##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 for the quarterly period ended June 30, 2008.
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 for the Transition Period from  to
 Commission File Number: 0-19278
 OSTEOTECH, INC.
  Delaware
    
    13-3357370(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 51 James Way, Eatontown, New Jersey 07724
 (732) 542-2800
 Not Applicable
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



OSTEOTECH, INC.
 FORM 10-Q
 Table of Contents
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2008 and
December 31, 2007
    
    
    3Condensed Consolidated Statements of Operations for the Three Months and
Six Months Ended June 30, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2008 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risks
    
    
    16Item 4. Controls and Procedures
    
    
    17PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    18Item 1A. Risk Factors
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18Item 6. Exhibits
    
    
    19Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 OSTEOTECH, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS  (dollars in thousands)
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    19,128
    
    
    $
    22,777Accounts receivable, net of allowance of $385 in 2008 and $267 in 2007
    
    
    23,177
    
    
    
    19,353Deferred processing costs
    
    
    29,985
    
    
    
    30,850Inventories
    
    
    1,314
    
    
    
    1,171Prepaid expenses and other current assets
    
    
    3,971
    
    
    
    3,957Total current assets
    
    
    77,575
    
    
    
    78,108Property, plant and equipment, net
    
    
    35,340
    
    
    
    34,508Other assets
    
    
    12,291
    
    
    
    7,735Total assets
    
    $
    125,206
    
    
    $
    120,351LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    20,554
    
    
    $
    19,364Current maturities of capital lease obligation
    
    
    850
    
    
    
    807Total current liabilities
    
    
    21,404
    
    
    
    20,171Capital lease obligation
    
    
    13,634
    
    
    
    14,069Other liabilities
    
    
    7,137
    
    
    
    7,083Total liabilities
    
    
    42,175
    
    
    
    41,323Commitments and contingenciesStockholders equity:Preferred stock, $.01 par value; 5,000,000 shares authorized; no
shares issued or outstandingCommon stock, $.01 par value; 70,000,000 shares authorized; issued
and outstanding 17,805,396 shares in 2008 and 17,697,539 shares in
2007
    
    
    178
    
    
    
    177Additional paid-in capital
    
    
    69,198
    
    
    
    68,022Accumulated other comprehensive income
    
    
    1,703
    
    
    
    1,431Retained earnings
    
    
    11,952
    
    
    
    9,398Total stockholders equity
    
    
    83,031
    
    
    
    79,028Total liabilities and stockholders equity
    
    $
    125,206
    
    
    $
    120,351
   3




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##### Table of Contents



OSTEOTECH, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS   (dollars in thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    27,553
    
    
    $
    26,470
    
    
    $
    55,184
    
    
    $
    51,687Cost of revenue
    
    
    13,051
    
    
    
    13,680
    
    
    
    26,440
    
    
    
    26,580Gross profit
    
    
    14,502
    
    
    
    12,790
    
    
    
    28,744
    
    
    
    25,107Marketing,
selling and general and administrative expenses
    
    
    11,323
    
    
    
    10,434
    
    
    
    23,003
    
    
    
    22,124Research and development expenses
    
    
    1,774
    
    
    
    1,281
    
    
    
    3,534
    
    
    
    2,44513,097
    
    
    
    11,715
    
    
    
    26,537
    
    
    
    24,569Operating income
    
    
    1,405
    
    
    
    1,075
    
    
    
    2,207
    
    
    
    538Other income (expense):Interest income
    
    
    113
    
    
    
    252
    
    
    
    .292
    
    
    
    512Interest expense
    
    
    (387
    )
    
    
    (404
    )
    
    
    (778
    )
    
    
    (814
    )Other
    
    
    945
    
    
    
    (114
    )
    
    
    1,223
    
    
    
    22671
    
    
    
    (266
    )
    
    
    737
    
    
    
    (280
    )Income before income taxes
    
    
    2,076
    
    
    
    809
    
    
    
    2,944
    
    
    
    258Income tax provision (benefit)
    
    
    330
    
    
    
    (46
    )
    
    
    390
    
    
    
    51Net income
    
    $
    1,746
    
    
    $
    855
    
    
    $
    2,554
    
    
    $
    207Earnings per share:Basic
    
    $
    .10
    
    
    $
    .05
    
    
    $
    .14
    
    
    $
    .01Diluted
    
    $
    .10
    
    
    $
    .05
    
    
    $
    .14
    
    
    $
    .01Shares used in computing earnings per share:Basic
    
    
    17,771,799
    
    
    
    17,466,368
    
    
    
    17,744,656
    
    
    
    17,442,969Diluted
    
    
    17,919,695
    
    
    
    18,009,774
    
    
    
    17,904,128
    
    
    
    17,912,380
   4




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OSTEOTECH, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   (dollars in thousands)
 Six Months EndedJune 30,2008
    
    
    2007Cash Flow From Operating ActivitiesNet income
    
    $
    2,554
    
    
    $
    207Adjustments to reconcile net income to net cash (used in) provided by
operating activities:Depreciation and amortization
    
    
    2,795
    
    
    
    2,765Stock-based compensation expense
    
    
    812
    
    
    
    231Changes in current assets and liabilities:Accounts receivable
    
    
    (3,824
    )
    
    
    (1,702
    )Deferred processing costs
    
    
    (3,470
    )
    
    
    14Inventories
    
    
    (143
    )
    
    
    (235
    )Prepaid expenses and other current assets
    
    
    (514
    )
    
    
    (352
    )Notes receivables from patent litigation settlement
    
    
    500
    
    
    
    500Accounts payable and other liabilities
    
    
    1,190
    
    
    
    810Net cash (used in) provided by operating activities
    
    
    (100
    )
    
    
    2,238Cash Flow From Investing ActivitiesCapital expenditures
    
    
    (3,394
    )
    
    
    (807
    )Other, net
    
    
    (179
    )
    
    
    (404
    )Net cash (used in) investing activities
    
    
    (3,573
    )
    
    
    (1,211
    )Cash Flow From Financing ActivitiesProceeds from issuance of common stock
    
    
    365
    
    
    
    794Principal payments on capital lease obligations
    
    
    (392
    )
    
    
    (353
    )Net cash (used in) provided by financing activities
    
    
    (27
    )
    
    
    441Effect of exchange rate changes on cash
    
    
    51
    
    
    
    16Net (decrease) increase in cash and cash equivalents
    
    
    (3,649
    )
    
    
    1,484Cash and cash equivalents at beginning of period
    
    
    22,777
    
    
    
    17,946Cash and cash equivalents at end of period
    
    $
    19,128
    
    
    $
    19,430Supplementary cash flow data:Cash paid during the period for interest
    
    $
    771
    
    
    $
    814Cash paid during the period for taxes
    
    $
    274
    
    
    $
    61
   5




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OSTEOTECH, INC. and SUBSIDIARIES
 
 Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
 1. Basis of Presentation
 General
 , .
 Recent Accounting Pronouncements
   
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
 
    
    Level 2  Inputs other than Level 1 that are observable, either directly
or indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
 
    
    Level 3  Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities.
    6




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OSTEOTECH, INC. and SUBSIDIARIES
 Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
 2. Deferred Processing Costs
  June 30,
    
    
    December 31,2008
    
    
    2007Unprocessed donor tissue
    
    $
    14,974
    
    
    $
    14,172Tissue in process
    
    
    3,635
    
    
    
    4,777Implantable donor tissue
    
    
    11,376
    
    
    
    11,901$
    29,985
    
    
    $
    30,850
  3. Inventories
  June 30,
    
    
    December 31,2008
    
    
    2007Supplies
    
    $
    406
    
    
    $
    279Raw materials
    
    
    606
    
    
    
    664Finished goods
    
    
    302
    
    
    
    228$
    1,314
    
    
    $
    1,171
 4. Stock Compensation Plans
   7




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OSTEOTECH, INC. and SUBSIDIARIES
 Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
  RSUs

    
    
    OptionsWeighted-AverageWeighted-
    
    
    
    
    
    
    Weighted-
    
    
    RemainingAverage
    
    
    
    
    
    
    Average
    
    
    Contractual
    
    
    AggregateNumber
    
    
    Grant Date
    
    
    Number
    
    
    Exercise
    
    
    Term
    
    
    Intrinsicof Shares
    
    
    Fair Value
    
    
    of Shares
    
    
    Price
    
    
    (Years)
    
    
    ValueOutstanding,
January 1, 2008
    
    
    775,242
    
    
    $
    7.15
    
    
    
    1,764,762
    
    
    $
    8.51Granted
    
    
    69,000
    
    
    $
    5.49
    
    
    
    Vested RSUs or
exercised options
    
    
    (32,325
    )
    
    $
    6.92
    
    
    
    (53,750
    )
    
    $
    4.39Forfeited,
cancelled or
expired
    
    
    (13,538
    )
    
    $
    6.96
    
    
    
    (207,000
    )
    
    $
    11.16Outstanding, June
30, 2008
    
    
    798,379
    
    
    $
    7.01
    
    
    
    1,504,012
    
    
    $
    8.30
    
    
    
    4.68
    
    
    $
    997Options exercisable
    
    
    
    
    
    
    
    
    
    
    1,476,512
    
    
    $
    8.37
    
    
    
    4.62
    
    
    $
    961
   5. Income Taxes
 ,
    8




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OSTEOTECH, INC. and SUBSIDIARIES
 Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
  6. Commitments and Contingencies
 Litigation
 .
 7. Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    1,746
    
    
    $
    855
    
    
    $
    2,554
    
    
    $
    207Currency translation adjustments
    
    
    (12
    )
    
    
    (52
    )
    
    
    272
    
    
    
    (65
    )Comprehensive income
    
    $
    1,734
    
    
    $
    803
    
    
    $
    2,826
    
    
    $
    142
 8. Earnings Per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income available to
common stockholders
    
    $
    1,746
    
    
    $
    855
    
    
    $
    2,554
    
    
    $
    207Denominator for basic
earnings per share,
weighted average common
shares outstanding
    
    
    17,771,799
    
    
    
    17,466,368
    
    
    
    17,744,656
    
    
    
    17,442,969Effect of dilutive
securities after
application of the
treasury stock method:RSUs
    
    
    35,930
    
    
    
    143,641
    
    
    
    27,424
    
    
    
    133,499Stock options
    
    
    111,966
    
    
    
    399,765
    
    
    
    132,048
    
    
    
    335,912Denominator for diluted
earnings per share
    
    
    17,919,695
    
    
    
    18,009,774
    
    
    
    17,904,128
    
    
    
    17,912,380Basic earnings per share
    
    $
    .10
    
    
    $
    .05
    
    
    $
    .14
    
    
    $
    .01Diluted earnings per share
    
    $
    .10
    
    
    $
    .05
    
    
    $
    .14
    
    
    $
    .01
   9




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##### Table of Contents



OSTEOTECH, INC. and SUBSIDIARIES
 Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
 9. Operating Segments
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue:DBM
    
    $
    16,575
    
    
    $
    16,161
    
    
    $
    33,541
    
    
    $
    31,643Hybrid/Synthetic
    
    
    727
    
    
    
    408
    
    
    
    1,371
    
    
    
    641Traditional Tissue
    
    
    5,250
    
    
    
    4,558
    
    
    
    10,360
    
    
    
    9,169Spinal Allograft
    
    
    2,286
    
    
    
    3,221
    
    
    
    4,536
    
    
    
    6,009Client Services
    
    
    2,397
    
    
    
    1,944
    
    
    
    4,821
    
    
    
    3,872Other
    
    
    318
    
    
    
    178
    
    
    
    555
    
    
    
    353$
    27,553
    
    
    $
    26,470
    
    
    $
    55,184
    
    
    $
    51,687
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Operating income (loss):DBM
    
    $
    5,102
    
    
    $
    4,532
    
    
    $
    11,083
    
    
    $
    7,639Hybrid/Synthetic
    
    
    66
    
    
    
    (43
    )
    
    
    (106
    )
    
    
    3Traditional Tissue
    
    
    670
    
    
    
    536
    
    
    
    1,526
    
    
    
    1,942Spinal Allograft
    
    
    254
    
    
    
    711
    
    
    
    16
    
    
    
    1,040Client Services
    
    
    1,617
    
    
    
    1,427
    
    
    
    3,046
    
    
    
    3,005Other
    
    
    230
    
    
    
    40
    
    
    
    462
    
    
    
    178Corporate
    
    
    (6,534
    )
    
    
    (6,128
    )
    
    
    (13,820
    )
    
    
    (13,269
    )$
    1,405
    
    
    $
    1,075
    
    
    $
    2,207
    
    
    $
    538
  10. Other Income (Expense)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Other:Foreign exchange gains (loss) on
intercompany accounts
    
    $
    (33
    )
    
    $
    (138
    )
    
    $
    159
    
    
    $
    (81
    )Foreign exchange gains (loss) on
third party transactions
    
    
    (24
    )
    
    
    24
    
    
    
    65
    
    
    
    (18
    )Litigation settlement
    
    
    1,000
    
    
    
    
    
    
    
    1,000Contingent consideration payment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125Other
    
    
    2
    
    
    
    
    
    
    
    (1
    )
    
    
    (4
    )$
    945
    
    
    $
    (114
    )
    
    $
    1,223
    
    
    $
    22
     10




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##### Table of Contents



Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 The following discussions should be read in conjunction with the condensed consolidated financial
statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q .
 Information included herein may contain forward-looking statements which can be identified by the
use of forward-looking terminology such as believes, expects, may, will, should, or
anticipates or the negative thereof or variations thereon or comparable terminology, or by
discussions of strategy. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. Some of the matters set forth in Item 1A. Risk
Factors, of our Annual Report on Form 10-K for the year ended December 31, 2007, constitute
cautionary statements identifying factors with respect to such forward-looking statements,
including certain risks and uncertainties, that could cause actual results to vary materially from
the future results indicated in such forward-looking statements. Other factors could also cause
actual results to vary materially from the future results indicated in such forward-looking
statements. Except as may be required by law, we undertake no obligation to update any
forward-looking statement to reflect events after the date of this report.
 FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007
 Results of Operations
 Critical Accounting Policies and Estimates
  Net Income
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(dollars in thousands,
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percentexcept per share amounts)
    
    2008
    
    
    2007
    
    
    Change
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeNet income
    
    $
    1,746
    
    
    $
    855
    
    
    $
    891
    
    
    
    104
    %
    
    $
    2,554
    
    
    $
    207
    
    
    $
    2,347
    
    
    
    1,134
    %Earnings per share:Basic
    
    $
    .10
    
    
    $
    .05
    
    
    
    
    
    
    
    
    
    
    $
    .14
    
    
    $
    .01Diluted
    
    $
    .10
    
    
    $
    .05
    
    
    
    
    
    
    
    
    
    
    $
    .14
    
    
    $
    .01
    11




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##### Table of Contents



Revenue
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Percent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percent(dollars in thousands)
    
    2008
    
    
    2007
    
    
    Change
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeDBM
    
    $
    16,575
    
    
    $
    16,161
    
    
    $
    414
    
    
    
    3
    %
    
    $
    33,541
    
    
    $
    31,643
    
    
    $
    1,898
    
    
    
    6
    %Hybrid/Synthetic
    
    
    727
    
    
    
    408
    
    
    
    319
    
    
    
    78
    %
    
    
    1,371
    
    
    
    641
    
    
    
    730
    
    
    
    114
    %Traditional Tissue
    
    
    5,250
    
    
    
    4,558
    
    
    
    692
    
    
    
    15
    %
    
    
    10,360
    
    
    
    9,169
    
    
    
    1,191
    
    
    
    13
    %Spinal Allograft
    
    
    2,286
    
    
    
    3,221
    
    
    
    (935
    )
    
    
    -29
    %
    
    
    4,536
    
    
    
    6,009
    
    
    
    (1,473
    )
    
    
    -25
    %Client Services
    
    
    2,397
    
    
    
    1,944
    
    
    
    453
    
    
    
    23
    %
    
    
    4,821
    
    
    
    3,872
    
    
    
    949
    
    
    
    25
    %Other
    
    
    318
    
    
    
    178
    
    
    
    140
    
    
    
    79
    %
    
    
    555
    
    
    
    353
    
    
    
    202
    
    
    
    57
    %$
    27,553
    
    
    $
    26,470
    
    
    $
    1,083
    
    
    
    4
    %
    
    $
    55,184
    
    
    $
    51,687
    
    
    $
    3,497
    
    
    
    7
    %
 ® ® ® ®
 ® ® ®
       12




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##### Table of Contents



Gross Profit Margin
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(dollars in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Gross Profit
    
    $
    14,502
    
    
    $
    12,790
    
    
    $
    28,744
    
    
    $
    25,107Gross Margin
    
    
    53
    %
    
    
    48
    %
    
    
    52
    %
    
    
    49
    %
  Operating Expenses
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Percent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percent(dollars in thousands)
    
    2008
    
    
    2007
    
    
    Change
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeMarketing, selling
and general and
administrative
    
    $
    11,323
    
    
    $
    10,434
    
    
    $
    889
    
    
    
    9
    %
    
    $
    23,003
    
    
    $
    22,124
    
    
    $
    879
    
    
    
    4
    %Research and
development
    
    
    1,774
    
    
    
    1,281
    
    
    
    493
    
    
    
    38
    %
    
    
    3,534
    
    
    
    2,445
    
    
    
    1,089
    
    
    
    45
    %Total
    
    $
    13,097
    
    
    $
    11,715
    
    
    $
    1,382
    
    
    
    12
    %
    
    $
    26,537
    
    
    $
    24,569
    
    
    $
    1,968
    
    
    
    8
    %
    13




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##### Table of Contents



Operating Income (Loss) By Segment
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Percent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percent(dollars in thousands)
    
    2008
    
    
    2007
    
    
    Change
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change
    
    
    ChangeDBM
    
    $
    5,102
    
    
    $
    4,532
    
    
    $
    570
    
    
    
    13
    %
    
    $
    11,083
    
    
    $
    7,639
    
    
    $
    3,444
    
    
    
    45
    %Hybrid/Synthetic
    
    
    66
    
    
    
    (43
    )
    
    
    109
    
    
    
    253
    %
    
    
    (106
    )
    
    
    3
    
    
    
    (109
    )
    
    
    -3633
    %Traditional Tissue
    
    
    670
    
    
    
    536
    
    
    
    134
    
    
    
    25
    %
    
    
    1,526
    
    
    
    1,942
    
    
    
    (416
    )
    
    
    -21
    %Spinal Allografts
    
    
    254
    
    
    
    711
    
    
    
    (457
    )
    
    
    -64
    %
    
    
    16
    
    
    
    1,040
    
    
    
    (1,024
    )
    
    
    -98
    %Client Services
    
    
    1,617
    
    
    
    1,427
    
    
    
    190
    
    
    
    13
    %
    
    
    3,046
    
    
    
    3,005
    
    
    
    41
    
    
    
    1
    %Other
    
    
    230
    
    
    
    40
    
    
    
    190
    
    
    
    475
    %
    
    
    462
    
    
    
    178
    
    
    
    284
    
    
    
    160
    %7,939
    
    
    
    7,203
    
    
    
    736
    
    
    
    10
    %
    
    
    16,027
    
    
    
    13,807
    
    
    
    2,220
    
    
    
    16
    %Corporate
    
    
    (6,534
    )
    
    
    (6,128
    )
    
    
    406
    
    
    
    -7
    %
    
    
    (13,820
    )
    
    
    (13,269
    )
    
    
    551
    
    
    
    -4
    %Operating income
    
    $
    1,405
    
    
    $
    1,075
    
    
    $
    330
    
    
    
    31
    %
    
    $
    2,207
    
    
    $
    538
    
    
    $
    1,669
    
    
    
    310
    %
    Other Income (Expense)
  Income Tax Provision
 ,
   14




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##### Table of Contents



Liquidity and Capital Resources
      Recent Accounting Developments
   
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
    
    Level 2  Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets
or liabilities.
    
    Level 3  Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities.
  15




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##### Table of Contents



Contractual Obligations
  Impact of Inflation and Foreign Currency Exchange Fluctuations
  Litigation
   
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    16




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##### Table of Contents



Item 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
   17




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
  
 Item 1A. RISK FACTORS
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 (a)
    
    An annual meeting of stockholders of the Company was held on June 19, 2008.(b)
    
    The matters voted upon at the annual meeting and the results of the voting are set forth
below:
  Director
    
    For
    
    
    WithheldKenneth P. Fallon, III
    
    
    15,329,479
    
    
    
    168,450Stephen S. Galliker
    
    
    15,352,203
    
    
    
    145,726Sam Owusu-Akyaw
    
    
    15,275,444
    
    
    
    222,485Robert J. Palmisano
    
    
    15,252,703
    
    
    
    145,226James M. Shannon
    
    
    15,340,671
    
    
    
    157,258
   18




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##### Table of Contents



Item 6. EXHIBITS AND REPORTS ON FORM 8-K
 (a)
    
    Exhibits (numbered in accordance with Item 601 of Regulation S-K)
 Exhibit
    
    
    
    PageNumber
    
    Description
    
    Number3.1
    
    
    Restated Certificate of Incorporation of Osteotech, as
amended (incorporated by reference to Exhibit 3.1 to
Registrants Annual Report on Form 10-K, filed on
March 27, 2002)3.2
    
    
    Fifth Amended and Restated Bylaws of Osteotech
(incorporated by reference to Exhibit 3.1 to
Registrants Current Report on Form 8-K, filed on
November 7, 2007)31.1
    
    
    Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
    
    +31.2
    
    
    Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
    
    +32.1
    
    
    Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
    
    +32.2
    
    
    Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
    
    +
 +
    
    Filed herewith.  19




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##### Table of Contents



SIGNATURES
  Date: August 1, 2008



    Osteotech, Inc.(Registrant)Date: August 1, 2008
    By:
    /s/  Sam Owusu-AkyawSam Owusu-AkyawPresident and Chief Executive
Officer
(Principal Executive Officer)Date: August 1, 2008
    By:
    /s/  Mark H. BurroughsMark H. BurroughsExecutive Vice President,
Chief Financial Officer

(Principal Financial Officer and
Chief Accounting Officer)  20




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##### Table of Contents



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