**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

** **

**FORM 10-Q**

 
| x          | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)  OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------|------------|-----------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                    |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

For The Quarterly PeriodEnded **March 31, 2007**

Commission file number— **001-32966**

**OSIRIS THERAPEUTICS, INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                    |   | **71-0881115**                     |
|-----------------------------------------------------------------|--------|------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |   | (IRS Employer  Identification No.) |

 

**7015 Albert EinsteinDrive, Columbia, Maryland 21046**

(Address of principal executive offices) (Zip code)

 

 

**443-545-1800**

(Registrant’s telephone number, including area code)

 

 

**None**

(Former name, former address and former fiscal year,if changed since last report)

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes  x   No  o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerate filer” in Rule 12b-2 of the Exchange Act). (Check one):

Large accelerated filer  o            Accelerated filer  o            Non-accelerated filer x

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes  o   No  x

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock asof the latest practicable date.
|                                           | **Class** | ** ** | ** ** | ** ** | **Outstanding at May 10, 2007** | ** ** |
|-------------------------------------------|-----------|------------|------------|------------|-------------------------------------------|------------|
| Common Stock,  par value $0.001 per share |      | 27,470,132 |

 

 

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**OSIRIS THERAPEUTICS, INC.**

**INDEX**

 
|                                          | ** ** | ** **                                                                                  | ** ** | **Page**   |
|------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|------------|
| ** **                               | ** ** | ** **                                                                                  | ** ** | ** ** |
| **PART  I — FINANCIAL INFORMATION** |       |                                                                                        |
| ** **                               | ** ** | ** **                                                                                  | ** ** | ** ** |
| Item 1.                                  |       | Financial Statements — Unaudited                                                       |       | 1          |
|                                     |       | Condensed Balance Sheets — March 31, 2007 and December  31, 2006                       |       | 1          |
|                                     |       | Condensed Statements of Operations — three months ended  March 31, 2007 and 2006       |       | 2          |
|                                     |       | Condensed Statement of Stockholders’ Equity — three  months ended March 31, 2007  |       | 3          |
|                                     |       | Condensed Statements of Cash Flows — three months  ended March 31, 2007 and 2006       |       | 4          |
|                                     |       | Notes to Condensed Financial Statements                                                     |       | 5          |
|                                     |       |                                                                                        |       |       |
| Item 2.                                  |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations |       | 8          |
|                                     |       |                                                                                        |       |       |
| Item 3.                                  |       | Quantitative and Qualitative Disclosures About Market  Risk                                 |       | 12         |
|                                     |       |                                                                                        |       |       |
| Item 4.                                  |       | Controls and Procedures                                                                     |       | 13         |
|                                     |       |                                                                                        |       |       |
| **PART  II — OTHER INFORMATION**    |       | 14                                                                                          |
|                                     |       |                                                                                        |       |       |
| Item  1.                                 |       | Legal  Proceedings                                                                          |       | 14         |
| Item 1A.                            |       | Risk Factors                                                                                |       | 14         |
| Item 2.                                  |       | Unregistered Sales of Equity Securities and Use of  Proceeds                                |       | 14         |
| Item 3.                                  |       | Defaults Upon Senior Securities                                                             |       | 14         |
| Item 4.                                  |       | Submission of Matters to a Vote of Security Holders                                         |       | 14         |
| Item  5.                                 |       | Other  Information                                                                          |       | 14         |
| Item 6.                                  |       | Exhibits                                                                                    |       | 15         |
|                                     |       |                                                                                        |       |       |
| Signature                                |       | 16                                                                                          |
|                                     |       |                                                                                        |       |       |
| Exhibit Index                            |       |                                                                                        |

 

 

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**PARTI — FINANCIAL INFORMATION**

**Item1.****                         Financial Statements - Unaudited**

**OSIRISTHERAPEUTICS, INC.Condensed Balance Sheets Amounts in thousands**

 
| ** **                                                                                                      | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                      | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| ** **                                                                                                      | ** ** | **(unaudited)**    | ** ** | ** **            | ** ** |
| **ASSETS**                                                                                                      |       |               |       |                  |       |
| Current assets:                                                                                                 |       |               |       |                  |       |
| Cash                                                                                                            |       | $                  | 1,892      |                  | $          | 714 |   |
| Short-term  investments                                                                                         |       | 27,629             |       | 38,467                |       |
| Accounts  receivable                                                                                            |       | 188                |       | 1,596                 |       |
| Inventory and  other current assets                                                                             |       | 1,623              |       | 2,858                 |       |
| Total current  assets                                                                                           |       | 31,332             |       | 43,635                |       |
|                                                                                                            |       |               |       |                  |       |
| Property and equipment,  net                                                                                    |       | 4,384              |       | 3,942                 |       |
| Restricted cash                                                                                                 |       | 291                |       | 297                   |       |
| Deferred financing  costs, net                                                                                  |       | 507                |       | 567                   |       |
| Other assets                                                                                                    |       | 563                |       | 727                   |       |
| Total assets                                                                                                    |       | $                  | 37,077     |                  | $          | 49,168 |   |
|                                                                                                            |       |               |       |                  |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                  |       |               |       |                  |       |
| Current liabilities:                                                                                            |       |               |       |                  |       |
| Accounts payable  and accrued expenses                                                                          |       | $                  | 7,593      |                  | $          | 8,339 |   |
| Note payable,  current portion                                                                                  |       | 33                 |       | 49                    |       |
| Capital lease  obligations, current portion                                                                     |       | 1,155              |       | 1,129                 |       |
| Deferred  revenue, current portion                                                                              |       | 952                |       | 952                   |       |
| Total current  liabilities                                                                                      |       | 9,733              |       | 10,469                |       |
|                                                                                                            |       |               |       |                  |       |
| Note payable, net of  current portion                                                                           |       | 25,000             |       | 25,000                |       |
| Capital lease  obligations, net of current portion                                                              |       | 595                |       | 895                   |       |
| Deferred revenue, net  of current portion                                                                       |       | 159                |       | 397                   |       |
| Long-term interest  payable and other liabilities                                                               |       | 1,221              |       | 1,120                 |       |
| Total  liabilities                                                                                              |       | 36,708             |       | 37, 881               |       |
|                                                                                                            |       |               |       |                  |       |
| Stockholders’ equity:                                                                                      |       |               |       |                  |       |
| Common stock,  $.001 par value, 90,000 shares authorized 27,468 and 27,321 shares  outstanding in 2007 and 2006 |       | 27                 |       | 27                    |       |
| Additional  paid-in-capital                                                                                     |       | 199,346            |       | 198,763               |       |
| Accumulated  deficit                                                                                            |       | (199,004           | )          | (187,503              | )          |
| Total  stockholders’ equity                                                                                |       | 369                |       | 11,287                |       |
| Total liabilities  and stockholders’ equity                                                                |       | $                  | 37,077     |                  | $          | 49,168 |   |

 

The accompanying notes are an integral part of thesecondensed financial statements.

1

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**OSIRISTHERAPEUTICS, INC.Condensed Statements of Operations (Unaudited)Amounts in thousands, except per share data**

 
| ** **                                                  | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                  | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Revenues:                                                   |       |                                                 |       |   |   |
| Product Sales                                               |       | $                                                    | 2,000      |   | $ | 1,105 |   |
| Cost of goods sold                                          |       | 901                                                  |       | 489 |   |
| Gross profit                                                |       | 1,099                                                |       | 616 |   |
|                                                        |       |                                                 |       |   |   |
| Revenue from  collaborative research licenses and royalties |       | 279                                                  |       | 295 |   |
|                                                        |       |                                                 |       |   |   |
| Operating  expenses:                                        |       |                                                 |       |   |   |
| Research and development                                    |       | 11,030                                               |       | 4,368 |   |
| General and administrative                                  |       | 1,506                                                |       | 1,138 |   |
| Total operating expenses                                    |       | 12,536                                               |       | 5,506 |   |
|                                                        |       |                                                 |       |   |   |
| Loss from operations                                        |       | (11,158                                              | )          | (4,595 | ) |
|                                                        |       |                                                 |       |   |   |
| Interest  expense, net                                      |       | (343                                                 | )          | (526 | ) |
|                                                        |       |                                                 |       |   |   |
| Net loss                                                    |       | $                                                    | (11,501    | ) | $ | (5,121 | ) |
|                                                        |       |                                                 |       |   |   |
| Basic and diluted net loss per share                        |       | $                                                    | (0.42      | ) | $ | (0.56 | ) |
|                                                        |       |                                                 |       |   |   |
| Weighted Average  Common Shares (basic and diluted)         |       | 27,372                                               |       | 9,134 |   |

 

The accompanyingnotes are an integral part of these condensed financial statements.

2

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**OSIRISTHERAPEUTICS, INC.Condensed Statement of Stockholders’ Equity For the three months ended March 31, 2007(Unaudited)Amounts in thousands, except for share and per share data**

 
| ** **                                                                      | ** ** | ** **            | ** ** | **Additional** | ** ** | ** **      | ** ** | **Total**              | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------|------------|----------------|------------|-----------------|------------|------------------------|------------|
| ** **                                                                      | ** ** | **Common Stock** | ** ** | **Paid-in**    | ** ** | **Accumulated** | ** ** | **Stockholders’** | ** ** |
| ** **                                                                      | ** ** | **Shares**            | ** ** | **Amount**     | ** ** | **Capital**     | ** ** | **Deficit**            | ** ** | **Equity** | ** ** |
| **Balance  at January 1, 2007**                                                 |       | 27,321,319            |       | $              | 27         |            | $          | 198,763                |       | $ | (187,503 | ) | $ | 11,287 |   |
|                                                                            |       |                  |       |           |       |            |       |                   |       |   |   |
| Exercise of  options to purchase common stock ($0.40 - $0.80 per share)         |       | 133,813               |       | —         |       | 54              |       |                   |       | 54 |   |
|                                                                            |       |                  |       |           |       |            |       |                   |       |   |   |
| Issuance of  common stock for services rendered by directors ($23.62 per share) |       | 12,500                |       | —         |       | 295             |       |                   |       | 295 |   |
|                                                                            |       |                  |       |           |       |            |       |                   |       |   |   |
| Share-based  payment — employee compensation                               |       |                  |       |           |       | 234             |       |                   |       | 234 |   |
|                                                                            |       |                  |       |           |       |            |       |                   |       |   |   |
| Net loss                                                                        |       |                  |       |           |       |            |       | (11,501                | )          | (11,501 | ) |
| **Balance at March 31, 2007**                                              |       | 27,467,632            |       | $              | 27         |            | $          | 199,346                |       | $ | (199,004 | ) | $ | 369 |   |

 

The accompanyingnotes are an integral part of these condensed financial statements.

3

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**OSIRISTHERAPEUTICS, INC.Condensed Statements of Cash Flows (Unaudited)Amounts in thousands**

 
| ** **                                                             | ** ** | **Three Months Ending March 31,** | ** ** |
|------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                             | ** ** | **2007**                                              | ** ** | **2006** | ** ** |
|                                                                   |       |                                                  |       |   |   |
| **Cash  flows from operations:**                                       | ** ** | ** **                                            | ** ** | ** ** | ** ** |
| Net loss                                                               |       | $                                                     | (11,501    | ) | $ | (5,121 | ) |
| **Adjustments to reconcile net loss to net cash  used in operations:** | ** ** | ** **                                            | ** ** | ** ** | ** ** |
| Depreciation and amortization                                          |       | 428                                                   |       | 326 |   |
| Non cash share-based payments                                          |       | 529                                                   |       | 87 |   |
| Non cash interest expense                                              |       | 60                                                    |       | 623 |   |
| **Changes in operating assets and liabilities:**                       | ** ** | ** **                                            | ** ** | ** ** | ** ** |
| Accounts receivable                                                    |       | 1,408                                                 |       | (397 | ) |
| Inventory and other current assets                                     |       | 1,235                                                 |       | (512 | ) |
| Other assets                                                           |       | 164                                                   |       | 1 |   |
| Accounts payable and accrued expenses                                  |       | (746                                                  | )          | 1,325 |   |
| Deferred revenue                                                       |       | (238                                                  | )          | (238 | ) |
| Long-term interest payable and other liabilities                       |       | 100                                                   |       | (30 | ) |
| Net cash used in operations:                                           |       | (8,561                                                | )          | (3,936 | ) |
|                                                                   |       |                                                  |       |   |   |
| **Cash  flows from investing activities:**                             | ** ** | ** **                                            | ** ** | ** ** | ** ** |
| Purchases of property and equipment                                    |       | (870                                                  | )          | (171 | ) |
| Proceeds from sale of short-term investments                           |       | 10,839                                                |       | 4,700 |   |
| Net cash provided by investing activities                              |       | 9,969                                                 |       | 4,529 |   |
|                                                                   |       |                                                  |       |   |   |
| **Cash  flows from financing activities:**                             | ** ** | ** **                                            | ** ** | ** ** | ** ** |
| Principal payments on capital lease obligations and  notes payable     |       | (290                                                  | )          | (264 | ) |
| Restricted cash                                                        |       | 6                                                     |       | 6 |   |
| Proceeds from the issuance of common stock                             |       | 54                                                    |       | 102 |   |
| Net cash used in financing activities                                  |       | (230                                                  | )          | (156 | ) |
|                                                                   |       |                                                  |       |   |   |
| Net increase in  cash                                                  |       | 1,178                                                 |       | 437 |   |
| Cash at  beginning of period                                           |       | 714                                                   |       | 597 |   |
|                                                                   |       |                                                  |       |   |   |
| **Cash at end of period**                                              |       | $                                                     | 1,892      |   | $ | 1,034 |   |

 

The accompanyingnotes are an integral part of these condensed financial statements.

 

4

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**OSIRIS  THERAPEUTICS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS Amounts in thousands, except for share and per share data**

**1.            Basis of Presentation**

The accompanying unaudited condensed financialstatements of Osiris Therapeutics, Inc. (the “Company”) have been prepared inaccordance with generally accepted accounting principles in the United Statesand the rules and regulations of the Securities and Exchange Commission, (the “SEC”),for interim financial information.  Accordingly, they do not include allthe information and footnotes required by generally accepted accountingprinciples for complete financial statements and should be read in conjunctionwith the Company’s Annual Report on Form 10-K for the year ended December 31,2006.  The interim financial statements are unaudited, but in the opinionof management all adjustments, consisting only of normal recurring accruals,considered necessary for a fair statement of the results of these interimperiods have been included.  The results of the Company’s operations forany interim period are not necessarily indicative of the results that may beexpected for any other interim period or for a full fiscal year.

**2.            Significant Accounting Policies and Recent Accounting Pronouncements**

***Use of estimates***

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the amounts reportedin the financial statements and accompanying notes. Due to the inherentuncertainty involved in making those assumptions, actual results could differfrom those estimates. We believe that the most significant estimates thataffect our financial statements are those that relate to revenue recognition,deferred tax assets, and share-based compensation.

***Revenuerecognition***

Our revenue recognition policies are in accordancewith the SEC’s Staff Accounting Bulletin No. 101, *Revenue Recognition in Financial Statements*,as amended by SEC Staff Accounting Bulletin No. 104, *Revenue Recognition*.

In July 2005, we launched Osteocel, our firstcommercial product. We recognize revenue on Osteocel sales when legal title tothe product has passed to the customer, which is generally when the product isshipped from our Baltimore, MD facilities. We have agreements with ourcustomers that specify the terms of sale, including price.

***Cost of Goods Sold***

Costsof goods sold consist primarily of the costs to obtain the tissue and otherchemicals and supplies, plus labor and allocated overhead costs and the costsof operating the clean-room facilities related to the production of Osteocel.

***Loss per CommonShare***

Basic loss per common share is calculated by dividingnet loss by the weighted average number of common shares outstanding during theperiod. Diluted loss per common share adjusts basic loss per share for thepotentially dilutive effects of shares issuable under our stock option plan,using the treasury stock method. Common equivalent shares from the conversionof convertible debt and the exercise of stock options and warrants are excludedfrom the computation of diluted loss per share as their effect is antidilutive.

***Stock-BasedCompensation Plans***

In 1994, the Company adopted the Amended and Restated1994 Stock Incentive Plan (the 1994 Plan) under which 875,000 shares of commonstock have been reserved for issuance upon the exercise of options or otherequity grants that we issue from time to time.  In 2006, we adopted the2006 Omnibus Plan, under which we reserved 850,000 shares of common stockfor issuance upon the exercise of stock options or other equity grants. We stopped granting options under the 1994 Plan upon the completion of ourinitial public offering in August 2006.

5

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A summary of the combined activity under both of ourstock-based compensation plans as of March 31, 2007 and changes during thethree months then ended is presented below.

 
| ** **                             | ** ** | **Number of  Shares** | ** ** | **Weighted Average  Exercise Price at  Grant Date** | ** ** | **Weighted Average  Remaining Term  (Years)** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|----------------------------------------|------------|----------------------------|------------|-------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|-------------------------------------|------------|
| Outstanding at  December 31, 2006 |       | 695,915                    |       | $                                                                       | 2.05       |                                                    | 7.7        |                                | $          | 10,400 |   |
| Granted                                |       | 284,000                    |       | 22.69                                                                   |       |                                                    |       |                                |       |
| Exercised                              |       | (133,813                   | )          | 0.40                                                                    |       |                                                    |       | 2,086                               |       |
| Forfeited or expired                   |       | (8,064                     | )          | 0.40                                                                    |       |                                                    |       |                                |       |
| Outstanding at  March 31, 2007    |       | 838,038                    |       | 9.30                                                                    |       | 8.6                                                     |       | 7,847                               |       |
|                                   |       |                       |       |                                                                    |       |                                                    |       |                                |       |
| Exercisable at  March 31, 2007    |       | 287,271                    |       | 0.40                                                                    |       | 7.8                                                     |       | 5,259                               |       |
|                                        |            |                            |            |                                                                         |            |                                                         |            |                                     |            |  |  |

 

The weighted average grant date fair value of optionsgranted during the three months ended March 31, 2007 was $13.32 pershare. We received a total of $54 in cash from the exercise of options duringthe three months ended March 31, 2007.  Also during the three months endedMarch 31, 2007, we granted 12,500 unrestricted shares of common stock to membersof our Board of Directors under our 2006 Omnibus Plan and recognized $295 inshare-based expense.  At March 31, 2007,488,510 shares of common stock remain available for future grants under our2006 Omnibus Plan.

Share-based employee compensation included in thestatements of operations for the three months ended March 31, 2007 and 2006 wasapproximately $234 and $87, respectively.  As of March 31, 2007, there wasapproximately $4.8 million of total unrecognized share-based compensation costrelated to options granted under our plans that will be recognized over aweighted-average period of approximately 3-years.

***Supplemental CashFlow Information***

| **Supplemental disclosure of cash flows information:**  | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------------------|------------|------------|------------|------------|------------|
| Cash paid for interest                                  |       | $          | 101        |       | $          | 339 |   |
| Cash paid for taxes                                     |       | —     |       | —     |       |
|                                                    |       |       |       |       |       |
| **Supplemental  schedule of non-cash investing and**    | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** financing activities:**                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Common stock  issued to directors for services rendered |       | 295        |       | 86         |       |
|                                                         |            |            |            |            |            |  |  |

 

***Significant NewAccounting Pronouncement***

In September 2006, the Financial Accounting StandardsBoard (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS No.157”).  This statement provides a single definitionof fair value, a framework for measuring fair value, and expanded disclosuresconcerning fair value.  Previously,different definitions of fair value were contained in various accountingpronouncements creating inconsistencies in measurement and disclosures.  SFAS No. 157 applies under those previouslyissued pronouncements that prescribe fair value as the relevant measure ofvalue, except SFAS No. 123(R) and related interpretations and pronouncementsthat require or permit measurement similar to fair value but are not intendedto measure fair value.  This pronouncementis effective for fiscal years beginning after November 15, 2007.  The Company is evaluating the impact of thisnew standard, but currently believes that adoption will not have a materialimpact on its financial position, results of operations, or cash flows.

6

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**3.            Segment Reporting**

Beginning in 2007, westarted to manage our business in two reportable operating segments.  Our reportable operating segments that aremanaged separately consist of our Biologic Drug Candidate segment and ourBiologic Tissue Product segment.  Our BiologicDrug Candidate segment focuses on developing and marketing products to treatmedical conditions in the inflammatory, orthopedic and cardiovascularareas.  Its operations have focused onclinical trials.  Our Biologic DrugCandidate segment does not presently have any products approved for sale andits revenues consist of license fees and royalties from collaborative researchagreements.

Our Biologic TissueProduct segment includes the manufacture and sale of Osteocel, which welaunched in July 2005.  Osteocel is ourbiologic tissue product which is currently being used by orthopedic surgeonsfor focal bone repair.

We evaluate theperformance of our Biologic Tissue Product segment based upon gross profit andoperating income before net interest expense, depreciation, and corporategeneral and administrative expenses, which we refer to as segment profit orloss.  We have presented estimated 2006segment results through the gross profit result to compare to our 2007presentation in the table below.  However,because our Biologic Tissue Product segment was not managed as a separatesegment during 2006 we are unable to determine the other operating expensesthat may have been attributable to this practice in 2006.

In general, our totalassets, including long-lived assets such as property and equipment, and ourcapital expenditures are not specifically allocated to any particularsegment.  Accordingly, capitalexpenditures and total asset information by reportable segment is notpresented.  The reportable segments usethe same accounting policies as those used by the company.  There are no significant inter-segment salesor transfers.

Substantially all of ourrevenues and assets are attributed to and are received from entities located inthe United States.  During the threemonths ended March 31, 2007 and 2006, we sold product produced in our BiologicTissue Product segment to two customers, both of which represent greater thanten percent of our revenues.
| ** **                             | ** ** | **Biologic**   | ** ** | **Biologic** | ** ** | ** **    | ** ** | ** ** | ** ** |
|----------------------------------------|------------|----------------|------------|--------------|------------|---------------|------------|------------|------------|
| ** **                             | ** ** | **Drug**       | ** ** | **Tissue**   | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **                             | ** ** | **Candidates** | ** ** | **Product**  | ** ** | **Corporate** | ** ** | **Total**  | ** ** |
|                                   |       |           |       |         |       |          |       |       |       |
| **Three  Months Ended March 31, 2007** | ** ** | ** **     | ** ** | ** **   | ** ** | ** **    | ** ** | ** ** | ** ** |
| Revenues                               |       | $              | 279        |         | $          | 2,000         |       | $          | —     |   | $ | 2,279 |   |
| Gross profit                           |       | —         |       | 1,099        |       | —        |       | 1,099      |       |
| Segment profit (loss)                  |       | (8,215         | )          | (1,437       | )          | (1,506        | )          | (11,158    | )          |
|                                   |       |           |       |         |       |          |       |       |       |
| **Three  Months Ended March 31, 2006** | ** ** | ** **     | ** ** | ** **   | ** ** | ** **    | ** ** | ** ** | ** ** |
| Revenues                               |       | $              | 295        |         | $          | 1,105         |       | $          | —     |   | $ | 1,400 |   |
| Gross profit                           |       | —         |       | 616          |       | —        |       | 616        |       |

                Theloss in our Biologic Tissue Product segment for the quarter ending March 31,2007 was primarily attributable to costs associated with the expansion of ourOsteocel manufacturing facility, as we experienced failed productionqualification runs while expanding our capacity. The production issues weresubsequently resolved in late March, and the expanded facility is currentlyproducing product at previously projected output.

7

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**ITEM2.****   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**Forward-Looking Information**

Thisreport includes “forward-looking statements” within the meaning ofSection 21E of the Securities Exchange Act of 1934, or the Exchange Act.Forward-looking statements include statements concerning our plans, objectives,goals, strategies, future events, future revenues or performance, capitalexpenditures, compensation arrangements, financing needs, plans or intentionsrelating to acquisitions, business trends and other information that is nothistorical information and, in particular, may appear under the headings “RiskFactors” in our Annual Report 10-K under Part I—Item 1A, “Part II—Item7. Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and the other documents we file with the Securities and ExchangeCommission, or SEC, including, among others, our quarterly reports onForm 10-Q and amendments thereto. When used in this Quarterly Report, thewords *estimates, expects, anticipates,projects, plans, intends, believes, forecasts* and variations of suchwords or similar expressions are intended to identify forward-lookingstatements. Examples of forward-looking statements include, but are not limitedto, statements regarding the following: our product development efforts; ourclinical trials and anticipated regulatory requirements; the success of ourproduct candidates in development; status of the regulatory process for ourbiologic drug candidates; implementation of our corporate strategy; ourfinancial performance; our product research and development activities andprojected expenditures, including our anticipated timeline and clinicalstrategy for MSCs and biologic drug candidates; our cash needs; patents andproprietary rights; ability of our potential products to treat disease; ourplans for sales and marketing; our plans regarding facilities; types ofregulatory frameworks we expect will be applicable to our potential products;and results of our scientific research. All forward-looking statements,including, without limitation, management’s examination of historical operatingtrends, are based upon our current expectations and various assumptions. Ourexpectations, beliefs and projections are expressed in good faith and webelieve there is a reasonable basis for them. However, there can be noassurance that management’s expectations, beliefs and projections will resultor be achieved.

You should read the following management’s discussionand analysis of our financial condition and results of operations inconjunction with our audited Financial Statements and related notes thereto andother disclosures included as part of our Annual Report on Form 10-K for theyear ended December 31, 2006, and our unaudited Condensed FinancialStatements for the three months ended March 31, 2007 and other disclosuresincluded in this Quarterly Report on Form 10-Q. Our Condensed FinancialStatements have been prepared in accordance with U.S. generally accepted accountingprinciples and are presented in U.S. dollars.

Thereare a number of risks and uncertainties that could cause our actual results todiffer materially from the forward-looking statements contained in this report.Some of the important factors that could cause our actual results to differmaterially from the forward-looking statements we make in this report are setforth in this report or in our Annual Report on Form 10-K for the fiscal yearended December 31, 2006, including in this report under Part II — Item 1A “RiskFactors,” and in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2006 under Part I — Item 1A “Risk Factors.” There may be otherfactors that may cause our actual results to differ materially from theforward-looking statements.

Allforward-looking statements attributable to us or persons acting on our behalfapply only as of the date of this Quarterly Report and are expressly qualifiedin their entirety by the cautionary statements included herein. We undertake noobligation to publicly update or revise any forward-looking statements toreflect subsequent events or circumstances and do not intend to do so.

Whenwe use the terms “Osiris,” “we,”  “us,” and “our” we mean OsirisTherapeutics, Inc., a Delaware corporation.

**Introduction and Overview**

The following is adiscussion and analysis of our financial condition and results of operationsfor the three month periods ended March 31, 2007 and 2006, and significantfactors that could affect our prospective financial condition and results ofoperations.  You should read thisdiscussion together with the accompanying unaudited condensed financialstatements and notes and with our Annual Report on Form 10-K for the year endedDecember 31, 2006.  Historical resultsand any discussion of prospective results may not indicate our futureperformance.  See “Forward LookingInformation.”

We area leading stem cell therapeutic company focused on developing and marketingproducts to treat medical conditions in the inflammatory, orthopedic andcardiovascular areas.   Beginning in thefirst quarter of 2007, we began to manage our business in two operatingsegments.  Our reportable operatingsegments that are managed separately consist of our Biologic Drug Candidatesegment and our Biologic Tissue Product segment.

In ourBiologic Drug Candidate segment,  wecurrently have five clinical trials ongoing. We are currently enrollingpatients in a Phase III clinical trial for Prochymal, our lead biologic drugcandidate, for the treatment of steroid refractory Graft versus Host Disease,or GvHD. We were recently given clearance to conduct a Phase III trial usingProchymal to treat Crohn’s Disease. In addition, we have two other clinicalstage biologic drug candidates, Chondrogen for regenerating cartilage in theknee, and Provacel for repairing heart tissue following a heart attack. We havedeveloped stem cell capabilities in research and development, manufacturing,marketing and distribution. We manufacture clinical batches of our biologicdrug candidates.

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OurBiologic Tissue Product segment  producesand markets Osteocel, which was launched in July 2005 for regenerating bone in orthopedic indications.  During the first quarter of 2007, we expandedour Osteocel manufacturing facility and experienced failed productionqualification runs.  The productionissues were subsequently resolved in late March, and the expanded facility iscurrently producing product at previously projected output. We manufactureOsteocel. We, together with AlloSource, distribute Osteocel in orthopedicindications and jointly distribute Osteocel with Blackstone Medical, Inc.,a division of Orthofix International, N.V., for spinal procedures andorthopedic indications.

Wehave incurred annual operating losses since inception and expect to incursubstantial operating losses in the future in connection with the developmentof our core products. As of March 31, 2007, we had an accumulated deficit of$199.0 million.

**Financial Operations Overview**

*Revenue*

Osteocelis our only commercial product. Sales of Osteocel generated revenue ofapproximately $2.0 million for the quarter ended March 31, 2007.

Otherthan Osteocel, we have no commercial products for sale. A substantial portionof our revenue in the future will be dependent on the approval and sale of ourbiologic drug candidates. Our revenue may vary substantially from quarter toquarter and from year to year. We believe that period-to-period comparisons ofour results of operations are not meaningful and should not be relied upon asindicative of our future performance.

*Cost ofGoods Sold*

Ourcost of goods sold relate to direct costs of producing Osteocel, which welaunched in July 2005. Cost of goods sold consist primarily of the costsof obtaining tissue and other chemicals and supplies, direct labor andallocated costs of our facilities and overhead.

*Researchand Development Costs*

Ourresearch and development costs consist of expenses incurred in identifying,developing and testing biologic drug candidates and our biologic tissue product.These expenses consist primarily of salaries and related expenses forpersonnel, fees paid to professional service providers for independentmonitoring and analysis of our clinical trials, costs of contract research andmanufacturing, costs of facilities, and the costs of manufacturing clinicalbatches of biologic drug candidates, quality control supplies and material toexpand biologic drug candidates.

Consistentwith our focus on the development of biologic drug candidates with potentialuses in multiple indications, many of our costs are not attributable to aspecifically identified product. We use our employee and infrastructureresources across several projects. Accordingly, we do not account for internalresearch and development costs on a project-by-project basis. As a result, wecannot state precisely the total costs incurred for each of our clinical andpreclinical projects on a project-by-project basis. From inception throughMarch  31, 2007, we incurred aggregate research and development costs ofapproximately $194 million. We expect our research and development expenses toincrease substantially in the future, as we expand our clinical trial activity,as our biologic drug candidates advance through the development cycle and as weinvest in additional product opportunities and research programs. Clinicaltrials and preclinical studies are time-consuming and expensive. Ourexpenditures on current and future preclinical and clinical developmentprograms are subject to many uncertainties. We test our products in severalpreclinical studies, and we then conduct clinical trials for those biologicdrug candidates that we determine to be the most promising. As we obtainresults from clinical trials, we may elect to discontinue or delay trials for somebiologic drug candidates in order to focus our resources on more promisingbiologic drug candidates. Completion of clinical trials may take several yearsor more, but the length of time generally varies substantially according to thetype, size of trial and intended use of a biologic drug candidate. The cost ofclinical trials may vary significantly over the life of a project as a resultof a variety of factors, including:

·       the number of patients who participate in thetrials;

·       the number of sites included in the trials;

·       the length of time required to enroll trialparticipants;

·       the duration of patient treatment and follow-up;

·       the costs of producing supplies of the biologicdrug candidates needed for clinical trials and regulatory submissions;

·       the efficacy and safety profile of the biologicdrug candidate; and

·       the costs and timing of, and the ability tosecure, regulatory approvals.

As aresult of the uncertainties discussed above, we are unable to determine withany significant degree of certainty the duration and completion costs of ourresearch and development projects or when and to what extent we will generaterevenues from the commercialization and sale of any of our biologic drugcandidates.

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*Generaland Administrative Expenses*

Generaland administrative expenses consist primarily of the costs associated with ourgeneral management, including salaries, allocations of facilities and relatedcosts, and professional fees such as legal and accounting expenses. Inanticipation of and since the closing of our initial public offering inAugust 2006, we began to incur increases in our general and administrativeexpense for legal and accounting compliance costs, investor relations and otheractivities associated with operating as a publicly traded company. Continuedincreases will also likely result from the additional hiring of operational,financial, accounting, facilities engineering and information systemspersonnel.

*Interest and Other Income (Expense),Net*

Interestincome consists of interest earned on our cash and short-term investments.Interest expense consists of interest incurred on convertible debt, capitalleases and other debt financings. We pay interest on our bank loan, capitalleases and our convertible long-term debt.

*IncomeTaxes*

We havenot recognized any deferred tax assets or liabilities in our financialstatements since we cannot assure their future realization. Because realizationof deferred tax assets is dependent upon future earnings, a full valuationallowance has been recorded on the net deferred tax assets, which relateprimarily to net operating loss and research and development carry-forwards. Inthe event that we become profitable within the next several years, we have netdeferred tax assets of approximately $70 million that may be utilized prior tous having to recognize any income tax expense or make payments to the taxingauthorities. Utilization of our net operating loss carry-forwards in any oneyear may be limited under IRC Section 382, and we could be subject to thealternative minimum tax.

**Critical Accounting Policies**

There have been no material changes in our criticalaccounting policies, estimates and judgments during the three months endedMarch 31, 2007 compared to the disclosures in Part II, Item 7 of ourAnnual Report on Form 10-K for the year ended December 31, 2006, otherthan as disclosed herein.

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**Resultsof Operations**

*Comparison of Quarters endedMarch 31, 2007 and 2006*

*Revenue*

Totalrevenues increased 63% to $2.3 million for the three months ended March 31,2007, compared to $1.4 million in the corresponding period in 2006. Ourrevenues in 2007 resulted primarily from $2.0 million generated from thesale of Osteocel and the recognition of $0.3 million in licensing fees androyalties. In the three months ended March 31, 2006, we recognized $1.1 millionfrom the sale of Osteocel and $0.3 million in license fees and royalties.

*Cost ofGoods Sold*

Costof goods sold were $0.9 million for the three months ended March 31,2007 compared to $0.5 million in the prior year. The cost of goods soldassociated with sales of Osteocel was comprised of payments to tissue banks,direct labor costs and the costs of processing, testing and preservingOsteocel, plus allocated costs of our facilities and overhead. The gross profiton Osteocel sales for the three months ended March 31, 2007 was 55%,compared with 56% for the comparable period in 2006.

*Research and Development Expenses*

Researchand development expenses were approximately $11 million for the threemonths ended March 31, 2007 compared to $4.4 million in the prioryear. The increase in research and development expenses in 2007 reflects theincreased number of clinical trials in process versus the prior year and, to alesser degree, costs associated with the expansion of our Osteocelmanufacturing facility, as we experienced failed production qualification runswhile expanding our capacity. The production issues were subsequently resolvedin late March, and the expanded facility is currently producing product atpreviously projected output.

*Generaland Administrative Expenses*

Generaland administrative expenses were $1.5 million for the three months endedMarch 31, 2007 compared to $1.1 million in the prior year. The increase in2007 over the prior year was attributable to additional personnel and relatedcosts to support the company’s growth and costs incurred in connection withbecoming a public company.

*InterestExpense, Net*

Interestexpense, net was $0.3 million for the three months ended March 31, 2007compared to $0.5 million in the prior year.

**Liquidityand Capital Resources**

***Liquidity***

AtMarch 31, 2007, we had $1.9 million in cash and $27.6 million in short-terminvestments. In addition to the cash and short-term investments, at March 31,2007 we had drawn only $5.0 million of the $50.0 million line ofcredit available for the development of Provacel under a loan agreement witha  large pharmaceutical company. This $5.0 million draw occurred inMarch 2004. In connection with this line of credit, we have granted thepharmaceutical company a security interest in the intellectual property,equipment and books and records involved in the development, manufacture anddistribution of Provacel. The pharmaceutical company is also obligated to makeadditional investments in our Company and pay licensing fees up to$45.0 million to us upon completion of certain milestones.

Inaddition to the $5.0 million balance on the line of credit, at March 31,2007, our debt included approximately $20.0 million of convertiblepromissory notes due in 2009.

***Cash Flows***

Netcash used in operating activities was $8.6 million for the three monthsended March 31, 2007 primarily reflecting our net loss of $11.5 million,which was partially offset by $1.9 million in favorable changes in workingcapital, $0.5 million in non-cash stock-based compensation expense, and $0.4million in depreciation and amortization. Net cash used in operating activitiesfor the first quarter of 2006 was $3.9 million, primarily reflecting a net lossof $5.1 million, which was partially offset by $0.6 million in non-cashinterest expense and $0.3 million in depreciation and amortization.

Netcash provided by investing activities was $10.0 million for the three monthsended March 31, 2007. Net cash provided in investing activity for the three months ended March 31, 2006 was $4.5million. Net cash provided by investing activities in 2007 includes cash flowsfrom the sale of $10.8 million of short-term investments, partially offset bythe purchase of $0.9 million of property and equipment. In the firstquarter of 2006, we sold $4.7 million of short-term investments and hadpurchases of property and equipment of $0.2 million.

Netcash used in financing activities was $0.2 million for the three months endedMarch 31, 2007. Net cash used in financing activities was $0.2 million for thethree months ended March 31, 2006.

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***Capital Resources.***

Our future capital requirements will depend on manyfactors, including:

·             the level of cash flows from Osteocelsales;

·             the scope and results of our research andpreclinical development programs;

·             the scope and results of our clinicaltrials, particularly regarding the number of patients required for our PhaseIII trials for Prochymal;

·             the timing of and the costs involved inobtaining regulatory approvals for our biologic drug candidates, which could bemore lengthy or complex than obtaining approval for a new conventional drug,given the FDA’s limited experience with late-stage clinical trials andmarketing approval for stem cell therapeutics;

·             the costs of building and operating ourmanufacturing facilities, both in the near term to support Osteocel sales andour clinical activities and also in anticipation of expanding ourcommercialization activities;

·             the costs of maintaining, expanding andprotecting our intellectual property portfolio, including litigation costs andliabilities;

·             the costs of repaying our debt; and

·             the costs of enlarging our work forceconsistent with expanding our business and operations and status as a publiccompany, and as necessary to enhance and train our sales network inanticipation of the approval of our biologic drug candidates for commercialsale.

As aresult of these and other factors, we may need or choose to seek additionalfunding prior to our becoming cash flow positive on an operational basis. Wewould likely seek such funding through public or private financings or somecombination of them. Although not our current focus, we might also seek fundingthrough collaborative arrangements if determined to be necessary orappropriate. Additional funding may not be available to us on acceptable terms,or at all. If we obtain capital through collaborative arrangements, thesearrangements could require us to relinquish rights to our technologies orbiologic drug candidates. If we raise capital through the sale of equity, orsecurities convertible into equity, dilution to our then existing stockholderswould result. If we raise additional capital through the incurrence of debt, wewould likely become subject to covenants restricting our business activities,and holders of debt instruments would have rights and privileges senior tothose of our equity investors. In addition, servicing the interest andrepayment obligations under these borrowings would divert funds that wouldotherwise be available to support research and development, clinical orcommercialization activities.

If weare unable to obtain adequate financing on a timely basis, we may be requiredto delay, reduce the scope of or eliminate one or more of our programs, any ofwhich could have a material adverse effect on our business, financial conditionand results of operations.

Weexpect that our available cash and interest income, including the availabilityunder our line-of-credit, will be sufficient to finance currently plannedactivities through early 2008. These estimates are based on certainassumptions, which could be negatively impacted by the matters discussed under “RiskFactors” in our Annual Report on Form 10-K.

Ifadequate funds are not available, we may be required to delay, reduce the scopeof, or eliminate one or more of our research and development programs, whichmay have a material adverse affect on our business, financial condition andresults of operations. See “Risk Factors” in our Annual Report on Form 10-K.

**Off-BalanceSheet Arrangements.**

Wehave no off-balance sheet financing arrangements and we have not entered intoany transactions involving unconsolidated subsidiaries or special purposeentities.

**Item3.****               Quantitative and Qualitative Disclosures About Market Risk**

Due tothe short duration of our investment portfolio and the high quality of ourinvestments, an immediate 10% change in interest rates would not have amaterial effect on the fair market value of our portfolio. Therefore, we wouldnot expect our operating results or cash flows to be affected to anysignificant degree by the effect of a sudden change in market interest rates onour securities portfolio.

Webelieve that the interest rate risk related to our accounts receivable is notsignificant. We manage the risk associated with these accounts through periodicreviews of the carrying value for non-collectability and establishment ofappropriate allowances in connection with our internal controls and policies.

We do notenter into hedging or derivative instrument arrangements.

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**Item4.****               Controls and Procedures**

***Evaluation ofDisclosure Controls and Procedures.*** An evaluation of theeffectiveness of the design and operation of our “disclosure controls and procedures”(as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, asamended), as of the end of the period covered by this Quarterly Report on Form10-Q was made under the supervision and with the participation of ourmanagement, including our Chief Executive Officer and Chief Financial Officer.Based upon this evaluation, our Chief Executive Officer and Chief FinancialOfficer have concluded that our disclosure controls and procedures (a) areeffective to ensure that information required to be disclosed by us in reportsfiled or submitted under the Securities Exchange Act of 1934 is timelyrecorded, processed, summarized and reported and (b) include, withoutlimitation, controls and procedures designed to ensure that information requiredto be disclosed by us in reports filed or submitted under the SecuritiesExchange Act of 1934 is accumulated and communicated to our management,including our Chief Executive Officer and Chief Financial Officer, asappropriate to allow timely decisions regarding required disclosure.

***Changes in InternalControl over Financial Reporting.*** There have not been anychanges in our internal control over financial reporting that occurred duringthe quarter ended March 31, 2007 that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

 

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**PARTII — OTHER INFORMATION**

**Item1.****               Legal Proceedings**

From time to time, we receive threats or may besubject to routine litigation matters related to our business. However, we arenot currently a party to any material pending legal proceedings.

**Item1A.****            Risk Factors**

There have not been any material changes in the riskfactors previously disclosed under the heading “Risk Factors” in Part I — Item1A of our Annual Report on Form 10-K, filed with the Securities and ExchangeCommission on March 26, 2007.

**Item 2.****               Unregistered Sales of Equity Securities and Use of Proceeds**

On August 4, 2006, we sold 3,500,000 shares of our common stock in ourinitial public offering at the price to the public of $11.00 per share.  The offer and sale of all of the shares inthe offering were registered under the Securities Act of 1933, as amended,pursuant to a registration statement on Form S-1 (File No.333-13407), which was declared effective by the Securities and ExchangeCommission on August 3, 2006.  Theunderwriters of the offering were Jefferies & Company, Inc., Lazard CapitalMarkets, LLC and Leerink Swann & Co., Inc. There were no selling stockholders in the offering.

We registered3,500,000 shares of our common stock in connection with the initial publicoffering and the aggregate offering amount was $38.5 million.  We paid approximately $2.7 million inunderwriting discounts and commissions to the underwriter.  We also incurred other expenses in connectionwith the offering of approximately $1.4 million, including registration fees,accounting and legal, printing and engraving and other expenses.

None of theunderwriting discounts and commissions or offering expenses were incurred orpaid to directors or officers of ours or their associates, to persons owning 10percent or more of our common stock or to any affiliates or ours.  After deducting the underwriting discountsand commissions and these other estimated offering expenses, our net proceedsfrom the offering were approximately $34.4 million.  We deposited the net proceeds in two highlyrated financial institutions in the United States.

There has been nomaterial change in our planned use of proceeds from our initial public offeringas described in our final prospectus filed with the Securities and ExchangeCommission pursuant to Rule 424(b).   Between August 4, 2006 and March 31, 2007, we used approximately $15.0million of the net proceeds to fund our operating activities, includingactivities relating to the development of our biologic drug candidates and forworking capital, capital expenditures, repayment of debt and other generalcorporate purposes.  During this period,our research and development expenses comprised approximately 91% of ouroperating expenses.  The remainingapproximately $19.4 million in net proceeds remains on deposit in two highlyrated financial institutions in the United States.  At March 31, 2007, we had $29.5 million incash and short-term investments.

**Item3.****               Defaults Upon Senior Securities**

None

**Item4.****               Submission of Matters to a Vote of Security Holders**

None

**Item5.****               Other Information**

Since August 2006, we have subleased approximately61,000 square feet of additional space in Columbia, Maryland. We continue tolease 118,000 square feet of space in Baltimore, Maryland, but have beenworking to transition our principal executive offices from Baltimore toColumbia, Maryland.  We have completedthis transition, and as reflected on the cover page of this Quarterly Report onForm 10-Q, our principal executive offices are now located at 7015 AlbertEinstein Drive, Columbia, Maryland 21046. Our biologic tissue productmanufacturing facilities remain at the Baltimore location.

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**Item6.****               Exhibits**
| Exhibit  Number | ** ** | **Description of Exhibit**                                                                                                                                                                     |
|-----------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                                                           |
| 31.1            |       | Certification of Principal Executive Officer  pursuant to Rule 13a-14(a) and 15D-14(a) under the Securities Exchange Act of  1934, as amended (Section 302 of the Sarbanes-Oxley Act of 2002). |
|            |       |                                                                                                                                                                                           |
| 31.2            |       | Certification of Principal Financial Officer  pursuant to Rule 13a-14(a) and 15D-14(a) under the Securities Exchange Act of  1934, as amended (Section 302 of the Sarbanes-Oxley Act of 2002). |
|            |       |                                                                                                                                                                                           |
| 32              |       | Certification of Principal Executive Officer and  Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.       |

 

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The certification attached as Exhibit 32 thataccompanies this Quarterly Report on Form 10-Q is not deemed filed with theSecurities and Exchange Commission and is not to be incorporated by referenceinto any filing of Osiris Therapeutics, Inc. under the Securities Act of 1933,as amended, or the Securities Exchange Act of 1934, as amended, whether madebefore or after the date of this Quarterly Report on Form 10-Q, irrespective ofany general incorporation language contained in such filing.

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**SIGNATURE**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                     | ** ** | **Osiris Therapeutics, Inc.** |
|---------------------|------------|-------------------------------|
|                | ** ** | ** **                    |
|                |       |                          |
| Date: May 14,  2007 |       | /s/ Cary J. Claiborne         |
|                |       | Cary J. Claiborne             |
|                |       | Chief Financial Officer       |

 

 

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