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


                                    FORM 10-Q


                                   (Mark One)

[x]   Quarterly  Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Period Ended March 31, 2000

                                       or

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


Commission File Number 0-19278


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

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

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

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

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

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

                      Applicable Only to Corporate Issuers

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

Common Stock, $.01 par value - 14,240,162 shares as of April 30, 2000.


<PAGE>


PART I.  FINANCIAL INFORMATION
ITEM 1.  Financial Statements


                        OSTEOTECH, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (unaudited)
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                                                                                   March 31,           December 31,
                                                                                                     2000                  1999
                                                                                                   ---------------------------------
ASSETS
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                <C>                     <C>
Current assets:
     Cash and cash equivalents                                                                     $ 18,618                $ 16,770
     Short-term investments                                                                           1,942                   3,946
     Accounts receivable, net                                                                        12,143                  15,095
     Prepaid expenses, inventories
        and other current assets                                                                     15,713                  14,502
                                                                                                   --------------------------------
        Total current assets                                                                         48,416                  50,313

Property, plant and equipment, net                                                                   37,804                  33,995
Excess of cost over net assets of business
     acquired, less accumulated amortization
     of $2,185 in 2000 and $2,089 in 1999                                                             3,586                   3,682
Other assets                                                                                          1,695                   1,740
------------------------------------------------------------------------------------------------------------------------------------
Total assets                                                                                       $ 91,501                $ 89,730
====================================================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable and accrued liabilities                                                      $ 12,844                $ 13,231
                                                                                                   ---------------------------------
        Total current liabilities                                                                    12,844                  13,231

Long-term debt                                                                                        6,359                   6,359
Other liabilities                                                                                       717                     734
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                                    19,920                  20,324
------------------------------------------------------------------------------------------------------------------------------------

Commitments and contingencies

Stockholders' equity:
     Preferred stock, $.01 par value; 5,676,595 shares
         authorized; no shares issued or outstanding
     Common stock, $.01 par value; 70,000,000 shares
         authorized; issued and outstanding 14,237,912
         shares in 2000 and 14,194,126 shares in 1999                                                   141                     140
     Additional paid-in capital                                                                      49,093                  48,837
     Accumulated other comprehensive loss                                                              (427)                   (376)
     Retained earnings                                                                               22,774                  20,805
------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity                                                                           71,581                  69,406
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity                                                         $ 91,501                $ 89,730
====================================================================================================================================
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                      -2-
<PAGE>


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

<TABLE>
<CAPTION>
Three Months Ended March 31,                                                                          2000                      1999
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>                       <C>
Net revenues:
     Service                                                                                   $    17,743               $    17,857
     Product                                                                                           903                       831
                                                                                               ------------------------------------
                                                                                                    18,646                    18,688

Cost of services                                                                                     5,629                     5,454
Cost of products                                                                                       582                       403
                                                                                               ------------------------------------
                                                                                                     6,211                     5,857
                                                                                               ------------------------------------

Gross profit                                                                                        12,435                    12,831


Marketing, general and administrative expenses                                                       8,132                     6,374
Research and development expense                                                                     1,360                     1,452
                                                                                               ------------------------------------
                                                                                                     9,492                     7,826
                                                                                               ------------------------------------

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

Operating income                                                                                     3,193                     5,005

Interest and other income, net                                                                         306                       250
                                                                                               ------------------------------------

Income before income taxes                                                                           3,499                     5,255

Income tax provision                                                                                 1,530                     2,097

-----------------------------------------------------------------------------------------------------------------------------------
Net income                                                                                     $     1,969               $     3,158
====================================================================================================================================
Net income per share:
      Basic                                                                                    $       .14               $       .23
      Diluted                                                                                  $       .13               $       .22
-----------------------------------------------------------------------------------------------------------------------------------
Shares used in computing net income per share:
      Basic                                                                                     14,215,046                13,721,763
      Diluted                                                                                   14,620,179                14,548,709
====================================================================================================================================
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                       -3-
<PAGE>


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

<TABLE>
<CAPTION>
   Three Months Ended March 31,                                                                       2000                   1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                 <C>                    <C>
   Cash Flow From Operating Activities
      Net income                                                                                    $  1,969               $  3,158
      Adjustments to reconcile net income to
         Net cash provided by operating activities:
            Depreciation and amortization                                                                918                    766
            Provision for doubtful accounts                                                                3
            Changes in assets and liabilities:

                  Accounts receivable                                                                  2,956                 (1,285)
                  Prepaid expenses, inventories and
                       other current assets                                                           (1,289)                  (921)
                  Accounts payable and other liabilities                                                (291)                (1,080)
------------------------------------------------------------------------------------------------------------------------------------
   Net cash provided by operating activities                                                           4,266                    638

   Cash Flow From Investing Activities
      Capital expenditures                                                                            (4,665)                (4,261)
      Purchases of investments                                                                        (1,942)                (7,688)
      Proceeds from sale of investments                                                                3,946                  1,946
      Acquisition of business                                                                                                (1,467)
      Increase in other assets                                                                            (7)                  (162)
------------------------------------------------------------------------------------------------------------------------------------
   Net cash used in investing activities                                                              (2,668)               (11,632)

   Cash Flow From Financing Activities
      Proceeds from issuance of common stock                                                             235                  2,511
      Income tax benefit related to stock options                                                         22                  2,657
      Proceeds from issuance of notes payable                                                                                   116
      Principal payments on notes payable                                                                                      (268)
      Principal payments on long-term debt
         and obligations under capital leases                                                                                  (573)
      Increase in other liabilities                                                                                             171
------------------------------------------------------------------------------------------------------------------------------------
   Net cash provided by financing activities                                                             257                  4,614

   Effect of exchange rate changes on cash                                                                (7)                   (63)
------------------------------------------------------------------------------------------------------------------------------------

   Net increase (decrease) in cash and cash equivalents                                                1,848                 (6,443)
   Cash and cash equivalents at beginning of period                                                   16,770                 15,119
------------------------------------------------------------------------------------------------------------------------------------
   Cash and cash equivalents at end of period                                                       $ 18,618               $  8,676
===================================================================================================================================

   Supplementary cash flow data:
      Cash paid during the period for interest                                                      $    171               $     16
      Cash paid during the period for taxes                                                                2                      5
      Acquisition of business:
         Fair value of assets acquired                                                                                        2,563
         Liabilities assumed                                                                                                  2,669
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                       -4-
<PAGE>


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

1.   Basis of Presentation

     The accompanying  unaudited  condensed  consolidated  financial  statements
     reflect all  adjustments  (consisting  only of normal  recurring  accruals)
     considered  necessary  by  management  to present  fairly the  consolidated
     financial  position as of March 31, 2000 and  December  31,  1999,  and the
     consolidated  results of operations and the consolidated cash flows for the
     three-month  periods  ended  March  31,  2000  and  1999.  The  results  of
     operations  for  the  respective   interim   periods  are  not  necessarily
     indicative  of the results to be expected  for the full year.  The December
     31, 1999 financial  information has been derived from the audited financial
     statements for the year ended December 31, 1999. The condensed consolidated
     financial  statements  should  be  read in  conjunction  with  the  audited
     financial  statements  for the year  ended  December  31,  1999  which were
     included as part of Osteotech's Report on Form 10-K.

2.   Inventories

     Inventories consist of the following:

                                                March 31,     December 31,
(dollars in thousands)                            2000            1999
--------------------------------------------------------------------------

Raw Materials                                    $1,360          $  912
Finished Goods                                    2,709           2,493
--------------------------------------------------------------------------

                                                 $4,069          $3,405
--------------------------------------------------------------------------

3.   Comprehensive Income

     Comprehensive  income for the three-month  periods ended March 31, 2000 and
     1999 was:


(dollars in thousands)                            2000             1999
--------------------------------------------------------------------------

Net income                                      $ 1,969          $ 3,158

Currency translation adjustments                    (51)            (151)
--------------------------------------------------------------------------
Comprehensive Income                            $ 1,918          $ 3,007
--------------------------------------------------------------------------


                                       -5-
<PAGE>


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

4.   Commitments and Contingencies

     Litigation

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

     In January,  1998, the Company filed a patent  infringement  action against
     GenSci   Regeneration   Laboratories,   Inc.  ("GenSci  Labs")  and  GenSci
     Regeneration  Sciences,  Inc. ("GenSci  Sciences") alleging that the GenSci
     parties  violated  claims of one of the  patents  involving  the  Company's
     Grafton(R) Demineralized Bone Matrix (DBM) process. Approximately two weeks
     after the  Company's  filing,  GenSci Labs filed a suit against the Company
     alleging infringement of two patents assigned to GenSci Labs in addition to
     tortious  interference with a business expectancy,  negligent  interference
     with a prospective  economic  advantage and inducing breach of contract and
     seeking a declaratory  judgment of the invalidity of the Company's  patents
     U.S.  Patent Nos.  5,284,655  and  5,290,558  covering  Grafton(R)  DBM. In
     February,  1998, GenSci Labs amended its complaint alleging essentially the
     same causes of action but adding a third patent to the allegation of patent
     infringement.  In August, 1998, the actions were consolidated into one case
     before  the  United  States  District  Court for the  Central  District  of
     California.

     In  September,  1998,  GenSci  Labs  served  an  amended  complaint,  which
     asserted,  in addition to the previously  asserted claims,  claims of false
     advertising  under Federal law. In September,  1998, the Company served its
     answer to this amended  complaint,  asserted  counterclaims  against GenSci
     Labs and served a third-party complaint against GenSci Sciences,  and DePuy
     AcroMed,  Inc.("DePuy").   The  Company's  counterclaims  and  third  party
     complaint accused the GenSci parties of infringing a second Company patent,
     in  addition  to the patent  referred  to above,  and accused the DePuy and
     GenSci  parties of acting jointly and severally in infringing on the claims
     of both patents.

     In May, 1999,  GenSci Labs amended its complaint to allege that in addition
     to the Company's  Grafton(R) DBM Flex product, the Company's Grafton(R) DBM
     Gel and Putty  products  infringe on GenSci Lab's patents at issue.  GenSci
     Labs also  amended its  complaint  to modify its false  advertising  claim,
     alleging  that  in  addition  to the  Company,  individuals  acting  on the
     Company's behalf engaged in false advertising. The Company filed and served
     its answer and counterclaims to the amended complaint in May, 1999.

     In  November,  1999,  the  Company  settled  all claims  which it had filed
     against DePuy. As part of the settlement,  DePuy has agreed to stop selling
     the GenSci products accused of infringing the Company's  patents,  no later
     than  February  4,  2001 and to pay the  Company  $3,000,000.  Payments  of
     $2,000,000 and $250,000 were received in the fourth quarter of 1999 and the
     first quarter of 2000, respectively. Payments of $250,000 each will be made
     at the end of each  quarter in 2000 unless DePuy  discontinues  selling the
     GenSci products during the year, at which time DePuy would not be obligated
     for  payments  beyond the  quarter in which it stopped  selling  the GenSci
     products.


                                      -6-
<PAGE>


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

4.   Commitments and Contingencies (continued)

     In April,  2000,  the Company  reached an agreement  with GenSci Labs,  and
     GenSci  Sciences  regarding  certain legal  matters in this  lawsuit.  They
     include the dismissal with prejudice of all of GenSci's patent infringement
     claims  against the Company's  proprietary  Grafton(R)  DBM products and an
     agreement to stay any action in GenSci's  recently  filed  anti-trust  suit
     against  the Company  until the  completion  of the trial of the  Company's
     patent  infringement  claims  against  GenSci.  GenSci  has also  agreed to
     dismiss all of the tort  claims that it had brought  against the Company in
     the patent lawsuit without  prejudice for the purpose of allowing GenSci to
     transfer  these claims to the  anti-trust  action that GenSci filed against
     the Company on March 6, 2000. As a result of these dismissals,  GenSci will
     no longer have any claims  against the  Company in the patent  action.  The
     only   remaining   claims  in  the  patent  action  involve  the  Company's
     allegations  that GenSci has  infringed  certain of the  Company's  patents
     through the sale of the Dynagraft(TM) Gel and Dynagraft(TM) Putty products.
     This  agreement  was subject to court  approval,  which  approval  has been
     received.

     The  Company  will  continue  to  vigorously  prosecute  the  claims it has
     asserted in this action to protect its products and  intellectual  property
     to the fullest extent possible under the law.

     GenSci Orthobiologics, Inc. v. Osteotech, Inc.

     On March 6, 2000, GenSci Orthobiologics,  Inc. ("GenSci") filed a complaint
     in the United States District Court for the Central  District of California
     against  Osteotech,  alleging  unlawful  monopolization  and  attempting to
     monopolize  the  market for  demineralized  bone  matrix  and for  entering
     agreements  in restraint of trade,  in violation of sections 1 and 2 of the
     Sherman  Antitrust  Act and Section 3 of the Clayton  Act; and for unlawful
     and  unfair  business  practices  in  violation  of  section  17200  of the
     California  Unfair  Competition  Law. GenSci has alleged that Osteotech has
     monopoly power in the market for demineralized  bone matrix products in the
     United  States,  and has engaged in  anticompetitive  conduct by improperly
     asserting its patents through patent infringement actions,  seeking to have
     the Food and Drug  Administration  remove certain of GenSci's products from
     the market,  restricting competitors' access to raw materials,  interfering
     with  GenSci's  arrangements  to  manufacture   demineralized  bone  matrix
     implants,    interfering   with   GenSci's   marketing   and   distribution
     arrangements, and disparaging GenSci's products. GenSci seeks compensatory,
     incidental,  consequential,  and punitive damages in an unspecified amount,
     and injunctive  relief to stop Osteotech from  restricting the tissue banks
     for which it processes  tissue from (a) supplying  processed  demineralized
     bone  matrix  to  Osteotech's   competitors   and  (b)   distributing   the
     demineralized bone matrix implant products of Osteotech's competitors. Many
     of these  allegations  were  previously  asserted  by GenSci in its ongoing
     patent  litigation  with  Osteotech in the Central  District of  California
     federal court.


                                       -7-
<PAGE>


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


4.   Commitments and Contingencies (continued)

     In April,  2000, the Company  reached an agreement with GenSci whereby tort
     claims that were dismissed from the patent  litigation would be transferred
     to this action and this action was stayed until the completion of the trial
     of the Company's patent infringement claims against GenSci.

     The Company  believes the claims made in this lawsuit are without merit and
     intends to vigorously defend against these claims.

     University of Florida Tissue Bank, Inc. v. Osteotech, Inc.

     In February,  1999, a complaint was filed against the Company in the United
     States  District Court for the Northern  District of Florida.  This action,
     which has been brought by  plaintiffs,  University of Florida  Tissue Bank,
     Inc.,  Regeneration  Technologies,  Inc.,  Sofamor Danek Group,  Inc.,  and
     Sofamor Danek L.P.  alleges that the Company's  bio-d(TM)threaded  cortical
     bone  dowel  and  Endodowel  infringe  on the  claims  of U.S.  Patent  No.
     5,814,084,   entitled   "Diaphysical   Cortical  Dowel."  In  April,  1999,
     plaintiffs   filed  an  amended   complaint   adding  a  claim  for  patent
     infringement against the Company with respect to U.S. Patent No. 5,814,084,
     entitled "Bone Grafting Units",  which is owned by plaintiff  University of
     Florida  Tissue Bank,  Inc. In May,  1999, the Company filed its answer and
     counterclaim  seeking declaratory  judgment that the patents in question in
     this  action are  invalid  and  otherwise  not  infringed  by the  Company.
     Although  the  plaintiffs  seek  monetary  damages,  an amount has not been
     specified.  In May,  1999,  plaintiffs  filed their reply to the  Company's
     counterclaims.

     Discovery on all of the claims asserted in this litigation is ongoing.  The
     Company believes that the claims made against it in this action are without
     merit and will continue to vigorously defend against such claims.

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

     In July, 1999, Medtronic Sofamor Danek Inc., Sofamor Danek L.P. and Sofamor
     Danek Holdings, Inc. ("Danek") sued Osteotech in the United States District
     Court for the Western  District of  Tennessee  alleging  that  instruments,
     instrument sets and cortical bone dowel products, manufactured, sold and/or
     otherwise  distributed  by the Company  infringe on certain  claims of U.S.
     Patent Nos. 5,741,253, entitled "Method for Inserting Spinal Implants", and
     5,484,437,  entitled  "Apparatus and Method of Inserting Spinal  Implants",
     which are owned by Danek. In September,  1999, the Company filed its answer
     and  counterclaims  seeking a  declaratory  judgement  that the  patents in
     question  in this action are invalid and  otherwise  not  infringed  by the
     Company.  Plaintiffs  filed  their reply to the  counterclaims  in October,
     1999.

     Discovery on all of the claims asserted in this litigation is ongoing.  The
     Company believes that the claims made against it in this action are without
     merit and will continue to vigorously defend against such claims.


                                       -8-
<PAGE>


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


4.   Commitments and Contingencies (continued)

     Orthopaedic Bone Screw Products Liability Litigation

     The Company  remained a defendant in one  previously  reported  state court
     products  liability  action involving  orthopaedic  bone screws:  Ponder v.
     Synthes. This action has been discontinued.

     "O" Company, Inc. v. Osteotech, Inc.

     In July,  1998,  a  complaint  was filed  against the Company in the Second
     Judicial  District  Court,  Bernallilo  County,  New Mexico,  which alleges
     negligence,    strict    liability,    breach   of   warranty,    negligent
     misrepresentation,  fraud,  and  violation  of the New Mexico  Unfair Trade
     Practices Act arising from allegedly  defective  dental implant coating and
     coating services provided to plaintiffs by a subsidiary of the Company, Cam
     Implants BV.  Plaintiffs have demanded  unspecified  monetary  damages.  In
     August, 1998, the Company removed this action to the United States District
     Court for the  District  of New Mexico  and filed and  served  its  answer,
     denying any and all liability in this action,  and moved to dismiss five of
     the seven claims alleged  against it. In March,  1999, the court  dismissed
     with  prejudice the  plaintiff's  negligence and strict  liability  claims.
     Remaining are claims for breach of warranty,  negligent  misrepresentation,
     fraud,  and violation of the New Mexico Unfair Trade  Practices  Act. As to
     those claims,  the Company has moved for summary judgment on the basis that
     all of the  remaining  claims are barred by their  applicable  statutes  of
     limitations.  At plaintiff's request, the court permitted limited discovery
     on the  matters  related to the  statute  of  limitations  issue,  which is
     ongoing.

     The Company  believes  that the claims  made  against it in this action are
     without merit and will continue to vigorously defend against such claims.

     Litigation  is subject to many  uncertainties  and  management is unable to
     predict the outcome of the pending  suits and claims.  It is possible  that
     our results of  operations  or  liquidity  and capital  resources  could be
     adversely  affected by the ultimate outcome of the pending litigation or as
     a result  of the  costs of  contesting  such  lawsuits.  We are  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.


                                       -9-
<PAGE>


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

5.   Earnings Per Share

     The  following  table  sets  forth the  computation  of basic  and  diluted
     earnings  per share for the  three-month  periods  ended March 31, 2000 and
     1999:

<TABLE>
<CAPTION>

    (dollars in thousands except per share data)                                                       2000                1999
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                <C>                 <C>

    Net income available to common
     Shareholders                                                                                  $      1,969        $      3,158
-----------------------------------------------------------------------------------------------------------------------------------
    Denominator for basic earnings per share:
    Weighted average common shares outstanding                                                       14,215,046          13,721,763

    Effect of dilutive securities:
        Stock options                                                                                   404,792             826,541
        Warrants                                                                                            341                 405
-----------------------------------------------------------------------------------------------------------------------------------
    Denominator for diluted earnings per share                                                       14,620,179          14,548,709
-----------------------------------------------------------------------------------------------------------------------------------

        Basic earnings per share                                                                   $        .14        $        .23
-----------------------------------------------------------------------------------------------------------------------------------

        Diluted earnings per share                                                                 $        .13        $        .22
-----------------------------------------------------------------------------------------------------------------------------------

6.   Operating Segments

     Summarized in the table below is financial  information  for our reportable
     segments for the three-month periods ending March 31, 2000 and 1999:


         (dollars in thousands)                                                                        2000                 1999
-----------------------------------------------------------------------------------------------------------------------------------
         Revenues:
           Grafton(R)DBM Segment                                                                   $     10,104        $     11,575
           Base Tissue Segment                                                                            7,311               5,803
           Other                                                                                          1,231               1,310
           Consolidated                                                                                  18,646              18,688
-----------------------------------------------------------------------------------------------------------------------------------
         Operating income (loss):
           Grafton(R)DBM Segment                                                                   $      2,628        $      4,438
           Base Tissue Segment                                                                            1,399               1,434
           Other                                                                                           (834)               (867)
           Consolidated                                                                                   3,193               5,005
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


7.   Reclassifications

     Certain  prior year amounts have been  reclassified  to conform to the 2000
     presentation.


                                      -10-
<PAGE>


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

Information contained herein contains "forward-looking  statements" which can be
identified  by the  use  of  forward-looking  terminology  such  as  "believes",
"expects",  "may", "will", "should", or "anticipates" or the negative thereof or
variations thereon or comparable terminology,  or by discussions of strategy. No
assurance can be given that the future  results  covered by the  forward-looking
statements will be achieved. Some of the matters set forth in the "Risk Factors"
section of our Annual Report on Form 10-K for the year ended  December 31, 1999,
constitute  cautionary  statements  identifying  factors  with  respect  to such
forward-looking  statements,  including  certain risks and  uncertainties,  that
could cause actual results to vary materially from the future results  indicated
in such  forward-looking  statements.  Other  factors  could also  cause  actual
results  to  vary  materially   from  the  future  results   indicated  in  such
forward-looking statements.

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999

Results of Operations

Net Income

Consolidated  net income in the first quarter of 2000 decreased to $1,969,000 or
$.13  diluted net income per share as compared  to net income of  $3,158,000  or
$.22 diluted net income per share in the first quarter of 1999.

The following is a discussion of factors affecting results of operations for the
three-month periods ended March 31, 2000 and 1999.

Net Revenues

Consolidated  net  revenues in the first  quarter of 2000 were  $18,646,000,  or
approximately the same as consolidated  revenues in the first quarter of 1999 of
$18,688,000.  Domestic revenues,  which consist principally of revenues from the
Grafton(R)  DBM and Base Tissue  segments,  increased  less than 1% in the first
quarter to $17,531,000  from  $17,471,000 in the first quarter of 1999.  Foreign
revenues decreased 8% in the first quarter to $1,115,000  compared to $1,217,000
in the  first  quarter  of 1999.  The  decrease  in  foreign  revenues  resulted
primarily from decreased unit volume for ceramic and bovine products.

First quarter 2000 Grafton(R) DBM Segment revenues  decreased 13% to $10,104,000
from  $11,575,000 in the first quarter of 1999.  Despite growth of approximately
6% at the  hospital/end-user  level,  our revenues  decreased as a result of our
clients'  purchasing  less  Grafton(R) DBM products in the first quarter of 2000
than they needed to meet  hospital/end-user  demand because they used $1,500,000
of excess  inventory  purchased in December,  1999 ahead of a 4% price  increase
which became effective January 1, 2000. Additionally, in the first quarter 1999,
our clients had purchased  approximately $675,000 of inventory in excess of what
was required to meet hospital/end-user  demand because they anticipated stronger
hospital/end-user  sales in the  second  quarter  of 1999.  Our  Grafton(R)  DBM
products have faced  increasing  competition  as more  companies  have developed
products with characteristics similar to Grafton(R) DBM. Although we expect that
this  competition  will  continue  in the  future,  we  expect  demand  for  our
Grafton(R) DBM products to grow as we introduce the product line into additional
markets in both the U.S. and Europe.


                                      -11-
<PAGE>


Base  Tissue  Segment  revenues  increased  26% in the first  quarter of 2000 to
$7,311,000 from  $5,803,000 in the first quarter of 1999. The increase  resulted
from an 18% increase in the number of donors  processed for our clients,  a 3.4%
base tissue processing fee increase effective January 1, 2000, a 16% increase in
bioimplant revenues and a 338% increase in OsteoPure(R)  Femoral Head processing
revenues.

During  the  first  three  months of 2000 and 1999,  two of our  clients  in the
Grafton(R) DBM and Base Tissue  Segments  accounted for 49% and 42%, and 56% and
37% of revenues, respectively.

Gross Profit

Gross  profit as a percentage  of revenues was 67% in the first  quarter of 2000
and 69% in the  first  quarter  of 1999.  The  decrease  results  from;  (i) the
absorption of costs  associated  with  additional  allograft  tissue  processing
capacity which was added in 1999 to meet the anticipated growth in our allograft
tissue business, and (ii) the decline in revenues in the Grafton(R) DBM Segment,
which has a higher gross profit than other services and products.

Marketing, General and Administrative

Marketing,  general and  administrative  expenses increased 28% to $8,132,000 in
the first  quarter of 2000  compared to $6,374,000 in the same period last year.
The increase was primarily  attributable to: (i) increased legal fees associated
with patent  infringement  lawsuits in both the  Grafton(R)  DBM Segment and the
Base Tissue  Segments,  and (ii) expanded  marketing and promotional  activities
associated with the bio-d(TM) threaded cortical bone dowel, which is included in
the Base Tissue Segment.

Research and Development

Research  and  development  expenses  decreased  6% to  $1,360,000  in the first
quarter  of 2000  compared  to  $1,452,000  in the  same  period  in 1999 due to
decreased   spending   associated   with   development  of  metal  implants  and
biomaterials.  First  quarter  2000  research  and  development  spending in the
Grafton(R) DBM and Base Tissue Segments remained at approximately the same level
as in the first quarter of 1999.

Operating Income

Consolidated  operating  income decreased 36% to $3,193,000 in the first quarter
of 2000  compared to  $5,005,000  in the first  quarter of 1999  primarily  as a
result of decreased  operating income in both the Grafton(R) DBM and Base Tissue
Segments.

Grafton(R) DBM Segment operating income,  which includes $250,000 of income from
the DePuy patent litigation settlement that was concluded in 1999, decreased 41%
to  $2,628,000  in the first  quarter of 2000 compared to $4,438,000 in the same
period in 1999. The decrease results  primarily from lower  Grafton(R)  revenues
and  increased  costs  associated  with a patent  lawsuit.  Base Tissue  Segment
operating  income  decreased  2% to  $1,399,000  in the  first  quarter  of 2000
compared to $1,434,000 in the first quarter of 1999. The decrease  resulted from
legal expenses  associated with two patent lawsuits and increased  marketing and
promotional   spending  related  to  bio-d(TM)  threaded  cortical  bone  dowel,
partially offset by higher gross profit from the increase in revenues  discussed
above.


                                      -12-
<PAGE>


Income Tax Provision

The  effective  income  tax rate  increased  to  approximately  44% in the first
quarter of 2000 from 40% in the first quarter of 1999. The high effective income
tax rate in 2000 is caused by non-deductible foreign losses.

Liquidity and Capital Resources

At March  31,  2000,  we had  cash and  short-term  investments  of  $20,560,000
compared to  $20,716,000  at December  31, 1999.  We invest  excess cash in U.S.
Government-backed securities and investment grade commercial paper of major U.S.
corporations.  Working capital decreased  $1,510,000 to $35,572,000 at March 31,
2000  compared to  $37,082,000  at December  31,  1999.  The decrease in working
capital results  principally  from a decrease in accounts  receivable due to the
normal collection of December 31, 1999 trade accounts receivable.

Net cash provided by operating  activities  increased to $4,266,000 in the first
quarter of 2000 compared to $638,000 in the first quarter of 1999.  The increase
resulted  primarily  from net  income  and a  $2,956,000  decrease  in  accounts
receivable  discussed  above,  partly  offset by an increase in  processing  raw
materials and metal implant inventories in anticipation of increasing demand.

Cash used in investing  activities  decreased to $2,668,000 in the first quarter
of 2000 from  $11,632,000  in the first  quarter of 1999.  The decrease  results
principally  from a net decrease in short-term  investments of $2,004,000 in the
first quarter of 2000 compared to an increase of $5,742,000 in the first quarter
of 1999.  First quarter 1999 also included  $1,467,000 for the acquisition of an
additional 85% interest in OST Developpement.  In the fourth quarter of 1998, we
commenced  construction of a new processing  facility in Eatontown,  New Jersey.
The estimated  aggregate cost for the  construction  of the building,  including
furniture,  fixtures and equipment is approximately $34,000,000;  $21,500,000 of
which we expect will be funded  through a building  mortgage  loan and equipment
line of credit.  The remaining  balance will be funded  through  available  cash
reserves or anticipated  cash flow from  operations.  Through March 31, 2000, we
have incurred $12,491,000 in building and equipment costs, including capitalized
interest of $171,000, of which $6,359,000 was funded through bank financing.

Net cash provided by financing  activities decreased to $257,000 from $4,614,000
in the first  quarter of 1999  principally  due to a decrease  in cash  proceeds
received from stock option exercises and the related tax benefits resulting from
such stock option exercises.

We have a credit facility with a U.S. bank, that includes a $5,000,000 revolving
line of credit, a $4,500,000 building mortgage loan, and a $17,000,000 equipment
line of  credit.  At March  31,  2000,  $4,500,000  was  outstanding  under  the
revolving line of credit and $1,859,000 was outstanding under the equipment line
of credit.  We also have a line of credit with a Dutch bank,  which provides for
borrowings  of  up  to  5,000,000  Dutch  Guilders  ("dfl"),   or  approximately
$2,169,000  at the March 31, 2000 exchange  rate.  Analysis of our cash position
and  anticipated  cash flow indicated that it most likely would not be necessary
to utilize a  significant  portion  of this line of credit  and,  therefore,  we
agreed with the bank to limit borrowings,  if any, to no more than dfl 3,000,000
or  approximately  $1,302,000 at the March 31, 2000 exchange rate. There were no
borrowings   outstanding   under  this  credit  line  as  of  March  31,   2000.
Additionally,  we have a line of credit with a French bank,  which  provides for
borrowing of up to FRF  1,500,000,  or  approximately  $219,000 at the March 31,
2000 exchange rate. There were no borrowings  outstanding under this credit line
as of March 31, 2000.


                                      -13-
<PAGE>


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

Impact of Inflation and Foreign Currency Exchange Fluctuations

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

Litigation

Osteotech,  Inc. is  involved in various  legal  proceedings  involving  product
liability and patent infringement claims. For a discussion of these matters see,
Note 4 of "Notes to Condensed Consolidated Financial Statements", PART II., ITEM
1. LEGAL  PROCEEDINGS and the Company's  Annual Report on Form 10-K for the year
ended  December  31,  1999.  It is possible  that our results of  operations  or
liquidity  and capital  resources  could be  adversely  affected by the ultimate
outcome of the pending litigation or as a result of the costs of contesting such
lawsuits.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

In April, 2000, we reached an agreement with GenSci  Regeneration  Laboratories,
Inc., and its parent,  GenSci Regeneration Sciences Inc. regarding certain legal
matters in our lawsuit against the GenSci companies.  They include the dismissal
with  prejudice  of all of  GenSci's  patent  infringement  claims  against  our
proprietary  products  Grafton(R)  Demineralized Bone Matrix (DBM) Gel, Flex and
Putty and an agreement to stay any action in GenSci's  recently filed anti-trust
suit  against us until the  completion  of the trial of our patent  infringement
claims against GenSci.  GenSci has also agreed to dismiss all of the tort claims
that it had brought against us in the patent lawsuit  without  prejudice for the
purpose of allowing  GenSci to transfer  these claims to the  anti-trust  action
that GenSci filed against us on March 6, 2000. As a result of these  dismissals,
GenSci will no longer have any claims against us in the patent action.  The only
remaining  claims in the patent action involve our  allegations  that GenSci has
infringed  certain  Osteotech  patents through the sale of the Dynagraft(TM) Gel
and Dynagraft(TM) Putty products.  This agreement was subject to court approval,
which approval has been received.

Orthopaedic Bone Screw Products Liability Litigation

The Company remained a defendant in one previously  reported state court product
liability action  involving  orthopaedic  bone screws:  Ponder v. Synthes.  This
action has been discontinued.


                                      -14-

<PAGE>


ITEM 5. OTHER INFORMATION

On May 2,  2000,  we  announced  that Marc Burel  joined the  Company in the new
position of Vice  President of Sales.  Marc was formerly  President and owner of
ProMed, which represented Medtronic Sofamor Danek in all of New Jersey, Delaware
and eastern  Pennsylvania.  Additionally,  joining Marc in his move to Osteotech
are eight former ProMed sales representatives and managers.

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

27.0              Financial Data Schedule                           E-1

(b)  Reports on Form 8-K

On February 14, 2000, we filed with the  Commission a Current Report on Form 8-K
to announce  that we entered into an  agreement  with Spinal  Concepts,  Inc. to
co-promote  Grafton(R)  Demineralized  Bone Matrix  (DBM) with Spinal  Concepts'
InFix(R)  Interbody Fusion System for the treatment of degenerative disc disease
of the lumbar spine.

On April 18, 2000, we filed with the  Commission a Current Report on Form 8-K to
announce that we had reached an agreement with GenSci Regeneration Laboratories,
Inc., and its parent,  GenSci Regeneration Sciences Inc. regarding several legal
matters in our lawsuit against the GenSci companies.


                                      -15-
<PAGE>


                                   SIGNATURES

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




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




Date:  May 12, 2000                         By:  /S/Richard W.  Bauer
                                                 -------------------------------
                                                 Richard W. Bauer
                                                 Chief Executive Officer


Date:  May 12, 2000                         By:  /S/Michael J. Jeffries
                                                 -------------------------------
                                                 Michael J. Jeffries
                                                 Executive Vice President
                                                 Chief Financial Officer