##### 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 JUNE 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  to
 COMMISION FILE NUMBER: 001-34612
 OSTEOTECH, INC.
 (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 DELAWARE
    
    13-3357370(STATE OR OTHER JURISDICTION OF
    
    (I.R.S. EMPLOYERINCORPORATION OR ORGANIZATION)
    
    IDENTIFICATION NUMBER)
 51 James Way, Eatontown, New Jersey, 07724  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
 (732) 542-2800  (REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)
 Yes þ No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No 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 June 30, 2010 and December 31, 2009
    
    
    2Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009
    
    
    3Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    19PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 6. Exhibits
    
    
    20Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1.
 OSTEOTECH, INC. and SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (dollars in thousands)
 June 30,
    
    
    December 31,2010
    
    
    2009(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    
    10,686
    
    
    
    10,708Accounts receivable, net of allowance of $303 in 2010 and $304 in 2009
    
    
    16,125
    
    
    
    16,165Deferred processing costs
    
    
    33,185
    
    
    
    38,562Inventories
    
    
    1,476
    
    
    
    1,819Prepaid expenses and other current assets
    
    
    2,949
    
    
    
    3,247Total current assets
    
    
    64,421
    
    
    
    70,501Property, plant and equipment, net
    
    
    26,952
    
    
    
    29,575Other assets
    
    
    17,740
    
    
    
    16,861Total assets
    
    
    109,113
    
    
    
    116,937LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    
    10,180
    
    
    
    16,206Current maturities of capital lease obligation
    
    
    1,047
    
    
    
    994Total current liabilities
    
    
    11,227
    
    
    
    17,200Capital lease obligation
    
    
    11,644
    
    
    
    12,181Other liabilities
    
    
    7,073
    
    
    
    7,270Total liabilities
    
    
    29,944
    
    
    
    36,651Commitments 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
18,242,345 shares in 2010 and 18,179,180 shares in 2009
    
    
    182
    
    
    
    182Additional paid-in capital
    
    
    72,060
    
    
    
    71,337Treasury stock, at cost; 115,670 shares in 2010 and 2009
    
    
    (227
    )
    
    
    (227
    )Accumulated other comprehensive income
    
    
    1,038
    
    
    
    1,410Retained earnings
    
    
    6,116
    
    
    
    7,584Total stockholders equity
    
    
    79,169
    
    
    
    80,286Total liabilities and stockholders equity
    
    
    109,113
    
    
    
    116,937
   - 2 -




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OSTEOTECH, INC. and SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  (dollars in thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue
    
    $
    23,997
    
    
    $
    23,471
    
    
    $
    46,524
    
    
    $
    47,402Cost of revenue
    
    
    11,922
    
    
    
    11,940
    
    
    
    23,479
    
    
    
    23,904Gross profit
    
    
    12,075
    
    
    
    11,531
    
    
    
    23,045
    
    
    
    23,498Marketing, selling and general and administrative expenses
    
    
    10,390
    
    
    
    10,768
    
    
    
    21,093
    
    
    
    22,386Research and development expenses
    
    
    1,051
    
    
    
    1,998
    
    
    
    2,259
    
    
    
    3,65111,441
    
    
    
    12,766
    
    
    
    23,352
    
    
    
    26,037Operating income (loss)
    
    
    634
    
    
    
    (1,235
    )
    
    
    (307
    )
    
    
    (2,539
    )Other income (expense):Interest income
    
    
    24
    
    
    
    8
    
    
    
    49
    
    
    
    24Interest expense
    
    
    (340
    )
    
    
    (363
    )
    
    
    (704
    )
    
    
    (733
    )Other
    
    
    (147
    )
    
    
    131
    
    
    
    (334
    )
    
    
    48(463
    )
    
    
    (224
    )
    
    
    (989
    )
    
    
    (661
    )Income (loss) before income taxes
    
    
    171
    
    
    
    (1,459
    )
    
    
    (1,296
    )
    
    
    (3,200
    )Income tax provision (benefit)
    
    
    56
    
    
    
    (255
    )
    
    
    172
    
    
    
    (200
    )Net income (loss)
    
    $
    115
    
    
    $
    (1,204
    )
    
    $
    (1,468
    )
    
    $
    (3,000
    )Earnings (loss) per share:Basic
    
    $
    0.01
    
    
    $
    (0.07
    )
    
    $
    (0.08
    )
    
    $
    (0.17
    )Diluted
    
    $
    0.01
    
    
    $
    (0.07
    )
    
    $
    (0.08
    )
    
    $
    (0.17
    )Shares used in computing earnings (loss) per share:Basic
    
    
    18,069,937
    
    
    
    18,004,217
    
    
    
    18,098,827
    
    
    
    17,882,059Diluted
    
    
    18,201,915
    
    
    
    18,004,217
    
    
    
    18,098,827
    
    
    
    17,882,059
   - 3 -




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OSTEOTECH, INC. and SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  (dollars in thousands)
 Six Months EndedJune 30,2010
    
    
    2009Cash Flow From Operating ActivitiesNet loss
    
    
    (1,468
    )
    
    
    (3,000
    )Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    2,874
    
    
    
    3,078Stock-based compensation expense, net
    
    
    716
    
    
    
    842Changes in current assets and liabilities:Accounts receivable
    
    
    40
    
    
    
    (2,999
    )Deferred processing costs
    
    
    4,209
    
    
    
    (2,802
    )Inventories
    
    
    343
    
    
    
    (444
    )Receivable from license agreements
    
    
    800
    
    
    
    500Prepaid expenses and other current assets
    
    
    13
    
    
    
    261Accounts payable and other liabilities
    
    
    (6,164
    )
    
    
    (770
    )Net cash provided by (used in) operating activities
    
    
    1,363
    
    
    
    (5,334
    )Cash Flow From Investing ActivitiesCapital expenditures
    
    
    (198
    )
    
    
    (846
    )Other, net
    
    
    (590
    )
    
    
    (362
    )Net cash used in investing activities
    
    
    (788
    )
    
    
    (1,208
    )Cash Flow From Financing ActivitiesPurchase of treasury stock
    
    
    
    
    
    
    (102
    )Proceeds from issuance of common stock
    
    
    7
    
    
    
    47Principal payments on capital lease obligation
    
    
    (484
    )
    
    
    (436
    )Net cash used in financing activities
    
    
    (477
    )
    
    
    (491
    )Effect of exchange rate changes on cash
    
    
    (120
    )
    
    
    9Net decrease in cash and cash equivalents
    
    
    (22
    )
    
    
    (7,024
    )Cash and cash equivalents at beginning of period
    
    
    10,708
    
    
    
    18,823Cash and cash equivalents at end of period
    
    
    10,686
    
    
    
    11,799Supplementary cash flow data:Cash paid during the period for interest
    
    
    701
    
    
    
    760Cash paid (refunded) during the period for taxes
    
    
    39
    
    
    
    (36
    )
   - 4 -




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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
  Segment Realignment
  
    
    Demineralized Bone Matrix (DBM),
 
    
    Hybrid/Synthetic,
 
    
    Traditional Tissue, and
 
    
    Spinal Allograft.
  2. Deferred Processing Costs
  June 30,
    
    
    December 31,2010
    
    
    2009Unprocessed donor tissue
    
    $
    13,200
    
    
    $
    16,692Tissue in process
    
    
    4,938
    
    
    
    4,062Implantable donor tissue
    
    
    15,047
    
    
    
    17,808$
    33,185
    
    
    $
    38,562
   - 5 -




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##### Table of Contents



OSTEOTECH, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
 3. Inventories
  June 30,
    
    
    December 31,2010
    
    
    2009Supplies
    
    $
    336
    
    
    $
    428Raw materials
    
    
    673
    
    
    
    779Finished goods
    
    
    467
    
    
    
    612$
    1,476
    
    
    $
    1,819
 4. Revolving Credit Facility
    5. Stockholders Equity
 Stock Compensation Plans
   - 6 -




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##### Table of Contents



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 of
    
    
    Grant Date
    
    
    Number of
    
    
    Exercise
    
    
    TermShares
    
    
    Fair Value
    
    
    Shares
    
    
    Price
    
    
    (Years)Outstanding, January 1, 2010
    
    
    434,283
    
    
    $
    4.58
    
    
    
    1,386,812
    
    
    $
    6.04Granted
    
    
    291,830
    
    
    $
    4.75
    
    
    
    Vested RSUs or exercised options
    
    
    (87,505
    )
    
    $
    3.96
    
    
    
    (2,000
    )
    
    $
    3.50Forfeited, cancelled or expired
    
    
    (56,722
    )
    
    $
    3.03
    
    
    
    (92,400
    )
    
    $
    9.71Outstanding, June 30, 2010
    
    
    581,886
    
    
    $
    4.91
    
    
    
    1,292,412
    
    
    $
    5.78
    
    
    
    3.87Options exercisable
    
    
    
    
    
    
    
    
    
    
    1,192,412
    
    
    $
    5.86
    
    
    
    3.44
   6. Income Taxes
 Income Taxes.
    - 7 -




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OSTEOTECH, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
 7. Commitments and Contingencies
 Litigation
   8. Comprehensive Loss
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    $
    115
    
    
    $
    (1,204
    )
    
    $
    (1,468
    )
    
    $
    (3,000
    )Currency translation adjustments
    
    
    (226
    )
    
    
    103
    
    
    
    (372
    )
    
    
    (11
    )Comprehensive loss
    
    $
    (111
    )
    
    $
    (1,101
    )
    
    $
    (1,840
    )
    
    $
    (3,011
    )
  - 8 -




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##### Table of Contents



OSTEOTECH, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
 9. Loss Per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss) available to common
stockholders
    
    $
    115
    
    
    $
    (1,204
    )
    
    $
    (1,468
    )
    
    $
    (3,000
    )Denominator for basic earnings (loss)
per share, weighted average common
shares outstanding
    
    
    18,069,937
    
    
    
    18,004,217
    
    
    
    18,098,827
    
    
    
    17,882,059Effect of dilutive securities after application of the treasury stock method:Restricted stock units
    
    
    113,504
    
    
    
    
    
    
    
    
    
    
    
    Stock options
    
    
    18,474
    
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted loss per share
    
    
    18,201,915
    
    
    
    18,004,217
    
    
    
    18,098,827
    
    
    
    17,882,059Basic earnings (loss) per share
    
    $
    0.01
    
    
    $
    (0.07
    )
    
    $
    (0.08
    )
    
    $
    (0.17
    )Diluted earnings (loss) per share
    
    $
    0.01
    
    
    $
    (0.07
    )
    
    $
    (0.08
    )
    
    $
    (0.17
    )
   10. Fair Value Measurements
 Fair Value Measurements and Disclosures
     - 9 -




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##### Table of Contents



OSTEOTECH, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
  Quoted Prices in
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Asset:Money market funds
    
    $
    5,837
    
    
    $
    
    
    
    $
    
  11. Operating Segments
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Revenue:
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009DBM
    
    $
    14,128
    
    
    $
    14,808
    
    
    $
    27,261
    
    
    $
    28,834Hybrid/Synthetic
    
    
    2,855
    
    
    
    647
    
    
    
    5,235
    
    
    
    1,395Traditional Tissue
    
    
    4,933
    
    
    
    5,443
    
    
    
    10,003
    
    
    
    10,720Spinal Allograft
    
    
    1,886
    
    
    
    1,862
    
    
    
    3,585
    
    
    
    3,742Other
    
    
    195
    
    
    
    711
    
    
    
    440
    
    
    
    2,711$
    23,997
    
    
    $
    23,471
    
    
    $
    46,524
    
    
    $
    47,402
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Operating income (loss):
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009DBM
    
    $
    4,381
    
    
    $
    3,768
    
    
    $
    8,556
    
    
    $
    7,700Hybrid/Synthetic
    
    
    641
    
    
    
    (234
    )
    
    
    927
    
    
    
    (132
    )Traditional Tissue
    
    
    483
    
    
    
    778
    
    
    
    783
    
    
    
    1,068Spinal Allograft
    
    
    179
    
    
    
    307
    
    
    
    (100
    )
    
    
    551Other
    
    
    4
    
    
    
    141
    
    
    
    16
    
    
    
    1,205Corporate
    
    
    (5,054
    )
    
    
    (5,995
    )
    
    
    (10,489
    )
    
    
    (12,931
    )$
    634
    
    
    $
    (1,235
    )
    
    $
    (307
    )
    
    $
    (2,539
    )
   - 10 -




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OSTEOTECH, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
 12. Other Income (expense)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Other:
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Foreign exchange gain (loss)
    
    $
    (134
    )
    
    $
    112
    
    
    $
    (309
    )
    
    $
    42Other
    
    
    (13
    )
    
    
    19
    
    
    
    (25
    )
    
    
    6$
    (147
    )
    
    $
    131
    
    
    $
    (334
    )
    
    $
    48
  - 11 -




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##### Table of Contents



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 and our
Annual Report on Form 10-K for the year ended December 31, 2009.
 Information included 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 Item 1A, Risk
Factors, of our Annual Report on Form 10-K for the year ended December 31, 2009 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 SIX MONTHS ENDED JUNE 30, 2010 AND 2009
 Results of Operations
 Critical Accounting Policies and Estimates
  Net income (loss)
 Three Months Ended
    
    
    Six Months Ended(dollars in thousands,
    
    June 30,
    
    
    June 30,except per share amounts)
    
    2010
    
    
    2009
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    ChangeNet income (loss)
    
    $
    115
    
    
    $
    (1,204
    )
    
    $
    1,319
    
    
    $
    (1,468
    )
    
    $
    (3,000
    )
    
    $
    (1,532
    )Earnings (loss) per share:Basic
    
    $
    0.01
    
    
    $
    (0.07
    )
    
    
    
    
    
    $
    (0.08
    )
    
    $
    (0.17
    )Diluted
    
    $
    0.01
    
    
    $
    (0.07
    )
    
    
    
    
    
    $
    (0.08
    )
    
    $
    (0.17
    )
    - 12 -




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##### Table of Contents



Revenue
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Percent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percent(dollars in thousands)
    
    2010
    
    
    2009
    
    
    Change
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change
    
    
    ChangeDBM
    
    $
    14,128
    
    
    $
    14,808
    
    
    $
    (680
    )
    
    
    -5
    %
    
    $
    27,261
    
    
    $
    28,834
    
    
    $
    (1,573
    )
    
    
    -5
    %Hybrid/Synthetic
    
    
    2,855
    
    
    
    647
    
    
    
    2,208
    
    
    
    341
    %
    
    
    5,235
    
    
    
    1,395
    
    
    
    3,840
    
    
    
    275
    %Traditional Tissue
    
    
    4,933
    
    
    
    5,443
    
    
    
    (510
    )
    
    
    -9
    %
    
    
    10,003
    
    
    
    10,720
    
    
    
    (717
    )
    
    
    -7
    %Spinal Allograft
    
    
    1,886
    
    
    
    1,862
    
    
    
    24
    
    
    
    1
    %
    
    
    3,585
    
    
    
    3,742
    
    
    
    (157
    )
    
    
    -4
    %Other
    
    
    195
    
    
    
    711
    
    
    
    (516
    )
    
    
    -73
    %
    
    
    440
    
    
    
    2,711
    
    
    
    (2,271
    )
    
    
    -84
    %$
    23,997
    
    
    $
    23,471
    
    
    $
    526
    
    
    
    2
    %
    
    $
    46,524
    
    
    $
    47,402
    
    
    $
    (878
    )
    
    
    -2
    %
 ® ®
 ® ® ®
  TM ® TM ®
    - 13 -




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##### Table of Contents



Gross Profit Margin
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(dollars in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Gross Profit
    
    $
    12,075
    
    
    $
    11,531
    
    
    $
    23,045
    
    
    $
    23,498Gross Margin
    
    
    50
    %
    
    
    49
    %
    
    
    50
    %
    
    
    50
    %
  Operating Expenses
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Percent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percent(dollars in thousands)
    
    2010
    
    
    2009
    
    
    Change
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change
    
    
    ChangeMarketing, selling and
general and
administrative
    
    $
    10,390
    
    
    $
    10,768
    
    
    $
    (378
    )
    
    
    -4
    %
    
    $
    21,093
    
    
    $
    22,386
    
    
    $
    (1,293
    )
    
    
    -6
    %Research and
development
    
    
    1,051
    
    
    
    1,998
    
    
    
    (947
    )
    
    
    -47
    %
    
    
    2,259
    
    
    
    3,651
    
    
    
    (1,392
    )
    
    
    -38
    %$
    11,441
    
    
    $
    12,766
    
    
    $
    (1,325
    )
    
    
    -10
    %
    
    $
    23,352
    
    
    $
    26,037
    
    
    $
    (2,685
    )
    
    
    -10
    %
   - 14 -




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##### Table of Contents



Operating Income (Loss) By Segment
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Percent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percent(dollars in thousands)
    
    2010
    
    
    2009
    
    
    Change
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change
    
    
    ChangeDBM
    
    $
    4,381
    
    
    $
    3,768
    
    
    $
    613
    
    
    
    16
    %
    
    $
    8,556
    
    
    $
    7,700
    
    
    $
    856
    
    
    
    11
    %Hybrid/Synthetic
    
    
    641
    
    
    
    (234
    )
    
    
    875
    
    
    
    374
    %
    
    
    927
    
    
    
    (132
    )
    
    
    1,059
    
    
    
    802
    %Traditional Tissue
    
    
    483
    
    
    
    778
    
    
    
    (295
    )
    
    
    -38
    %
    
    
    783
    
    
    
    1,068
    
    
    
    (285
    )
    
    
    -27
    %Spinal Allograft
    
    
    179
    
    
    
    307
    
    
    
    (128
    )
    
    
    -42
    %
    
    
    (100
    )
    
    
    551
    
    
    
    (651
    )
    
    
    -118
    %Other
    
    
    4
    
    
    
    141
    
    
    
    (137
    )
    
    
    -97
    %
    
    
    16
    
    
    
    1,205
    
    
    
    (1,189
    )
    
    
    -99
    %Product Segment Operating Income
    
    
    5,688
    
    
    
    4,760
    
    
    
    928
    
    
    
    19
    %
    
    
    10,182
    
    
    
    10,392
    
    
    
    (210
    )
    
    
    -2
    %Corporate
    
    
    (5,054
    )
    
    
    (5,995
    )
    
    
    941
    
    
    
    -16
    %
    
    
    (10,489
    )
    
    
    (12,931
    )
    
    
    2,442
    
    
    
    -19
    %Operating Income (Loss)
    
    $
    634
    
    
    $
    (1,235
    )
    
    $
    1,869
    
    
    
    151
    %
    
    $
    (307
    )
    
    $
    (2,539
    )
    
    $
    2,232
    
    
    
    88
    %
   Other Income (Expense)
  Income Tax Provision
 Income Taxes.
  - 15 -




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##### Table of Contents



Liquidity and Capital Resources  (dollars in thousands)
 June 30,
    
    
    December 31,2010
    
    
    2009Cash and cash equivalents
    
    $
    10,686
    
    
    $
    10,708Working Capital
    
    $
    53,194
    
    
    $
    53,301Stockholders equity
    
    $
    79,169
    
    
    $
    80,286
  Six Months EndedJune 30,2010
    
    
    2009Net cash provided by (used in) operating activities
    
    $
    1,363
    
    
    $
    (5,334
    )Net cash used in investing activities
    
    $
    (788
    )
    
    $
    (1,208
    )Net cash used in financing activities
    
    $
    (477
    )
    
    $
    (491
    )Effect of foreign currency exchange rates on cash
    
    $
    (120
    )
    
    $
    9Net decrease in cash and cash equivalents
    
    $
    (22
    )
    
    $
    (7,024
    )
 Cash Flow From Operating Activities
  Cash Flow From Investing Activities
  Cash Flow From Financing Activities
   - 16 -




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##### Table of Contents



Financing Needs
  
    
    the timing and expansion of our internal sales and marketing efforts, including
additional field sales staff, to support our product launches;
 
    
    the progress of our product launch and product development programs and the need and
associated costs relating to regulatory approvals, if any, which may be needed to
commercialize some of our products under development; and
 
    
    the resources we devote to the development, manufacture and marketing of our
services and products.
  Credit Facility
    Recent Accounting Developments
 Recent Accounting Pronouncements,
 Contractual Obligations
   - 17 -




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##### Table of Contents



Impact of Inflation and Foreign Currency Exchange Fluctuations
   Litigation
    Government Proceedings
  
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     - 18 -




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##### Table of Contents



Item 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
   - 19 -




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
  
 Item 1A. RISK FACTORS
  
 Item 6. EXHIBITS
  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:  August 9, 2010
    Osteotech, Inc. (Registrant)Date:  August 9, 2010
    By:
    /s/ Sam Owusu-AkyawSam Owusu-AkyawPresident and Chief Executive
Officer
(Principal Executive Officer)Date:  August 9, 2010
    By:
    /s/ Mark H. BurroughsMark H. BurroughsExecutive Vice President,
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)  - 21 -




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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.  - 22 -