##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 for the quarterly period ended September 30, 2008.
 or
 o
    
    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.
  Delaware
    
    13-3357370(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 51 James Way, Eatontown, New Jersey 07724
 (732) 542-2800
 Not Applicable
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



OSTEOTECH, INC.
 FORM 10-Q
 Table of Contents
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2008 and
December 31, 2007
    
    
    3Condensed Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2008 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risks
    
    
    17Item 4. Controls and Procedures
    
    
    18PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    19Item 1A. Risk Factors
    
    
    19Item 6. Exhibits
    
    
    20Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 OSTEOTECH, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS  (dollars in thousands)
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    19,331
    
    
    $
    22,777Accounts receivable, net of allowance of $334 in 2008 and $267 in 2007
    
    
    20,420
    
    
    
    19,353Deferred processing costs
    
    
    34,478
    
    
    
    30,850Inventories
    
    
    1,375
    
    
    
    1,171Prepaid expenses and other current assets
    
    
    2,842
    
    
    
    3,957Total current assets
    
    
    78,446
    
    
    
    78,108Property, plant and equipment, net
    
    
    35,427
    
    
    
    34,508Other assets
    
    
    12,081
    
    
    
    7,735Total assets
    
    $
    125,954
    
    
    $
    120,351LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    21,659
    
    
    $
    19,364Current maturities of capital lease obligation
    
    
    871
    
    
    
    807Total current liabilities
    
    
    22,530
    
    
    
    20,171Capital lease obligation
    
    
    13,407
    
    
    
    14,069Other liabilities
    
    
    7,165
    
    
    
    7,083Total liabilities
    
    
    43,102
    
    
    
    41,323Commitments and contingenciesStockholders equity:Preferred stock, $.01 par value; 5,000,000 shares authorized; no
shares issued or outstandingCommon stock, $.01 par value; 70,000,000 shares authorized; issued
and outstanding 17,920,925 shares in 2008 and 17,697,539 shares in
2007
    
    
    179
    
    
    
    177Additional paid-in capital
    
    
    69,360
    
    
    
    68,022Accumulated other comprehensive income
    
    
    1,303
    
    
    
    1,431Retained earnings
    
    
    12,010
    
    
    
    9,398Total stockholders equity
    
    
    82,852
    
    
    
    79,028Total liabilities and stockholders equity
    
    $
    125,954
    
    
    $
    120,351
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OSTEOTECH, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS   (dollars in thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    24,063
    
    
    $
    25,651
    
    
    $
    79,247
    
    
    $
    77,338Cost of revenue
    
    
    11,182
    
    
    
    11,443
    
    
    
    37,622
    
    
    
    38,023Gross profit
    
    
    12,881
    
    
    
    14,208
    
    
    
    41,625
    
    
    
    39,315Marketing, selling and general and
administrative expenses
    
    
    10,476
    
    
    
    10,981
    
    
    
    33,479
    
    
    
    33,105Research and development expenses
    
    
    1,739
    
    
    
    1,248
    
    
    
    5,273
    
    
    
    3,69312,215
    
    
    
    12,229
    
    
    
    38,752
    
    
    
    36,798Operating income
    
    
    666
    
    
    
    1,979
    
    
    
    2,873
    
    
    
    2,517Other income (expense):Interest income
    
    
    104
    
    
    
    244
    
    
    
    396
    
    
    
    756Interest expense
    
    
    (380
    )
    
    
    (401
    )
    
    
    (1,158
    )
    
    
    (1,215
    )Other
    
    
    (270
    )
    
    
    (208
    )
    
    
    953
    
    
    
    (186
    )(546
    )
    
    
    (365
    )
    
    
    191
    
    
    
    (645
    )Income before income taxes
    
    
    120
    
    
    
    1,614
    
    
    
    3,064
    
    
    
    1,872Income tax provision
    
    
    62
    
    
    
    10
    
    
    
    452
    
    
    
    61Net income
    
    $
    58
    
    
    $
    1,604
    
    
    $
    2,612
    
    
    $
    1,811Earnings per share:Basic
    
    $
    
    
    
    $
    .09
    
    
    $
    .15
    
    
    $
    .10Diluted
    
    $
    
    
    
    $
    .09
    
    
    $
    .15
    
    
    $
    .10Shares used in computing earnings per share:Basic
    
    
    17,881,018
    
    
    
    17,573,134
    
    
    
    17,749,402
    
    
    
    17,494,807Diluted
    
    
    17,993,900
    
    
    
    17,990,101
    
    
    
    17,854,319
    
    
    
    17,858,501
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OSTEOTECH, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   (dollars in thousands)
 Nine Months EndedSeptember 30,2008
    
    
    2007Cash Flow From Operating ActivitiesNet income
    
    $
    2,612
    
    
    $
    1,811Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    4,237
    
    
    
    4,026Stock-based compensation expense
    
    
    916
    
    
    
    496Changes in current assets and liabilities:Accounts receivable
    
    
    (1,067
    )
    
    
    (687
    )Deferred processing costs
    
    
    (7,533
    )
    
    
    (2,086
    )Inventories
    
    
    (204
    )
    
    
    126Prepaid expenses and other current assets
    
    
    365
    
    
    
    (22
    )Notes receivables from patent litigation settlement
    
    
    750
    
    
    
    750Accounts payable and other liabilities
    
    
    2,295
    
    
    
    (548
    )Net cash provided by operating activities
    
    
    2,371
    
    
    
    3,866Cash Flow From Investing ActivitiesCapital expenditures
    
    
    (4,923
    )
    
    
    (1,488
    )Other
    
    
    (692
    )
    
    
    (189
    )Net cash used in investing activities
    
    
    (5,615
    )
    
    
    (1,677
    )Cash Flow From Financing ActivitiesProceeds from issuance of common stock
    
    
    424
    
    
    
    1,193Principal payments on capital lease obligations
    
    
    (597
    )
    
    
    (538
    )Net cash (used in) provided by financing activities
    
    
    (173
    )
    
    
    655Effect of exchange rate changes on cash
    
    
    (29
    )
    
    
    50Net (decrease) increase in cash and cash equivalents
    
    
    (3,446
    )
    
    
    2,894Cash and cash equivalents at beginning of period
    
    
    22,777
    
    
    
    17,946Cash and cash equivalents at end of period
    
    $
    19,331
    
    
    $
    20,840Supplementary cash flow data:Cash paid during the period for interest
    
    $
    1,152
    
    
    $
    1,216Cash paid during the period for taxes
    
    $
    357
    
    
    $
    114
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OSTEOTECH, INC. and SUBSIDIARIES
 
 Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
 1. Basis of Presentation
 General
 .
 Recent Accounting Pronouncements
   
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
    
    Level 2  Inputs other than Level 1 that are observable, either directly
or indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
    
    Level 3  Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities.
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OSTEOTECH, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
 2. Deferred Processing Costs
  September 30,
    
    
    December 31,2008
    
    
    2007Unprocessed donor tissue
    
    $
    16,550
    
    
    $
    14,172Tissue in process
    
    
    5,733
    
    
    
    4,777Implantable donor tissue
    
    
    12,195
    
    
    
    11,901$
    34,478
    
    
    $
    30,850
  3. Inventories
  September 30,
    
    
    December 31,2008
    
    
    2007Supplies
    
    $
    252
    
    
    $
    279Raw materials
    
    
    457
    
    
    
    664Finished goods
    
    
    295
    
    
    
    228$
    1,375
    
    
    $
    1,171
 4. Stock Compensation Plans
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OSTEOTECH, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
  RSUs
    
    
    OptionsWeighted-AverageWeighted-
    
    
    
    
    
    
    Weighted-
    
    
    RemainingAverage
    
    
    
    
    
    
    Average
    
    
    ContractualNumber
    
    
    Grant Date
    
    
    Number of
    
    
    Exercise
    
    
    Termof Shares
    
    
    Fair Value
    
    
    Shares
    
    
    Price
    
    
    (Years)Outstanding, January 1, 2008
    
    
    775,242
    
    
    $
    7.15
    
    
    
    1,764,762
    
    
    $
    8.51Granted
    
    
    75,000
    
    
    $
    5.43
    
    
    
    Vested RSUs or exercised options
    
    
    (196,152
    )
    
    $
    6.75
    
    
    
    (53,750
    )
    
    $
    4.39Forfeited, cancelled or expired
    
    
    (19,213
    )
    
    $
    3.11
    
    
    
    (220,175
    )
    
    $
    11.16Outstanding, September 30, 2008
    
    
    634,877
    
    
    $
    6.24
    
    
    
    1,490,837
    
    
    $
    8.27
    
    
    
    4.4Options exercisable
    
    
    
    
    
    
    
    
    
    
    1,469,587
    
    
    $
    8.33
    
    
    
    4.4
    5. Income Taxes
 ,
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OSTEOTECH, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
   6. Commitments and Contingencies
 Litigation
 .
 7. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    58
    
    
    $
    1,604
    
    
    $
    2,612
    
    
    $
    1,811Currency translation adjustments
    
    
    (400
    )
    
    
    381
    
    
    
    (128
    )
    
    
    316Comprehensive income (loss)
    
    $
    (342
    )
    
    $
    1,985
    
    
    $
    2,484
    
    
    $
    2,127
 8. Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income available to common stockholders
    
    $
    58
    
    
    $
    1,604
    
    
    $
    2,612
    
    
    $
    1,811Denominator for basic earnings per share,
weighted average common shares outstanding
    
    
    17,881,018
    
    
    
    17,573,134
    
    
    
    17,749,402
    
    
    
    17,494,807Effect of dilutive securities after
application of the treasury stock method:RSUs
    
    
    22,111
    
    
    
    80,388
    
    
    
    8,857
    
    
    
    32,974Stock options
    
    
    90,771
    
    
    
    336,579
    
    
    
    96,060
    
    
    
    330,720Denominator for diluted earnings per share
    
    
    17,993,900
    
    
    
    17,990,101
    
    
    
    17,854,319
    
    
    
    17,858,501Basic earnings per share
    
    $
    
    
    
    $
    .09
    
    
    $
    .15
    
    
    $
    .10Diluted earnings per share
    
    $
    
    
    
    $
    .09
    
    
    $
    .15
    
    
    $
    .10
   - 9 -




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OSTEOTECH, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
 9. Operating Segments
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue:DBM
    
    $
    14,023
    
    
    $
    17,044
    
    
    $
    47,564
    
    
    $
    48,687Hybrid/Synthetic
    
    
    816
    
    
    
    528
    
    
    
    2,187
    
    
    
    1,169Traditional Tissue
    
    
    5,246
    
    
    
    3,963
    
    
    
    15,606
    
    
    
    13,132Spinal Allograft
    
    
    1,943
    
    
    
    2,292
    
    
    
    6,479
    
    
    
    8,301Client Services
    
    
    1,706
    
    
    
    1,664
    
    
    
    6,527
    
    
    
    5,536Other
    
    
    329
    
    
    
    160
    
    
    
    884
    
    
    
    513$
    24,063
    
    
    $
    25,651
    
    
    $
    79,247
    
    
    $
    77,338
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Operating income:DBM
    
    $
    4,262
    
    
    $
    6,557
    
    
    $
    15,345
    
    
    $
    14,196Hybrid/Synthetic
    
    
    104
    
    
    
    (373
    )
    
    
    (2
    )
    
    
    (370
    )Traditional Tissue
    
    
    923
    
    
    
    439
    
    
    
    2,449
    
    
    
    2,381Spinal Allograft
    
    
    (116
    )
    
    
    772
    
    
    
    (100
    )
    
    
    1,812Client Services
    
    
    956
    
    
    
    1,167
    
    
    
    4,002
    
    
    
    4,172Other
    
    
    115
    
    
    
    48
    
    
    
    577
    
    
    
    226Corporate
    
    
    (5,578
    )
    
    
    (6,631
    )
    
    
    (19,398
    )
    
    
    (19,900
    )$
    666
    
    
    $
    1,979
    
    
    $
    2,873
    
    
    $
    2,517
  10. Other Income (Expense)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Other:Foreign exchange loss on
intercompany accounts
    
    $
    (166
    )
    
    $
    (94
    )
    
    $
    (7
    )
    
    $
    (143
    )Foreign exchange loss on third
party transactions
    
    
    (111
    )
    
    
    (70
    )
    
    
    (46
    )
    
    
    (120
    )Litigation settlement
    
    
    
    
    
    
    
    
    
    
    1,000Contingent consideration proceeds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125Other
    
    
    7
    
    
    
    (44
    )
    
    
    6
    
    
    
    48$
    (270
    )
    
    $
    (208
    )
    
    $
    953
    
    
    $
    (186
    )
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OSTEOTECH, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
   
  - 11 -




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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussions should be read in conjunction with the condensed consolidated financial
statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q .
 Information included herein may contain 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 Item 1A. Risk
Factors, of our Annual Report on Form 10-K for the year ended December 31, 2007, 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. Except as may be required by law, we undertake no obligation to update any
forward-looking statement to reflect events after the date of this report.
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
 Results of Operations
 Critical Accounting Policies and Estimates
  Net Income
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(dollars in thousands,
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percentexcept per share amounts)
    
    2008
    
    
    2007
    
    
    Change
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeNet income
    
    $
    58
    
    
    $
    1,604
    
    
    $
    (1,546
    )
    
    
    -96
    %
    
    $
    2,612
    
    
    $
    1,811
    
    
    $
    801
    
    
    
    44
    %Earnings per share:Basic
    
    $
    
    
    
    $
    .09
    
    
    
    
    
    
    
    
    
    
    $
    .15
    
    
    $
    .10Diluted
    
    $
    
    
    
    $
    .09
    
    
    
    
    
    
    
    
    
    
    $
    .15
    
    
    $
    .10
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Revenue
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,Percent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percent(dollars in thousands)
    
    2008
    
    
    2007
    
    
    Change
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeDBM
    
    $
    14,023
    
    
    $
    17,044
    
    
    $
    (3,021
    )
    
    
    -18
    %
    
    $
    47,564
    
    
    $
    48,687
    
    
    $
    (1,123
    )
    
    
    -2
    %Hybrid/Synthetic
    
    
    816
    
    
    
    528
    
    
    
    288
    
    
    
    55
    %
    
    
    2,187
    
    
    
    1,169
    
    
    
    1,018
    
    
    
    87
    %Traditional Tissue
    
    
    5,246
    
    
    
    3,963
    
    
    
    1,283
    
    
    
    32
    %
    
    
    15,606
    
    
    
    13,132
    
    
    
    2,474
    
    
    
    19
    %Spinal Allograft
    
    
    1,943
    
    
    
    2,292
    
    
    
    (349
    )
    
    
    -15
    %
    
    
    6,479
    
    
    
    8,301
    
    
    
    (1,822
    )
    
    
    -22
    %Client Services
    
    
    1,706
    
    
    
    1,664
    
    
    
    42
    
    
    
    3
    %
    
    
    6,527
    
    
    
    5,536
    
    
    
    991
    
    
    
    18
    %Other
    
    
    329
    
    
    
    160
    
    
    
    169
    
    
    
    106
    %
    
    
    884
    
    
    
    513
    
    
    
    371
    
    
    
    72
    %$
    24,063
    
    
    $
    25,651
    
    
    $
    (1,588
    )
    
    
    -6
    %
    
    $
    79,247
    
    
    $
    77,338
    
    
    $
    1,909
    
    
    
    2
    %
 ® ® ® ®
 ®
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Gross Profit Margin
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(dollars in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Gross Profit
    
    $
    12,881
    
    
    $
    14,208
    
    
    $
    41,625
    
    
    $
    39,315Gross Margin
    
    
    54
    %
    
    
    55
    %
    
    
    53
    %
    
    
    51
    %
  Operating Expenses
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,Percent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percent(dollars in thousands)
    
    2008
    
    
    2007
    
    
    Change
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeMarketing, selling
and general and
administrative
    
    $
    10,476
    
    
    $
    10,981
    
    
    $
    (505
    )
    
    
    -5
    %
    
    $
    33,479
    
    
    $
    33,105
    
    
    $
    374
    
    
    
    1
    %Research and
development
    
    
    1,739
    
    
    
    1,248
    
    
    
    491
    
    
    
    39
    %
    
    
    5,273
    
    
    
    3,693
    
    
    
    1,580
    
    
    
    43
    %Total
    
    $
    12,215
    
    
    $
    12,229
    
    
    $
    (14
    )
    
    
    
    %
    
    $
    38,752
    
    
    $
    36,798
    
    
    $
    1,954
    
    
    
    5
    %
    - 14 -




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##### Table of Contents



Operating Income (Loss) By Segment
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,Percent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percent(dollars in thousands)
    
    2008
    
    
    2007
    
    
    Change
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeDBM
    
    $
    4,262
    
    
    $
    6,557
    
    
    $
    (2,295
    )
    
    
    -35
    %
    
    $
    15,345
    
    
    $
    14,196
    
    
    $
    1,149
    
    
    
    8
    %Hybrid/Synthetic
    
    
    104
    
    
    
    (373
    )
    
    
    477
    
    
    
    128
    %
    
    
    (2
    )
    
    
    (370
    )
    
    
    368
    
    
    
    99
    %Traditional Tissue
    
    
    923
    
    
    
    439
    
    
    
    484
    
    
    
    110
    %
    
    
    2,449
    
    
    
    2,381
    
    
    
    68
    
    
    
    3
    %Spinal Allografts
    
    
    (116
    )
    
    
    772
    
    
    
    (888
    )
    
    
    -115
    %
    
    
    (100
    )
    
    
    1,812
    
    
    
    (1,912
    )
    
    
    -106
    %Client Services
    
    
    956
    
    
    
    1,167
    
    
    
    (211
    )
    
    
    -18
    %
    
    
    4,002
    
    
    
    4,172
    
    
    
    (170
    )
    
    
    -4
    %Other
    
    
    115
    
    
    
    48
    
    
    
    67
    
    
    
    140
    %
    
    
    577
    
    
    
    226
    
    
    
    351
    
    
    
    155
    %6,244
    
    
    
    8,610
    
    
    
    (2,366
    )
    
    
    -27
    %
    
    
    22,271
    
    
    
    22,417
    
    
    
    (146
    )
    
    
    -1
    %Corporate
    
    
    (5,578
    )
    
    
    (6,631
    )
    
    
    1,053
    
    
    
    16
    %
    
    
    (19,398
    )
    
    
    (19,900
    )
    
    
    502
    
    
    
    3
    %Operating income
    
    $
    666
    
    
    $
    1,979
    
    
    $
    (1,313
    )
    
    
    -66
    %
    
    $
    2,873
    
    
    $
    2,517
    
    
    $
    356
    
    
    
    14
    %
    Other Income (Expense)
  Income Tax Provision
 ,
  - 15 -




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##### Table of Contents



Liquidity and Capital Resources
      Recent Accounting Developments
 non-financial
  - 16 -




---



##### Table of Contents




    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
    
    Level 2  Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets
or liabilities.
    
    Level 3  Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities.
   Contractual Obligations
  Impact of Inflation and Foreign Currency Exchange Fluctuations
   Litigation
   
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Credit Risks
   - 17 -




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##### Table of Contents



Foreign Exchange Risk
  
 Item 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
   - 18 -




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
  
 Item 1A. RISK FACTORS
   - 19 -




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##### Table of Contents



Item 6. EXHIBITS AND REPORTS ON FORM 8-K
  Exhibit
    
    
    
    PageNumber
    
    Description
    
    Number3.1
    
    
    Restated Certificate of Incorporation of Osteotech, as
amended (incorporated by reference to Exhibit 3.1 to
Registrants Annual Report on Form 10-K, filed on
March 27, 2002)3.2
    
    
    Fifth Amended and Restated Bylaws of Osteotech
(incorporated by reference to Exhibit 3.1 to
Registrants Current Report on Form 8-K, filed on
November 7, 2007)31.1
    
    
    Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
    
    
    +31.2
    
    
    Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
    
    
    +32.1
    
    
    Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
    
    
    +32.2
    
    
    Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
    
    
    +
 +
    
    Filed herewith.  - 20 -




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##### Table of Contents



SIGNATURES
  Date: November 10, 2008
    
    Osteotech, Inc.(Registrant)Date:  November 10, 2008
    By:
    /s/  Sam Owusu-AkyawSam Owusu-AkyawPresident and Chief Executive Officer
(Principal Executive Officer)Date:  November 10, 2008
    By:
    /s/  Mark H. BurroughsMark H. BurroughsExecutive Vice President,
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    
    
    PageNumber
    
    Description
    
    Number31.1
    
    
    Certification of Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
    
    +31.2
    
    
    Certification of Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
    
    +32.1
    
    
    Certification of Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
    
    +32.2
    
    
    Certification of Chief Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
    
    +
 +
    
    Filed herewith.