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, 2002

                                       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 - 14,140,064 shares as of April 15, 2002.

<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,
                                                             2002          2001
-----------------------------------------------------------------------------------
ASSETS
-----------------------------------------------------------------------------------
<S>                                                       <C>           <C>
Current assets:
  Cash and cash equivalents                               $   3,156     $   5,192
  Accounts receivable, net                                   19,248        15,093
  Deferred processing costs                                  10,729        11,165
  Inventories                                                 8,402         8,803
  Deferred income taxes                                       2,002         2,002
  Prepaid expenses and other current assets                   2,314         2,025
                                                          -----------------------
        Total current assets                                 45,851        44,280

Property, plant and equipment, net                           57,685        56,736
Goodwill, net of accumulated amortization of $2,861
  in 2002 and 2001                                            2,910         2,910
Other assets                                                  3,209         3,318
---------------------------------------------------------------------------------
        Total assets                                      $ 109,655     $ 107,244
=================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------
Current liabilities:
  Accounts payable and accrued liabilities                $  20,156     $  17,311
  Current maturities of long-term debt                        2,661         2,530
                                                          -----------------------
        Total current liabilities                            22,817        19,841

Long-term debt                                               17,918        18,683
Other liabilities                                               740           934
---------------------------------------------------------------------------------
        Total liabilities                                    41,475        39,458
---------------------------------------------------------------------------------

Commitments and contingencies

Stockholders' equity:
     Preferred stock, $.01 par value; 5,000,000 shares
         authorized; no shares issued or outstanding
     Common stock, $.01 par value; 70,000,000 shares
         authorized; issued and outstanding 14,115,064
         shares in 2002 and 14,098,264 shares in 2001           140           140
     Additional paid-in capital                              47,183        47,076
     Accumulated other comprehensive loss                      (752)         (653)
     Retained earnings                                       21,609        21,223
---------------------------------------------------------------------------------
        Total stockholders' equity                           68,180        67,786
---------------------------------------------------------------------------------
        Total liabilities and stockholders' equity        $ 109,655     $ 107,244
=================================================================================
</TABLE>


See accompanying notes to condensed 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,                                 2002             2001
--------------------------------------------------------------------------------------
<S>                                                      <C>              <C>
Net revenues:
     Service                                             $     20,586     $     16,912
     Product                                                    1,994            1,041
                                                         -----------------------------
                                                               22,580           17,953

Cost of services                                                8,139            6,631
Cost of products                                                1,085              733
                                                         -----------------------------
                                                                9,224            7,364
                                                         -----------------------------

Gross profit                                                   13,356           10,589

Marketing, selling, general and administrative                 11,450            9,913
Research and development                                          965            1,108
                                                         -----------------------------
                                                               12,415           11,021
                                                         -----------------------------

Operating income(loss)                                            941             (432)

Other income (expense):                                            53              194
     Interest income                                             (323)             (34)
     Interest expense                                              11                7
                                                         -----------------------------
     Other                                                       (259)             167
                                                         -----------------------------

Income (loss) before income taxes                                 682             (265)

Income tax provision                                              296               42

--------------------------------------------------------------------------------------
Net income (loss)                                        $        386     $       (307)
======================================================================================
Net income (loss) per share:
      Basic                                              $        .03     $       (.02)
      Diluted                                            $        .03     $       (.02)
--------------------------------------------------------------------------------------
Shares used in computing net income (loss) per share:
      Basic                                                14,099,267       13,989,307
      Diluted                                              14,447,407       13,989,307
======================================================================================
</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,                                  2002         2001
---------------------------------------------------------------------------------
<S>                                                         <C>          <C>
Cash Flow From Operating Activities
   Net income (loss)                                        $    386     $   (307)
   Adjustments to reconcile net income (loss) to
      Net cash provided by operating activities:
         Depreciation and amortization                         1,594        1,212
         Provision for doubtful accounts                          54
         Changes in current assets and liabilities:
               Accounts receivable                            (3,903)       1,472
               Deferred processing fees                          752         (434)
               Inventories                                       256         (324)
               Prepaid expenses and other current assets        (290)      (1,678)
               Accounts payable and other liabilities          2,245        1,709
---------------------------------------------------------------------------------
Net cash provided by operating activities                      1,094        1,650

Cash Flow From Investing Activities
   Capital expenditures                                       (2,512)      (3,614)
   Purchases of investments                                                (1,951)
   Proceeds from sale of investments                                        1,935
   Increase (decrease) in other assets                            39         (200)
---------------------------------------------------------------------------------
Net cash used in investing activities                         (2,473)      (3,830)

Cash Flow From Financing Activities
   Proceeds from issuance of common stock                        107          128
   Proceeds from issuance of long-term debt                                 1,468
   Principal payments on long-term debt                         (634)         (10)
   Decrease in other liabilities                                (135)         (77)
---------------------------------------------------------------------------------
Net cash provided by (used in) financing activities             (662)       1,509

Effect of exchange rate changes on cash                            5            6
---------------------------------------------------------------------------------

Net decrease in cash and cash equivalents                     (2,036)        (665)
Cash and cash equivalents at beginning of period               5,192       10,923
---------------------------------------------------------------------------------
Cash and cash equivalents at end of period                  $  3,156     $ 10,258
=================================================================================

Supplementary cash flow data:
   Cash paid during the period for interest, excluding
      amounts capitalized                                   $    267     $     33
   Cash paid during the period for taxes                          80           67
</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, 2002, and the  consolidated  results of
     operations  and the  consolidated  cash flows for the  three-month  periods
     ended March 31, 2002 and 2001. 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, 2001 financial information has
     been  derived  from the  audited  financial  statements  for the year ended
     December 31, 2001. The condensed  consolidated  financial statements should
     be read in conjunction with the audited  financial  statements for the year
     ended December 31, 2001 which were included as part of  Osteotech's  Annual
     Report on Form 10-K.

2.   Recent Accounting Pronouncements

     Effective  January 1, 2002,  the Company  adopted  Statement  of  Financial
     Accounting  Standard  ("SFAS")  No.  142,  "Goodwill  and Other  Intangible
     Assets" and SFAS No. 144,  "Accounting  for the  Impairment  or Disposal of
     Long Lived Assets".  Pursuant to the provisions of SFAS No. 142,  beginning
     in 2002 the  Company  is no longer  amortizing  goodwill.  Amortization  of
     goodwill  was  $96,000  for the  three  months  ended  March 31,  2001.  In
     addition,  the  Company  is  currently  in the  process of  evaluating  the
     potential impairment, if any, of goodwill pursuant to the terms of SFAS No.
     142. SFAS No. 142 requires that this process be completed by the end of the
     Company's second fiscal quarter.  Adoption of SFAS No. 144 had no impact on
     the Company.

3.   Deferred Processing Costs

     Deferred processing costs consist of the following:

                                                     March 31,    December 31,
     (in thousands)                                     2002          2001
     -------------------------------------------------------------------------

     Unprocessed donor tissue to be distributed
        by the Company                                $   928       $   492
     Tissue in process                                  1,976         2,936
     Implantable donor tissue to be distributed
        by the Company                                  5,804         5,359
     Implantable donor tissue held for clients          2,021         2,378
     ----------------------------------------------------------------------
                                                      $10,729       $11,165
     ======================================================================


                                       -5-

<PAGE>

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

4.   Inventories

     Inventories consist of the following:

                                              March 31,     December 31,
     (in thousands)                             2002            2001
     -------------------------------------------------------------------

     Supplies                                  $  227          $  245
     Raw materials                                724             784
     Finished goods                             7,451           7,774
     ----------------------------------------------------------------
                                               $8,402          $8,803
     ================================================================

5.   Comprehensive Income (Loss)

     Comprehensive  income  (loss) for the  three-month  periods ended March 31,
     2002 and 2001 was:

     (in thousands)                            2002             2001
     ----------------------------------------------------------------

     Net income (loss)                         $ 386           $(307)

     Currency translation adjustments            (99)           (408)
     ---------------------------------------------------------------

     Comprehensive income (loss)               $ 287           $(715)
     ===============================================================

6.   Commitments and Contingencies

     Loan Receivable

     In  February,  2001,  the Company  entered into a Loan  Agreement  with the
     American Tissue  Services  Foundation  ("ATSF"),  a  not-for-profit  tissue
     recovery  organization.  The Loan  Agreement  expires on December 31, 2010.
     Pursuant to the Loan  Agreement,  loans made by the Company mature five (5)
     years from the date each loan is made and bear interest at a rate per annum
     equal to the five year United  States  Treasury  Bill Rate plus one percent
     (1%).

     Interest is payable on a quarterly  basis.  In February,  2002, the Company
     and ATSF amended the Loan Agreement to allow ATSF to borrow an aggregate of
     $2,750,000  from the Company.  As of March 31, 2002, the Company had loaned
     ATSF an aggregate of $2,458,000 at an average interest rate of 5.59%.

     The funds loaned to ATSF are being utilized by ATSF to fund its operations.
     The Company is providing a reserve  against  these loans  equivalent to the
     accumulated  operating  losses of ATSF until such time that ATSF is able to
     generate  positive  cash flow from  operations.  The Company  has  provided
     reserves  totaling  $2,403,000  against  these loans.  For the three months
     ended March 31, 2002 and 2001,  the Company  provided  reserves of $402,000
     and $298,000, respectively, which charge is included in marketing, selling,
     general and administrative expenses.


                                       -6-

<PAGE>


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


     6.   Commitments and Contingencies (continued)

     Michael J.  Jeffries,  the  Company's  Executive  Vice  President and Chief
     Financial  Officer,  is  one  of the  three  members  of  ATSF's  Board  of
     Directors. ATSF is a not-for-profit  corporation,  and neither Mr. Jeffries
     nor the Company owns any equity or any other interest in ATSF. Mr. Jeffries
     receives no compensation from ATSF.

     The Company has  entered  into an  exclusive  fifteen-year  processing  and
     distribution  agreement with ATSF effective  December 7, 2000.  Pursuant to
     the agreement, the Company has the right to process and distribute all ATSF
     recovered  tissue. As of March 31, 2002, the Company owed ATSF $319,000 for
     tissue  recovery  reimbursement  fees. For the three months ended March 31,
     2002,  the Company  incurred  liabilities  to ATSF of  $239,000  for tissue
     recovery  reimbursement  fees. No such liabilities were incurred during the
     three months ended March 31, 2001.

     Litigation

     The  following is a  description  of material  developments  that  occurred
     during  the  quarter  ended  March 31,  2002 in  lawsuits  reported  in the
     Company's  Annual Report on Form 10-K for the year ended  December 31, 2001
     and  the  disclosure  of a  potential  lawsuit  which  was  not  previously
     reported. Additionally, the Company is party to other litigation incidental
     to its  business,  none of which,  individually  or in the  aggregate,  are
     expected to have a material adverse effect on the Company.

     Hardman v. Nussbaum

     The American  National Red Cross ("ARC") recently notified the Company that
     a plaintiff  had brought an action  against it for  negligence  relating to
     ARC's  distribution  of certain  Grafton(R)  DBM putty  that was  allegedly
     implanted in the plaintiff,  Larry Hardman, during a surgical procedure. On
     April 2, 2002,  ARC requested in writing that the Company  acknowledge  the
     obligation to indemnify ARC under its tissue processing agreement with ARC;
     otherwise   ARC  would   commence   an  action   against  the  Company  for
     indemnification.  Under the  agreement,  the Company is only  obligated  to
     indemnify ARC for the Company's  negligence or willful misconduct.  As this
     action  is in its  early  stages,  the  Company  notified  ARC  that  it is
     premature to ascertain  whether ARC is entitled to any  indemnification  by
     the Company.  The Company intends to notify its general liability insurance
     carriers, as it believes that an indemnification  obligation, if any, would
     likely be covered by such insurance.

     Medtronic  Sofamor Danek,  Inc.,  Sofamor Danek L.P. and Sofamor  Holdings,
     Inc. v. Osteotech, Inc.

     In July, 1999, Medtronic Sofamor Danek Inc., Sofamor Danek L.P. and Sofamor
     Holdings, Inc. (collectively "Danek") sued the Company in the United States
     District Court for the Western District of Tennessee  alleging that certain
     instruments and instrument sets and surgical procedures relating to some of
     the  Company's  cortical  bone dowel  products  manufactured,  sold  and/or
     otherwise


                                       -7-

<PAGE>

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


6.   Commitments and Contingencies (continued)

     distributed  by it,  including  the bio-d(R)  Threaded  Cortical Bone Dowel
     ("bio-d(R)"),  infringe on certain  claims of U.S.  Patent  Nos.  5,741,253
     ("253 patent"), 5,484,437 ("437 patent") and 6,096,038 ("038 patent") which
     are owned by Danek,  two of which are method patents and one of which is an
     instrument patent. Danek's claim for damages in this case is based upon the
     Company's  distribution  of the  bio-d(R),  which is  implanted  using  the
     instruments  and  surgical  procedures  that  Danek  alleges  infringe  its
     patents.  On April 4, 2002, the court issued an order  construing  disputed
     patent claims.  The Company  believes the order construes an element of the
     asserted  claims of the 253 patent and an element of the asserted  claim of
     the 437 patent in the manner the Company  proposed and several  elements of
     the asserted  claims of the 253 patent,  437 patent,  and 038 patent in the
     manner  proposed by Danek.  This order is not  dispositive of the issues in
     this case.

     In preparation for the start of the trial now scheduled for April 29, 2002,
     the court  has  recently  issued a series of  rulings  related  to  various
     summary judgment  motions.  The court has decided that, as a matter of law,
     the Company does not infringe one of Danek's method patents,  that there is
     sufficient  question  concerning the facts regarding the Company's  alleged
     infringement  of the second method patent  requiring that the  infringement
     claims be decided by the jury at trial,  and that,  as a matter of law, the
     Company does infringe certain claims of the instrument patent.

     At the trial,  the Company intends to vigorously  defend against the claims
     that the Company  infringes the disputed  method  patent,  and will seek to
     have such method patent and the instrument patent declared invalid.  If the
     Company is found to  infringe  the method  patent and the method  patent is
     found to be valid or if the instrument patent is found to be valid, damages
     would be  decided  in a second  phase of the  trial,  using one of  several
     methods to calculate  them. As a result,  at this point, it is not possible
     to determine the extent of any possible  damage award,  but any calculation
     of damages  resulting  from the Company's  infringement  of either of these
     patents  will be  calculated  by the jury  awarding  Danek  either its lost
     profits,  a  reasonable  royalty  or a  combination  of both  based  on the
     Company's  bio-d(R)  revenues from the date the infringed patent was issued
     until the date of  trial.  The  method  patent in  question  was  issued in
     January,  1996 and the  instrument  patent was issued in August,  2000. The
     Company began  distributing  bio-d(R) in December,  1998 and from December,
     1998 through March 31, 2002 had bio-d(R) revenues aggregating approximately
     $7.2 million.  From August,  2000 through March 31, 2002, bio-d(R) revenues
     aggregated approximately $4.0 million.


                                       -8-


<PAGE>

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

6.   Commitments and Contingencies (continued)

     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 a result of the costs of  contesting  such  lawsuits.  The
     Company is currently  unable to estimate the  liability,  if any,  that may
     result from the pending litigation and, accordingly,  no material provision
     for any liability  (except for accrued legal costs for services  previously
     rendered) has been made in the consolidated financial statements.  When the
     Company is reasonably  able to determine  the probable  minimum or ultimate
     liability, if any, that may result from any of the pending litigation,  the
     Company  will  record a  provision  for such  liability  to the  extent not
     covered by insurance.

7.   Preferred Stock

     On April 4, 2002,  the Company  reduced the number of authorized  shares of
     preferred stock to 5,000,000  shares from 5,675,595  shares.  In accordance
     with the Company's  Restated  Certificate of  Incorporation,  these 675,595
     shares  were  previously  converted  to common  stock,  and  therefore  are
     prohibited from being issued.

8.   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, 2002
     and 2001:

<TABLE>
<CAPTION>
     (dollars in thousands except per share data)                                     2002                  2001
     -------------------------------------------------------------------------------------------------------------
     <S>                                                                          <C>                  <C>
     Net income (loss) available to common
       Shareholders                                                               $       386          $      (307)
     -------------------------------------------------------------------------------------------------------------
     Denominator for basic net income (loss) per share:
       Weighted average common shares outstanding
                                                                                   14,099,267           13,989,307
     Effect of dilutive securities:
       Stock options                                                                  348,140

                                                                                  --------------------------------
     Denominator for diluted net income (loss) per share                           14,447,407           13,989,307
     -------------------------------------------------------------------------------------------------------------

       Basic net income (loss) per share                                          $       .03          $      (.02)
     -------------------------------------------------------------------------------------------------------------

       Diluted net income (loss) per share                                        $       .03          $      (.02)
     -------------------------------------------------------------------------------------------------------------
</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.

     Weighted  average shares  issuable upon the exercise of stock options which
     were not included in the calculation of diluted net income (loss) per share
     were  1,161,625 and 1,571,625 for the three months ended March 31, 2002 and
     2001,  respectively.  Such  shares  were not  included  because  they  were
     antidilutive.


                                       -9-

<PAGE>

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


9.   Operating Segments

     Summarized in the table below is financial  information  for our reportable
     segments for the three-month periods ending March 31, 2002 and 2001:

     (dollars in thousands)                            2002          2001

     ----------------------------------------------------------------------

      Revenues:
        Grafton(R) DBM Segment                       $ 12,151      $ 11,020
        Base Tissue Segment                             8,435         5,586
        Other                                           1,994         1,347
      ---------------------------------------------------------------------
        Consolidated                                 $ 22,580      $ 17,953
      =====================================================================

      Operating income (loss):
        Grafton(R)DBM Segment                        $  1,665      $  2,252
        Base Tissue Segment                                77        (1,456)
        Other                                            (801)       (1,228)
      ---------------------------------------------------------------------
        Consolidated                                 $    941      $   (432)
      =====================================================================

     During the first three months of 2002 and 2001, two of our clients, MTF and
     ARC, in the Grafton(R) DBM and Base Tisue Segments  together  accounted for
     63% and 87%, respectively, of consolidated net revenues.

10.  Reclassifications

     Certain  prior year amounts have been  reclassified  to conform to the 2002
     presentation.

11.  Subsequent Event

     On April 8, 2002,  the Company  amended  the  License and Option  Agreement
     between  the  Company  and IsoTis  N.V.  ("IsoTis")  dated  June 27,  1997.
     Pursuant  to the  amendment,  the option  price for  IsoTis to acquire  the
     PolyActive(TM)  polymer biomaterial  technology and patents  (collectively,
     the "PolyActive technology"),  was reduced to $1,000,000 from approximately
     $1,582,000. In conjunction with the execution of the amendment,  IsoTis has
     elected to exercise its option to acquire the  PolyActive  technology.  The
     documentation for this transaction is in the process of being finalized and
     the Company  expects  this  transaction  to be  completed by the end of its
     second fiscal quarter.  The Company anticipates  realizing a pretax gain on
     this transaction to be approximately $950,000.


                                      -10-


<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, 2001,
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, 2002 AND 2001

Results of Operations

Critical Accounting Policies and Estimates

On December 12, 2001, the Securities and Exchange  Commission issued Release No.
33-8040,  "Cautionary  Advice  Regarding  Disclosure  About Critical  Accounting
Policies."  Critical  accounting  policies are those that involve  subjective or
complex  judgments,  often  as a  result  of the  need  to make  estimates.  The
following areas all require the use of judgments and estimates: product returns,
bad debts,  inventories,  deferred processing costs,  intangible assets,  income
taxes and  contingencies  and  litigation.  Estimates in each of these areas are
based on  historical  experience  and  various  assumptions  that we believe are
appropriate.  Actual  results may differ from these  estimates.  Our  accounting
practices are discussed in more detail in "Management's  Discussion and Analysis
of  Financial  Condition  and  Results  of  Operations"  and Note 2 of "Notes to
Consolidated  Financial  Statements"  in our Annual  Report on Form 10-K for the
year ended December 31, 2001.

Net Income (Loss)

Consolidated  net  income in the first  quarter  of 2002 was  $386,000,  or $.03
diluted net income per share compared to a consolidated net loss of $307,000, or
$.02  diluted  net loss per share in the  first  quarter  of 2001.  Consolidated
income before income taxes was $682,000 in 2002 compared to a consolidated  loss
before taxes of $265,000 in 2001.

The following is a discussion of factors affecting results of operations for the
three-month periods ended March 31, 2002 and 2001.

Net Revenues

Consolidated  net  revenues  increased  26% in the  first  quarter  of  2002  to
$22,580,000,   compared  to   consolidated   revenues  of   $17,953,000  in  the
corresponding period in 2001. The increase in 2002 was principally due to higher
revenues in all segments  primarily as a result of increased unit volume, and to
a lesser  extent,  as a result of price  increases  effective  January  1, 2002.
Domestic net revenues  increased 28% in the first quarter of 2002 to $20,887,000
from $16,342,000 in the  corresponding  period in 2001. The increase in domestic
revenues was due primarily to increased

                                      -11-


<PAGE>

unit volume in  Grafton(R)  DBM,  bio-implants  and spinal  metal  implants  and
increased  pricing in Grafton(R)  DBM and  bio-implants,  partially  offset by a
decrease in base allograft  tissue  processing  revenue due to a 11% decrease in
the number of donors  processed  in the first  quarter of 2002  compared  to the
first quarter of 2001.  Foreign-based revenues increased 5% to $1,693,000 in the
first quarter of 2002 from  $1,611,000 in the same period in 2001.  The increase
in  foreign-based  revenues was  primarily  as a result of increased  unit sales
volume in  ceramic  and  titanium  coating  services  and bovine  tissue  sales,
partially offset by decreased unit sales volume in ceramic products.

Grafton(R) Demineralized Bone Matrix ("DBM") Segment, or Grafton(R) DBM Segment,
revenues were  $12,151,000 in the first quarter of 2002, an increase of 10% from
revenues of  $11,020,000  in the same period in 2001.  Domestic  Grafton(R)  DBM
Segment  revenues  increased  $1,139,000,  or 11%, to  $11,527,000  in the first
quarter of 2002.  Domestic  Grafton(R)  DBM revenues  increased due to increased
unit  sales  volume  and the  effects  of a  January  1,  2002  price  increase.
Foreign-based  Grafton(R)  DBM revenues  were flat in the first  quarter of 2002
compared  to  the  corresponding  period  in  the  prior  year  because  we  are
restructuring our distribution network in certain European countries.  We expect
this  restructuring to be completed in the second quarter and to see a return to
growth in our foreign-based Grafton(R) DBM revenues in that quarter.

Base Tissue Segment revenues increased 51% to $8,435,000 in the first quarter of
2002 from  $5,586,000  in the  corresponding  period in 2001.  The  increase  is
principally  the result of a 194% increase in  bio-implant  revenues,  partially
offset by a 13% decrease in base allograft tissue processing  revenues resulting
from a 11%  decline  in  donors  processed  for our  clients.  The  increase  in
bio-implant  revenues is primarily due to increased unit volume in 2002 compared
to 2001 when several  bio-implants  were basically in a launch mode, the ability
to charge higher unit sale prices as a result of our direct  distribution of the
majority of those units to hospitals  and the effects of a January 1, 2002 price
increase.

Revenue from other product  lines  increased 48% in the first quarter of 2002 to
$1,994,000 from $1,347,000 in the same period in 2001. The increase  principally
resulted  from  improved  volume in spinal metal  implant  systems,  ceramic and
titanium coatings, and bovine tissue products, partially offset by a decrease in
unit sales volume of ceramic  products.  Metal spinal implant systems  accounted
for 72% and bovine tissue products  accounted for 19% of the overall increase in
other revenues.

During the first three months of 2002 and 2001, two of our clients, MTF and ARC,
in the Grafton(R) DBM and Base Tissue  Segments  together  accounted for 63% and
87%,  respectively,  of consolidated net revenues. We have processing agreements
with each of these  clients,  which expire in August,  2005 and December,  2006,
respectively.  Our  agreement  with MTF which  expires  in  August,  2005 may be
terminated by either MTF or us upon six months prior written  notice,  which has
not been given by either party as of the date of this report.

Gross Profit

Gross profit as a  percentage  of net revenues was flat at 59% in both the first
quarter of 2002 and the first  quarter of 2001.  Gross profit as a percentage of
revenues  in the first  quarter  of 2002 was  positively  impacted  by  improved
absorption of fixed costs in the processing of bio-implants,  offset by: (i) our
direct distribution efforts which reduced gross profit margin by four percentage
points in the first quarter of 2002 compared to the corresponding  period in the
prior  year  as a  result  of  incurring  additional  costs  equivalent  to  the
incremental  revenue  we are  recognizing  from  these  efforts;  and  (ii)  the
under-absorption of fixed costs in the


                                      -12-


<PAGE>

Grafton(R)  DBM  Segment  due to  increased  capacity  as a  result  of our  new
processing facility and in base allograft tissue processing as a result of a 11%
decline  in the  number of donors  processed;  and (iii)  metal  spinal  implant
product  lines that have not yet achieved  revenue  levels  sufficient  to fully
absorb related operational costs and expenses.

Marketing, Selling, General and Administrative Expenses

Marketing,  selling,  general and  administrative  expenses increased 16% in the
first quarter of 2002 to $11,450,000 from $9,913,000 in the corresponding period
in 2001. The increase  relates mainly to: (i) increased  costs  associated  with
activities to secure  additional  sources of donated  allograft tissue including
provisions  related to our funding of the American Tissue  Services  Foundation;
and (ii) increased  legal fees in connection  with various  lawsuits to which we
are  a  party.   The  first  quarter  of  2001  included   $96,000  of  goodwill
amortization.  In accordance with SFAS No. 142, effective January 1, 2002 we are
no longer amortizing goodwill.

Research and Development Expenses

Consolidated  research  and  development  expenses  decreased  13% in the  first
quarter of 2002 to $965,000  from  $1,108,000  in the same  period in 2001.  The
decrease was primarily  related to the  completion of development of bio-implant
tissue forms,  which were launched in 2001, and the completion of new processing
technology and packaging, which were implemented in 2001.

Operating Income (Loss)

Operating  income  in the  first  quarter  of 2002 was  $941,000  compared  to a
consolidated operating loss in the first quarter of 2001 of $432,000. Grafton(R)
DBM  Segment  operating  income  decreased  26% in the first  quarter of 2002 to
$1,665,000  from  $2,252,000 in the  corresponding  period in 2001. The decrease
results  principally  from:  (i) a slight  decline in gross profit margin due to
increased  costs  associated  with the new processing  facility;  (ii) increased
costs  associated  with marketing,  selling and  promotional  activities for the
introduction  of Grafton  Plus(TM) DBM; and (iii) increased legal fees. The Base
Tissue  Segment  had  operating  income in the first  quarter of 2002 of $77,000
compared  to an  operating  loss of  $1,456,000  in the  same  period  in  2001.
Operating  income was  positively  impacted by: (i) the increase in  bio-implant
revenues;  (ii) improved  absorption of bio-implant  processing costs; and (iii)
lower costs for marketing,  selling and promotional  activities primarily due to
incurring  the  costs  to  launch  the new  bio-implant  tissue  forms  in 2001.
Operating  income was  negatively  impacted by: (i) a decline in base  allograft
tissue  processing  revenue,  and (ii) increased  legal fees.  Operating  losses
associated with other revenues were $801,000 and $1,228,000 in the first quarter
of 2002 and 2001,  respectively.  The operating  loss in 2002 decreased over the
operating  loss in 2001  principally  as a result  of  improved  gross  margins,
partially  offset by reserves  for our funding of the American  Tissue  Services
Foundation.

Other Income (Expense)

In the first  quarter of 2002 other  expenses  was  $259,000  compared  to other
income of $167,000 in the first  quarter of 2001.  The decrease was  principally
due to interest  expense on long-term debt and lower interest income as a result
of a decline in interest  rates and lower  average cash  balances  available for
investment.  In the first  quarter of 2001,  the majority of our interest  costs
were capitalized in connection with the construction of our new allograft tissue
processing  facility.  In late 2001, we began to charge such  interest  costs to
earnings since the facility was substantially complete.


                                      -13-

<PAGE>

Income Tax Provision

The effective income tax rate for the three months ended March 31, 2002 was 43%,
which exceeded the United States  statutory rate principally due to state income
taxes and  non-recognition  of tax benefits  related to foreign  losses.  In the
first  quarter of 2001,  we made a  provision  for income  taxes even  though we
reported a  consolidated  loss  before  taxes  because our  domestic  operations
reported income before taxes, which for United States income tax purposes cannot
be offset by the  foreign  losses  incurred  in the  quarter.  No tax benefit is
provided for foreign losses.

Liquidity and Capital Resources

At March 31, 2002 we had cash and cash  equivalents  of  $3,156,000  compared to
$5,192,000 at December 31, 2001. We invest excess cash in U.S. Government-backed
securities and investment  grade  commercial  paper of major U.S.  corporations.
Working capital  decreased  $1,405,000 to $23,034,000 at March 31, 2002 compared
to  $24,439,000  at December 31,  2001.  The decrease  resulted  primarily  from
utilization of cash and cash equivalents to fund capital expenditures, including
final  construction  efforts for the new allograft tissue  processing  facility,
other production equipment and instruments for spinal implant systems.

Net cash provided by operating activities was $1,094,000 in the first quarter of
2002 compared to $1,650,000 in the  corresponding  period in the prior year. The
decrease resulted primarily from investments in accounts  receivable as a result
of our direct  distribution  efforts,  partially offset by increases in accounts
payable and other liabilities.  Beginning in 2001, we began to distribute tissue
forms  directly  to  surgeons  and  hospitals.   This  change  in   distribution
methodology  has  impacted  our  liquidity  and cash  flow.  We have had to make
additional  investments in inventories and deferred  processing costs to support
our direct sales efforts, and expect to make additional investments in inventory
and deferred  processing  costs, as necessary,  to support our efforts to expand
direct  distribution.  In addition,  our days sales in accounts  receivable have
increased  from 71 days at  December  31,  2001 to 77 days at  March  31,  2002,
primarily  as a result of the  change in our  customer  mix  resulting  from our
direct distribution efforts.

Cash used in investing  activities  decreased to $2,473,000 in the first quarter
of 2002 from  $3,830,000 in the  corresponding  period of 2001.  The decrease is
principally due to a decrease in capital expenditures to $2,512,000 in 2002 from
$3,614,000  in 2001,  due to reduced  spending  on the  construction  of our new
allograft  tissue  processing  facility.  Through  March 31,  2002,  we incurred
$39,967,000  of  capital   expenditures,   including   capitalized  interest  of
$1,769,000,  related to our new allograft tissue processing  facility,  of which
$19,352,000 has been funded through bank financing.

Net cash used in financing  activities was $662,000 in the first quarter of 2002
compared to net cash provided by financing activities of $1,509,000 in the first
quarter of 2001.  In the first quarter of 2002,  we made  principal  payments of
$634,000 under our equipment term loan and mortgage,  while in 2001 we only made
principal payments under the mortgage of $10,000.  Also, in the first quarter of
2001,  we  borrowed  the  remaining  funds of  $1,468,000  available  under  the
equipment term loan.

We have a Credit Facility with a U.S. bank that includes: a $5,000,000 revolving
line of credit,  a building  mortgage loan and an equipment  term loan. At March
31,  2002,  there  were no  borrowings  under  the  revolving  line  of  credit,
$4,389,000 was outstanding  under the building mortgage loan and $16,190,000 was
outstanding under the equipment term loan. As of March 31, 2002, the full amount
of the revolving line of credit is available to us.


                                      -14-

<PAGE>

In February,  2001, we entered into a distribution agreement to market a pedicle
screw system and a cervical plating system.  This agreement  requires us to make
minimum purchase commitments of $6,000,000 over the two-year period beginning on
February 1, 2002.  Through March 31, 2002, we purchased  $3,383,000 of inventory
pursuant to the  commitment.  We expect to  purchase  the  remaining  balance of
$2,617,000 during the remainder of 2002 and in 2003.

In February,  2001, we entered into a Loan  Agreement  with the American  Tissue
Services  Foundation,  or ATSF, a not-for-profit  tissue recovery  organization,
which  expires in  December,  2010.  Pursuant  to the Loan  Agreement,  ATSF has
borrowed $2,458,000 from us as of March 31, 2002 to fund its operations. We have
entered into a  fifteen-year  processing  and  distribution  agreement with ATSF
effective  December 7, 2000.  Michael J. Jeffries,  our Executive Vice President
and Chief  Financial  Officer,  is one of the three  members of ATSF's  Board of
Directors. ATSF is a not-for-profit corporation, and neither Mr. Jeffries nor us
owns any  equity  or any  other  interest  in ATSF.  Mr.  Jeffries  receives  no
compensation from ATSF.

As of  March  31,  2002,  there  were no  material  changes  in our  contractual
obligations  or long-term  debt from that disclosed in our Annual Report on Form
10-K for the year ended December 31, 2001. See Item 7,  MANAGEMENT'S  DISCUSSION
AND ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF  OPERATIONS,  LIQUIDITY AND
CAPITAL  RESOURCES in our Annual Report on Form 10-K for the year ended December
31, 2001.

During the three  months  ended March 31,  2002,  we  experienced  a decrease in
available  cash and cash  equivalents  due to our continued  investments  in our
business.  We expect to continue to make  investments in our business to support
our direct distribution  efforts and future programs and initiatives,  which may
further deplete our available cash balances.  We believe that our available cash
and cash equivalents, available lines of credit and anticipated future cash flow
from  operations  will be sufficient to meet our  forecasted  cash needs for the
next twelve months.  Our future liquidity and capital  requirements  will depend
upon numerous factors, including:

o    additional  investments in  inventories  and deferred  processing  costs to
     support  our direct  distribution  efforts;

o    the  progress  of  our  product  development  programs  and  the  need  and
     associated  costs relating to regulatory  approvals  which may be needed to
     commercialize some of our products under development;

o    the resources we devote to the  development,  manufacture  and marketing of
     our services and products; and

o    the defense and outcome of pending litigation, including any outcomes which
     are adverse to us, to the extent not covered by product  liability or other
     insurance.  In this regard, we have three lawsuits, two of which are patent
     lawsuits,  that are  scheduled  for trial in 2002 and in which any  damages
     that may be awarded against us are not covered by insurance.

We  intend  to seek  additional  funding  to meet  the  needs  of our  long-term
strategic plan and to re-build cash  reserves.  We can provide no assurance 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.


                                      -15-


<PAGE>

Litigation

Osteotech,  Inc. is  involved in various  legal  proceedings  involving  product
liability and patent infringement claims. For a discussion of these matters see,
Note 5 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, 2001.  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.

Subsequent Event

On April 8, 2002,  we amended the License  and Option  Agreement  between us and
IsoTis N.V.  ("IsoTis")  dated June 27,  1997.  Pursuant to the  amendment,  the
option  price for  IsoTis to  acquire  the  PolyActive(TM)  polymer  biomaterial
technology and patents (collectively,  the "PolyActive technology"), was reduced
to  $1,000,000  from  $1,582,000.  In  conjunction  with  the  execution  of the
amendment,  IsoTis has elected to exercise its option to acquire the  PolyActive
technology.  The  documentation  for this transaction is in the process of being
finalized  and we expect  this  transaction  to be  completed  by the end of our
second fiscal quarter.  We anticipate the pretax gain on this  transaction to be
approximately $950,000.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For  information  regarding our exposure to certain  market risks,  see Item 7A,
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, in our Annual Report
on  Form  10-K  for the  year  ended  December  31,  2001.  There  have  been no
significant changes in our market risk exposures from the fiscal 2001 year-end.

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

The following is a description of material developments that occurred during the
quarter  ended March 31, 2002 in lawsuits  reported in our Annual Report on Form
10-K for the year ended  December  31,  2001 and the  disclosure  of a potential
lawsuit which was not previously reported. Additionally, we are a party to other
litigation  incidental to our business,  none of which,  individually  or in the
aggregate, are expected to have a material adverse effect.

Hardman v. Nussbaum

The American  National Red Cross ("ARC")  recently  notified us that a plaintiff
had brought an action against it for negligence  relating to ARC's  distribution
of certain  Grafton(R) DBM putty that was allegedly  implanted in the plaintiff,
Larry Hardman,  during a surgical procedure.  On April 2, 2002, ARC requested in
writing that we  acknowledge  the  obligation  to indemnify ARC under its tissue
processing agreement with ARC; otherwise ARC would commence an action against us
for indemnification. Under the agreement, we are only obligated to indemnify ARC
for our negligence or willful misconduct. As this action is in its early stages,
we notified ARC that it is premature to ascertain whether ARC is entitled to any
indemnification.  We intend to notify our general liability  insurance carriers,
as we  believe  that an  indemnification  obligation,  if any,  would  likely be
covered by such insurance.


                                      -16-


<PAGE>

Medtronic Sofamor Danek, Inc., Sofamor Danek L.P. and Sofamor Holdings,  Inc. v.
Osteotech, Inc.

In July,  1999,  Medtronic  Sofamor  Danek Inc.,  Sofamor Danek L.P. and Sofamor
Holdings,  Inc.  (collectively  "Danek") sued us in the United  States  District
Court for the Western  District of Tennessee  alleging that certain  instruments
and  instrument  sets and surgical  procedures  relating to some of our cortical
bone dowel  products  manufactured,  sold and/or  otherwise  distributed  by us,
including the bio-d(R)  Threaded Cortical Bone Dowel  ("bio-d(R)"),  infringe on
certain claims of U.S. Patent Nos.  5,741,253  ("253  patent"),  5,484,437 ("437
patent") and 6,096,038 ("038 patent") which are owned by Danek, two of which are
method  patents  and one of which is an  instrument  patent.  Danek's  claim for
damages in this case is based upon our  distribution  of the bio-d(R),  which is
implanted  using the  instruments  and surgical  procedures  that Danek  alleges
infringe its  patents.  On April 4, 2002,  the court issued an order  construing
disputed  patent  claims.  We  believe  the order  construes  an  element of the
asserted  claims of the 253 patent and an element of the  asserted  claim of the
437 patent in the manner we proposed and several elements of the asserted claims
of the 253 patent,  437 patent,  and 038 patent in the manner proposed by Danek.
This order is not dispositive of the issues in this case.

In preparation  for the start of the trial now scheduled for April 29, 2002, the
court has  recently  issued a series  of  rulings  related  to  various  summary
judgment  motions.  The court has  decided  that,  as a matter of law, we do not
infringe  one of  Danek's  method  patents,  that there is  sufficient  question
concerning  the facts  regarding our alleged  infringement  of the second method
patent requiring that the  infringement  claims be decided by the jury at trial,
and that, as a matter of law, we do infringe  certain  claims of the  instrument
patent.

At the trial, we intend to vigorously  defend ourselves  against the claims that
we infringe the disputed method patent, and will seek to have such method patent
and the  instrument  patent  declared  invalid.  If we are found to infringe the
method  patent and the method  patent is found to be valid or if the  instrument
patent is found to be valid,  damages  would be decided in a second phase of the
trial,  using one of several  methods to calculate  them.  As a result,  at this
point,  it is not possible to determine the extent of any possible damage award,
but any  calculation  of damages  resulting from our  infringement  of either of
these  patents will be  calculated  by the jury  awarding  Danek either its lost
profits,  a reasonable  royalty or a  combination  of both based on our bio-d(R)
revenues from the date the infringed  patent was issued until the date of trial.
The method  patent in question  was issued in January,  1996 and the  instrument
patent was issued in August,  2000. We began distributing  bio-d(R) in December,
1998 and from  December,  1998  through  March 31,  2002 our  bio-d(R)  revenues
aggregated approximately $7.2 million. From August, 2000 through March 31, 2002,
bio-d(R) revenues aggregated approximately $4.0 million.


                                      -17-


<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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

<TABLE>
<CAPTION>
        Exhibit Number                   Description                      Page Number
      ------------------    ----------------------------------------    ---------------
            <S>             <C>                                               <C>
            10.55           Amendment    to   License   and   Option          E-1
                            Agreement  between  IsoTis N.V. and H.C.
                            Implants B.V. and Osteotech  dated April
                            8, 2002.
</TABLE>


     (b)  Reports on Form 8-K

          On March 8, 2002,  we filed with the  Commission  a Current  Report on
          Form 8-K to file the agreement between LifeNet and us. Under the terms
          of the agreement,  LifeNet will supply  Allowash(TM)  processed tissue
          for us to finish  into our broad  line of  bio-d(R)  and  Graftech(TM)
          Bio-Implants.  The agreement also provides for the opportunity for the
          processing and marketing of LifeNet  labeled  tissue carrier  products
          through a mutually agreed upon third party.

          On January 14, 2002, we filed with the  Commission a Current Report on
          Form 8-K to  announce  that on  January 4,  2002,  we  entered  into a
          business   relationship  with  LifeNet,   one  of  the  largest  Organ
          Procurement  Organization-based  tissue  banks and  processors  in the
          United States.


                                      -18-

<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: April 19, 2002         By:               /s/ Richard W. Bauer
                                               ---------------------------------
                                               Richard W. Bauer
                                               Chief Executive Officer


Date: April 19, 2002         By:               /s/ Michael J. Jeffries
                                               ---------------------------------
                                               Michael J. Jeffries
                                               Executive Vice President
                                               Chief Financial Officer


                                      -19-