November 13, 1997


Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C.  20549

Gentlemen:

Enclosed please find the electronic  submission of Osteotech,  Inc.'s  Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997.


                                               Very truly yours,

                                                \s\ Steven T. Sobieski
                                                --------------------------
                                                Steven T. Sobieski
                                                Vice President of Finance
                                                and Treasurer


STS/rtb
Enclosures



<PAGE>



                                  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 September 30, 1997

                                       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)

                                 (908) 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 - 8,430,488 shares as of October 31, 1997


<PAGE>



PART I.  FINANCIAL INFORMATION
ITEM 1.  Financial Statements


                        OSTEOTECH, INC. and SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (unaudited)
                             (dollars in thousands)


<TABLE>
<CAPTION>
                                                                                   September 30,           December 31,
                                                                                       1997                    1996
--------------------------------------------------------------------------------------------------------------------------
ASSETS
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                     <C>         
Current Assets:
         Cash and cash equivalents                                                 $     13,851            $      7,290
         Short-term investments                                                             973                   1,987
         Accounts receivable, net                                                         7,060                   6,280
         Deferred processing costs                                                          908                   1,222
         Prepaid expenses and other current assets                                        2,462                   3,152
                                                                                   ---------------------------------------
            Total current assets                                                         25,254                  19,931

Equipment and leasehold improvements, net                                                 8,983                   8,170
Excess of cost over net assets of business acquired,
         less accumulated amortization of $1,386 in 1997
         and $1,197 in 1996                                                               2,312                   2,501
Other assets                                                                                951                     881
==========================================================================================================================
Total assets                                                                       $     37,500            $     31,483
==========================================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------------------
Current liabilities:
         Accounts payable and accrued liabilities                                  $      7,853            $      6,247
         Notes payable                                                                       26                     655
         Current maturities of long-term debt and
              obligations under capital leases                                              643                     756
                                                                                   ---------------------------------------
            Total current liabilities                                                     8,522                   7,658

Long-term debt and obligations under capital leases                                         356                     840
Other liabilities                                                                           262                     268
--------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                         9,140                   8,766
--------------------------------------------------------------------------------------------------------------------------

Commitments and contingencies

Stockholders' equity:
         Preferred stock, $.01 par value; 5,676,595 shares
             authorized; no shares issued or outstanding
         Common stock, $.01 par value; 20,000,000 shares
             authorized; issued and outstanding 8,324,673
             shares in 1997 and 7,826,779 shares in 1996                                     83                      78
         Additional paid-in capital                                                      32,035                  30,288
         Currency translation adjustments                                                   (65)                   (113)
         Accumulated deficit                                                             (3,693)                 (7,536)
--------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity                                                               28,360                  22,717
==========================================================================================================================
Total liabilities and stockholders' equity                                         $     37,500            $     31,483
==========================================================================================================================
</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                       Nine Months
                                                                        Ended September 30,               Ended September 30,
                                                                  ------------------------------------------------------------------
                                                                         1997         1996               1997             1996
------------------------------------------------------------------------------------------------------------------------------------
Net Revenues:
<S>                                                                 <C>            <C>              <C>              <C>        
         Service                                                    $   11,551     $    8,340       $   30,916       $    23,441
         Product                                                           382            512            1,547             1,877
         License fee                                                                                       257
         Grant                                                                            158                                476
                                                                  ------------------------------  ---------------  ----------------
                                                                        11,933          9,010           32,720            25,794
Costs and expenses:
         Cost of services                                                3,971          3,188           10,917             9,315
         Cost of products                                                  246            661            1,108             1,746
         Marketing, general and administrative                           4,317          3,206           11,946             9,346
         Research and development                                          861          1,099            2,687             3,282
                                                                  ------------------------------  ---------------------------------
                                                                         9,395          8,154           26,658            23,689
Other income (expense):
         Interest income                                                   189            112              458               321
         Interest expense                                                  (30)           (52)            (109)             (181)
         Other                                                              15              9               59                34
                                                                  -----------------------------------------------------------------
                                                                           174             69              408               174
                                                                  -----------------------------------------------------------------

Income before income taxes                                               2,712            925            6,470             2,279

Income tax provision                                                     1,104            674            2,627             1,655

===================================================================================================================================
Net income                                                          $    1,608     $      251       $    3,843       $       624
===================================================================================================================================
Net income per share:
         Primary                                                          $.17            $.03             $.43             $.08
         Assuming full dilution                                           $.17            $.03             $.41             $.08
Shares used in computing net income per share:
         Primary                                                       9,284,981       8,242,823         8,944,590       8,304,495
         Assuming full dilution                                        9,418,506       8,242,823         9,405,209       8,304,495
===================================================================================================================================
</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>
Nine Months Ended September 30,                                                                  1997               1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>                   <C>       
Cash Flow From Operating Activities
         Net Income                                                                       $       3,843       $       624
         Adjustments to reconcile net income to net cash
            provided by (used in) operating activities:
                  Depreciation and amortization                                                   1,721             1,942
                  Deferred income taxes                                                             (50)             786
                  Other items, net                                                                                    (11)
                  Changes in assets and liabilities:
                           Accounts receivable                                                     (829)           (1,617)
                           Deferred processing costs                                                314               (12)
                           Prepaid expenses and other current assets                                580               839
                           Accounts payable and other liabilities                                 1,952               817
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities                                               7,531             3,368

Cash Flow From Investing Activities
         Capital expenditures                                                                    (2,443)           (1,328)
         Purchase of investments                                                                 (4,431)           (5,947)
         Proceeds of sale from investments                                                        5,445             7,894
         Increase in other assets                                                                   (98)             (495)
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities                                              (1,527)             124

Cash Flow From Financing Activities
         Proceeds from issuance of common stock                                                   1,747               421
         Proceeds from issuance of notes payable                                                     93                94
         Principal payments on notes payable                                                       (722)             (649)
         Principal payments on long-term debt
            and obligations under capital leases                                                   (594)             (590)
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                                                 524              (724)

Effect of exchange rate changes on cash                                                              33                59
----------------------------------------------------------------------------------------------------------------------------

Net increase in cash and cash equivalents                                                         6,561             2,827
Cash and cash equivalents at beginning of period                                                  7,290             2,788
----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                                $      13,851       $     5,615
----------------------------------------------------------------------------------------------------------------------------
Supplementary cash flow data:
         Cash paid during the period for taxes                                            $       1,071       $       782
         Cash paid during the period for interest                                                   110               189
============================================================================================================================
</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  Company's
         consolidated  financial  position as of September 30, 1997 and December
         31,  1996,  and  the   consolidated   results  of  operations  for  the
         three-month  and nine-month  periods ended September 30, 1997 and 1996,
         and the consolidated cash flows for the nine-month  periods then ended.
         The results of operations  for the respective  interim  periods are not
         necessarily indicative of the results to be expected for the full year.
         The  condensed  consolidated  financial  statements  should  be read in
         conjunction  with the audited  financial  statements for the year ended
         December 31, 1996 which were included as part of the  Company's  Report
         on Form 10-K.

2.       Earnings Per Share
         In February  1997,  the  Financial  Accounting  Standards  Board issued
         Statement of Financial  Accounting  Standards  No. 128,  "Earnings  Per
         Share" ("SFAS 128").  SFAS 128 establishes  standards for computing and
         presenting  earnings per share ("EPS") and  supersedes  APB Opinion No.
         15,  "Earnings  Per  Share"  ("Opinion  15").  SFAS  128  replaces  the
         presentation  of  primary  EPS with a  presentation  of basic EPS which
         excludes  dilution  and is  computed by dividing  income  available  to
         common  stockholders  by the  weighted-average  number of common shares
         outstanding  during the  period.  This  statement  also  requires  dual
         presentation  of basic EPS and  diluted  EPS on the face of the  income
         statement for all periods presented.  Diluted EPS is computed similarly
         to fully  diluted EPS pursuant to Opinion 15, with some  modifications.
         SFAS 128 is  effective  for  financial  statements  issued for  periods
         ending after  December  15,  1997,  including  interim  periods.  Early
         adoption is not permitted and the statement requires restatement of all
         prior-period EPS data presented after the effective date.

         The Company will adopt SFAS 128 effective with its financial statements
         for the year ending  December 31, 1997. If SFAS 128 had been adopted at
         September 30, 1997, there would have been no material change in the EPS
         as reflected in the accompanying  financial  statements for the periods
         ended September 30, 1997 and 1996.


                                       -5-

<PAGE>

                        OSTEOTECH, INC. AND SUBSIDIARIES

              Notes To Condensed Consolidated Financial Statements
                                   (unaudited)


3.       Financing Arrangements

         Effective  as of May 1997,  the Company  amended its loan and  security
         agreement  with  a US  bank  which  provides  for  borrowings  under  a
         revolving line of credit and an equipment line of credit. The amendment
         extends  the term of the  agreement  through  May 1998 and  reduces the
         annual rate of interest on  equipment  advances  from the bank's  prime
         rate plus a margin of .25% to the bank's prime rate.

4.       Commitments and Contingencies

         Service Agreements

         Effective  April 1,  1997,  the  Company  entered  into a new five year
         exclusive  agreement  with  one  of  its  major  allograft   processing
         customers,  the Musculoskeletal  Transplant Foundation ("MTF").  During
         the nine months ended  September  30, 1997 and 1996,  MTF accounted for
         60% and 65%, respectively, of consolidated revenues.

         License and Option Agreement

         In June 1997, the Company entered into an exclusive,  worldwide license
         agreement  for  its  proprietary   PolyActive(TM)  polymer  biomaterial
         technology  and  patents  with  Matrix   Medical  BV  ("Matrix"),   The
         Netherlands.  Pursuant  to the  terms  of the  agreement,  the  Company
         received an up front license payment of 500,000 Dutch Guilders("dfl" or
         approximately  $257,000)  which was  recognized as license fee revenue.
         Matrix is required to make two additional  license  payments of 250,000
         dfl  (approximately  $126,000 at the September 30, 1997 exchange  rate)
         each on the first and second  anniversary  of the effective date of the
         agreement. Additionally, Matrix has an option to acquire the technology
         for 4 million dfl  (approximately  $2 million at the September 30, 1997
         exchange  rate)  commencing  in the  third  year of the  agreement  and
         extending through the sixth year of the agreement.

         Throughout the term of the agreement,  which is the longer of ten years
         from the first  commercial  sale of product or the life of the patents,
         Osteotech will receive a royalty of 5% of net sales, declining to 2% of
         net sales if the  option  to  purchase  the  technology  is  exercised.
         Further the agreement  requires  Matrix to achieve  certain  milestones
         during the first  three years of the  agreement.  Failure to do so will
         result in its loss of exclusive rights to the patents and technology.


                                       -6-
<PAGE>

                        OSTEOTECH, INC. AND SUBSIDIARIES

              Notes To Condensed Consolidated Financial Statements
                                   (unaudited)


4.       Commitments and Contingencies (continued)

         Litigation

         The Company  has been named as a  defendant  in a number of lawsuits in
         which  patients  claim  that  they  have  suffered   damages  from  the
         implantation of allegedly  defective spinal fixation devices  allegedly
         distributed by the Company.  See Part II, Item 1, "Legal  Proceedings".
         Management  believes  that the suits and claims are  without  merit and
         intends to defend such actions vigorously. Pursuant to its distribution
         agreement with the Company,  the  manufacturer  of the spinal  fixation
         devices,  Heinrich C. Ulrich, KG ("Ulrich") has agreed to indemnify the
         Company for all costs and damages incurred by the Company in connection
         with its distribution of products  manufactured by Ulrich,  except such
         costs and damages which are caused by the Company's gross negligence or
         willful  misconduct  or  unauthorized  claims  made by the  Company  in
         marketing the products.  Additionally,  the Company maintains  products
         liability  insurance  coverage.  The  Company's  insurance  carrier has
         denied coverage with respect to certain of these cases and there can be
         no assurance that the remaining claims will be covered by the Company's
         insurance  policy.  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  if the  ultimate  liability  materially
         exceeds  the amount that the Company  recovers  from Ulrich  and/or its
         insurance  coverage.  The Company is unable to estimate  the  potential
         liability,  if any,  that may result from the pending  litigation  and,
         accordingly,  no provision for any liability  (except for accrued legal
         costs) has been made in the consolidated financial statements.

5.       Reclassifications
         Certain of the 1996 amounts  have been  reclassified  for  comparative
         purposes.


                                       -7-

<PAGE>

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


Information contained herein contains "forward-looking statements" (as such term
is defined in the Private Securities Litigation Reform Act of 1995) 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
other variations thereon or comparable terminology. Certain statements contained
in "Management's  Discussion and Analysis of Financial  Condition and Results of
Operations" and other sections herein, including without limitation,  statements
regarding the Company's  liquidity  and capital  resources and other  statements
contained  herein  regarding   matters  that  are  not  historical   facts,  are
forward-looking  statements.  No assurance can be given that the future  results
covered by the  forward-looking  statements  will be  achieved.  The matters set
forth in Exhibit 99.0 to the Company's Form 10-K for the year ended December 31,
1996,  constitute  cautionary  statements  identifying  important  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.  The  Company
expressly  disclaims any  obligation or  understanding  to release  publicly any
updates  or  revision  to any  forward-looking  statements  contained  herein to
reflect any change in the  Company's  expectations  with  regard  thereto or any
change in events, conditions or circumstances on which any statement is based.


FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996

Results of Operations

Net Income

Net income in the third  quarter of 1997  increased  to  $1,608,000  or $.17 per
share  compared to $251,000 or $.03 per share in the third quarter of 1996.  Net
income  in the nine  months  of 1997 was  $3,843,000  or $.43  per  share  ($.41
assuming  full  dilution)  compared  to  $624,000  or $.08 per share in the nine
months of 1996.

Following is a discussion of factors which  affected  results of operations  for
the three-month and nine-month periods ended September 30, 1997 and 1996.


Revenues

Consolidated  revenues in the third quarter of 1997 increased 32% to $11,933,000
from $9,010,000 in the third quarter of 1996 and increased 27% to $32,720,000 in
the nine months of 1997 from $25,794,000 in the nine months of 1996.



                                       -8-


<PAGE>

Results of Operations (continued)

Domestic  revenues  increased  35%  to  $11,274,000  in  and  increased  30%  to
$30,403,000  in the nine months of 1997 from  $23,318,000  in the nine months of
1996.  The increase in domestic  revenues  resulted  principally  from increased
demand for the Company's proprietary Grafton(R)  Demineralized Bone Matrix (DBM)
allograft  processing  services which increased 78% in the third quarter and 70%
in the nine months of 1997 as compared to the same periods in 1996.

Foreign  revenues  decreased  3% in the third  quarter of 1997 to $659,000  from
$680,000 in the third  quarter of 1996 and decreased 6% in the nine months ended
September  30, 1997 to  $2,317,000  from  $2,476,000  in the nine  months  ended
September 30, 1996. Foreign revenues in 1996 included grant revenues of $158,000
and $476,000 in the third quarter and nine months,  respectively,  which did not
continue in 1997 as a result of the  discontinuance of the Company's  PolyActive
polymer  research  and  development  program  in the  fourth  quarter  of  1996.
Additionally, foreign revenues in the third quarter and nine months of 1997 were
reduced by approximately 17% and 14%, respectively,  as a result of the strength
of the US dollar  compared  to the Dutch  guilder.  The  negative  impact of the
reduction in grant revenues and the effect of exchange rates were partly reduced
in the current nine month  period by $257,000 of license fee revenues  resulting
from the licensing of the Company's proprietary PolyActive polymer technology.

During the third  quarter and nine months of 1997,  two of the  Company's  major
customers accounted for 60% and 33% and 60% and 32%, respectively, of revenues.

Cost of Services and Products

Cost of  services as a  percentage  of service  revenues  was 34% and 35% in the
third quarter and nine months of 1997, respectively,  compared to 38% and 40% in
the same  periods last year.  The decline in costs as a  percentage  of revenues
results  primarily  from (i) a shift in revenue mix toward  services with higher
gross margins; (ii) operating  efficiencies resulting from increased volume; and
(iii) an  increase  in fees  charged  to the  Company's  customers  for  certain
allograft processing services.

Cost of  products as a  percentage  of product  revenues  was 64% and 72% in the
third quarter and nine months of 1997, respectively, compared to 129% and 93% in
the same  periods last year.  The decline in costs as a  percentage  of revenues
results  primarily from a shift in product mix toward products with higher gross
margins.

                                       -9-


<PAGE>


Results of Operations (continued)

Marketing, General and Administrative

Marketing,  general and administrative  expenses increased  $1,111,000 or 35% in
the third quarter and $2,600,000 or 28% in the nine months of 1997,  compared to
the same  periods  last year.  The  increases  were  primarily  attributable  to
expanded  marketing  activities  associated with the continued  expansion of the
business,  increased  agent  commissions  and  increased  administrative  costs,
principally outside professional services.

Research and Development

Research and development  expenses decreased  $238,000 and $595,000,  or 22% and
18%, in the third quarter and nine months of 1997, respectively, compared to the
same periods last year. The decreases result principally from the discontinuance
of the Company's  PolyActive  polymer  research and  development  program in the
fourth quarter of 1996.

Other Income, net

Interest  income  increased  $77,000 and $137,000 in the third  quarter and nine
months of 1997, respectively, compared to the same periods in the prior year due
to a higher level of invested funds.

Interest  expense  decreased  $22,000 and $72,000 in the third  quarter and nine
months of 1997, respectively, compared to the same period in the prior year as a
result of lower outstanding debt and obligations under capital leases.

Provision for Income Taxes

The Company's effective income tax rate declined to 41% in the third quarter and
nine months of 1997,  respectively,  from 73% in the same periods last year. The
high effective income tax rate in 1996 was principally due to foreign losses for
which no current tax benefits were available. The Company's effective income tax
rate is expected to remain near the nine-month  rate of 41% for the remainder of
1997.


Liquidity and Capital Resources

At September 30, 1997, the Company had cash and cash  equivalents and short-term
investments of $14,824,000  compared to $9,277,000 at December 31, 1996. Working
capital  increased  by  $4,459,000  from  $12,273,000  at  December  31, 1996 to
$16,732,000 at September 30, 1997.

Cash flow from operating  activities  increased to $7,531,000 in the nine months
of 1997  from  $3,368,000  in the nine  months  of 1996  principally  due to the
increase in net income and a decrease in prepaid expenses.


                                      -10-


<PAGE>

Liquidity and Capital Resources (continued)

Additionally,  the  increase in accounts  receivable  in 1997 was lower than the
increase  in  the  same  period  of  1996.  Capital  expenditures  increased  to
$2,443,000 in the nine months of 1997 from $1,328,000 in the same period in 1996
as the  Company  continues  to invest in  facilities  and  equipment  needed for
current  and  future  business   requirements,   principally   allograft  tissue
processing capacity.  Cash flow from investing activities increased  principally
due to cash proceeds from stock option exercises.

The Company has a loan and security  agreement with a US bank which provides for
borrowings of up to $3,000,000  under a revolving  line of credit and $4,000,000
under  an  equipment  line of  credit.  At  September  30,  1997,  $848,000  was
outstanding  under the  equipment  line of credit and there  were no  borrowings
outstanding under the revolving line of credit.

The  Company  also has a line of credit  with a Dutch  bank which  provides  for
borrowings  of  up  to  5,000,000  Dutch  Guilders  ("dfl"),   or  approximately
$2,523,000 at the September  30, 1997 exchange  rate.  Analysis of the Company's
cash position and anticipated  cash flow indicated that it most likely would not
be  necessary  to  utilize a  significant  portion  of the line of  credit  and,
therefore,  the Company has agreed to temporarily limit its borrowings,  if any,
to no more than 3,000,000 dfl, or approximately  $1,514,000 at the September 30,
1997 exchange rate. Additionally,  in connection with the Leiden facility lease,
the Company is required to maintain a declining bank guarantee which reduced the
amount available for borrowings to 2,704,000 dfl, or approximately $1,365,000 at
the September 30, 1997 exchange rate. There were no borrowings under this credit
line as of September 30, 1997.

The Company believes that its cash and cash equivalents,  short-term investments
and  available  lines of  credit,  together  with  anticipated  cash  flow  from
operations, will be sufficient to meet its near-term requirements.  From time to
time the Company may seek  additional  funds through  equity or debt  financing.
However, there can be no assurances that such additional funds will be available
to the  Company,  or if  available,  that such funds will be  available on terms
favorable to the Company.

                                      -11-


<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not Applicable


PART II. OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS


1. Orthopaedic Bone Screw Products Liability Litigation

As of November 10, 1997,  the Company was aware of being named as a defendant in
approximately 34 cases based in products  liability in connection with allegedly
defective spinal devices as described in the Company's  Quarterly Report on Form
10-Q for the quarter ended March 31, 1997.  This  represents a decrease from the
79 cases  previously  reported in such  Quarterly  Report.  Of the 34  remaining
cases,  32 have been  consolidated  with other similar  actions for  coordinated
proceedings  in the Eastern  District of  Pennsylvania  under the caption In re:
Orthopedic  Bone Screw Products  Liability  Litigation,  MDL Dkt. 1014 (the "MDL
Litigation").
The  two  remaining   cases  are  pending  in  the  state  courts  of  Ohio  and
Pennsylvania.

On  October  14,  1997,  the  Company  was  served  with a  motion  filed by the
plaintiffs  requesting an order  dismissing  the Company as a defendant in 27 of
the 32 cases  pending in the MDL  Litigation,  with the  Company to bear its own
costs.  On October 31,  1997,  the Company  served its  response to  plaintiffs'
motion,  wherein the Company  agreed to the  dismissals but opposed the issue of
the Company  having to bear its own costs.  Additionally,  the Company  served a
cross-motion  against the plaintiffs and their attorneys for an order dismissing
any and all remaining  cases against the Company in the MDL  Litigation  and for
sanctions,  including but not limited to the Company's  attorneys fees and costs
incurred as a result of its involvement as a defendant in the MDL Litigation.


2. Patent Litigation

The Company is involved  in an  infringement  action  against  LifeNet  Research
Foundation and LifeNet Transplant  Services  ("LifeNet") in the Eastern District
Court of Virginia  alleging that LifeNet has infringed US Patent Nos.  5,333,626
and 5,513,662  owned by the Company.  LifeNet  alleges that such patents are not
infringed  and are  invalid  and  unenforceable.  The  Company  has denied  such
allegations and intends to pursue its claims against LifeNet vigorously.


                                      -12-

<PAGE>

ITEM 2.  CHANGES IN SECURITIES


(c)       Recent Sales of Unregistered Securities

          During the quarter  ended  September 30, 1997,  165,539  shares of the
          Company's   Common  Stock  were  issued  in  connection  with  warrant
          exercises. The aggregate exercise price of $1,006,570 was paid through
          the delivery of Common Stock with an aggregate fair market value equal
          to the aggregate  exercise price.  These transactions were consummated
          as private sales pursuant to Section 4 (2) of the ...Securities Act of
          1933, as amended.



ITEM 5.  OTHER INFORMATION


On November 12, 1997, the Company  announced that its European  subsidiary,  CAM
Implants,  BV,  ("CAM") has signed a  long-term  agreement  to be the  exclusive
supplier to ConvaTec of CAM's proprietary calcium  hydroxylapatite medical grade
granules, a key component in ConvaTec's urethral sphincter  augmentation device.
The agreement  provides for CAM to supply granules to meet ConvaTec's  worldwide
product requirements. ConvaTec is presently conducting clinical trials in Europe
and the United States and expects to be marketing  their product in 1999 / 2000.
ConvaTec estimates the urinary  incontinence global market to be approximately $
5 billion and  believes  its device to be unique from  others  available  on the
market today.



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K


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

         Exhibit                                                         Page
         Number    Description                                           Number
         ------    -----------                                           ------
         10.1      Change in Control Agreement by and between
                   Osteotech, Inc. and Richard W. Bauer                   E- 1

         10.2      Change in Control Agreement by and between
                   Osteotech, Inc. and Michael J. Jeffries                E-15

         10.3      Change in Control Agreement by and between
                   Osteotech, Inc. and James L. Russell                   E-29

         10.4      Change in Control Agreement by and between
                   Osteotech, Inc. and Roger Stikeleather                 E-43



                                      -13-

<PAGE>


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K (continued)


(a)      Exhibits (continued)

         Exhibit                                                         Page
         Number    Description                                           Number
         ------    -----------                                           ------
         11.1      Computation of Primary Net Income Per Share            E-57

         11.2      Computation of Fully Diluted Net Income
                   Per Share                                              E-58

         27.0      Financial Data Schedule                                E-59


(b)    Reports on Form 8-K

       On July 8, 1997,  the Company filed with the  Commission a Current Report
       on Form 8-K dated June 30, 1997 (the "Form 8-K"), to announce that it had
       entered into an exclusive,  worldwide licensing and option agreement (the
       "Agreement")  for its  proprietary  PolyActive(TM)  polymer  biomaterials
       technology  and patents with Matrix  Medical  B.V.,  The  Netherlands,  a
       developer  of hybrid  technology  for  tissue  replacement.  Terms of the
       Agreement  call for the  Registrant  to  receive  an  upfront  payment of
       500,000  Dutch  Guilders  ("dfl" or  approximately  $250,000  at  current
       exchange rates) and two additional payments of 250,000 dfl (approximately
       $125,000  at  current  exchange  rates)  each  on the  first  and  second
       anniversary  of the  effective  date of the  Agreement.  Pursuant  to the
       Agreement, Matrix Medical was granted an option (the "Option") to acquire
       the PolyActive  technology for 4 million dfl (approximately $2 million at
       current exchange rates) commencing in the third year of the Agreement and
       extending through the sixth year of the Agreement.

       Throughout  the term of the  Agreement,  which is the longer of ten years
       from the first  commercial  sales of product or the life of the  patents,
       the Registrant will receive a royalty of 5% of net sales, declining to 2%
       of net sales if the Option is exercised.  Further, the Agreement requires
       Matrix Medical to achieve certain milestones during the first three years
       of the  Agreement.  Failure to do so will result in its loss of exclusive
       rights to the patents and technology.


                                      -14-

<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:    November 13, 1997           By: /s/ Richard W. Bauer
                                         --------------------
                                         Richard W. Bauer
                                         President, Chief
                                         Executive Officer
                                         (Principal Executive Officer)



Date:    November 13, 1997           By: /s/ Michael J. Jeffries
                                         -----------------------
                                         Michael J. Jeffries
                                         Executive Vice President
                                         Chief Operating Officer
                                         Chief Financial Officer
                                         (Principal Financial
                                         Officer and Principal
                                         Accounting Officer)



                                      -15-