additional sources of income. We are continuing to monitor the expansion of PODs and are developing strategies and tactics to assure that our products are available to patients throughout the United States.

We remain committed to our mission to develop and market quality products backed by clinical research that will improve patient outcomes and meet the needs of our surgical customers with maximum effectiveness and safety. Our strategy to accomplish this is threefold: (i) maximize the growth of existing products by continuing to optimize our direct sales force, develop additional clinical data and manage the lifecycles of product portfolios; (ii) continue product pipeline development of our own internally developed products; and (iii) pursue in-licensing, joint venture and acquisition opportunities to augment our product portfolio.

SUMMARY FINANCIAL RESULTS

Product Sales

Product sales for the three months ended March 31, 2011 decreased 1% to $23.8 million compared to $24.1 million for the three months ended March 31, 2010. Product sales for three months ended March 31, 2010 included $1.1 million from the sale of Vitomatrix pursuant to a supply agreement with a third party that was terminated in March 2010. We do not expect any further sales of Vitomatrix. Excluding this sale of Vitomatrix, product sales increased 3% to $23.8 million for the three months ended March 31, 2011 from $23.1 million for the three months ended March 31, 2010. Sales of Vitoss products increased 7% in the first quarter of 2011 compared to the corresponding period in 2010. Within the Vitoss product family, sales of Vitoss Bioactive Foam products, including Vitoss BA2X launched in February, 2011 increased 17% and sales of Vitoss Morsels increased 15% but these increases were primarily offset by decreases in Vitoss Foam product sales. Sales of Cortoss and Aliquot increased 3% in the three months ended March 31, 2011 compared to the three months ended March 31, 2010. Sales of our biosurgery products decreased 1% during the first quarter of 2011 compared to the corresponding period in 2010.

Gross Profit

Gross profit for the three months ended March 31, 2011 was $15.9 million compared to $16.7 million for the three months ended March 31, 2010. As a percentage of product sales, gross profit was 67% for the three months ended March 31, 2011 as compared to 69% for the corresponding periods in 2010.

Operating Expenses

Operating expenses for the three months ended March 31, 2011 were $16.1 million compared to $17.1 million for the corresponding period in 2010. Operating expenses were 68% of product sales for the three months ended March 31, 2011 compared to 71% of product sales for the three months ended March 31, 2010.

CRITICAL ACCOUNTING POLICIES

The preparation of our consolidated interim financial statements requires us to make assumptions, estimates and judgments which affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities as of the date of our consolidated interim financial statements, and the reported amounts of revenues and expenses during the reporting periods. By their nature, these assumptions, estimates and judgments are subject to an inherent degree of uncertainty. We use authoritative pronouncements, historical experience and other assumptions as the basis for making estimates. Actual results will differ from those estimates. We have addressed our critical accounting policies in ITEM 7 of our Annual Report on Form 10-K for the year ended December 31, 2010 under the caption “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CRITICAL ACCOUNTING POLICIES.” There were no changes in our critical accounting policies for the three months ended March 31, 2011.

RESULTS OF OPERATIONS

We have incurred annual operating losses since inception. We may continue to incur operating losses in the future unless we can consistently leverage our product portfolio, our distribution channels, our manufacturing capacity and our product development capability to generate product sales in amounts that exceed our cost of sales and operating expenses. Our ability to increase revenue and to attain profitability may be affected by the risk factors addressed in ITEM 1A. “RISK FACTORS” in our Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC.

20

Comparison of the Three Months Ended March 31, 2011 to the Three Months Ended March 31, 2010

Product Sales

	Three months ended March 31,
(dollars in thousands)	2011		2010		% Change
Orthobiologics	$	18,104	$	18,321		(1	)%
Biosurgery		5,683		5,756		(1	)%
	$	23,787	$	24,077		(1	)%

Product sales of $23.8 million for the three months ended March 31, 2011 decreased 1% from $24.1 million for the three months ended March 31, 2010. Product sales for the three months ended March 31, 2010 included $1.1 million from the sale of Vitomatrix. Excluding this sale of Vitomatrix, product sales increased 3% to $23.8 million for the three months ended March 31, 2011 from $23.1 million for the three months ended March 31, 2010.

For the three months ended March 31, 2011, 94% of product sales were in the U.S. and 6% were outside the U.S. For the corresponding period in 2010, 95% of product sales were in the U.S. and 5% were outside the United States.

Orthobiologic product sales represented 76% of total product sales in both the three months ended March 31, 2011 and the three months ended March 31, 2010. Orthobiologic product sales during the three months ended March 31, 2011 were $18.1 million, a 1% decrease from $18.3 million recorded during the three months ended March 31, 2010. Excluding the sale of Vitomatrix in the first three months of 2010 discussed above, Orthobiologic product sales during the three months ended March 31, 2011 increased 5% from $17.2 million during the three months ended March 31, 2010, with 1% attributable to increased average selling prices and to a 4% increase in unit volume. Sales of Cortoss and Aliquot during the three months ended March 31, 2011 increased 3% compared to the three months ended March 31, 2011.

Vitoss product sales increased 7% in the first quarter of 2011 compared to the year-earlier quarter. Within the Vitoss product family, sales of Vitoss Bioactive Foam products, including Vitoss BA2X launched in the U.S. in February 2011, increased 17%, and sales of Vitoss morsels increased 15%. These increases were primarily offset by a 12% decrease in sales of Vitoss Foam products.

Biosurgery product sales represented 24% of total product sales in both the three months ended March 31, 2011 and the three months ended March 31, 2010. Biosurgery product sales decreased to $5.7 million in the three months ended March 31, 2011 from $5.8 million in corresponding period in 2010, a decrease of 1%.

An increased emphasis on managed care in the United States has placed, and we believe will continue to place, greater pressure on medical device pricing. Such pressures, as well as increasing competitive pricing pressures, could have a material adverse effect on our ability to sell our products at current prices and may result in lower average selling prices in the future.

Gross Profit

	Three months ended March 31,
(dollars in thousands)	2011			2010			% Change
Gross profit	$	15,912		$	16,678			(5	)%
Gross profit as a percentage of product sales		67	%		69	%

Gross profit for the three months ended March 31, 2011 decreased to $15.9 million for the three months ended March 31, 2011 as compared to $16.7 million for the same period in the prior year. As a percentage of product sales, gross profit was 67% for the three months ended March 31, 2011, compared to 69% for the three months ended March 31, 2010. The decrease in gross profit as a percentage of product sales for the three months ended March 31, 2011 compared to the corresponding period in 2010 was primarily attributable to increased manufacturing costs for Vitagel in the first quarter of 2011 as a result of depreciation on our recently approved collagen manufacturing facility in the first quarter of 2011 and a change in product mix. Product sales for the three months ended March 31, 2010 included the $1.1 million sale of Vitomatrix discussed above, and Vitomatrix had higher gross profit margins than our other products. There were no Vitomatrix product sales in the three months ended March 31, 2011.

21

Operating expenses

	Three months ended March 31,
(dollars in thousands)	2011			2010			% Change
Operating expenses	$	16,086		$	17,088			(6	)%
Operating expenses as a % of product sales		68	%		71	%

Operating expenses were $16.1 million for the three months ended March 31, 2011, a 6% decrease from operating expenses of $17.1 million in the corresponding period in 2010. The $1.0 million decrease in operating expenses was primarily due to reduced general and administrative expense, lower sales and marketing expenses (excluding commission expenses) and lower research and development expenses partially offset by increased commission expense attributable to our hybrid sales model and the increased use of distributors and specialized sales agents which require higher commissions compared to our direct sales representatives. Operating expenses as a percentage of product sales were 68% for the three months ended March 31, 2011 compared to 71% for the three months ended March 31, 2010.

General and administrative expenses

	Three months ended March 31,
(dollars in thousands)	2011			2010			% Change
General and administrative expense	$	3,157		$	3,432			(8	)%
General and administrative expense as a % of product sales		13	%		14	%

General and administrative expenses for the three months ended March 31, 2011 were $3.2 million compared to $3.4 million for the three months ended March 31, 2010, a decrease of 8%. The decrease was primarily due to reduced information technology-related expenditures. As a percentage of product sales, general and administrative expenses were 13% for the three months ended March 31, 2011 compared to 14% for the corresponding period in 2010. We expect that general and administrative expenses for the year ending December 31, 2011 will be comparable to the expenses for the year ended December 31, 2010.

Selling and marketing expenses

	Three months ended March 31,
(dollars in thousands)	2011			2010			% Change
Selling and marketing expense	$	11,911		$	12,374			(4	)%
Selling and marketing expense as a % of product sales		50	%		51	%

Selling and marketing expenses for the three months ended March 31, 2011 were $11.9 million, compared to $12.4 million for the three months ended March 31, 2010, a decrease of 4%. As a percentage of product sales, selling and marketing expenses were 50% for the three months ended March 31, 2011 compared to 51% for the corresponding period in 2010. The reduction in both the amount of selling and marketing expenses and these expenses as a percentage of product sales was due to reduced sales force headcount, and reduced marketing-related expenditures partially offset by higher commission expense associated with the increased use of distributors and specialized sales agents to market our products.

Research and development expenses

	Three months ended March 31,
(dollars in thousands)	2011			2010			% Change
Research and development expense	$	1,018		$	1,282			(21	)%
Research and development expense as a % of product sales		4	%		5	%

Research and development expenses for three months ended March 31, 2011 were $1.0 million, compared to $1.3 million in the three months ended March 31, 2010, a decrease of 21% primarily attributable to the efforts to control expenses. As a percentage of product sales, research and development expenses were 4% for the three months ended March 31, 2011 compared to 5% for the three months ended March 31, 2010.

Interest Expense

Interest expense for both the three months ended March 31, 2011 and 2010 relates to $35.0 million in outstanding principal indebtedness under a senior secured note purchase facility, net of capitalized interest, if any. Interest expense for the three months

22

ended March 31, 2011 was $1.0 million compared to $0.8 million for the three months ended March 31, 2010. There was no interest expense capitalized for the three months ended March 31, 2011, while $0.2 million was capitalized for the three months ended March 31, 2010.

LIQUIDITY AND CAPITAL RESOURCES

We experienced negative annual operating cash flows from our inception, and we have funded our operations primarily from the proceeds we received from sales of our common stock, debt and other equity securities. For the three months ended March 31, 2011, we had positive cash flow from operations of $1.1 million. At March 31, 2011 and December 31, 2010, key liquidity indicators were as follows:

(dollars in thousands)	March 31, 2011		December 31, 2010
Cash and cash equivalents	$	8,332	$	11,059
Short-term investments		14,793		11,305
Total cash, cash equivalents and short-term investments	$	23,125	$	22,364
Working capital	$	49,534	$	49,207
Notes payable, net of debt discount	$	34,500	$	34,415

The Company’s cash flow activity was as follows:

	Three months Ended March 31,
	2011			2010
	(In thousands)
Net cash provided by (used in) operating activities	$	1,080		$	(3,671	)
Net cash (used in) provided by investing activities		(3,972	)		2,423
Net cash provided by financing activities		39			751
Effect of exchange rate changes on cash and cash equivalents		126			(30	)
Net decrease in cash and cash equivalents	$	(2,727	)	$	(527	)

Although we expect to generate positive cash flows from operations in 2011, our ability to consistently generate positive cash flows from operations is heavily dependent upon: (i) maintaining and growing product sales; (ii) our product sales mix as relative increases in sales of our lower margin products result in lower gross profit; (iii) the amount of inventory, including raw materials and work-in-process, that we maintain to support product sales, anticipated product sales and anticipated product launches; (iv) the overall level of our research and development activities, which will depend on the development status and costs of products in our pipeline and any new products that we could pursue in the future, and (v) any cash prepayment associated with the refinancing of our existing $35 million debt. Accordingly, for the foreseeable future, our operating cash requirements may continue to be subject to quarterly volatility. If we are unable to improve cash flows from operations, we may need to consider and evaluate alternatives including reduction of capital expenditures and other cost reductions. In addition, we will need to refinance or renegotiate the terms of our outstanding debt. Furthermore, cash resources could be affected by in-licensing, joint ventures, acquisitions and other investment opportunities that we may pursue.

We have $35 million in outstanding principal indebtedness under a senior secured note facility which is due July 30, 2012. We are currently seeking to refinance this obligation and expect to complete this refinancing during 2011; however, there is no assurance that we will be able to execute this refinancing and, if we are able to refinance this indebtedness, that the terms of such a refinancing would be equal to or better than the terms of the existing senior secured note facility. In addition, we are required to pay a prepayment premium in the event that we refinance this obligation prior to July 30, 2012. The amount of the prepayment premium depends on the timing of the prepayment and decreases over time. Assuming we prepaid this obligation in full on March 31, 2011, the prepayment premium would have been $1.9 million. The prepayment premium will negatively impact our cash flows and cash resources. In addition to the prepayment premium, if we prepay this indebtedness in full or in part prior to July 30, 2012, we would be required to write off all or a portion of the unamortized debt discount and debt issuance costs remaining on our balance sheet at the date of such prepayment and recognize a non-cash loss on the early extinguishment of debt. Assuming this debt was fully repaid on May 31, 2011, we would expect to recognize a charge of approximately $2.2 million in connection with the early extinguishment of debt. Additionally, our cash flows and cash resources would be negatively impacted if we elected to repay the existing outstanding principal indebtedness with a combination of our existing cash and cash equivalents and new borrowings.

23

DISCUSSION OF CASH FLOWS

Cash Flows Provided By (Used In) Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2011 was $1.1 million compared to $3.7 million of net cash used in operating activities for the three months ended March 31, 2010. This favorable difference of $4.8 million is attributable to the reduction in the use of cash to settle accounts payable and to pay accrued compensation expenses, as well as the favorable impact of noncash charges. The lower use of cash to settle accounts payable and pay accrued expenses during the first quarter of 2011 compared to the same period in 2010 is due to lower current liabilities at the beginning of the first quarter of 2011, which were $7.7 million at December 31, 2010, as compared to the current liabilities at the beginning of the first quarter of 2010, which were $13.4 million at December 31, 2009.

Our ability to generate cash from operating activities on a quarterly and annual basis is dependent on our ability to consistently generate product sales in amounts that exceed our cost of sales and operating expenses; accordingly, while we successfully generated cash from operating activities during the three months ended March 31, 2011, there is no assurance that we will continue to do so in either quarterly or annual periods.

Cash Flows (Used in) Provided by Investing Activities

Cash used in investing activities for the three months ended March 31, 2011 was $4.0 million attributable to the net use of $3.6 million of cash to purchase investments and the use of $0.4 million of cash to purchase property and equipment. The rate of capital expenditures may increase over the remainder of 2011 but we expect that capital expenditures for the year ending December 31, 2011 will be below the amount of capital expenditures for the year ended December 31, 2010.

Cash provided by investing activities for the three months ended March 31, 2010 was $2.4 million attributable to the net proceeds from the net sale of investments of $3.0 million offset by the purchase of property and equipment of $0.6 million primarily related to the expansion of our Vitagel manufacturing facilities.

We invest our excess cash in highly liquid investment-grade marketable securities, including U.S. Treasury securities, corporate debt securities and government-sponsored enterprise debt securities. Marketable securities having maturities greater than three months and less than one year are classified as short-term investments. Until we achieve sales at levels that consistently enable us to fund operations and investing activities, we may use cash, cash equivalents and proceeds from the sale of short-term investments to fund both operating and investing activities.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2011 was $39,000 compared to $0.8 million for the three months ended March 31, 2010 and relates to cash received upon the exercise of options to purchase our common stock and shares purchased in conjunction with the Company’s Employee Stock Purchase Plan.

24

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

Below is a table that presents our contractual obligations and commitments as of March 31, 2011:

Contractual Obligations (1) and (2)	Total		Remainder of 2011		2012		2013		2014		2015 and beyond
Notes Payable (3)	$	35,000	$	—	$	35,000	$	—	$	—	$	—
Lease Obligations (4)		6,237		667		925		962		989		2,694
Employment Agreements (5)		774		519		255		—		—		—
Total	$	42,011	$	1,186	$	36,180	$	962	$	989	$	2,694

(1) In addition to the contractual obligations and commitments set forth above, we have contractual obligations pursuant to the terms of our agreement with Kensey Nash Corporation.Approximately 69% of our product sales during the three months ended March 31, 2011 were from products based upon our Vitoss Foam platform co-developed with Kensey, including Vitoss Bioactive Foam. As of March 31, 2011, we owed Kensey $1.5 million for manufactured product inventory and royalties, which amount is included in accounts payable and other accrued expenses on our consolidated balance sheet as of March 31, 2011 included in this report.

(2) Excluded from this table are certain product development milestones and related payments which we may be obligated to make. In connection with the development of new products with business partners, we may be obligated to make milestone payments upon achievement of specified developmental goals. The timing and actual amount of these payments can be difficult to determine as they depend upon satisfactory achievement of product development and other milestones, which will be determined based on events that may occur in the future. If these products under development are brought to market, we may be obligated to make certain launch-related milestone payments of up to $1 million, as well as additional payments depending upon the achievement of clinical and sales milestones in the future. There were no product development payments in either of the three month periods ended March 31, 2011 or 2010.

(3) Senior Secured Note Purchase Facility.We have $35 million in outstanding principal indebtedness under a senior secured note purchase facility. Notes issued under the facility are due July 30, 2012.

Borrowings under the facility are guaranteed by us and one of our wholly-owned subsidiaries. The facility is secured by a first priority lien on substantially all of our assets (including intellectual property) other than those exclusively related to Cortoss and Aliquot. We are required to make quarterly interest-only payments to the note holder. Outstanding principal amounts under the notes bear annual interest at 10%, except that during the continuance of any event of defaults, interest would accrue at the rate of 12% per year and the notes would be payable on demand. As of March 31, 2011, we were in compliance with all covenants under the facility. Based on our current operating plans, we expect to be in compliance with the covenants under the facility for at least the next twelve months from the date of filing of this report. We expect to incur quarterly interest payments of $875,000 under our debt facility during 2011 and thereafter until maturity on July 30, 2012. Prepayment of the obligation under our facility is subject to a prepayment premium, the amount of which depends on the timing of the prepayment. As discussed above, we are seeking to refinance this obligation. Any prepayment premium and the write off of the remaining debt discount and unamortized debt issuance costs would be recognized as an operating expense in the period of the prepayment and recorded as a loss on the early extinguishment of debt.

(4) Leases. We lease facilities under non-cancelable operating leases that extend through July 31, 2017. As we continue to expand, we expect to lease additional facilities.

(5) Employment Agreements.Under the terms of employment agreements with two executive officers, extending through April 2012 and May 2012, subject to renewal, we are required to pay each individual a base salary for continuing employment with us. The agreements also provide for other benefits, including certain obligations that may be triggered by a change in control, termination without cause or resignation for good reason.

25

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

The functional currency for our European branch operation is the Euro. The functional currency for our U.K. subsidiary operation is the British pound sterling. All assets and liabilities related to these operations are translated at the current exchange rates at the end of each period. Revenues and expenses are translated at average exchange rates in effect during the period. The resulting translation adjustments are accumulated in a separate component of shareholders’ equity (accumulated other comprehensive income (loss)). Foreign currency transaction gains and losses, if any, are included in our results of operations.

As of March 31, 2011, our total exposure to foreign currency risk in U.S. dollar terms was approximately $4.0 million, or 5%, of our total assets. The potential impact of a hypothetical 10% decline in the foreign exchange rates would result in a total decline in the fair value of our assets of approximately $0.4 million at March 31, 2011.

Market Risk

We may be exposed to market risk through changes in market interest rates that could affect the value of our short-term investments; however, we do not believe the fair value of our investment portfolio or related income would be significantly affected by changes in interest rates due mainly to the relatively short-term nature of the majority of our investment portfolio.

As of March 31, 2011, our short-term investments consisted of highly liquid investment-grade marketable securities. The impact on our future interest income and future changes in investment yields will depend on the gross amount of our investments and various external economic factors.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of March 31, 2011 are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to costs. Because of the inherent limitation in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. However, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

26

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS

EXHIBIT	DESCRIPTION
31.1	Certifications of the Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certifications of the Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

27

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ORTHOVITA, INC.
	(Registrant)
May 4, 2011	By:	/s/ ANTONY KOBLISH
		Antony Koblish
		Chief Executive Officer and President (Principal executive officer)
May 4, 2011	By:	/s/ NANCY C. BROADBENT
		Nancy C. Broadbent
		Senior Vice President and Chief Financial Officer
		(Principal financial and accounting officer)

28