Table of Contents

As filed with the Securities and Exchange Commission on May 22, 2007

Registration No. 333-            

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

AMEDICA CORPORATION

(Exact name of registrant as specified in its charter)

615 Arapeen Drive

Suite 302

Salt Lake City, Utah 84108

(801) 583-5100

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

Ashok C. Khandkar, Ph.D.

Chief Executive Officer

Amedica Corporation

615 Arapeen Drive

Suite 302

Salt Lake City, Utah 84108

(801) 583-5100

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

With copies to:

Approximate date of commencement of proposed sale to public:    As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering.  ¨

CALCULATION OF REGISTRATION FEE

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

Table of Contents

The Information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell securities, and we are not soliciting offers to buy these securities, in any state where the offer or sale is not permitted.

PROSPECTUS (Subject to Completion)

Issued May 22, 2007

                     Shares

COMMON STOCK

Amedica Corporation is offering              shares of its common stock. This is our initial public offering and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $             and $             per share.

We have applied to have our common stock approved for listing on The NASDAQ Global Market under the symbol “AMCA.”

Investing in our common stock involves risks. See “ Risk Factors” beginning on page 9.

PRICE  $             A SHARE

We have granted the underwriters the right to purchase up to an additional              shares of common stock to cover over-allotments.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares to purchasers on or about                     , 2007.

                    , 2007

Table of Contents

TABLE OF CONTENTS

You should rely only on the information contained in this prospectus or contained in any free writing prospectus that we may authorize to be delivered to you. We have not, and the underwriters have not, authorized any other person to provide you with information different from, or in addition to, that contained in this prospectus or any related free writing prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus or any related free writing prospectus is accurate only as of its date, regardless of the time of its delivery, or of any sale of common stock.

Through and including                     , 2007 (25 days after the date of this prospectus), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

Table of Contents

PROSPECTUS SUMMARY

This summary highlights what we believe are the most important features of this offering and the information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including “Risk Factors” and our financial statements and the related notes included in this prospectus. Unless the context requires otherwise, references to “Amedica,” “we,” “our” and “us” in this prospectus refer to Amedica Corporation.

AMEDICA CORPORATION

Overview

We are an orthopedic implants company focused on using our silicon nitride ceramic technologies to develop, manufacture and commercialize a broad range of advanced, high-performance spine and joint implants. We have developed a formulation of silicon nitride which we believe has the strength, toughness and wear resistance necessary to overcome the limitations of currently available orthopedic implants. Upon introduction to market, our implants will represent the first commercial use of silicon nitride ceramics in orthopedic applications and will have the potential to provide an improved combination of characteristics, including substantially greater strength and resistance to fracture, superior resistance to wear, greater ability to promote bone attachment, and better compatibility with surgical and diagnostic imaging. Based on these potential advantages, we believe that our silicon nitride product candidates will achieve better long-term clinical outcomes due to their enhanced durability, longevity, biocompatibility and patient fit. As a result, we intend to establish our silicon nitride implants as new standards of care for the largest and fastest growing orthopedic implant markets: the spine, hip and knee markets.

Our lead product candidates under development are our Valeo^TM family of spinal implants, which will be used to restore and maintain the alignment of vertebrae in the cervical, or neck region, and lumbar, or lower back region, of the spine. We expect to launch these product candidates by mid-2008, subject to clearance by the U.S. Food and Drug Administration, or the FDA. In 2006, we received clearance from the FDA for the first ever ceramic spinal spacer for insertion between two vertebrae to help stabilize the spine, which will be the predicate device for the first of our product candidates that we intend to commercialize. We plan to introduce additional spinal spacers by the end of 2008, subject to regulatory clearance, including cortico-cancellous spacers that feature a bone-like structure with a solid, or cortical, load-bearing portion and a cancellous, or porous, structure that is intended to promote bone attachment for secure spinal fixation. Subsequently, subject to regulatory approval, we plan to introduce cortico-cancellous spinal spacers with a surface coating designed to further enhance bone attachment. Our Valeo family of spinal implant candidates also includes an all-ceramic, motion-preserving cervical disc, for which we anticipate commencing a clinical trial by mid-2009. In addition, we are incorporating our silicon nitride ceramic technology into the development of our Infinia^TM family of total hip and knee implants. We anticipate commencing a clinical trial for our first total hip implant product candidate in 2009.

During the past two years, we have been developing our own manufacturing facility and processes that will provide us the ability to control the commercial-scale production of our silicon nitride ceramic implants from powder form to devices ready for sterilization and packaging. We are currently producing our lead ceramic spinal product candidates on a pilot scale in our manufacturing facility. We anticipate our facility will be fully operational for commercial-scale production by the end of 2007, which we believe would make us the only vertically integrated silicon nitride orthopedic implant manufacturer in the world.

1

Table of Contents

2

Table of Contents

3

Table of Contents

4

Table of Contents

Risks Associated with Our Business

Our business is subject to a number of risks that you should be aware of before making an investment decision. These risks are discussed more fully in the section of this prospectus entitled “Risk Factors.” We have not received regulatory clearance or approval to commercialize our Valeo or Infinia product candidates for any intended use. If we are unable to successfully develop, receive regulatory clearance for and commercialize our implant products, we may never generate revenue or be profitable and may have to cease operations. We have a limited operating history and no products in commercial distribution. To date, our only significant revenue has been from research grants from the National Institutes of Health and with the exception of a small net income for the years ended December 31, 2002 and 1999, we have incurred net losses in each year since our inception. Our ability to expand the use of our ceramic technologies may be limited by a number of factors, including intellectual property held by other parties. Our competitors and potential competitors include much larger companies with more resources and commercialization experience than we have. We have generated no revenues from operations, and as of March 31, 2007, we had an accumulated deficit during the development stage of $18.2 million. We expect to continue to incur additional, and possibly increasing, losses through at least the end of 2010.

Corporate Information

We were incorporated in Delaware in 1996 under the name Amedica Corp. and have since changed our name to Amedica Corporation. Our principal executive offices are located at 615 Arapeen Drive, Suite 302, Salt Lake City, Utah 84108, and our telephone number is (801) 583-5100. Our web site address is www.amedicacorp.com. The information on, or that may be accessed through, our web site is not incorporated by reference into this prospectus and should not be considered a part of this prospectus. As used in this prospectus, references to “we,” “our,” “us” and “Amedica” refer to Amedica Corporation unless the context requires otherwise.

Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

We have applied for federal registration of the marks “Altia”, “AMCA”, “Amedica”, “C^SC”, “Improving Function. Enhancing Lives.”, “Infinia”, “Infinite Possibility”, “MC²”, and “Valeo”. All other trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners.

5

Table of Contents

THE OFFERING

The information above is based on 8,678,995 shares of common stock outstanding as of May 1, 2007, and assumes the conversion of all of our preferred stock outstanding as of May 1, 2007, into 31,856,558 shares of common stock upon the completion of this offering. It does not include:

Unless otherwise indicated, all information contained in this prospectus:

6

Table of Contents

7

Table of Contents

8

Table of Contents

RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully read and consider the risks described below, as well as the other information in this prospectus, including our financial statements and the related notes, before deciding to invest in our common stock. If any of the following risks occur, our business, financial condition, results of operations or cash flows could be materially harmed. In that case, the trading price of our common stock could decline, and you could lose all or part of your investment.

Risks Related to Our Business and Strategy

We are an early stage company with no product revenues, and if we fail to execute effectively on all elements of our business plan, we may not succeed in our goal of becoming a profitable orthopedic implants company.

We have not yet commercialized any products, we do not expect to introduce any of our lead product candidates until 2008 and we do not anticipate introducing one of our lead spinal spacer product candidates until the second half of 2008. We do not expect to start clinical trials of the earliest of our pipeline products before the first half of 2009. There is no assurance that we will succeed in bringing any of our product candidates to market. In order to succeed in our commercialization efforts, we must execute effectively on all elements of our business plan, including product development and testing, obtaining regulatory clearances and approvals, establishing our sales and marketing capabilities, and developing certified, validated and effective commercial-scale manufacturing operations. If we fail in any of these endeavors, or experience delays in pursuing them, we will not generate revenues as planned and will need to curtail operations or seek additional financing earlier than otherwise anticipated.

Our near-term success depends substantially on our ability to obtain regulatory clearance or approval and thereafter commercialize our most advanced spinal implant product candidates; we cannot be certain that we will be able to do so in a timely fashion or at all.

The process of obtaining regulatory clearances or approvals to market a medical device from the U.S. Food and Drug Administration, or the FDA, or similar regulatory authorities outside of the United States can be costly and time consuming, and there can be no assurance that such clearances or approvals will be granted on a timely basis, or at all. The FDA’s 510(k) clearance process generally takes one to six months from submission, depending on whether a Special or traditional 510(k) premarket notification has been submitted, but can take significantly longer. An application for premarket approval, or PMA, must be submitted to the FDA if the device cannot be cleared through the 510(k) clearance process or is not exempt from premarket review by the FDA. The PMA process almost always requires one or more clinical trials and can take two to three years from the date of filing, or even longer. In some cases, including in the case of our Inifinia Total Hip Implant, the FDA has indicated that it will require clinical data as part of the 510(k) process.

Our regulatory strategy is to try to accelerate market introduction of our most advanced product candidates by submitting either a traditional or a Special 510(k). We currently intend to seek Special 510(k) clearance for certain of our lead spinal implant products under development. We expect to submit a 510(k) for our Infinia Total Hip Implant, which will include our ceramic femoral head, and we anticipate that the FDA will require clinical trials in support of this 510(k) as well as for our applications through the PMA process for the rest of our pipeline product candidates.

There is no certainty, however, that any of our lead product candidates, particularly those incorporating silicon nitride ceramic materials, will be cleared by the FDA by means of either a traditional or a Special 510(k). In correspondence relating to a 510(k) we submitted for spinal product candidates we were developing using zirconia-toughened alumina, the FDA raised a number of questions that are potentially applicable to several of our current spinal product candidates, including our lead product candidates incorporating silicon nitride ceramic materials, and which could result in our having to perform additional studies. While we believe that our current product candidates incorporating silicon nitride ceramic materials differ significantly from our previous product

9

Table of Contents

candidates employing zirconia-toughened alumina, we cannot assure you that the FDA will not raise similar questions regarding our current spinal product candidates. If the FDA takes a similar position regarding our product candidates incorporating silicon nitride ceramic materials, our ability to bring our lead products to market could be delayed and we can give no assurance that we would ultimately receive marketing approval.

Even if the FDA permits us to use the 510(k) clearance process, we cannot assure you that the FDA will not require either supporting data from laboratory tests or studies that we have not conducted, or substantial supporting clinical data. If we are unable to use the 510(k) clearance process for any of our lead product candidates, are required to provide clinical data or laboratory data that we do not possess to support our 510(k) premarket notifications for any of these product candidates, or otherwise experience delays in obtaining or fail to obtain regulatory clearances, the commercialization of our most advanced product candidates will be delayed or prevented, which will adversely affect our ability to generate revenues. It also may result in the loss of potential competitive advantages that we might otherwise attain by bringing our products to market earlier than our competitors. Any of these contingencies could adversely affect our business.

Even if we succeed in obtaining FDA clearance or approvals for our lead product candidates and pipeline product candidates within the time frames we anticipate, our products may not be commercially successful.

Even if we receive regulatory clearances or approvals for our lead product candidates and pipeline product candidates, our product candidates may not gain market acceptance among orthopedic surgeons and the medical community. Orthopedic surgeons may elect not to use our products for a variety of reasons, including:

If orthopedic surgeons do not perceive our implant products as attractive alternatives to existing products, we will not be able to generate significant revenues, if any.

The orthopedic implant market is highly competitive and we may not be able to compete effectively against the larger, well-established companies that dominate this market or emerging and small innovative companies that may seek to obtain or increase their share of the market.

The markets for spine, hip and knee implant products are intensely competitive, and many of our competitors are much larger and have substantially more financial and human resources than we do. Many have long histories and strong reputations within the industry, and a relatively small number of companies dominate these markets. For example, in 2006, Medtronic Spinal and Biologics, a subsidiary of Medtronic, Inc.; Synthes, Inc.; DePuy Spine, Inc., a subsidiary of Johnson & Johnson; Stryker Spine, a division of Stryker Corporation; Biomet Spine and Biomet Trauma, a subsidiary of Biomet, Inc.; and Zimmer Spine, a subsidiary of Zimmer Holdings, Inc., accounted for over 80% of spine implant sales worldwide. In the hip and knee implant market, Zimmer Holdings, Inc.; DePuy Orthopaedics, Inc., a subsidiary of Johnson & Johnson; Stryker Orthopaedics, a division of Stryker Corporation; Biomet, Inc.; and Smith & Nephew Orthopaedics, a subsidiary of Smith & Nephew plc, accounted for over 80% of sales worldwide.

10

Table of Contents

These companies enjoy significant competitive advantages over us, including:

Even if we successfully introduce implant products to market based on our ceramic materials, we may not succeed in overcoming the competitive advantages of these large and dominant orthopedic implant companies. In addition, emerging and small innovative companies may seek to increase their market share and they may later possess competitive advantages, which could also impact our business even if we successfully introduce implant products based on our ceramic materials. Moreover, many other companies are seeking to develop ceramic-based implant products, and these companies may introduce products which compete effectively against our products in terms of performance, price or both.

If we are unable to establish a sales and marketing infrastructure and enter into suitable arrangements with independent sales agencies, we will not be able to commercialize our product candidates.

Upon FDA clearance, we intend to market and sell our lead spinal products in the United States using a hybrid distribution network that includes a combination of experienced, independent sales agents with strong, existing surgeon relationships and a direct sales force in selected markets. A similar hybrid sales force will also be used to market our hip and knee reconstructive products. We have not yet established an internal sales organization, and we will need to recruit and train sales and marketing personnel in time for the launch of our most advanced product candidates, as well as expand our marketing capabilities as we grow our business. The establishment of our sales force will be expensive and time consuming, and we cannot assure you that we will be able to recruit and train a sufficient number of experienced and effective sales personnel on a timely basis.

In addition, we cannot assure you that we will succeed in entering into productive arrangements with an adequate number of sales agencies that are sufficiently dedicated to selling our products. The establishment of a network of sales agencies is expensive and time consuming. Furthermore, many potential sales agencies will market and sell the products of our competitors. Even if these sales agencies agree to market and sell our products, our competitors may be able, by offering higher commission payments or other incentives, to persuade these sales agencies to reduce or terminate their sales and marketing efforts of our products. Even if we enter into agreements with independent sales agencies, they may not generate revenue as quickly as we expect them to, commit the necessary resources to effectively market and sell our products, or ultimately succeed in selling our products. If we are not successful in building an effective external sales and marketing network to complement our internal sales force, we will have difficulty commercializing our product candidates, which would adversely affect our business and financial condition.

11

Table of Contents

We are in the process of establishing our own certified manufacturing facility and validating of our manufacturing processes to produce our silicon nitride-based implant products, and we may not be successful in developing the necessary commercial-scale manufacturing processes, facilities and capabilities.

Prior to March 2006, we utilized an internal pilot manufacturing facility to produce prototypes of some of our ceramic product candidates, and we used third parties to produce components of some of our other ceramic product candidates, such as silicon nitride ball blanks for femoral heads. We are currently in the process of developing internal manufacturing operations, and we will need to continue our efforts to develop scaled-up processes, equip our facility and recruit and train manufacturing personnel before the commercial launch of our lead implant products. We anticipate our facility becoming fully operational for commercial-scale production by the end of 2007. Although we have received an International Standards Organization, or ISO, certification for our facility from the British Standards Institution, our facilities are yet to be inspected by the FDA. In addition to developing and working to scale-up a process for the manufacture of our silicon nitride ceramic products, we are also currently verifying a manufacturing process for our implant products that incorporate features of our C^SC technology. We cannot assure you that we will be able to establish commercial-scale production of our products using cost-effective, reliable processes in facilities that meet applicable regulatory requirements. If we are unable to manufacture our products with consistent and satisfactory quality, at competitive costs, and sufficient quantities to meet demand, any of these circumstances may cause us to delay the introduction of our products or, once our products are introduced, may cause hospitals and surgeons to refrain from placing orders for them.

If we fail to comply with the FDA’s quality system regulation, the manufacture of our products could be delayed or interrupted and our products may be subject to product recalls.

We will be required to comply with the FDA’s quality system regulation, or QSR, which covers, among other things, the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of our products. The FDA monitors compliance with the QSR through inspections of manufacturing facilities. If we are determined not to be in compliance or if any corrective action plan is not sufficient, we could be prevented or forced to delay the manufacture of our products, which could have a material adverse effect on our business, financial condition and results of operations. Moreover, after we have introduced products, any failure to maintain QSR compliance could force us to cease the manufacture of our products and subject us to other enforcement sanctions, including withdrawal of our products from the market, and delay or interrupt the manufacture of additional products.

We are in the process of developing a cost-effective process for the manufacture of our products based on our C^SC technology, and if we are unable to implement such a process on a timely basis, we will experience delays in the introduction of our implant products that incorporate our C^SC technology.

We are in the process of implementing an exclusively licensed process for the manufacture of our product candidates that will incorporate our C^SC technology. We cannot assure you that we will succeed in our process implementation efforts for the manufacture of our product candidates that will incorporate our C^SC technology. Delays in achieving a cost-effective and reliable process for commercial-scale production of implant products that incorporate our C^SC technology could impede the introduction of those product candidates and would adversely affect our business.

We depend on a limited number of third-party suppliers for key raw materials used in our manufacturing processes, and the loss of these third-party suppliers or their inability to supply us with adequate raw materials could harm our business.

We rely on a limited number of third-party suppliers for the raw materials required for the production of our implant products that will be made using silicon nitride, and we currently are developing arrangements with secondary sources for these raw materials. Our dependence on a limited number of third-party suppliers and the challenges we may face in obtaining adequate supplies of raw materials involve several risks, including limited

12

Table of Contents

control over pricing, availability, quality, and delivery schedules. We cannot be certain that our current suppliers will continue to provide us with the quantities of these raw materials that we require or satisfy our anticipated specifications and quality requirements. Any supply interruption in limited or sole sourced raw materials could materially harm our ability to manufacture our products until a new source of supply, if any, could be identified and qualified. Although we believe there are other suppliers of these raw materials, we may be unable to find a sufficient alternative supply channel in a reasonable time or on commercially reasonable terms. Any performance failure on the part of our suppliers could delay the development and commercialization of our implant products, including limiting supplies necessary for clinical trials and regulatory approvals, or interrupt production of then existing products that are already marketed, which would have a material adverse effect on our business.

If hospitals and other healthcare providers are unable to obtain coverage and adequate payments for procedures performed with our products, it is unlikely our products will be widely used.

Successful sales of our products will depend on the availability of coverage and adequate payments from third-party payors, including government programs such as Medicare and Medicaid, private insurance plans and managed care programs for procedures utilizing our future products. Hospitals and other healthcare providers that purchase orthopedic implant products for treatment of their patients generally rely on third-party payors to pay for all or part of the costs and fees associated with the procedures performed with or utilizing these devices. The existence of coverage and adequate payments for our products and the procedures performed with them by government and private insurance plans are central to acceptance of our lead and pipeline products. Many private payors currently base their reimbursement policies on the coverage decisions and payment amounts determined by the Centers for Medicare and Medicaid Services, or CMS, which administers the Medicare program. Others may adopt different coverage or payment policies for procedures performed with our products, while some governmental programs, such as Medicaid, have reimbursement policies that vary from state to state, some of which may not pay for the procedures performed with our products in an adequate amount, if at all. Our success may also be impacted by future action by CMS or other government agencies aimed at limiting payments to physicians, outpatient centers and hospitals. Additionally, as the portion of the U.S. population eligible for Medicare continues to grow, we will be more vulnerable to reimbursement limitations imposed by Medicare. For example, in 2006 CMS issued a national coverage decision denying Medicare coverage for DePuy’s CHARITE^™ prosthetic intervertebral disc implant for patients over 60 years old. Also, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek to control healthcare costs by paying service providers lower rates. Therefore, we cannot be certain that our products or the procedures performed with them will be covered or adequately reimbursed and thus we may be unable to sell our products profitably if third-party payors deny coverage or reduce their levels of payment below that which we project, or if our production costs increase at a greater rate than payment levels.

In addition, future reimbursement may be subject to international regulatory approval requirements and increased restrictions in international markets. Medical device regulatory requirements and healthcare payment systems vary significantly from country to country, and each country’s health care system may include both government sponsored healthcare and private insurance. Many countries have also instituted price ceilings on specific product lines. Any failure to receive regulatory and reimbursement approvals would negatively impact market acceptance of our products in any other international markets in which those approvals are sought.

We are dependent on our senior management team, engineering team, sales and marketing team and key surgeon advisors, and the loss of any of them could harm our business.

We have not entered into employment agreements with any of the members of our senior management team, and, therefore, there are no assurances that the services of any of these individuals will be available to us for any specified period of time. The loss of members of our senior management team, sales and marketing team, engineering team and key surgeon advisors, or our inability to attract or retain other qualified personnel or advisors could have a material adverse effect on our business, financial condition and results of operations.

13

Table of Contents

Risks Related to Regulatory Approval of Our Products and Other Government Regulations

The safety of our products is not yet supported by any long-term clinical data, and they may prove to be less safe and effective than our laboratory data indicate.

We intend to seek clearance or approval for each of our lead and pipeline product candidates through the FDA’s 510(k) or PMA process depending on the product candidate. The 510(k) clearance process is based on the FDA’s agreement that a new product candidate is substantially equivalent to an already marketed product for which a PMA was not required and requires little or no additional supporting clinical data. Long-term clinical data or marketing experience obtained after clearance may indicate that our products cause unexpected complications or other unforeseen negative effects. If this happens, we could be subject to the withdrawal of our marketing clearance and other enforcement sanctions by the FDA, product recalls, significant legal liability, significant negative publicity, damage to our reputation and a dramatic reduction in our ability to sell our products, any one of which would have a material adverse effect on our business, financial condition and results of operations.

We expect to be required to conduct clinical trials for our pipeline product candidates. We have no experience conducting clinical trials, they may proceed more slowly than anticipated, and we cannot be certain that our products will be shown to be safe and effective for human use.

In order to commercialize our pipeline product candidates, we must submit a PMA for most of these product candidates, which will require us to conduct clinical trials. Even though we plan to seek FDA clearance of our pipeline Infinia Total Hip Implant product through the 501(k) process, the FDA has indicated that it expects us to conduct a clinical trial in support of our 510(k). We will receive approval from the FDA to commercialize pipeline products requiring a clinical trial only if we can demonstrate to the satisfaction of the FDA, in well-designed and properly conducted clinical trials, that our product candidates are safe and effective and otherwise meet the appropriate standards required for approval for specified indications. Clinical trials are complex, expensive, time consuming, uncertain and subject to substantial and unanticipated delays. Before we may begin clinical trials, we must submit and obtain approval for an investigational device exemption, or IDE, that describes, among other things, the manufacture of, and controls for, the device and a complete investigational plan. Clinical trials generally involve a substantial number of patients in a multi-year study. We may encounter problems with our clinical trials and any of those problems could cause us or the FDA to suspend those trials, or delay the analysis of the data derived from them.

A number of events or factors, including any of the following, could delay the completion of our clinical trials in the future and negatively impact our ability to obtain FDA approval for, and to introduce a particular pipeline product candidate:

14

Table of Contents

Our clinical trials may not begin as planned, may need to be redesigned, and may not be completed on schedule, if at all. Delays in our clinical trials may result in increased development costs for our product candidates, which could cause our stock price to decline and limit our ability to obtain additional financing. In addition, if one or more of our clinical trials are delayed, competitors may be able to bring products to market before we do, and the commercial viability of our product candidates could be significantly reduced.

Once our products are commercialized, we and our independent sales agents must comply with various federal and state anti-kickback, self-referral, false claims and similar laws, any breach of which could cause a material adverse effect on our business, financial condition and results of operations.

Once our products are commercialized, our relationships with surgeons, hospitals and the marketers of our products will become subject to scrutiny under various federal anti-kickback, self-referral, false claims and similar laws, often referred to collectively as healthcare fraud and abuse laws. Healthcare fraud and abuse laws are complex, and even minor, inadvertent violations can give rise to claims that the relevant law has been violated. Possible sanctions for violation of these fraud and abuse laws include monetary fines, civil and criminal penalties, exclusion from federal and state healthcare programs, including Medicare, Medicaid, Veterans Administration health programs, workers’ compensation programs and TRICARE (the healthcare system administered by or on behalf of the U.S. Department of Defense for uniformed services beneficiaries, including active duty and their dependents, retirees and their dependents), and forfeiture of amounts collected in violation of such prohibitions. Certain states in which we intend to market our products have similar fraud and abuse laws, imposing substantial penalties for violations. Any government investigation or a finding of a violation of these laws would likely result in a material adverse effect on the market price of our common stock, as well as our business, financial condition and results of operations.

Anti-kickback laws and regulations prohibit any knowing and willful offer, payment, solicitation or receipt of any form of remuneration in return for the referral of an individual or the ordering or recommending of the use of a product or service for which payment may be made by Medicare, Medicaid or other government-sponsored healthcare programs. We have entered into consulting agreements and product development agreements with surgeons, including some who may make referrals to us or order our products after our products are introduced to market. In addition, some of these surgeons own our stock, which they purchased in arms’ length transactions on terms identical to those offered to non-surgeons, or received stock options from us as consideration for consulting services performed by them. Other surgeons may be offered shares as part of this offering under our directed share program as described in the “Underwriters” section of this prospectus. While these transactions were structured with the intention of complying with all applicable laws, including the federal ban on physician self-referrals, commonly known as the “Stark Law,” state anti-referral laws and other applicable anti-kickback laws, it is possible that regulatory or enforcement agencies or courts may in the future view these transactions as prohibited arrangements that must be restructured or for which we would be subject to other significant civil or criminal penalties, or prohibit us from accepting referrals from these surgeons. Because our strategy relies on the involvement of surgeons who consult with us on the design of our product candidates, we could be materially impacted if regulatory or enforcement agencies or courts interpret our financial relationships with our surgeon advisors who refer or order our products to be in violation of applicable laws and determine that we would be unable to achieve compliance with such applicable laws. This could harm our reputation and the reputations of our surgeon advisors. In addition, the cost of non-compliance with these laws could be substantial since we could be subject to monetary fines and civil or criminal penalties, and we could also be excluded from federally-funded healthcare programs, including Medicare and Medicaid, for non-compliance.

The scope and enforcement of all of these laws is uncertain and subject to rapid change, especially in light of the lack of applicable precedent and regulations. There can be no assurance that federal or state regulatory or

15

Table of Contents

enforcement authorities will not investigate or challenge our current or future activities under these laws. Any investigation or challenge could have a material adverse effect on our business, financial condition and results of operations. Any state or federal regulatory or enforcement review of us, regardless of the outcome, would be costly and time consuming. Additionally, we cannot predict the impact of any changes in these laws, whether these changes are retroactive or will have effect on a going-forward basis only.

We face significant uncertainty in the industry due to government healthcare reform.

Political, economic and regulatory influences are subjecting the healthcare industry to fundamental changes. Reforms under consideration in the United States include mandated basic healthcare benefits, controls on healthcare spending, increases in insurance premiums and increased out-of-pocket requirements for patients, the creation of large group purchasing organizations that aim to reduce the costs of products that their member hospitals consume, and significant modifications to the healthcare delivery system. We anticipate that the U.S. Congress and state legislatures will continue to review and assess alternative healthcare delivery systems and payment methods. Due to uncertainties regarding the ultimate features of reform initiatives and the timing of their enactment and implementation, we cannot predict which, if any, of such reform proposals will be adopted, when they may be adopted or what impact reform initiatives may have on us.

Risks Related to Our Intellectual Property and Litigation

If the combination of patents, trade secrets and contractual provisions that we rely on to protect our intellectual property is inadequate, our ability to commercialize our orthopedic implants successfully will be harmed, and we may not be able to operate our business profitably.

Our success depends significantly on our ability to protect our proprietary rights to the technologies incorporated in our products. We currently have four issued U.S. patents, twelve pending U.S. patent applications, and ten pending foreign patent applications. We rely on a combination of patent protection, trade secret laws and nondisclosure, confidentiality and other contractual restrictions to protect our proprietary technology. However, these may not adequately protect our rights or permit us to gain or keep any competitive advantage.

The issuance of a patent is not conclusive as to its scope, validity or enforceability. The scope, validity or enforceability of our issued patents can be challenged in litigation or proceedings before the U.S. Patent and Trademark Office, or the USPTO. In addition, our pending patent applications include claims to numerous important aspects of our products under development that are not currently protected by any of our issued patents. We cannot assure you that any of our pending patent applications will result in the issuance of patents to us. The USPTO may deny or require significant narrowing of claims in our pending patent applications. Patents issued as a result of the pending patent applications, if any, may not provide us with significant commercial protection or be issued in a form that is advantageous to us. Proceedings before the USPTO could result in adverse decisions as to the priority of our inventions and the narrowing or invalidation of claims in issued patents. The laws of some foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States, if at all.

Our competitors may successfully challenge and invalidate or render unenforceable our issued patents, including any patents that may issue in the future, which could prevent or limit our ability to market our products and could limit our ability to stop competitors from marketing products that are substantially equivalent to ours. In addition, competitors may be able to design around our patents or develop products that provide outcomes that are comparable to our products but that are not covered by our patents.

We also rely on an exclusive license from Dytech Corporation Ltd., or Dytech, for rights under three patents relating to a manufacturing process that can be used to implement our C^SC technology. Our exclusive license from Dytech will be in effect for as long as we continue to have payment obligations to Dytech under the license,

16

Table of Contents

unless the license is earlier terminated on account of a continuing material violation of the license agreement. In the event of an early termination, we would not be able to rely on Dytech’s patents for the manufacturing process for the implementation of our C^SC technology, and our ability to manufacture and commercialize our products incorporating this technology would be significantly impacted in an adverse manner.

Further, in the event that we are not able to commercialize a product or product candidate incorporating the licensed technology from Dytech within three years of the effective date of the agreement, or December 20, 2009 (or four years in the event clinical trials are required for FDA clearance, or December 20, 2010), Dytech will have the right, upon thirty days prior written notice to us, to convert the exclusive license into a non-exclusive license. In the event that our exclusive license is converted into a non-exclusive license, other competitors may be able to obtain licenses similar to ours that would substantially impair our ability to prevent competitors from commercializing products similar to ours.

We have also entered into confidentiality and assignment of intellectual property agreements with certain of our employees, consultants and advisors as one of the ways we seek to protect our intellectual property and other proprietary technology. However, these agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements.

In the event a competitor infringes upon one of our patents, our licensed patents or other intellectual property rights, enforcing our rights may be difficult, time consuming and expensive, and would divert management’s attention from managing our business. There can be no assurance that we will be successful on the merits in any enforcement effort. In addition, we may not have sufficient resources to litigate, enforce or defend our intellectual property rights.

We have no patent protection covering the composition of our formulation of silicon nitride or the process we use for manufacturing silicon nitride, and competitors may create doped-silicon nitride implant products substantially similar to ours, which could significantly diminish the effect of any competitive advantages that we might otherwise have had.

The composition of silicon nitride formulated with dopants such as yttira and alumina is generally known or is readily knowable, and we have no patent protection either for the composition of our formulation of silicon nitride, which we refer to as MC², or for the process of manufacturing our MC² silicon nitride and implant products made from that material. Moreover, we are aware of at least one ceramic manufacturer that already has the capability of manufacturing silicon nitride with strength, fracture resistance, and wear resistance characteristics similar to our MC² silicon nitride. If other orthopedic companies decide to compete with us by manufacturing implants made from silicon nitride, or by marketing implants with silicon nitride components purchased from suppliers, we will have no ability to prevent them from doing so, except to the extent that specific implant embodiments are covered by our issued patents. To date, we have been issued one U.S. patent related to our MC² technology, directed to the use of silicon nitride, with certain flexural strength and toughness characteristics, in the concave component of an articulating implant, where the convex component is made of a cobalt chromium metal alloy. Although we have submitted patent applications directed to other implant embodiments, such as an articulating implant where the concave component is made of a cobalt chromium metal alloy and the convex component is made of silicon nitride, or where both the concave and convex components are made of silicon nitride, there is no assurance that such applications will issue as patents. If we fail to obtain patents with claims of a scope necessary to cover the various embodiments of orthopedic implants we intend to develop, our competitors will have the right to seek to develop and market substantially similar orthopedic implants made of silicon nitride. We are aware of one other company that appears to be developing at least one implant component made from silicon nitride, and we cannot assure you that our competitors will not seek to develop and market orthopedic implants made of silicon nitride in the future. The introduction by our competitors of orthopedic implants made from silicon nitride could negatively impact our ability to maintain a competitive advantage based on our MC² technology, particularly if such competitive silicon nitride implants possessed strength, fracture resistance, wear resistance and imaging characteristics similar to our MC² silicon nitride.

17

Table of Contents

We continue to develop and refine our manufacturing processes to produce silicon nitride implants, and we believe we have already developed, and will continue to develop, significant know-how related to these processes. However, there is no assurance that we will be able to maintain this know-how as trade secrets, and competitors may develop or acquire equally valuable or more valuable know-how related to the manufacture of silicon nitride implants. Further, if any of our competitors is able to obtain patent protection for its composition of silicon nitride or for its process for manufacturing silicon nitride, we could become subject to patent infringement claims and further be prevented from continuing the manufacture of our silicon nitride based implant products.

We could become subject to intellectual property litigation that could be costly, result in the diversion of management’s time and efforts, require us to pay damages, prevent us from marketing our product candidates under development, and/or reduce the margins we may realize from our products that we may commercialize.

The medical devices industry is characterized by extensive litigation and administrative proceedings over patent and other intellectual property rights. Whether a product infringes a patent involves complex legal and factual issues, and the determination is often uncertain. There may be existing patents of which we are unaware that our products under development may inadvertently infringe. The likelihood that patent infringement claims may be brought against us increases as the number of participants in the market for spine, hip and knee implants increases and as we achieve more visibility in the market place and introduce products to market.

Any infringement claim against us, even if without merit, may cause us to incur substantial costs, and would place a significant strain on our financial resources, divert the attention of management from our core business, and harm our reputation. In some cases, litigation may be threatened or brought by a patent holding company or other adverse patent owner who has no relevant product revenues and against whom our patents may provide little or no deterrence. If we were found to infringe any patents, we could be required to pay substantial damages, including triple damages if an infringement is found to be willful, and royalties and could be prevented from selling our products unless we obtain a license or are able to redesign our products to avoid infringement. We may not be able to obtain a license enabling us to sell our products on reasonable terms, or at all, and there can be no assurance that we would be able to redesign our products in a way that would not infringe those patents. If we fail to obtain any required licenses or make any necessary changes to our technologies or the products that incorporate them, we may be unable to commercialize one or more of our products or may have to withdraw products from the market, all of which would have a material adverse effect on our business, financial condition and results of operations.

In addition, in order to further our product development efforts, we have entered into agreements with orthopedic surgeons to help us design and develop new products, and we expect to enter into similar agreements in the future. In certain instances, we have agreed to pay such surgeons royalties on sales of products which incorporate their product development contributions. There can be no assurance that surgeons with whom we have entered into such arrangements will not claim to be entitled to a royalty even if we do not believe that such products were developed by cooperative involvement between us and such surgeons. In addition, some of our surgeon advisors have agreements with other orthopedic companies pursuant to which they have agreed to assign to those other companies their rights in inventions which they conceive or develop, or help conceive or develop. There can be no assurance that one or more of these orthopedic companies will not claim ownership rights to an invention we develop in collaboration with our surgeon advisors or consultants on the basis that an agreement with such orthopedic company gives it ownership rights in the invention. Any such claim against us, even without merit, may cause us to incur substantial costs, and would place a significant strain on our financial resources, divert the attention of management from our core business and harm our reputation.

If our ceramic technologies or our product candidates conflict with the rights of others, we may not be able to manufacture or market our product candidates, which could have a material and adverse effect on us.

Our commercial success will depend in part on not infringing the patents or violating the other proprietary rights of third parties. We are aware of an issued patent that was recently granted to DePuy by the European Patent Office (EP 1212013) based on international patent application no. WO 01/17464, entitled “Combination

18

Table of Contents

of Material for Joint Prosthesis” (the “EP ’013 patent”). The EP ’013 patent was granted for nineteen different designated European states and claims an orthopedic joint prosthesis having metal on ceramic articulating surfaces, wherein the hardness of the metallic material is at least about 2500 MPa, and the hardness of the ceramic material is greater than that of the metallic material by at least about 4000 MPa, where the articulating surfaces have sphericity not more than 0.01 microns and surface roughness more than 0.05 microns.

We are aware that several third parties, including Biomet UK Ltd, have filed post-grant oppositions to the EP ’013 patent raising objections as to its scope and validity. An opposition is a proceeding that allows third parties to challenge the validity of a European patent granted by the European Patent Office. There can be no assurances that any of these oppositions will be successful, although in the majority of cases, the European patents concerned are at least reduced in scope. Three possible outcomes are: (i) some or all of the claims survive the opposition as issued; (ii) some or all of the claims are narrowed; and/or (iii) some or all of the claims are held invalid. We are monitoring this situation closely. Final resolution of the opposition proceedings (including any appeals) may take a number of years. If this patent is not held invalid or limited in scope, and if our activities are determined to be covered by the patent, we cannot provide any assurance that DePuy would be willing to grant us a license on terms we or they would consider commercially reasonable, if at all. As a consequence, we could be prevented from manufacturing and marketing high-strength ceramic-on-metal articulating implants in the European countries where the European patent remains in force, which would have a material and adverse effect on our business, financial condition and results of operations.

The EP ’013 patent has a corresponding U.S. counterpart patent application pending in the U.S. involving similar claims (U.S. Pub. 2005/0033442). The U.S. patent office recently rejected of all of these claims, although DePuy has an opportunity to amend the claims or argue that the examiner is wrong. The U.S. patent office has issued similar rejections with respect to applications where patents having equivalent or substantially similar claims were ultimately issued. We are monitoring prosecution of this U.S. patent application closely.

Issued patents held by others may limit our ability to develop commercial products. All issued patents are entitled to a presumption of validity under the laws of the United States. If we need suitable licenses to such patents to permit us to develop or market our product candidates, we may be required to pay significant fees or royalties and we cannot be certain that we would even be able to obtain such licenses. Competitors or third parties may obtain patents that may cover subject matter we use in developing the technology required to bring our products to market, that we use in producing our products, or that we use in treating patients with our products. We know that others have filed patent applications in various jurisdictions that relate to several areas in which we are developing products. Some of these patent applications have already resulted in patents and some are still pending. If we were found to infringe any of these issued patents or any of the pending patent applications, when and if issued, we may be required to alter our processes or product candidates, pay licensing fees or cease activities. If use of technology incorporated into or used to produce our product candidates is challenged, or if our processes or product candidates conflict with patent rights of others, third parties could bring legal actions against us, in Europe, the United States and elsewhere, claiming damages and seeking to enjoin manufacturing and marketing of the affected products. Additionally, it is not possible to predict with certainty what patent claims may issue from pending applications. In the United States, for example, patent prosecution can proceed in secret prior to issuance of a patent, provided such application is not filed in foreign jurisdiction. For U.S. patent applications that are also filed in foreign jurisdictions, such patent applications will not publish until 18 months from the filing date of the application. As a result, third parties may be able to obtain patents with claims relating to our product candidates which they could attempt to assert against us. Further, as we develop our products, third parties may assert that we infringe the patents currently held or licensed by them and we cannot predict the outcome of any such action.

There has been extensive litigation in the medical devices industry over patents and other proprietary rights. If we become involved in any litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation. If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license, grant cross-licenses and pay substantial royalties in order to continue to manufacture or market the affected products.

19

Table of Contents

We cannot assure you that we would prevail in any legal action or that any license required under a third party patent would be made available on acceptable terms or at all. Ultimately, we could be prevented from commercializing a product, or forced to cease some aspect of our business operations, as a result of claims of patent infringement or violation of other intellectual property rights, which could have a material and adverse effect on our business, financial condition and results of operations.

We could be prevented from using the trademark “Amedica” as our name and could be prevented from using “Amedica” in conjunction with our products, which could eliminate any goodwill associated with “Amedica” and negatively impact the marketing of our products.

We applied for but have not yet received a registration in the United States for the trademark “Amedica”. Another company, Amedica Biotech, has an earlier filed, trademark registration for the same mark. Amedica Biotech registered its mark for use in commerce with certain types of pharmaceutical products. Through we are seeking registration for use in connection with medical apparatuses, if the U.S. Patent and Trademark Office finds that we were not the first to use the mark in commerce and that a likelihood of confusion exists, we may not be able to register our mark. Further, Amedica Biotech may seek to enjoin our use of the mark. If Amedica Biotech is successful, we would have to change our name, which could be an expensive and time-consuming process, and we would lose any goodwill we have thus far created in the mark.

We also filed an application on August 31, 2006 to register “Amedica” with the Office for Harmonization of the Internal Market, which is the trademark and industrial design registry of the European Union. We have learned that an opposition to this application was filed on February 26, 2007 by Addmedica (S.A.S.), or Addmedica, a French company, claiming a likelihood of confusion. The opposition was deemed admissible on March 9, 2007. We are currently in the “cooling off period” during which we and Addmedica have the opportunity to reach a negotiated settlement. This period, which commenced on May 11, 2007, runs for two months and may be extended by consent of the parties for up to an additional twenty-two months. If the cooling-off period is extended, either party may opt-out at any time after July 11, 2007 and proceed with an adversarial opposition. In order to reach a settlement with Addmedica, we may be forced to make concessions such as altering the European labeling of our products, restricting the European channels of distribution we plan to use to market our products, narrowing the description of goods and services in our pending application, or limiting the geographic markets we seek to operate in within Europe, any of which could have an adverse effect on our operations. If we are unable to reach a negotiated settlement and the opposition is successful, we could be prevented from using “Amedica” in commerce in the European Union. This could require us to market our products under different names in the European Union and the United States. This could adversely impact our efforts to achieve cross-border name recognition for our products, lead us to select a different trademark for the marketing of our products worldwide or to change our company name.

We may be subject to damages resulting from claims that we, our employees, or our independent sales agencies have wrongfully used or disclosed alleged trade secrets of our competitors or are in breach of non-competition agreements with our competitors or non-solicitation agreements.

Many of our employees were previously employed at other orthopedic implant companies, including our competitors and potential competitors. Many of our potential distributors sell, or in the past have sold, products of our competitors. We may be subject to claims that either we, or these employees or distributors, have inadvertently or otherwise used or disclosed the trade secrets or other proprietary information of our competitors. In addition, we have been and may in the future be subject to claims that we caused an employee or sales agent to break the terms of his or her non-competition agreement or non-solicitation agreement. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. If we fail in defending such claims, in addition to paying money damages, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent our ability to commercialize products, which could have an adverse effect on our business, financial condition and results of operations.

20

Table of Contents

Risks Related to Potential Litigation from Operating Our Business

If we successfully commercialize our products under development, we will become subject to potential product liability claims, and we may be required to pay damages that exceed our insurance coverage.

We expect that our business will expose us to potential product liability claims that are inherent in the design, testing, manufacture, sale and distribution of orthopedic implants. Spine, hip and knee implants involve significant risks of serious complications, including bleeding, nerve injury, paralysis, infection, and even death. Any product liability claim brought against us, with or without merit, could result in the increase of our product liability insurance rates or in our inability to secure coverage in the future on commercially reasonable terms, if at all. In addition, if our product liability insurance proves to be inadequate to pay a damage award, we may have to pay the excess of this award out of our cash reserves, which could significantly harm our financial condition. If longer-term patient results and experience indicate that our products or any component of a product causes tissue damage, motor impairment or other adverse effects, we could be subject to significant liability. A product liability claim, even one without merit, could harm our reputation in the industry, lead to significant legal fees, and result in the diversion of management’s attention from managing our business.

Any claims relating to our improper handling, storage or disposal of biological or hazardous materials could be time consuming and costly.

Although we do not believe that the manufacture of our ceramic implant products will involve the use of hazardous materials, it is possible that regulatory authorities may disagree or that changes to our manufacturing processes may result in such use. Our business and facilities and those of our suppliers and future suppliers may therefore be subject to foreign, federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous materials and waste products. We may incur significant expenses in the future relating to any failure to comply with environmental laws. Any such future expenses or liability could have a significant negative impact on our business, financial condition and results of operations.

Risks Related to Our Need for Financing

We will require substantial additional financing and our failure to obtain additional funding when needed could force us to delay, reduce or eliminate our product development programs or commercialization efforts.

We will require substantial future capital in order to continue to conduct the research and development and regulatory clearance and approval activities necessary to bring our products to market and to establish effective marketing and sales capabilities. We do not expect our existing capital resources and the net proceeds from this offering to be sufficient to enable us to fund the completion of the development and commercialization of all of our product candidates. We expect that our existing capital resources and the net proceeds from this offering will enable us to maintain currently planned operations through the end of 2009. However, our operating plan may change, and we may need additional funds sooner than anticipated to meet our operational needs and capital requirements for product development, clinical trials and commercialization.

We currently have no committed sources of capital. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available on a timely basis, we may terminate or delay the development of one or more of our product candidates, or delay establishment of sales and marketing capabilities or other activities necessary to commercialize our product candidates.

Our future capital requirements will depend on many factors, including:

21

Table of Contents

Raising additional capital by issuing securities or through licensing arrangements may cause dilution to existing stockholders, restrict our operations or require us to relinquish proprietary rights.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or products or grant licenses on terms that are not favorable to us. Any of these events could adversely affect our ability to achieve our product development and commercialization goals and have a material adverse effect on our business, financial condition and results of operations.

We have incurred losses since our inception and anticipate that we will continue to incur substantial losses for the foreseeable future. We may never achieve or sustain profitability.

We have a limited operating history, have never generated any revenue from product sales and have incurred substantial net losses since our inception in 1996. As of March 31, 2007, we had an accumulated deficit of $18.2 million. Our net loss was $6.2 million for the year ended December 31, 2006, and $5.6 million for the three months ended March 31, 2007. Our losses have resulted principally from costs incurred in connection with our research and development activities and from general and administrative expenses associated with our operations. We have not yet commercialized any products, we do not expect to introduce any of our lead product candidates until 2008 and we do not anticipate introducing one of our lead spinal spacer product candidates until the second half of 2008. We do not expect to start clinical trials of the earliest of our pipeline products before the first half of 2009. Until we receive FDA clearances for our lead implant products and successfully launch those products, we expect to continue to incur substantial losses for the foreseeable future. We also expect our research and development expenses and general and administrative expenses to increase substantially following the completion of this offering as our products advance through the development cycle and we expand our infrastructure. As a result, we will need to generate significant revenues to pay these expenses and achieve profitability.

If we are unable to develop and commercialize any of our product candidates, if development is delayed, or if sales revenue from any product that receives marketing approval is insufficient, we may never become profitable. Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.

Risks Related to Our Common Stock and this Offering

There has been no prior public market for our common stock and an active trading market may not develop.

Prior to this offering, there has been no public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on The NASDAQ Global Market or otherwise or how liquid that market might become. The lack of an active market may impair the value of your shares and your ability to sell your shares at the time you wish to sell them. An inactive market may also impair our ability to raise capital by selling our common stock and may impair our ability to acquire other companies, products or technologies by using our common stock as consideration.

22

Table of Contents

We expect that the price of our common stock will fluctuate substantially and you may not be able to sell your shares at or above the offering price.

You should consider an investment in our common stock risky and invest only if you can withstand a significant loss and wide fluctuations in the market value of your investment. The initial public offering price for the shares of our common stock sold in this offering will be determined by negotiation between the underwriters and us based on several factors. This price may not reflect the market price of our common stock following this offering. You may be unable to sell your shares of common stock at or above the initial public offering price due to fluctuations in the market price of our common stock arising from changes in our operating performance or prospects. In addition, the volatility of orthopedic implant company stocks often does not correlate to the operating performance of the companies represented by such stocks. Some of the factors that may cause the market price of our common stock to fluctuate include:

These and other external factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit regardless of the outcome. Such a lawsuit also would divert the time and attention of our management.

23

Table of Contents

Securities analysts may not initiate coverage of our common stock or may issue negative reports, which may have a negative impact on the market price of our common stock.

Securities analysts may elect not to provide research coverage of our common stock after the completion of this offering. If securities analysts do not cover our common stock after the completion of this offering, the lack of research coverage may cause the market price of our common stock to decline. The trading market for our common stock may be affected in part by the research and reports that industry or financial analysts publish about our business. If one or more of the analysts who elect to cover us downgrade our stock, our stock price would likely decline rapidly. If one or more of these analysts cease coverage of us, we could lose visibility in the market, which in turn could cause our stock price to decline. In addition, recently adopted rules mandated by the Sarbanes-Oxley Act and a global settlement reached in 2003 among the Securities and Exchange Commission, or the SEC, other regulatory agencies and a number of investment banks have led to a number of fundamental changes in how analysts are reviewed and compensated. In particular, many investment banking firms are required to contract with independent financial analysts for their stock research. It may be difficult for a company such as ours, with a smaller market capitalization, to attract independent financial analysts that will cover our common stock. This could have a negative effect on the market price of our stock.

If our executive officers, directors and principal stockholders choose to act together, they will be able to exert significant influence over us and our significant corporate decisions and may act in a manner that advances their best interests and not necessarily those of other stockholders.

Upon completion of this offering, our executive officers, directors, and beneficial owners of 5% or more of our outstanding common stock and their affiliates will beneficially own approximately         % of our outstanding common stock, or approximately         % if the underwriters’ over-allotment option is exercised in full. As a result, these persons, acting together, will have the ability to influence significantly the outcome of all matters requiring stockholder approval, including the election and removal of directors and any merger, consolidation, or sale of all or substantially all of our assets and they may act in a manner that advances their best interests and not necessarily those of other stockholders, including investors in this offering, by, among other things:

We also plan to reserve up to         % of the shares offered in this offering under a directed share program in which our executive officers and directors, principal stockholders, employees, business associates and related persons may be able to purchase shares in this offering at the initial public offering price. This program may further increase the percentage of stock held by persons whose interests are aligned with the interests of our executive officers, directors and principal stockholders.

Our management team may allocate the proceeds of this offering in ways in which you may not agree.

We intend to use the net proceeds from this offering to fund our product development efforts and the clearance or approval and subsequent commercialization of our product candidates; to establish our hybrid sales and marketing organization; to scale-up our manufacturing operations, continue to build out and equip our manufacturing facilities and to recruit and train manufacturing personnel; to support our research and development efforts; and for general corporate purposes. For a further description of our intended use of the net proceeds of this offering, see the “Use of Proceeds” section of this prospectus.

Because of the number and variability of factors that will determine our use of the net proceeds from this offering, our ultimate use of these proceeds may vary substantially from their currently intended use. Our

24

Table of Contents

management will have considerable discretion over the use of the net proceeds of this offering. Stockholders may not agree with such uses, and the net proceeds may be used in a manner that does not increase our operating results or market value.

Future sales of our common stock in the public market after this offering may cause our stock price to decline and impair our ability to raise future capital through the sale of our equity securities.

Upon completion of this offering, our current stockholders will hold a substantial number of shares of our common stock that they will be able to sell in the public market in the near future. Sales by our current stockholders of a substantial number of shares after this offering could significantly reduce the market price of our common stock. Moreover, following the completion of this offering, the holders of 15,273,673 shares of common stock, assuming the conversion of our convertible preferred stock, and holders of warrants to purchase 4,057,040 shares of common stock, assuming the conversion of preferred stock warrants into common stock warrants, will have rights, subject to some conditions, to require us to include their shares in registration statements that we may file for ourselves or other stockholders. These shares of common stock, totaling 19,330,713 shares, assuming the exercise of the common stock warrants, represent approximately         % of the total number of shares of our common stock to be outstanding immediately after this offering, assuming no exercise of the underwriters’ over-allotment option. Please see the “Description of Capital Stock—Registration Rights” section of this prospectus for a description of the registration rights of these stockholders. In addition, immediately upon completion of this offering, approximately 16,567,865 and 19,496,188 shares of our outstanding common stock then held by existing stockholders which are deemed to be “restricted securities” pursuant to Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, will be eligible for sale in reliance on Rule 144(k) and Rule 144, respectively, subject to the lock-up agreements described in the “Underwriters” section of this prospectus. Upon completion of this offering, a holder of warrants to acquire shares of our common stock will be able to net exercise such warrants by surrendering a portion of that holder’s warrants as payment of the exercise price rather than paying the exercise price in cash. As of May 1, 2007, warrants to acquire approximately 1,717,452 and 2,086,298 shares of our common stock would be eligible to rely upon on Rule 144(k) and Rule 144, respectively, if they are net exercised subject to the lock-up agreements.

We have options for 3,457,627 shares outstanding as of May 1, 2007 which we intend to register, and we may issue additional options before the completion of this offering that we may register. Shares issued by us upon exercise of options granted under our stock plans would be eligible for sale in the public market upon the effective date of the registration statement for those shares, subject to the lock-up agreements described in the “Underwriters” section of this prospectus. If any of these holders cause a large number of securities to be sold in the public market, the sales could reduce the trading price of our common stock. These sales also could impede our ability to raise future capital. Please see the “Shares Eligible for Future Sale” section of this prospectus for a description of sales that may occur in the future.

We will incur increased costs as a result of changes in laws and regulations relating to corporate governance matters.

As a public reporting company, we will need to comply with the Sarbanes-Oxley Act of 2002 and the related rules and regulations adopted by the SEC and by The NASDAQ Global Market, including expanded disclosures, accelerated reporting requirements and more complex accounting rules. Compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and other requirements will increase our costs and require additional management resources. Additionally, these laws and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. We are presently evaluating and monitoring developments with respect to these laws and regulations and cannot predict or estimate the amount or timing of additional costs we may incur to respond to their requirements.

25

Table of Contents

Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change of control, even if an acquisition would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or remove our current management.

Our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect upon the completion of this offering contain provisions that could discourage, delay or prevent a merger, acquisition or other change of control of our company or changes in our board of directors that our stockholders might consider favorable, including transactions in which you might receive a premium for your shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. Stockholders who wish to participate in these transactions may not have the opportunity to do so. Furthermore, these provisions could prevent or frustrate attempts by our stockholders to replace or remove management. These provisions:

In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

Investors in this offering will pay a much higher price than the book value of our common stock and, therefore, you will incur immediate and substantial dilution of your investment.

If you purchase common stock in this offering, you will pay more for your shares than the amounts paid by existing stockholders for their shares. You will incur immediate and substantial dilution of $             per share, representing the difference between the initial public offering price per share of our common stock and our pro forma net tangible book value per share after giving effect to this offering at the assumed initial public offering price of $             per share of our common stock. In the past, we also issued options and warrants to acquire common stock at prices significantly below the assumed initial public offering price. To the extent these outstanding options are ultimately exercised, you will sustain further dilution. For a further description of the dilution you will incur in this offering, see the “Dilution” section of this prospectus.

We do not intend to pay cash dividends.

We have never declared or paid cash dividends on our capital stock and we do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business. In addition, the terms of any future debt or credit facility may preclude us from paying any dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of potential gain in your investment for the foreseeable future.

26

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to us. The forward-looking statements are contained principally in, but not limited to, the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

27

Table of Contents

In some cases, you can identify forward-looking statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the heading “Risk Factors” and elsewhere in this prospectus. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements.

Any forward-looking statement in this prospectus reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, industry and future growth. Except as required by law, we assume no obligation to update or revise any forward-looking statements contained in this prospectus, whether as a result of new information, future events or otherwise. The Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act do not protect any forward-looking statements that we make in connection with this offering.

28

Table of Contents

USE OF PROCEEDS

We estimate that we will receive approximately $             million in net proceeds from the sale of              shares of common stock that we are offering, or approximately $             million if the underwriters exercise their over-allotment option in full, based upon the assumed initial public offering price of $             per share, the midpoint of the range on the front cover of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 per share increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) the net proceeds to us from this offering by $             million, or approximately $             million if the underwriters exercise their over-allotment option in full, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to fund the development and commercialization of our lead products, to build our sales, marketing and distribution capabilities, to establish commercial-scale manufacturing operations, to fund research and development activities for our pipeline product candidates, to increase our working capital, to create a public market for our common stock, to increase our ability to access the capital markets in the future, to provide liquidity for our existing stockholders, and for general corporate purposes.

We currently expect to use the net proceeds from this offering in the following manner:

In addition, we may use a portion of our net proceeds to introduce our spine, hip and knee implant products into selected international markets. Also, while we have no present understandings, commitments, or agreements to enter into any potential acquisitions, a portion of the net proceeds may also be used to acquire or invest in complementary businesses, technologies, services or products.

As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering. The amount and timing of our actual expenditures may vary significantly depending upon numerous factors, including the ultimate resolution of our FDA submissions for clearances or approvals of our product candidates, the specific clinical trial requirements imposed for market approval of our pipeline product candidates, our revenues, operating costs and capital expenditures, and other factors described under “Risk Factors.” We may find it necessary or advisable to use the net proceeds for other purposes, and our management will retain broad discretion in the allocation of our net proceeds from this offering.

Pending use of our net proceeds from this offering, we plan to invest the proceeds in a variety of capital preservation investments, including investment-grade, interest-bearing instruments. We cannot predict whether the net proceeds will yield a favorable return.

As of March 31, 2007, we had cash, cash equivalents and marketable securities of approximately $10.3 million. We believe that the net proceeds from this offering, together with our cash and cash equivalent balances and interest we earn on these balances, will be sufficient to meet our anticipated cash requirements through the end of 2009. We will need to raise substantial additional funds before we can expect to commercialize all of our product candidates. We may satisfy our future cash needs through the sale of equity securities, debt financings, working capital lines of credit, corporate collaborations or license agreements, grant funding, or through interest income earned on cash balances.

29

Table of Contents

DIVIDEND POLICY

We have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business.

30

Table of Contents

CAPITALIZATION

The table below includes:

You should read this table together with “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes appearing elsewhere in this prospectus.

A $1.00 per share increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) each of additional paid-in-capital, total stockholders’ equity (deficit) and total capitalization by approximately $             million, assuming that the number of shares offered by us, as set forth

31

Table of Contents

on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma information discussed above is illustrative only and following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

The outstanding share information set forth above is as of March 31, 2007, and excludes:

32

Table of Contents

DILUTION

If you invest in our common stock, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after this offering. We calculate net tangible book value per share by dividing the net tangible book value, or tangible assets less total liabilities, by the number of outstanding shares of common stock.

Our historical net tangible book value as of March 31, 2007 was a deficit of $17,559,966 or $2.02 per share of common stock. Our pro forma net tangible book value at March 31, 2007 was $27,534,979, or $0.68 per share, based on 40,535,553 shares of our common stock outstanding after giving effect to the conversion of all outstanding shares of our preferred stock, including 4,456,500 shares of our Series D convertible preferred stock issued in April 2007, into common stock and the conversion of 4,057,040 preferred stock warrants into common stock warrants, including warrants to purchase a total of 253,290 shares of Series D convertible preferred stock issued in April 2007, and the related reclassification of the preferred stock warrant liability to additional paid in capital, upon the closing of this offering. After giving effect to the sale of              shares of common stock by us at an assumed initial public offering price of $             per share, less the underwriting discounts and commissions and our estimated offering expenses, our pro forma net tangible book value at March 31, 2007 would be $             million, or $             per share. This represents an immediate increase in the pro forma net tangible book value of $             per share to existing stockholders and an immediate dilution of $             per share to new investors purchasing shares at an assumed initial public offering price of $             per share. The following table illustrates this per share dilution:

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) the pro forma net tangible book value by $             million, the pro forma net tangible book value per share after this offering by $             per share and the dilution in pro forma net tangible book value per share to investors in this offering by $             per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their over-allotment option in full to purchase          additional shares of common stock in this offering, the pro forma as adjusted net tangible book value per share after the offering would be $             per share, the increase in the pro forma net tangible book value per share to existing stockholders would be $             per share and the dilution to new investors purchasing common stock in this offering would be $             per share.

33

Table of Contents

The following table shows on a pro forma basis at March 31, 2007, after giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock, including 4,456,500 shares of our Series D convertible preferred stock issued in April 2007, into an aggregate of 31,856,558 shares of common stock upon the closing of this offering, the difference between the number of shares of common stock purchased from us, the total consideration paid to us and the average price paid per share by existing stockholders and by new public investors purchasing common stock in this offering:

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) the total consideration paid by new investors by $             million, or increase (decrease) the percent of total consideration paid by new investors by         %, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

If the underwriters exercise their option in full, sales by us in this offering will reduce the percentage of shares held by existing stockholders to         % and will increase the number of shares held by new investors to             , or         %.

This information is based on shares outstanding as of March 31, 2007 and excludes:

To the extent these outstanding options or warrants are exercised, there will be further dilution to the new investors.

34

Table of Contents

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and the related notes included elsewhere in this prospectus. The selected statement of operations data for the years ended December 31, 2004, 2005 and 2006 and selected balance sheet data as of December 31, 2005 and 2006 were derived from our audited financial statements that are included elsewhere in this prospectus. The selected statement of operations data for the three months ended March 31, 2006 and 2007 and for the period from December 10, 1996 (inception) through March 31, 2007 and selected balance sheet data as of March 31, 2007 were derived from our unaudited financial statements that are included elsewhere in this prospectus. The selected statement of operations data for the years ended December 31, 2002 and 2003 and selected balance sheet data as of December 31, 2002, 2003 and 2004 were derived from our financial statements audited by our former auditors and are not included in this prospectus. In the opinion of management, the unaudited financial statements were prepared on a basis consistent with our audited financial statements contained in this prospectus and include all adjustments necessary for the fair presentation of the financial information contained in those statements. The historical results presented below are not necessarily indicative of financial results to be achieved in future periods, and the results for the three months ended March 31, 2007 are not necessarily indicative of results to be expected for the full year.

35

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. You should review the “Risk Factors” section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis.

Overview

We are an orthopedic implants company focused on using our silicon nitride ceramic technologies to develop, manufacture and commercialize a broad range of advanced, high-performance spine and joint implants. We have developed a formulation of silicon nitride which we believe has the strength, toughness and wear resistance necessary to overcome the limitations of currently available orthopedic implants. Upon introduction to market, our implants will represent the first commercial use of silicon nitride ceramics in orthopedic applications and will have the potential to provide an improved combination of characteristics, including substantially greater strength and resistance to fracture, superior resistance to wear, greater ability to promote bone attachment, and better compatibility with surgical and diagnostic imaging. Based on these potential advantages, we believe that our silicon nitride product candidates will achieve better long-term clinical outcomes due to their enhanced durability, longevity, biocompatibility and patient fit. As a result, we intend to establish our silicon nitride implants as new standards of care for the largest and fastest growing orthopedic implant markets: the spine, hip and knee markets.

Our lead product candidates under development are our Valeo^™ family of spinal implants. Our Valeo spinal fixation implants will be used to restore and maintain the alignment of vertebrae in the cervical, or neck region, and lumbar, or lower back region, of the spine. The Valeo spinal fixation implants will feature silicon nitride ceramic spinal spacers for insertion between two vertebrae to help stabilize the spine, along with a metal cervical bone plate system and a metal pedicle screw system for supplemental fixation. We expect to launch these product candidates by mid-2008, subject to clearance by the U.S. Food and Drug Administration, or the FDA. In 2006, we received clearance from the FDA for the first ever ceramic spinal spacer, which will be the predicate device for the first of our product candidates that we intend to commercialize. We plan to introduce additional spinal spacers by the end of 2008, subject to regulatory clearance, including spacers that feature a bone-like structure with a solid, or cortical, load-bearing portion and a cancellous, or porous, structure that is intended to promote bone attachment for secure spinal fixation. Subsequently, subject to regulatory approval, we plan to introduce cortico-cancellous spinal spacers with a surface coating designed to further enhance bone attachment. Our Valeo family of spinal implant candidates also includes an all-ceramic, motion-preserving cervical disc, for which we anticipate commencing a clinical trial by mid-2009. In addition, we are incorporating our silicon nitride ceramic technology into the development of our Infinia^™ family of total hip and knee implants. We anticipate commencing a clinical trial for our first total hip implant product candidate in 2009.

During the past two years, we have been developing our own manufacturing facility and processes that will provide us the ability to control the commercial-scale production of our silicon nitride ceramic implants from powder form to devices ready for sterilization and packaging. We are currently producing our lead ceramic spinal product candidates on a pilot scale in our manufacturing facility. We anticipate our facility will be fully operational for commercial-scale production by the end of 2007, which we believe would make us the only vertically integrated silicon nitride orthopedic implant manufacturer in the world.

We are a development stage company with a limited operating history and we currently have no product candidates cleared or approved for sale that we intend to commercialize. To date, our only significant revenue has been from research grants from the National Institutes of Health, or NIH, and with the exception of a small net income for the years ended December 31, 2002 and 1999, we have incurred net losses in each year since our

36

Table of Contents

inception. We expect our losses to continue and to increase as we build sales, marketing and distribution capabilities for our spine, hip and knee implant products, establish commercial-scale manufacturing operations, continue our research and development activities, and complete the regulatory clearance and approval process for our lead and pipeline product candidates, including the commencement of clinical trial activities for many of our pipeline product candidates. We plan to manufacture our own ceramic components while outsourcing other components. We have financed our operations to date primarily through private placements of our equity securities.

Revenue and Deferred Revenue

To date, we have not generated any revenue from the sale of any product. We do not expect to generate revenue from the sale of any product until the first half of 2008, subject to FDA clearance of our lead implant product candidates. We have received revenue from research grants from the NIH primarily related to development of ceramic implants. Revenue under grants is recognized when earned, and revenue is considered earned as the related qualified research and development expenses are incurred, up to the limit of the approved funding amounts.

Research and Development Expenses

Our research and development costs consist of engineering, product development, test-part manufacturing, testing, developing and validating our manufacturing process, and regulatory related costs. Research and development expenses also include employee compensation, employee and non-employee stock-based compensation, supplies and materials, consultant services, and travel and facilities expense related to research activities. From our inception through March 31, 2007, we have incurred approximately $11.8 million in research and development expenses.

We expect to incur increasing research and development expenses in future periods as we conduct more research and perform clinical trials for our Valeo Cervical Disc, Infinia Total Hip Implant and Infinia Total Knee Implant product candidates. We cannot predict our future research and development expenses with any degree of certainty.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation for executive, finance, and administrative personnel, including stock-based compensation, and facilities expenses related to general and administrative activities. Other significant expenses include travel expenses and professional fees for accounting and legal services. From our inception through March 31, 2007, we have incurred $2.8 million in general and administrative expenses. We expect our general and administrative expenses to increase during future periods to support future growth and as a result of increased compensation costs related to additional personnel, as well as higher legal, accounting, insurance and other professional service costs relating to compliance with rules and regulations associated with being a publicly traded company.

Sales and Marketing Expenses

Our sales and marketing expenses consist primarily of compensation for sales and marketing personnel, including stock-based compensation, travel, consulting, marketing-related charges, and facilities expenses related to sales and marketing activities. From our inception through March 31, 2007, we have incurred $1.2 million in sales and marketing expenses related to the establishment and development of our sales and marketing infrastructure in anticipation of our 2008 product launches. We expect our sales and marketing expenses to increase due to the costs associated with the building of sales, marketing and distribution capabilities for our spine, hip and knee implant product candidates, including the amortization of our instrumentation sets to be used by surgeons to implant our product candidates.

37

Table of Contents

Arrangements with Surgeon Advisors

We have entered into consulting and development agreements with some of our advisors, including some of our surgeon advisors. We have agreed to pay some of our surgeon advisors a portion of our net after-tax profits attributable to the sale of specific spine, hip and knee implant product candidates for which the surgeon advisor provided us with consulting and related services related to the conceptualization, development, testing, clearance, approval and/or related matters involving our implant product candidates. Because more than one of our surgeon advisors contribute to our development efforts, we are obligated to pay royalties to as many as five surgeon advisors in connection with some of our product candidates. These royalty payments will be recorded as cost of goods sold once we begin commercial sales of the relevant product candidate. Pursuant to these agreements, these surgeon advisors also have been granted options to purchase shares of our common stock. Generally, these consulting and development agreements, unless earlier terminated, continue until the later of (a) ten years from the date of the agreement and (b) the expiration of the patent rights relating to the product candidates covered by the agreement. We account for equity instruments issued to our surgeon advisors in accordance with the provisions of Emerging Issues Task Force, or EITF, No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, using a fair-value approach marked to market during the vesting period and record the related expense as research and development expense.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements and notes, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, convertible preferred stock, and stockholders’ equity (deficit) and the disclosure of contingent liabilities at the date of the financial statements, as well as the reported revenue and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, convertible preferred stock, and stockholders’ equity (deficit) that are not readily apparent from other sources. We evaluate our estimates and judgments on an ongoing basis. Actual results may differ materially from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 1 to our financial statements included elsewhere in this prospectus, we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results.

Stock-Based Compensation

Prior to January 1, 2006, we accounted for stock-based employee compensation arrangements using the intrinsic value method in accordance with the recognition and measurement provisions of Accounting Principles Board Opinion, or APB, No. 25, Accounting for Stock Issued to Employees, and related interpretations, including the Financial Accounting Standards Board Interpretation, or FIN, No. 44, Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25, as permitted by Statement of Financial Accounting Standards, or SFAS, No. 123, Accounting for Stock-Based Compensation. In accordance with APB No. 25, stock-based compensation was calculated using the intrinsic value method and represents the difference between the deemed per share market price of our common stock and the per share exercise price of the stock option. Based on this method, our compensation expense under APB No. 25 was zero.

Effective January 1, 2006, we adopted the provisions of SFAS No. 123R, Share-Based Payments. In March 2005, the Securities and Exchange Commission, or SEC, issued Staff Accounting Bulletin, or SAB, No. 107 relating to SFAS No. 123R. We have applied the provisions of SAB No. 107 in our adoption of SFAS No. 123R. Under SFAS No. 123R, stock-based awards, including stock options, are recorded at fair value as of the grant

38

Table of Contents

date and recognized to expense over the employee’s requisite service period (generally the vesting period), which we have elected to amortize on a straight-line basis. The pro forma disclosures previously permitted under SFAS No. 123 are no longer an alternative to financial statement recognition. We are no longer able to apply the minimum value method and instead must calculate the fair value of our employee stock options using an estimated volatility rate. We adopted the provisions of SFAS No. 123R using the prospective transition method. Under the prospective transition method, beginning January 1, 2006, compensation cost recognized includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of December 31, 2005, based on the intrinsic value in accordance with the provisions of APB No. 25, and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. All awards granted, modified, or settled after the date of adoption are accounted for using the measurement, recognition, and attribution provisions of SFAS No. 123R.

Stock-based compensation expense, which is a non-cash charge, results from the issuance of options under SFAS No. 123R, based on the fair value of the stock options. During the year ended December 31, 2006 and the first three months of 2007, we granted options to employees and members of our board of directors to purchase a total of 630,400 shares of common stock, at an exercise price of $1.00 per share.

Our board of directors, with the assistance of management and independent consultants, performed a contemporaneous fair value analysis for the value of our common stock as of October 31, 2006 and a retrospective fair value analyses for the valuation of our common stock as of December 31, 2005 and December 31, 2006. For grants made on dates for which there was no valuation performed by an independent consultant to utilize in setting the exercise price of our common stock, and given the absence of an active market for our common stock, our board of directors determined the fair value of our common stock on the date of grant based on several factors, including:

In connection with the preparation of the financial statements included elsewhere in this prospectus, we utilized the results of an independent contemporaneous valuation as of October 31, 2006 and independent retrospective valuations as of December 31, 2005 and December 31, 2006 to determine the estimated fair value of our common stock. The valuations used a market approach and an income approach to determine the fair value of our common stock on the valuation dates. The market approach bases fair value on what similar enterprises or comparable transactions indicate value to be. These valuations included examination of the value of comparable companies in the orthopedic implant industry and other high growth med-tech companies.

For periods between valuation dates, we reassessed the value of our common stock taking into account a number of factors including, among others, the proximity of the grant to the independent valuations and internal milestones that we achieved in the period between the two valuation dates.

Milestones affecting reassessed value between December 31, 2005 (our retrospective valuation) and February 12, 2006

In reassessing fair value per share between December 31, 2005, which, based on our retrospective valuation, was $0.72, and February 12, 2006, the date of our option grant at an estimated fair value per share of $1.00, we assigned an incremental value based on proximity of the grant to the retrospective valuation and the estimated

39

Table of Contents

value created by the interim milestones achieved during the period from December 31, 2005 and February 2006. Specifically, we considered the following additional milestones in connection with the grant:

As a result of these factors, we assessed the value of $1.00 assigned to our February 2006 option grants to be a reasonable estimate of the then fair value.

Milestones affecting reassessed value between October 31, 2006 (our contemporaneous valuation), December 31, 2006 (our retrospective valuation) and January 5, 2007

The contemporaneous valuation that we received as of October 2006 assessed the value of common shares at $0.99 per share and the December 31, 2006 retrospective valuation assessed fair value at $1.06 per share. The estimated fair value that we assigned to the common stock in December 2006 was $1.00 per share. No significant milestones occurred during the interim period between the date of the retrospective valuation (December 31, 2006) and the option grant in January 2007 that would significantly change the estimated fair value used for the January 2007 grant other than continued development of our product candidates.

Based upon the assessments discussed above, we determined the estimated fair value of $1.00 per share for the options to purchase shares of common stock granted in 2006 and 2007 to be a reasonable estimate of the fair value. We took into account the factors identified above in determining the estimated fair value of the common stock as of each grant date. Information on employee and director stock options granted during 2006 and the first three months of 2007 is summarized as follows: