UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


(Mark One)

[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 For the Period Ended March 31, 2001

                                       or

[_]  Transition  Report  Pursuant  to  Section  13 or  15(d)  of the  Securities
     Exchange Act of  1934 For the Transition Period from  __________________ to
     __________________

     Commission File Number 0-19278


                                 OSTEOTECH, INC.
             (Exact name of registrant as specified in its charter)

           Delaware                                          13-3357370
 (State or other jurisdiction of                          (I.R.S. Employer
  incorporation or organization)                         Identification No.)

  51 James Way, Eatontown, New Jersey                          07724
(Address of principal executive offices)                    (Zip Code)

                                  (732)542-2800
              (Registrant's telephone number, including area code)

                                 Not Applicable
              (Former name, former address and former fiscal year,
                         if changed since last report)

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


                      Applicable Only to Corporate Issuers

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practical date.

Common Stock, $.01 par value - 14,011,886 shares as of April 30, 2001.


<PAGE>


PART I.  FINANCIAL INFORMATION
ITEM 1.  Financial Statements

                        OSTEOTECH, INC. AND Subsidiaries
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (unaudited)
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                              March 31,     December 31,
                                                                2001           2000
----------------------------------------------------------------------------------------
ASSETS
----------------------------------------------------------------------------------------
Current assets:
<S>                                                          <C>            <C>
  Cash and cash equivalents                                  $  10,258      $  10,923
  Short-term investments                                         1,951          1,935
  Accounts receivable, net                                      11,596         13,503
  Prepaid expenses, inventories and other current assets        16,768         14,208
                                                             ------------------------
        Total current assets                                    40,573         40,569

Property, plant and equipment, net                              60,666         58,290
Excess of cost over net assets of business acquired, net
  of accumulated amortization of $2,573 in 2001 and
  $2,477 in 2000                                                 3,198          3,294
Other assets                                                     2,437          2,285
----------------------------------------------------------------------------------------
        Total assets                                         $ 106,874      $ 104,438
========================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------------------------------------------
Current liabilities:
  Accounts payable and accrued liabilities                   $  12,930      $  11,345
  Current maturities of long-term debt                           1,315            101
                                                             ------------------------
        Total current liabilities                               14,245         11,446

Long-term debt                                                  20,174         19,930
Other liabilities                                                1,191          1,211
----------------------------------------------------------------------------------------
        Total liabilities                                       35,610         32,587
----------------------------------------------------------------------------------------

Commitments and contingencies

Stockholders' equity:
     Preferred stock, $.01 par value; 5,676,595 shares
         Authorized; no shares issued or outstanding
     Common stock, $.01 par value; 70,000,000 shares
         authorized; issued and outstanding 14,011,886
         shares in 2001 and 13,989,307 shares in 2000              139            138
     Additional paid-in capital                                 46,704         46,577
     Accumulated other comprehensive loss                         (905)          (497)
     Retained earnings                                          25,326         25,633
----------------------------------------------------------------------------------------
        Total stockholders' equity                              71,264         71,851
----------------------------------------------------------------------------------------
        Total liabilities and stockholders' equity           $ 106,874      $ 104,438
========================================================================================
</TABLE>

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


                                       -2-
<PAGE>



                        OSTEOTECH, INC. AND Subsidiaries
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)
                  (dollars in thousands, except per share data)

<TABLE>
<CAPTION>
Three Months Ended March 31,                                     2001              2000
------------------------------------------------------------------------------------------
Net revenues:
<S>                                                         <C>               <C>
     Service                                                $     16,912      $     17,743
     Product                                                       1,041               903
                                                            ------------------------------
                                                                  17,953            18,646

Cost of services                                                   6,631             5,629
Cost of products                                                     733               582
                                                            ------------------------------
                                                                   7,364             6,211

Gross profit                                                      10,589            12,435


Marketing, selling, general and administrative expenses            9,913             8,132
Research and development expense                                   1,108             1,360
                                                            ------------------------------
                                                                  11,021             9,492
                                                            ------------------------------

Income from litigation settlement                                                      250
                                                            ------------------------------

Operating income(loss)                                              (432)            3,193

Interest and other income, net                                       167               306
                                                            ------------------------------
Income (loss) before income taxes                                   (265)            3,499

Income tax provision                                                  42             1,530

------------------------------------------------------------------------------------------
Net income (loss)                                           $       (307)     $      1,969
==========================================================================================
Net income (loss) per share:
      Basic                                                 $       (.02)     $        .14
      Diluted                                               $       (.02)     $        .13
------------------------------------------------------------------------------------------
Shares used in computing net income (loss) per share:
      Basic                                                   13,989,307        14,215,046
      Diluted                                                 13,989,307        14,620,179
==========================================================================================
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                       -3-
<PAGE>


                        OSTEOTECH, INC. AND Subsidiaries
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)
                             (dollars in thousands)

<TABLE>
<CAPTION>

Three Months Ended March 31,                                  2001         2000
----------------------------------------------------------------------------------
Cash Flow From Operating Activities
<S>                                                        <C>           <C>
   Net income (loss)                                       $   (307)     $  1,969
   Adjustments to reconcile net income (loss) to
      Net cash provided by operating activities:
         Depreciation and amortization                        1,212           918
         Provision for doubtful accounts                                        3
         Income tax benefit related to stock options                           22
         Changes in current assets and liabilities:
               Accounts receivable                            1,472         2,956
               Prepaid expenses, inventories and
                    other current assets                     (2,436)       (1,289)
               Accounts payable and other liabilities         1,709          (291)
----------------------------------------------------------------------------------
Net cash provided by operating activities                     1,650         4,288

Cash Flow From Investing Activities
   Capital expenditures                                      (3,614)       (4,665)
   Purchases of investments                                  (1,951)       (1,942)
   Proceeds from sale of investments                          1,935         3,946
   Decrease in other assets                                    (200)           (7)
----------------------------------------------------------------------------------
Net cash used in investing activities                        (3,830)       (2,668)

Cash Flow From Financing Activities
   Proceeds from issuance of common stock                       128           235
   Proceeds from issuance of long-term debt                   1,468
   Principal payments on long-term debt                         (10)
   Decrease in other liabilities                                (77)
----------------------------------------------------------------------------------
Net cash provided by financing activities                     1,509           235

Effect of exchange rate changes on cash                           6            (7)
----------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents           (665)        1,848
Cash and cash equivalents at beginning of period             10,923        16,770
----------------------------------------------------------------------------------
Cash and cash equivalents at end of period                 $ 10,258      $ 18,618
==================================================================================

Supplementary cash flow data:
   Cash paid during the period for interest, excluding
      amounts capitalized                                  $     33
   Cash paid during the period for taxes                         67      $      2
</TABLE>


See accompanying notes to condensed consolidated financial statements.


                                       -4-

<PAGE>


                        OSTEOTECH, INC. AND Subsidiaries
              Notes To Condensed Consolidated Financial Statements
                                   (unaudited)


1.   Basis of Presentation

     The accompanying  unaudited  condensed  consolidated  financial  statements
     reflect all  adjustments  (consisting  only of normal  recurring  accruals)
     considered  necessary  by  management  to present  fairly the  consolidated
     financial  position as of March 31, 2001, and the  consolidated  results of
     operations  and the  consolidated  cash flows for the  three-month  periods
     ended March 31, 2001 and 2000. The results of operations for the respective
     interim  periods  are  not  necessarily  indicative  of the  results  to be
     expected for the full year. The December 31, 2000 financial information has
     been  derived  from the  audited  financial  statements  for the year ended
     December 31, 2000. The condensed  consolidated  financial statements should
     be read in conjunction with the audited  financial  statements for the year
     ended December 31, 2000 which were included as part of  Osteotech's  Annual
     Report on Form 10-K.

2.   Inventories

     Inventories consist of the following:

                                                   March 31,        December 31,
     (dollars in thousands)                          2001              2000
     ---------------------------------------------------------------------------
     Supplies                                       $  294           $  202
     Raw materials                                     676              891
     Finished goods                                  3,196            2,491
     ---------------------------------------------------------------------------
                                                    $4,166           $3,584
     ===========================================================================

3.   Comprehensive Income (Loss)

     Comprehensive  income  (loss) for the  three-month  periods ended March 31,
     2001 and 2000 was:

     (dollars in thousands)                            2001           2000
     ---------------------------------------------------------------------------
     Net income (loss)                                $(307)       $ 1,969

     Currency translation adjustments                  (408)           (51)
     ---------------------------------------------------------------------------
     Comprehensive income (loss)                      $(715)       $ 1,918
     ===========================================================================

4.   Commitments and Contingencies

     In December, 2000, the Company entered into an exclusive 15-year processing
     and  distribution  agreement with the American Tissue  Services  Foundation
     ("ATSF"),  a  not-for-profit  corporation  organized  under the laws of the
     State of  Delaware.  Michael J.  Jeffries,  the  Company's  Executive  Vice
     President,  Chief  Financial  Officer  and  Secretary  and a member  of the
     Company's  board of  directors,  is a member of the board of  directors  of
     ATSF.  Additionally,  in February,  2001,  the Company  entered into a Loan
     Agreement  with ATSF which  expires on December 31,  2010.  Pursuant to the
     Loan  Agreement,  ATSF may borrow up to $1,500,000  from the Company.  Each
     loan matures five (5) years from the date it is made and bears  interest at
     a rate per annum equal to the five year Treasury Bill rate plus one percent
     (1%).  Interest is payable on a quarterly  basis. As of March 31, 2001, the
     Company had loaned  ATSF an  aggregate  of $465,000 at an average  interest
     rate of 5.38%.


                                       -5-


<PAGE>


                        OSTEOTECH, INC. AND Subsidiaries
              Notes To Condensed Consolidated Financial Statements
                                   (unaudited)


4.   Commitments and Contingencies (continued)

     The funds loaned to ATSF are being utilized by ATSF to fund its operations.
     In accordance with Generally Accepted Accounting Principles, the Company is
     providing a reserve  against  these loans until such time that ATSF is able
     to generate  positive cash flow from operations.  As of March 31, 2001, the
     Company has provided reserves totaling $298,000 against these loans,  which
     charge is  included  in  marketing,  selling,  general  and  administrative
     expenses.  The Company expects that it will loan  additional  funds to ATSF
     throughout  the  remainder  of  the  fiscal  year  and  expects  to  record
     additional reserves against these loans.

     Litigation

     GenSci Regeneration Laboratories, Inc. v. Osteotech, Inc.; Osteotech, Inc.
     v. GenSci Regeneration Sciences, Inc.

     In April,  2001,  the U.S.  District  Court  for the  Central  District  of
     California  granted our motion seeking summary  judgment on U.S. Patent No.
     5,290,558 ("the `558 Patent").  The Court found that GenSci's DynaGraft Gel
     and DynaGraft Putty products literally infringe claims 4 and 10 of our `558
     Patent, and, therefore, entered a judgment of literal infringement. Also in
     April,  2001, GenSci petitioned the Federal Circuit Court of Appeals for an
     immediate  review of the  District  Court's  denial of  GenSci's  motion to
     withdraw its admissions that DynaGraft is osteogenic (osteoinductive). That
     petition is pending.

     Medtronic, Inc. v. Osteotech, Inc.

     Medtronic,   Inc.  and  Medtronic   Sofamor  Danek,   Inc.   (collectively,
     "Medtronic")  are seeking to enjoin Timothy R. Miller,  a former  Medtronic
     employee  and  currently  an  employee  of  the  Company,  from  using  and
     disclosing any of their trade secrets or other confidential  information to
     any third party,  including  the Company,  and from working for the Company
     for a period  of  twelve  months.  On April 25,  2001,  the Court  lifted a
     temporary  restraining  order  preventing  Mr. Miller from working with the
     Company  and  entered an order  preliminarily  enjoining  Mr.  Miller  from
     working with the Company in the area of spine surgery products.

     Younger v. Hayes Medical Center, Inc.

     In  April,  2001,  the  Company  was  served in an  action  brought  in the
     Twentieth  Judicial District Court in Ellis County,  Kansas,  against Hayes
     Medical Center, Inc., the Musculoskeletal Transplant Foundation, Metropath,
     Inc. and the Company. With respect to the Company, the suit alleges a cause
     of action for negligence in connection with allegedly  defective  allograft
     bone tissue  provided by the  defendants  and  allegedly  implanted  in the
     plaintiff  during a  surgical  procedure.  The  plaintiff  seeks'  monetary
     damages in excess of $75,000.  The Company is assessing the claim  asserted
     against it and has not yet responded to it.

     Litigation  is subject to many  uncertainties  and  management is unable to
     predict the outcome of the pending  suits and claims.  It is possible  that
     the results of operations or liquidity and capital resources of the Company
     could  be  adversely  affected  by the  ultimate  outcome  of  the  pending
     litigation or as


                                      -6-


<PAGE>


                        OSTEOTECH, INC. AND Subsidiaries
              Notes To Condensed Consolidated Financial Statements
                                   (unaudited)


4.   Commitments and Contingencies (continued)

     a result of the costs of contesting such lawsuits. The Company is unable to
     estimate the potential liability,  if any, that may result from the pending
     litigation  and,  accordingly,  no provision for any liability  (except for
     accrued legal costs for services previously  rendered) has been made in the
     consolidated financial statements.





                                       -7-


<PAGE>


                        OSTEOTECH, INC. AND Subsidiaries
              Notes To Condensed Consolidated Financial Statements
                                   (unaudited)


5.   Net Income (Loss) Per Share

     The  following  table  sets  forth the  computation  of basic  and  diluted
     earnings (loss) per share for the three-month  periods ended March 31, 2001
     and 2000:
<TABLE>
<CAPTION>
     (dollars in thousands except per share data)                  2001              2000
     ------------------------------------------------------------------------------------

     Net income (loss) available to common
<S>                                                        <C>             <C>
       Shareholders                                        $       (307)   $        1,969
     ------------------------------------------------------------------------------------
     Denominator for basic net income (loss) per share:
       Weighted average common shares outstanding            13,989,307        14,215,046
     Effect of dilutive securities:
       Stock options                                                              404,792
       Warrants                                                                       341

                                                           ------------------------------
     Denominator for diluted net income (loss) per share     13,989,307        14,620,179
     ------------------------------------------------------------------------------------

       Basic net income (loss) per share                   $       (.02)   $          .14
     ------------------------------------------------------------------------------------
       Diluted net income (loss) per share                 $       (.02)   $          .13
     ------------------------------------------------------------------------------------
</TABLE>

     In 2001, common equivalent shares,  consisting solely of stock options, are
     excluded  from the  calculation  of  diluted  net  loss per  share as their
     effects are antidilutive.

6.   Operating Segments

     Summarized in the table below is financial  information  for our reportable
     segments for the three-month periods ending March 31, 2001 and 2000:


     (dollars in thousands)                           2001            2000
     ---------------------------------------------------------------------------

     Revenues:
       Grafton(R)DBM Segment                      $ 11,020        $ 10,104
       Base Tissue Segment                           5,586           7,311
       Other                                         1,347           1,231
     ---------------------------------------------------------------------------
       Consolidated                               $ 17,953        $ 18,646
     ===========================================================================

     Operating income (loss):
       Grafton(R)DBM Segment                      $  2,143        $  2,628
       Base Tissue Segment                          (1,645)          1,399
       Other                                          (930)           (834)
     ---------------------------------------------------------------------------
       Consolidated                               $   (432)       $  3,193
     ===========================================================================

7.   Reclassifications

     Certain  prior year amounts have been  reclassified  to conform to the 2001
     presentation.


                                       -8-


<PAGE>

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS


Information contained herein contains "forward-looking  statements" which can be
identified  by the  use  of  forward-looking  terminology  such  as  "believes",
"expects",  "may", "will", "should", or "anticipates" or the negative thereof or
variations thereon or comparable terminology,  or by discussions of strategy. No
assurance can be given that the future  results  covered by the  forward-looking
statements will be achieved. Some of the matters set forth in the "Risk Factors"
section of our Annual Report on Form 10-K for the year ended  December 31, 2000,
constitute  cautionary  statements  identifying  factors  with  respect  to such
forward-looking  statements,  including  certain risks and  uncertainties,  that
could cause actual results to vary materially from the future results  indicated
in such  forward-looking  statements.  Other  factors  could also  cause  actual
results  to  vary  materially   from  the  future  results   indicated  in  such
forward-looking statements.

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000

Results of Operations

Net Income (Loss)

We incurred a consolidated  net loss in the first quarter of 2001 of $307,000 or
$.02  diluted  net loss per share as  compared  to  consolidated  net  income of
$1,969,000  or $.13  diluted net income per share in the first  quarter of 2000.
First  quarter  2000  included  $150,000  or $.01  diluted  net income per share
related to the settlement  with DePuy Acromed,  Inc.  (DePuy) in connection with
the  GenSci  patent  litigation,  however,  the first  quarter  of 2001 does not
include  any  income  from the patent  litigation  settlement  because  the last
required payment was made by DePuy in December, 2000.

The following is a discussion of factors affecting results of operations for the
three-month periods ended March 31, 2001 and 2000.

Net Revenues

Consolidated  net  revenues  in  the  first  quarter  of  2000  decreased  4% to
$17,953,000,  from $18,646,000 in the first quarter of 2000.  Domestic revenues,
which consist  principally  of revenues from the Grafton(R)  Demineralized  Bone
Matrix (DBM)  Segment,  or Grafton(R)  DBM Segment,  and Base  Allograft  Tissue
Segment,  or Base Tissue  Segment,  decreased 7% in the first quarter of 2001 to
$16,342,000  from  $17,531,000  in the  first  quarter  of  2000.  Foreign-based
revenues increased 44% in the first quarter to $1,611,000 compared to $1,115,000
in the first quarter of 2000. The increase in  foreign-based  revenues  resulted
primarily  from  continued  expansion of Grafton(R)  DBM tissue forms in Europe.
Foreign-based  revenues  were  adversely  affected  by the  strength of the U.S.
dollar  compared  to the  Dutch  Guilder  and  French  Franc  resulting  in a 7%
reduction of foreign-based revenues.

First quarter 2001 Grafton(R) DBM Segment  revenues  increased 9% to $11,020,000
(including  $1,000,000 of revenue which was deferred from the fourth  quarter of
2000 in accordance with Generally Accepted Accounting  Principles,  or GAAP, and
SEC Staff  Accounting  Bulletin  101) from  $10,104,000  in the first quarter of
2000.  Domestically,  our clients'  shipments of Grafton(R) DBM to  hospital/end
users in the first  quarter  of 2001  were  $14,629,000,  a decline  of about 2%
versus the prior year.  Our  Grafton(R)  DBM tissue forms have faced  increasing
competition  as more  companies  have  developed  products with  characteristics
similar  to  Grafton(R)  DBM.  Although  we expect  that this  competition  will
continue in the future,  we expect demand for our Grafton(R) DBM tissue forms to
grow as we continue  to expand  into  Europe and as we sell them in  conjunction
with our bio-implant tissue forms and metal implants.


                                       -9-


<PAGE>


Base  Tissue  Segment  revenues  decreased  24% in the first  quarter of 2001 to
$5,586,000 from  $7,311,000 in the first quarter of 2000. The decrease  resulted
primarily from a 50% decrease in the number of donors  processed and released to
clients and the deferral of $412,000 of revenue in accordance  with GAAP and SEC
Staff Accounting  Bulletin 101. The decline was partly offset by a 374% increase
in  bio-implant  revenues  and a  21%  increase  in  OsteoPure(R)  Femoral  Head
processing revenues.

During  the  first  three  months of 2001 and 2000,  two of our  clients  in the
Grafton(R) DBM and Base Tissue  Segments  accounted for 43% and 45%, and 49% and
42% of revenues, respectively.

Gross Profit

Gross  profit as a percentage  of net  revenues was 59% in the first  quarter of
2001  and 67% in the  first  quarter  of 2000.  The  decrease  results  from the
underabsorption  of  costs  related  to  increased   capacity,   new  processing
technologies,  a 50% decline in the number of donors  processed  and released to
clients,  and  allograft  bone tissue forms that have not yet  achieved  revenue
levels sufficient to fully absorb processing costs.

Marketing, Selling, General and Administrative

Marketing,  selling,  general  and  administrative  expenses  increased  22%  to
$9,913,000  in the first  quarter of 2001  compared  to  $8,132,000  in the same
period last year. The increase was primarily  attributable to activities related
to securing  additional sources of donated allograft tissue, and increased costs
associated with marketing,  selling and promotional  activities  associated with
Grafton(R) DBM and the continuing launch of new bio-implant tissue forms.

Research and Development

Research and  development  expenses  decreased  19% to  $1,108,000  in the first
quarter  of 2001  compared  to  $1,360,000  in the  first  quarter  2000  due to
decreased spending related primarily to the completion of development of several
new bio-implant tissue forms which are currently in launch mode.

Operating Income (Loss)

We incurred a  consolidated  operating  loss of $432,000 in the first quarter of
2001  compared  to  consolidated  operating  income of  $3,193,000  in the first
quarter  of 2000  primarily  as a result of  decreased  operating  income in the
Grafton(R)  DBM Segment and an  operating  loss in the Base Tissue  Segment.  In
addition,  the first quarter of 2001 does not include any income from the patent
litigation  settlement because DePuy made the last required payment in December,
2000, while the first quarter of 2000 included $250,000 of payments.

Grafton(R)  DBM Segment  operating  income,  decreased  18% to $2,143,000 in the
first quarter of 2001  compared to  $2,628,000  in the same period in 2000.  The
decrease results  primarily from lower gross margins due to  underabsorption  of
cost,  increased  costs  associated  with  marketing,  selling  and  promotional
activities, and a decrease of $250,000 in patent litigation settlement payments.

The Base Tissue  Segment  incurred an operating  loss of $1,645,000 in the first
quarter of 2001 compared to operating  income of $1,399,000 in the first quarter
of  2000.   The  operating  loss  resulted  from  lower  gross  margins  due  to
underabsorption  of  cost  and  increased  costs  for  marketing,   selling  and
promotional activities,  primarily associated with the launch of new bio-implant
tissue forms.


                                      -10-


<PAGE>


Income Tax Provision

We made a provision for income taxes in the first quarter of 2001 even though we
reported a consolidated loss before income taxes because our domestic operations
reported  income  before  taxes,  which for U.S.  income tax purposes can not be
offset by the foreign losses incurred in the quarter.


Liquidity and Capital Resources

At March  31,  2001,  we had  cash and  short-term  investments  of  $12,209,000
compared to  $12,858,000  at December  31, 2000.  We invest  excess cash in U.S.
Government-backed securities and investment grade commercial paper of major U.S.
corporations.  Working capital decreased  $2,795,000 to $26,328,000 at March 31,
2001  compared to  $29,123,000  at December  31,  2000.  The decrease in working
capital  results  principally  from  the  utilization  of  cash  and  short-term
investments to partially fund capital expenditures.

Net cash provided by operating  activities  decreased to $1,650,000 in the first
quarter  of 2001  compared  to  $4,288,000  in the first  quarter  of 2000.  The
decrease resulted primarily from a decrease in net income.

In the first  quarter of 2001,  cash used in investing  activities of $3,830,000
primarily  represents  capital  expenditures,   while  cash  used  in  investing
activities  in the first  quarter  of 2000 of  $2,668,000  primarily  represents
capital  expenditures  of $4,665,000  partially  offset by net proceeds from the
sale of investments  of $2,004,000.  In the fourth quarter of 1998, we commenced
construction  of a  new  processing  facility  in  Eatontown,  New  Jersey.  The
estimated  aggregate  cost  for  the  construction  of the  building,  including
furniture, fixtures and equipment is approximately $37,000,000. A portion of the
aggregate  construction  costs have been funded  through a  $4,500,000  building
mortgage loan and a $17,000,000  equipment line of credit. The remaining balance
will be funded through  available  cash reserves or  anticipated  cash flow from
operations.  Through  March 31, 2001, we have  incurred  $34,740,000  of capital
expenditures,  including capitalized interest of $1,161,000,  related to the new
allograft  tissue  processing  facility of which  $21,500,000 was funded through
bank financing.

Net cash provided by financing  activities increased to $1,509,000 from $235,000
in the first  quarter of 2000  principally  due to an increase in cash  proceeds
received from long-term debt.

We have a credit facility with a U.S. bank, that includes a $5,000,000 revolving
line of credit, a $4,500,000 building mortgage loan, and a $17,000,000 equipment
line of credit.  At March 31, 2001, there were no borrowings under the revolving
line of credit,  $4,489,000 was outstanding under the building mortgage loan and
$17,000,000 was outstanding  under the equipment line of credit.  We have a line
of credit with a Dutch bank,  which  provides for  borrowings of up to 3,000,000
Dutch  Guilders  ("dfl"),  or  approximately  $1,195,000  at the March 31,  2001
exchange  rate. At March 31, 2001,  there were no borrowings  under this line of
credit.

We are currently a party to two distribution  agreements that require us to make
minimum  purchases over the next two years in an aggregate amount of $9,000,000.
Through  March  31,  2001,  we  had  purchased   $2,892,000  pursuant  to  these
agreements.  In addition,  we have agreed to loan the American  Tissue  Services
Foundation,  or ATSF, up to  $1,500,000.  Through March 31, 2001, we have loaned
ATSF $465,000.


                                      -11-


<PAGE>


In the first  quarter of 2001, we  experienced a decrease in available  cash and
cash equivalents due to our continued  investment in our business.  We expect to
continue to make  investments in our business over the next three quarters which
will further deplete our available cash balances.  We believe that our available
cash and cash equivalents, short-term investments and available lines of credit,
together with anticipated  future cash flow from operations,  will be sufficient
to meet our cash needs for the  remainder of the fiscal year.  From time to time
we may seek additional  funds through equity or debt financing.  However,  there
can be no  assurances  that  such  additional  funds  will be  available,  or if
available, that such funds will be available on favorable terms.


Impact of Inflation and Foreign Currency Exchange Fluctuations

Results of operations for the periods  discussed  above have not been materially
affected by inflation or foreign currency fluctuations.


Litigation

Osteotech,  Inc. is  involved in various  legal  proceedings  involving  product
liability and patent infringement claims. For a discussion of these matters see,
Note 4 of "Notes to Condensed Consolidated Financial Statements", PART II., ITEM
1.  LEGAL  PROCEEDINGS  and our  Annual  Report on Form 10-K for the year  ended
December 31, 2000.  It is possible  that our results of  operations or liquidity
and capital resources could be adversely affected by the ultimate outcome of the
pending litigation or as a result of the costs of contesting such lawsuits.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable


PART II.  OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

GenSci Regeneration Laboratories, Inc. v. Osteotech, Inc.; Osteotech, Inc. v.
GenSci Regeneration Sciences, Inc.

In April,  2001, the U.S.  District Court for the Central District of California
granted our motion seeking summary  judgment on U.S. Patent No.  5,290,558 ("the
`558 Patent").  The Court found that GenSci's  DynaGraft Gel and DynaGraft Putty
products literally infringe claims 4 and 10 of our `558 Patent,  and, therefore,
entered  a  judgment  of  literal  infringement.  Also in  April,  2001,  GenSci
petitioned the Federal  Circuit Court of Appeals for an immediate  review of the
District  Court's  denial of GenSci's  motion to withdraw  its  admissions  that
DynaGraft is osteogenic (osteoinductive). That petition is pending.

Medtronic, Inc. v. Osteotech, Inc.

Medtronic,  Inc. and Medtronic Sofamor Danek, Inc.  (collectively,  "Medtronic")
are  seeking to enjoin  Timothy  R.  Miller,  a former  Medtronic  employee  and
currently an Osteotech  employee,  from using and  disclosing any of their trade
secrets or other confidential  information to any third party, including us, and
from working for us for a period of twelve months.  On April 25, 2001, the Court
lifted a temporary  restraining order preventing Mr. Miller from working with us
and entered an order preliminarily  enjoining Mr. Miller from working with us in
the area of spine surgery products.


                                      -12-


<PAGE>


                        OSTEOTECH, INC. AND Subsidiaries
              Notes To Condensed Consolidated Financial Statements
                                   (unaudited)

Younger v. Hayes Medical Center, Inc.

In April,  2001, we were served in an action  brought in the Twentieth  Judicial
District Court in Ellis County,  Kansas, against Hayes Medical Center, Inc., the
Musculoskeletal Transplant Foundation,  Metropath, Inc. and us. The suit alleges
a cause of  action  against  us for  negligence  in  connection  with  allegedly
defective  allograft  bone  tissue  provided  by the  defendants  and  allegedly
implanted in the plaintiff  during a surgical  procedure.  The plaintiff  seeks'
monetary  damages in excess of  $75,000.  We are  assessing  the claim  asserted
against us and have not yet responded to it.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits (numbered in accordance with Item 601 of Regulation S-K)

Exhibit                                                                 Page
Number                  Description                                    Number
------                  -----------                                    ------
                           None



(b)  Reports on Form 8-K

On January 17, 2001, we filed with the  Commission a Current  Report on Form 8-K
to announce that we received  notification  from the FDA of 510(k)  clearance of
the VBR(TM) (Vertebral Body Replacement) Device.

On April 17, 2001, we filed with the  Commission a Current Report on Form 8-K to
announce  that the U.S.  District  Court for the Central  District of California
granted our motion  seeking  summary  judgment that  GenSci's  Dynagraft Gel and
DynaGraft Putty products  literally  infringe claims 4 and 10 of our U.S. Patent
No. 5,290,558.


                                      -13-


<PAGE>
                                   SIGNATURES


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


                                               Osteotech, Inc.
                                       ---------------------------------
                                                (Registrant)


Date:  May 15, 2001           By:      /s/ Richard W. Bauer
                                       ---------------------------------
                                           Richard W. Bauer
                                           Chief Executive Officer


Date:  May 15, 2001           By:     /s/  Michael J. Jeffries
                                      ----------------------------------
                                           Michael J. Jeffries
                                           Executive Vice President
                                           Chief Financial Officer


                                      -14-