##### 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, 2009
 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
  Yes þ No o
 Yes
o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a
smaller reporting
company)
 Yes o No þ




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##### 



OSTEOTECH, INC.
 FORM 10-Q
 Table of Contents
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2009 and
December 31, 2008
    
    
    3Condensed Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    19Item 1A. Risk Factors
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 6. Exhibits
    
    
    19Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1.
    
    FINANCIAL STATEMENTS
 OSTEOTECH, INC. and SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (dollars in thousands)
 June 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,799
    
    
    $
    18,823Accounts receivable, net of allowance of $427 in 2009 and $401 in 2008
    
    
    20,967
    
    
    
    17,968Deferred processing costs
    
    
    44,044
    
    
    
    38,715Inventories
    
    
    1,911
    
    
    
    1,467Prepaid expenses and other current assets
    
    
    2,354
    
    
    
    3,115Total current assets
    
    
    81,075
    
    
    
    80,088Property, plant and equipment, net
    
    
    31,913
    
    
    
    34,005Other assets
    
    
    10,820
    
    
    
    13,022Total assets
    
    $
    123,808
    
    
    $
    127,115LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    22,799
    
    
    $
    23,569Current maturities of capital lease obligation
    
    
    943
    
    
    
    895Total current liabilities
    
    
    23,742
    
    
    
    24,464Capital lease obligation
    
    
    12,691
    
    
    
    13,175Other liabilities
    
    
    6,749
    
    
    
    6,626Total liabilities
    
    
    43,182
    
    
    
    44,265Commitments and contingenciesStockholders equity:Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares
issued or outstandingCommon stock, $.01 par value; 70,000,000 shares authorized; issued
18,029,512 shares in 2009 and 17,979,846 shares in 2008
    
    
    180
    
    
    
    180Additional paid-in capital
    
    
    70,690
    
    
    
    69,801Treasury stock, at cost; 115,670 shares in 2009 and 65,190 shares in 2008
    
    
    (227
    )
    
    
    (125
    )Accumulated other comprehensive income
    
    
    1,382
    
    
    
    1,393Retained earnings
    
    
    8,601
    
    
    
    11,601Total stockholders equity
    
    
    80,626
    
    
    
    82,850Total liabilities and stockholders equity
    
    $
    123,808
    
    
    $
    127,115
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OSTEOTECH, INC. and SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  (dollars in thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue
    
    $
    23,471
    
    
    $
    27,553
    
    
    $
    47,402
    
    
    $
    55,184Cost of revenue
    
    
    11,940
    
    
    
    13,051
    
    
    
    23,904
    
    
    
    26,440Gross profit
    
    
    11,531
    
    
    
    14,502
    
    
    
    23,498
    
    
    
    28,744Marketing, selling and general
and administrative
    
    
    10,768
    
    
    
    11,323
    
    
    
    22,386
    
    
    
    23,003Research and development
    
    
    1,998
    
    
    
    1,774
    
    
    
    3,651
    
    
    
    3,53412,766
    
    
    
    13,097
    
    
    
    26,037
    
    
    
    26,537Operating income (loss)
    
    
    (1,235
    )
    
    
    1,405
    
    
    
    (2,539
    )
    
    
    2,207Other income (expense):Interest income
    
    
    8
    
    
    
    113
    
    
    
    24
    
    
    
    292Interest expense
    
    
    (363
    )
    
    
    (387
    )
    
    
    (733
    )
    
    
    (778
    )Other
    
    
    131
    
    
    
    945
    
    
    
    48
    
    
    
    1,223(224
    )
    
    
    671
    
    
    
    (661
    )
    
    
    737Income (loss) before income taxes
    
    
    (1,459
    )
    
    
    2,076
    
    
    
    (3,200
    )
    
    
    2,944Income tax provision (benefit)
    
    
    (255
    )
    
    
    330
    
    
    
    (200
    )
    
    
    390Net income (loss)
    
    $
    (1,204
    )
    
    $
    1,746
    
    
    $
    (3,000
    )
    
    $
    2,554Earnings (loss) per share:Basic
    
    $
    (.07
    )
    
    $
    .10
    
    
    $
    (.17
    )
    
    $
    .14Diluted
    
    $
    (.07
    )
    
    $
    .10
    
    
    $
    (.17
    )
    
    $
    .14Shares used in computing
earnings (loss) per share:Basic
    
    
    18,004,217
    
    
    
    17,771,799
    
    
    
    17,882,059
    
    
    
    17,744,656Diluted
    
    
    18,004,217
    
    
    
    17,919,695
    
    
    
    17,882,059
    
    
    
    17,904,128
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OSTEOTECH, INC. and SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (dollars in thousands)
 Six Months EndedJune 30,2009
    
    
    2008Cash Flow From Operating ActivitiesNet income (loss)
    
    $
    (3,000
    )
    
    $
    2,554Adjustments to reconcile net income (loss)
to net cash provided by operating activities:Depreciation and amortization
    
    
    3,078
    
    
    
    2,795Stock-based compensation expense
    
    
    842
    
    
    
    812Changes in current assets and liabilities:Accounts receivable
    
    
    (2,999
    )
    
    
    (3,824
    )Deferred processing costs
    
    
    (2,802
    )
    
    
    (3,470
    )Inventories
    
    
    (444
    )
    
    
    (143
    )Prepaid expenses and other current assets
    
    
    761
    
    
    
    (14
    )Accounts payable and other liabilities
    
    
    (770
    )
    
    
    1,190Net cash used in operating activities
    
    
    (5,334
    )
    
    
    (100
    )Cash Flow From Investing ActivitiesCapital expenditures
    
    
    (846
    )
    
    
    (3,394
    )Other, net
    
    
    (362
    )
    
    
    (179
    )Net cash used in investing activities
    
    
    (1,208
    )
    
    
    (3,573
    )Cash Flow From Financing ActivitiesPurchase of treasury stock
    
    
    (102
    )
    
    
    Proceeds from issuance of common stock
    
    
    47
    
    
    
    365Principal payments on capital lease obligation
    
    
    (436
    )
    
    
    (392
    )Net cash used in financing activities
    
    
    (491
    )
    
    
    (27
    )Effect of exchange rate changes on cash
    
    
    9
    
    
    
    51Net decrease in cash and cash equivalents
    
    
    (7,024
    )
    
    
    (3,649
    )Cash and cash equivalents at beginning of period
    
    
    18,823
    
    
    
    22,777Cash and cash equivalents at end of period
    
    $
    11,799
    
    
    $
    19,128Supplementary cash flow data:Cash paid during the period for interest
    
    $
    760
    
    
    $
    771Cash refunded during the period for taxes
    
    $
    (36
    )
    
    $
    (149
    )
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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
   Determination of the Useful Life of Intangible
Assets Goodwill and Other Intangible Assets Business Combinations
 Effective Date of FASB
Statement No. 157 Fair
Value Measurements
  i.)
    
    FSP No. 157-4, Determining Whether a Market Is Not Active and a Transaction Is Not
Distressed, (FSP No. 157-4) provides guidelines for making fair value measurements more
consistent with the principles presented in SFAS No. 157. FSP No. 157-4 provides
additional authoritative guidance in determining whether a market is active or inactive,
and whether a transaction is distressed, is applicable to all assets and liabilities
(i.e. financial and non-financial) and with required enhanced disclosure.
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OSTEOTECH, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
 ii.)
    
    FSP No. 115-2, FAS 124-2, and EITF 99-20-2, Recognition and Presentation of
Other-Than-Temporary Impairments(FSP 115-2, FAS 124-2, and EITF 99-20-2) provide
additional guidance to provide greater
clarity about the credit and noncredit component of an other-than-temporary impairment event
and to more effectively communicate when an other-than-temporary impairment event has
occurred. FSP 115-2, FAS 124-2, and EITF 99-20-2 apply to investments in debt securities.
The Company presently does not have any debt securities.
 iii.)
    
    FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments(FSP FAS 107-1 and APB 28-1) amend FASB Statement No. 107, Disclosures
about Fair Value of Financial Instruments, to require disclosures about fair value of
financial instruments in interim as well as in annual financial statements. FSP No. FAS
107-1 and APB28-1 also amend APB Opinion No. 28, Interim Financial Reporting, to require
those disclosures in all interim financial statements. The Company presently does not
have any financial instruments.
 iv.)
    
    FASB SFAS No. 165, Subsequent Events(SFAS No. 165). SFAS No. 165 establishes
general standards of accounting for and disclosure of events that occur after the balance
sheet date but before financial statements are issued or are available to be issued.
   i.)
    
    SFAS No. 166, New Guidance for Transfer of Financial Assets(SFAS No. 166). SFAS
No. 166 is effective for the Company beginning November 15, 2009 and will require more
disclosure about transfers of financial assets and changes the requirements for
derecognizing financial assets. The Company is currently evaluating the impact that
adopting SFAS No. 166 would have on its financial position and results of operations.
 ii.)
    
    SFAS No. 167, New Consolidation Guidance for Variable Interest Entities(SFAS
No. 167). SFAS No. 167 is effective for the Company beginning January 1, 2010. SFAS
No. 167 changes how a reporting entity determines whether an entity that is
insufficiently capitalized or in not controlled through voting (or similar rights)
should be consolidated. The Company is currently evaluating the impact that adopting
SFAS No. 166 would have on its financial position and results of operations.
 iii.)
    
    SFAS No. 168, The FASB Accounting Standards Codification and Hierarchy of
Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162(SFAS
No. 168). SFAS No. 168 is effective for the Company beginning September 15, 2009 and
establishes the FASB Standards Accounting Codification (Codification) as the source of
authoritative U.S. generally accepted accounting principles (GAAP) recognized by the
FASB to be applied to nongovernmental entities and rules and interpretive releases of
the SEC as authoritative GAAP for SEC registrants. The Codification will supersede all
the existing non-SEC accounting and reporting standards upon its effective date and
subsequently, the FASB will not issue new standards in the Form of Statements, FASB
Staff Positions or Emerging Issues Task Force Abstracts. The Company is currently
evaluating the impact of adopting SFAS No. 168 but does not anticipate that the adoption
of SFAS No. 168 will have a material impact on its consolidated financial statements.
 Subsequent Events
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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 31,2009
    
    
    2008Unprocessed donor tissue
    
    $
    22,892
    
    
    $
    16,922Tissue in process
    
    
    7,244
    
    
    
    4,506Implantable donor tissue
    
    
    13,908
    
    
    
    17,287$
    44,044
    
    
    $
    38,715
  3. Inventories
  June 30,
    
    
    December 31,2009
    
    
    2008Supplies
    
    $
    489
    
    
    $
    478Raw materials
    
    
    782
    
    
    
    533Finished goods
    
    
    640
    
    
    
    456$
    1,911
    
    
    $
    1,467
 4. Shareholders Equity
 Stock Compensation Plans
   RSUs
    
    
    OptionsWeighted-Weighted-
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Weighted-
    
    
    RemainingGrant
    
    
    
    
    
    
    Average
    
    
    ContractualNumber of
    
    
    Date Fair
    
    
    Number of
    
    
    Exercise
    
    
    TermShares
    
    
    Value
    
    
    Shares
    
    
    Price
    
    
    (Years)Outstanding, January 1, 2009
    
    
    790,663
    
    
    $
    4.88
    
    
    
    1,390,962
    
    
    $
    7.42Granted
    
    
    121,328
    
    
    $
    3.41
    
    
    
    
    
    
    
    Vested RSUs or exercised options
    
    
    (44,085
    )
    
    $
    5.44
    
    
    
    
    
    
    
    Forfeited, cancelled or expired
    
    
    (19,774
    )
    
    $
    4.17
    
    
    
    (52,900
    )
    
    $
    25.90Outstanding, June 30, 2009
    
    
    848,132
    
    
    $
    4.66
    
    
    
    1,338,062
    
    
    $
    6.69
    
    
    
    4.1Options exercisable
    
    
    
    
    
    
    
    
    
    
    1,325,562
    
    
    $
    6.71
    
    
    
    4.1
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OSTEOTECH, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
    Stock Repurchase Program
  5. Income Taxes
 Accounting for Income Taxes
    - 9 -




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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
  Other Contingencies
  7. Comprehensive Income (Loss)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    (1,204
    )
    
    $
    1,746
    
    
    $
    (3,000
    )
    
    $
    2,554Currency translation adjustments
    
    
    103
    
    
    
    (12
    )
    
    
    (11
    )
    
    
    272Comprehensive income (loss)
    
    $
    (1,101
    )
    
    $
    1,734
    
    
    $
    (3,011
    )
    
    $
    2,826
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OSTEOTECH, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
 8. Earnings (Loss) Per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss) available to
common stockholders
    
    $
    (1,204
    )
    
    $
    1,746
    
    
    $
    (3,000
    )
    
    $
    2,554Denominator for basic earnings
(loss) per share, weighted
average common shares
outstanding
    
    
    18,004,217
    
    
    
    17,771,799
    
    
    
    17,882,059
    
    
    
    17,744,656Effect of dilutive securities
after application of the
treasury stock method:Restricted stock units
    
    
    
    
    
    
    35,930
    
    
    
    
    
    
    
    27,424Stock options
    
    
    
    
    
    
    111,966
    
    
    
    
    
    
    
    132,048Denominator for diluted earnings
(loss) per share
    
    
    18,004,217
    
    
    
    17,919,695
    
    
    
    17,882,059
    
    
    
    17,904,128Basic earnings (loss) per share
    
    $
    (.07
    )
    
    $
    .10
    
    
    $
    (.17
    )
    
    $
    .14Diluted earnings (loss) per share
    
    $
    (.07
    )
    
    $
    .10
    
    
    $
    (.17
    )
    
    $
    .14
  9. Fair Value Measurements
      Quoted Prices in
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Asset:Money market funds
    
    $
    5,767
    
    
    $
    
    
    
    $
    
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OSTEOTECH, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements  (dollars in thousands, except per share data)
  Quoted Prices in
    
    
    SignificantActive Markets
    
    
    Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Asset:Goodwill
    
    $
    
    
    
    $
    
    
    
    $
    1,953
 10. Operating Segments
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Revenue:
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008DBM
    
    $
    14,808
    
    
    $
    16,575
    
    
    $
    28,834
    
    
    $
    33,541Hybrid/Synthetics
    
    
    647
    
    
    
    727
    
    
    
    1,395
    
    
    
    1,371Traditional Tissue
    
    
    5,443
    
    
    
    5,250
    
    
    
    10,720
    
    
    
    10,360Spinal Allografts
    
    
    1,862
    
    
    
    2,286
    
    
    
    3,742
    
    
    
    4,536Client Services
    
    
    255
    
    
    
    2,397
    
    
    
    1,888
    
    
    
    4,821Other
    
    
    456
    
    
    
    318
    
    
    
    823
    
    
    
    555$
    23,471
    
    
    $
    27,553
    
    
    $
    47,402
    
    
    $
    55,184
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Operating Income (loss):
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008DBM
    
    $
    3,768
    
    
    $
    5,102
    
    
    $
    7,700
    
    
    $
    11,083Hybrid/Synthetics
    
    
    (234
    )
    
    
    66
    
    
    
    (132
    )
    
    
    (106
    )Traditional Tissue
    
    
    778
    
    
    
    670
    
    
    
    1,068
    
    
    
    1,526Spinal Allografts
    
    
    307
    
    
    
    254
    
    
    
    551
    
    
    
    16Client Services
    
    
    (68
    )
    
    
    1,617
    
    
    
    1,125
    
    
    
    3,046Other
    
    
    209
    
    
    
    230
    
    
    
    80
    
    
    
    462Corporate
    
    
    (5,995
    )
    
    
    (6,534
    )
    
    
    (12,931
    )
    
    
    (13,820
    )$
    (1,235
    )
    
    $
    1,405
    
    
    $
    (2,539
    )
    
    $
    2,207
  11. Other Income (Expense)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Other:
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Foreign exchange gain (loss)
    
    $
    112
    
    
    $
    (57
    )
    
    $
    42
    
    
    $
    224Litigation Settlement
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    1,000Other
    
    
    19
    
    
    
    2
    
    
    
    6
    
    
    
    (1
    )$
    131
    
    
    $
    945
    
    
    $
    48
    
    
    $
    1,223
 
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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 contains forward-looking statements which can be identified by the
use of forward-looking terminology such as believes, expects, may, will, should, or
anticipates or the negative thereof or variations thereon or comparable terminology, or by
discussions of strategy. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. Some of the matters set forth in Item 1A, Risk
Factors, of our Annual Report on Form 10-K for the year ended December 31, 2008 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, 2009 AND 2008
 Results of Operations
 Critical Accounting Policies and Estimates
  Net Income (Loss)
 Three Months Ended
    
    
    Six Months Ended(dollars in thousands, except per
    
    June 30,
    
    
    June 30,share amounts)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeNet income (loss)
    
    $
    (1,204
    )
    
    $
    1,746
    
    
    $
    (2,950
    )
    
    $
    (3,000
    )
    
    $
    2,554
    
    
    $
    (5,554
    )Earnings (loss) per share:Basic
    
    $
    (.07
    )
    
    $
    .10
    
    
    
    
    
    
    $
    (.17
    )
    
    $
    .14Diluted
    
    $
    (.07
    )
    
    $
    .10
    
    
    
    
    
    
    $
    (.17
    )
    
    $
    .14
  Revenue
   - 13 -




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Percent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percent(dollars in thousands)
    
    2009
    
    
    2008
    
    
    Change
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    Change
    
    
    ChangeDBM
    
    $
    14,808
    
    
    $
    16,575
    
    
    $
    (1,767
    )
    
    
    (11
    )%
    
    $
    28,834
    
    
    $
    33,541
    
    
    $
    (4,707
    )
    
    
    (14
    )%Hybrid/Synthetic
    
    
    647
    
    
    
    727
    
    
    
    (80
    )
    
    
    (11
    )%
    
    
    1,395
    
    
    
    1,371
    
    
    
    24
    
    
    
    2
    %Traditional Tissue
    
    
    5,443
    
    
    
    5,250
    
    
    
    193
    
    
    
    4
    %
    
    
    10,720
    
    
    
    10,360
    
    
    
    360
    
    
    
    3
    %Spinal Allograft
    
    
    1,862
    
    
    
    2,286
    
    
    
    (424
    )
    
    
    (19
    )%
    
    
    3,742
    
    
    
    4,536
    
    
    
    (794
    )
    
    
    (18
    )%Client Services
    
    
    255
    
    
    
    2,397
    
    
    
    (2,142
    )
    
    
    (89
    )%
    
    
    1,888
    
    
    
    4,821
    
    
    
    (2,933
    )
    
    
    (61
    )%Other
    
    
    456
    
    
    
    318
    
    
    
    138
    
    
    
    43
    %
    
    
    823
    
    
    
    555
    
    
    
    268
    
    
    
    48
    %$
    23,471
    
    
    $
    27,553
    
    
    $
    (4,082
    )
    
    
    (15
    )%
    
    $
    47,402
    
    
    $
    55,184
    
    
    $
    (7,782
    )
    
    
    (14
    )%
 ® ®
 ® ® ® ®
     Gross Profit Margin
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(dollars in thousands)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Gross Profit
    
    $
    11,531
    
    
    $
    14,502
    
    
    $
    23,498
    
    
    $
    28,744Gross Margin
    
    
    49
    %
    
    
    53
    %
    
    
    50
    %
    
    
    52
    %
   - 14 -




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##### Table of Contents



Operating Expenses
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Percent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percent(dollars in thousands)
    
    2009
    
    
    2008
    
    
    Change
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    Change
    
    
    ChangeMarketing, selling and
general and
administrative
    
    $
    10,768
    
    
    $
    11,323
    
    
    $
    (555
    )
    
    
    (5
    )%
    
    $
    22,386
    
    
    $
    23,003
    
    
    $
    (617
    )
    
    
    (3
    )%Research and development
    
    
    1,998
    
    
    
    1,774
    
    
    
    224
    
    
    
    13
    %
    
    
    3,651
    
    
    
    3,534
    
    
    
    117
    
    
    
    3
    %Total
    
    $
    12,766
    
    
    $
    13,097
    
    
    $
    (331
    )
    
    
    (3
    )%
    
    $
    26,037
    
    
    $
    26,537
    
    
    $
    (500
    )
    
    
    (2
    )%
  Operating Income (Loss) By Segment
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Percent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percent(dollars in thousands)
    
    2009
    
    
    2008
    
    
    Change
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    Change
    
    
    ChangeDBM
    
    $
    3,768
    
    
    $
    5,102
    
    
    $
    (1,334
    )
    
    
    (26
    )%
    
    $
    7,700
    
    
    $
    11,083
    
    
    $
    (3,383
    )
    
    
    (31
    )%Hybrid/Synthetic
    
    
    (234
    )
    
    
    66
    
    
    
    (300
    )
    
    
    (455
    )%
    
    
    (132
    )
    
    
    (106
    )
    
    
    (26
    )
    
    
    (25
    )%Traditional Tissue
    
    
    778
    
    
    
    670
    
    
    
    108
    
    
    
    16
    %
    
    
    1,068
    
    
    
    1,526
    
    
    
    (458
    )
    
    
    (30
    )%Spinal Allograft
    
    
    307
    
    
    
    254
    
    
    
    53
    
    
    
    21
    %
    
    
    551
    
    
    
    16
    
    
    
    535
    
    
    
    3,344
    %Client Services
    
    
    (68
    )
    
    
    1,617
    
    
    
    (1,685
    )
    
    
    (104
    )%
    
    
    1,125
    
    
    
    3,046
    
    
    
    (1,921
    )
    
    
    (63
    )%Other Product Lines
    
    
    209
    
    
    
    230
    
    
    
    (21
    )
    
    
    (9
    )%
    
    
    80
    
    
    
    462
    
    
    
    (382
    )
    
    
    (83
    )%4,760
    
    
    
    7,939
    
    
    
    (3,179
    )
    
    
    (40
    )%
    
    
    10,392
    
    
    
    16,027
    
    
    
    (5,635
    )
    
    
    (35
    )%Corporate
    
    
    (5,995
    )
    
    
    (6,534
    )
    
    
    539
    
    
    
    (8
    )%
    
    
    (12,931
    )
    
    
    (13,820
    )
    
    
    889
    
    
    
    (6
    )%Operating Income (Loss)
    
    $
    (1,235
    )
    
    $
    1,405
    
    
    $
    (2,640
    )
    
    
    (188
    )%
    
    $
    (2,539
    )
    
    $
    2,207
    
    
    $
    (4,746
    )
    
    
    (215
    )%
   Other Income (Expense)
    - 15 -




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##### Table of Contents



Income Tax Provision
      Liquidity and Capital Resources
 June 30,
    
    
    December 31,(dollars in thousands)
    
    2009
    
    
    2008Cash and cash equivalents
    
    $
    11,799
    
    
    $
    18,823Working Capital
    
    $
    57,333
    
    
    $
    55,624Stockholders equity
    
    $
    80,626
    
    
    $
    82,850
 Six Months EndedJune 30,Summary of our cash flow:
    
    2009
    
    
    2008Net cash (used in) operating activities
    
    $
    (5,334
    )
    
    $
    (100
    )Net cash (used in) investing activities
    
    $
    (1,208
    )
    
    $
    (3,573
    )Net cash (used in) financing activities
    
    $
    (491
    )
    
    $
    (27
    )Effect of foreign currency exchange rates on cash
    
    $
    9
    
    
    $
    51Net decrease in cash and cash equivalents
    
    $
    (7,024
    )
    
    $
    (3,649
    )
  - 16 -




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##### Table of Contents



Cash Flow From Operating Activities
  Cash Flow From Investing Activities
  Cash Flow From Financing Activities
  Financing Needs
  Repurchase of Common Stock
  Recent Accounting Developments
 Recent Accounting Pronouncements,
 Contractual Obligations
  Impact of Inflation and Foreign Currency Exchange Fluctuations
   - 17 -




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##### Table of Contents



Litigation
   Government Proceedings
  
 Item 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
   - 18 -




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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 18, 2009.
 (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
    
    
    14,076,388
    
    
    
    2,598,634Stephen S. Galliker
    
    
    15,239,570
    
    
    
    1,435,452Dr. Cato T. Laurencin
    
    
    15,238,900
    
    
    
    1,436,122Sam Owusu-Akyaw
    
    
    15,169,220
    
    
    
    1,505,802Robert J Palmisano
    
    
    15,234,397
    
    
    
    1,440,625James M. Shannon
    
    
    15,237,949
    
    
    
    1,437,073
  
 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: July 31, 2009
    Osteotech, Inc. (Registrant)Date: July 31, 2009
    By:
    /s/ Sam Owusu-AkyawSam  Owusu-AkyawPresident and Chief Executive Officer
(Principal Executive Officer)Date: July 31, 2009
    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. 
  - 21 -