**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549




**FORM
      10-Q**




x Quarterly
      Report
      Pursuant to Section 13 or 15(d) of the Securities


Exchange
      Act of 1934.




For
      the
      period ended June 30, 2007




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: 0-16128*




**TUTOGEN
      MEDICAL, INC.**


(Exact
      name of registrant as specified in its charter)





FLORIDA
            59-3100165(State
                of Incorporation)
            (IRS
                Employer Identification
                Number)




13709
      Progress Boulevard, Box 19, Alachua, Florida 32615


(Address
      of Principal Executive Offices)




Registrant's
      telephone number, including area code (386) 462-0402






Indicate
      by check mark whether the registrant: (1) filed all reports required to be
      filed
      by Section 13 or 15(d) of the Securities Exchange Act 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  Noo




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes oNo
x




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the
      Act).


Large accelerated filer o
            Accelerated filer o
            Non-accelerated filer x









As
      of
      July 31, 2007 there were 19,094,571 shares outstanding of the issuer's Common
      Stock, par value $.01 per share.


**TUTOGEN
      MEDICAL, INC. AND SUBSIDIARIES**




INDEX




PART I.
            
            
            PageNo.ITEM 1.
            Financial Statements.Unaudited
                - Condensed ConsolidatedBalance
                Sheets - June 30, 2007 andSeptember
                30, 2006.
            1Unaudited
                - Condensed ConsolidatedStatements
                of Income (Loss) andComprehensive
                Income (Loss) for the three andnine-months
                ended June 30, 2007 and 2006.
            2Unaudited
                - Condensed ConsolidatedStatements
                of Cash Flows for the nine-monthsended
                June 30, 2007 and 2006.
            3Unaudited
                - Condensed ConsolidatedStatement
                of Shareholders’ Equity forthe
                nine-months ended June 30, 2007.
            4Unaudited
                - Notes to Condensed ConsolidatedFinancial
                Statements.
            5ITEM 2.
            Management's
                Discussion and Analysis of FinancialCondition
                and Results of Operations.
            13ITEM 3.
            Quantitative
                and Qualitative Disclosures about Market
                Risk
            19ITEM 4.
            Controls and Procedures.
            19PART
                II.ITEM 1.
            Legal Proceedings
            20ITEM 2.
            Unregistered Sales of Equity Securities
              andUse
              of Proceeds
            20ITEM 3.
            Defaults Upon Senior Securities
            20ITEM 4.
            Submission of Matters to a Vote of Security-Holders
            20ITEM 5.
            Other Information
            20ITEM 6.
            Exhibits
            21SIGNATURES
            
            
            21







i







**PART
      I. FINANCIAL INFORMATION**




**ITEM
      1. FINANCIAL STATEMENTS.**




**TUTOGEN
      MEDICAL, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


(IN
      THOUSANDS EXCEPT FOR SHARE DATA)


(UNAUDITED)





**June
                  30**
              
              **September
                  30****2007**
              
              **2006****ASSETS****Current
                  Assets**Cash
                  and cash equivalents
              
              $
              11,844
              
              $
              3,463Accounts
                    receivable - net of allowance for doubtful accountsof
                    $642 at June 2007 and $483 at September 2006
              
              
              6,792
              
              
              6,202Inventories
                  - net
              
              
              18,108
              
              
              12,678Deferred
                  tax asset
              
              
              2,908
              
              
              471Prepaids
                  and other current assets
              
              
              1,546
              
              
              1,43641,198
              
              
              24,250**Property,
                  plant, and equipment - net**
              
              
              14,015
              
              
              12,940**Other
                  assets**
              
              
              155
              
              
              424**Deferred
                  tax asset**
              
              
              3,464
              
              
              1,303**TOTAL
                  ASSETS**
              
              $
              58,832
              
              $
              38,917**LIABILITIES
                  AND SHAREHOLDERS' EQUITY****Current
                  Liabilities**Accounts
                  payable
              
              $
              1,743
              
              $
              1,346Accrued
                  expenses and other current liabilities
              
              
              3,794
              
              
              4,314Accrued
                  commissions
              
              
              2,500
              
              
              1,918Short-term
                  borrowings
              
              
              1,979
              
              
              5,783Current
                  portion of deferred distribution fees
              
              
              1,680
              
              
              1,577Current
                  portion of long-term debt
              
              
              1,337
              
              
              1,09713,033
              
              
              16,035**Noncurrent
                  Liabilities**Other
                  noncurrent liabilities
              
              
              2,887
              
              
              3,988Long-term
                  debt
              
              
              2,994
              
              
              3,673Total
                  Liabilities
              
              
              18,914
              
              
              23,696Shareholders'
                  Equity :Common
                    stock, $0.01 par value, 30,000,000 authorized; 19,090,971 and
                    16,197,235
                    issued and outstanding
              
              
              191
              
              
              162Additional
                  paid-in capital
              
              
              54,603
              
              
              37,751Accumulated
                  other comprehensive income
              
              
              3,012
              
              
              2,393Accumulated
                  deficit
              
              
              (17,888
              )
              
              (25,085
              )Total
                  shareholders' equity
              
              
              39,918
              
              
              15,221**TOTAL
                  LIABILITIES AND SHAREHOLDERS' EQUITY**
              
              $
              58,832
              
              $
              38,917See
                  accompanying Notes to Consolidated Financial
                  Statements




1




**TUTOGEN
      MEDICAL, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME
      (LOSS)**


(IN
      THOUSANDS EXCEPT PER SHARE DATA)


(UNAUDITED)




**Three
                  Months Ended**
              
              **Nine
                  Months Ended****June
                  30**
              
              **June
                  30****2007**
              
              **2006**
              
              **2007**
              
              **2006**Revenue
              
              $
              14,163
              
              $
              10,000
              
              $
              38,643
              
              $
              27,149Cost
                  of revenue
              
              
              5,737
              
              
              5,189
              
              
              15,430
              
              
              12,476Gross
                  profit
              
              
              8,426
              
              
              4,811
              
              
              23,213
              
              
              14,673Operating
                  ExpensesGeneral
                  and administrative
              
              
              2,013
              
              
              2,273
              
              
              6,315
              
              
              5,629Distribution
                  and marketing
              
              
              4,184
              
              
              3,332
              
              
              11,589
              
              
              9,352Research
                  and development
              
              
              566
              
              
              452
              
              
              1,562
              
              
              1,319Total
                  Operating Expenses
              
              
              6,763
              
              
              6,057
              
              
              19,466
              
              
              16,300Operating
                  income (loss)
              
              
              1,663
              
              
              (1,246
              )
              
              3,747
              
              
              (1,627
              )Foreign
                  exchange loss
              
              
              (21
              )
              
              (233
              )
              
              (83
              )
              
              (261
              )Interest
                  income
              
              
              121
              
              
              12
              
              
              193
              
              
              42Interest
                  expense
              
              
              (372
              )
              
              (75
              )
              
              (1,016
              )
              
              (53
              )(272
              )
              
              (296
              )
              
              (906
              )
              
              (272
              )Income
                  (loss) before taxes
              
              
              1,391
              
              
              (1,542
              )
              
              2,841
              
              
              (1,899
              )Income
                  tax benefit
              
              
              (4,516
              )
              
              (413
              )
              
              (4,356
              )
              
              (711
              )Net
                  income (loss)
              
              $
              5,907
              
              $
              (1,129
              )
              $
              7,197
              
              $
              (1,188
              )Other
                  comprehensive incomeForeign
                  currency translation adjustments
              
              
              108
              
              
              377
              
              
              619
              
              
              573Comprehensive
                  income (loss)
              
              $
              6,015
              
              $
              (752
              )
              $
              7,816
              
              $
              (615
              )Average
                    shares outstanding for basic earnings per share
              
              
              18,517,927
              
              
              16,058,724
              
              
              17,201,897
              
              
              15,993,936Basic
                  earnings (loss) per share
              
              $
              0.32
              
              $
              (0.07
              )
              $
              0.42
              
              $
              (0.07
              )Average
                    shares outstanding for diluted earnings per share
              
              
              19,950,357
              
              
              16,058,724
              
              
              18,730,575
              
              
              15,993,936Diluted
                  earnings (loss) per share
              
              $
              0.30
              
              $
              (0.07
              )
              $
              0.38
              
              $
              (0.07
              )See
                  accompanying Notes to Consolidated Financial
                  Statements




2




**TUTOGEN
      MEDICAL, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


(IN
      THOUSANDS)


(UNAUDITED)


**Nine
                  Months Ended****June
                  30****2007**
              
              **2006**Cash
                  flows used in operating activitiesNet
                  income (loss)
              
              $
              7,197
              
              $
              (1,188
              )Adjustments
                    to reconcile net income (loss) to net cashused in operating
                    activities:Depreciation
                  and amortization
              
              
              1,345
              
              
              688Amortization
                  of deferred distribution fees revenue
              
              
              (1,012
              )
              
              (407
              )Severance
                  costs
              
              
              -
              
              
              437Amortization
                  of debt discount and debt issuance costs
              
              
              206
              
              
              -Reserve
                  for bad debt
              
              
              164
              
              
              -Provision
                  for inventory write-downs
              
              
              103
              
              
              741Share-based
                  compensation
              
              
              702
              
              
              303Deferred
                  income taxes
              
              
              (4,507
              )
              
              (693
              )Changes
                  in assets and liabilities:Accounts
                  receivable
              
              
              (597
              )
              
              (1,410
              )Inventories
              
              
              (5,263
              )
              
              (3,061
              )Other
                  assets
              
              
              349
              
              
              (503
              )Accounts
                  payable and other accrued expenses
              
              
              (501
              )
              
              (183
              )Accrued
                  commissions
              
              
              582
              
              
              171Deferred
                  distribution fees
              
              
              63
              
              
              1,650Net
                  cash used in operating activities
              
              
              (1,169
              )
              
              (3,455
              )Cash
                  flows used in investing activitiesDeposits
                  on purchase of property and equipment
              
              
              -
              
              
              (300
              )Purchase
                  of property and equipment
              
              
              (1,779
              )
              
              (5,280
              )Net
                  cash used in investing activities
              
              
              (1,779
              )
              
              (5,580
              )Cash
                  flows provided by financing activitiesProceeds
                  from issuances of common stock
              
              
              12,000
              
              
              383Fees
                  associated with issuance of common stock
              
              
              (506
              )
              
              -Exercise
                  of stock options
              
              
              1,685
              
              
              -Debt
                  and equity issuance costs
              
              
              (152
              )
              
              (205
              )Proceeds
                  from issuance of convertible debt and warrants
              
              
              -
              
              
              3,000Proceeds
                  from long-term borrowings
              
              
              129
              
              
              3,186Change
                  in short-term borrowings
              
              
              (1,000
              )
              
              2,559Repayment
                  of long-term debt
              
              
              (870
              )
              
              (228
              )Net
                  cash provided by financing activities
              
              
              11,286
              
              
              8,695Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              43
              
              
              573Net
                  increase in cash and cash equivalents
              
              
              8,381
              
              
              233Cash
                  and cash equivalents at beginning of period
              
              
              3,463
              
              
              3,562Cash
                  and equivalents at end of period
              
              $
              11,844
              
              $
              3,795Supplemental
                  cash flow disclosuresInterest
                  paid
              
              $
              368
              
              $
              231Income
                  taxes paid
              
              $
              8
              
              $
              -See
                  accompanying Notes to Consolidated Financial
                  Statements




3


**TUTOGEN
      MEDICAL, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY**


**NINE-MONTHS
      ENDED JUNE 30, 2007**


(Unaudited)





(In
      Thousands, Except for Share Data)




**Common**
              
              
              
              **Accumulated
                  Other**
              
              
              
              
              
              **Common
                  Shares****Stock
                  ($.01**
              
              **Additional
                  Paid**
              
              **Comprehensive**
              
              **Accumulated**
              
              
              
              **Issued
                  and****Par)**
              
              **In
                  Capital**
              
              **Income
                  (1)**
              
              **Deficit**
              
              **Total**
              
              **Outstanding**BALANCE,
                  SEPTEMBER 30, 2006
              
              $
              162
              
              $
              37,751
              
              $
              2,393
              
              $
              (25,085
              )
              $
              15,221
              
              
              16,197,235Stock
                  issued on exercise of options
              
              
              7
              
              
              1,678
              
              
              -
              
              
              -
              
              
              1,685
              
              
              685,200Stock
                  issued on conversion of debt
              
              
              6
              
              
              2,994
              
              
              -
              
              
              -
              
              
              3,000
              
              
              582,524Stock
                  issued for private offering
              
              
              16
              
              
              11,478
              
              
              -
              
              
              -
              
              
              11,494
              
              
              1,626,012Share-based
                  compensation
              
              
              -
              
              
              702
              
              
              -
              
              
              -
              
              
              702
              
              
              -Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              7,197
              
              
              7,197
              
              
              -Foreign
                  currency translation adjustment
              
              
              -
              
              
              -
              
              
              619
              
              
              -
              
              
              619
              
              
              -BALANCE,
                  JUNE 30, 2007
              
              $
              191
              
              $
              54,603
              
              $
              3,012
              
              $
              (17,888
              )
              $
              39,918
              
              
              19,090,971(1)
                  Represents foreign currency translation
                  adjustments.
      See
                  accompanying Notes to Consolidated Financial
                  Statements




4




**TUTOGEN
      MEDICAL, INC. AND SUBSIDIARIES**


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE AND NINE-MONTH PERIODS ENDED JUNE 30, 2007 AND 2006


(UNAUDITED)


(IN
      THOUSANDS, EXCEPT FOR SHARE DATA)







1.
      OPERATIONS AND ORGANIZATION




Tutogen
      Medical, Inc. with its consolidated subsidiaries (the "Company") processes,
      manufactures and distributes worldwide, specialty surgical products and performs
      tissue processing services for neuro, orthopedic, reconstructive and general
      surgical applications. The Company's core business is processing human donor
      tissue, utilizing its patented TUTOPLAST(R) process, for distribution to
      hospitals and surgeons. The Company processes at its two manufacturing
      facilities in Germany and the United States and distributes its products and
      services to over 20 countries worldwide.




2.
      BASIS
      OF PRESENTATION




The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in conformity with accounting principles generally accepted in the
      United States of America for interim financial reporting. In the opinion of
      management, all adjustments necessary in order to make the financial statements
      not misleading have been made. Operating results for the three and nine-month
      periods ended June 30, 2007 are not necessarily indicative of the results which
      may be expected for the fiscal year ending September 30, 2007. The interim
      financial statements should be read in conjunction with the audited consolidated
      financial statements of the Company included in the Company's Annual Report
      on
      Form 10-K for the year ended September 30, 2006. Certain reclassifications
      have
      been made to the prior financial statements to conform to the current
      presentation, including reclassing certain insurance premium costs previously
      expensed in cost of revenue to general and administrative expenses, and
      splitting out the previous balance sheet line item accounts payable and other
      accrued expenses into separate line items of accounts payable and accrued
      expenses and other current liabilities.




3.
      NEW
      ACCOUNTING PRONOUNCEMENTS




In
      June
      2006, the FASB issued FASB Interpretation ("FIN") No. 48 “ *Accounting
      for Uncertainty in Income Taxes”.* This
      interpretation clarifies the accounting for uncertainty in income taxes
      recognized in an enterprise's financial statements in accordance with SFAS
      No.
      109. This interpretation prescribes a recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return. Under this
      interpretation, the evaluation of a tax position is a two-step process. First,
      the enterprise determines whether it is more-likely-than-not that a tax position
      will be sustained upon examination, based on the technical merits of the
      position. The second step is measuring the benefit to be recorded from tax
      positions that meet the more-likely-than-not recognition threshold, whereby
      the
      enterprise determines the largest amount of tax benefit that is greater than
      50
      percent likely of being realized upon ultimate settlement, and recognizes that
      benefit in its financial statements. FIN No.
      48 also provides guidance on recognition, classification, interest and
      penalties, accounting in interim periods, disclosure and transition. FIN No.
      48
      is effective for fiscal years beginning after December 15, 2006. Management
      has
      not yet determined the impact this pronouncement will have on the Company's
      financial statements.




In
      September 2006, the FASB issued SFAS No. 157, “ *Fair
      Value Measurements” (“SFAS No. 157”)* .
      This
      standard defines fair value, establishes a framework for measuring fair value
      in
      accounting principles generally accepted in the United States ("GAAP"), and
      expands disclosures about fair value measurements. This standard is effective
      for financial statements issued for fiscal years beginning after November 15,
      2007. The Company is currently evaluating the requirements of SFAS No. 157
      and
      has not yet determined the impact on the Company's financial
      statements.




In
      September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 108,
“ *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements”* SAB
      No.
      108 eliminates the diversity of practice surrounding how public companies
      quantify financial statement misstatements. It establishes an approach that
      requires quantification of financial statement misstatements based on the
      effects of the misstatements on each of the Company's financial statements
      and
      the related financial statement disclosures. SAB No. 108 must be applied to
      annual financial statements for their first fiscal year ending after November
      15, 2006. Management does not believe the adoption of this standard will have
      a
      material impact on the Company's financial statements.




5




In
      February 2007, the FASB issued SFAS No. 159, “ *The
      Fair Value Option for Financial Assets and Financial
      Liabilities”* (“SFAS
      159”).  SFAS 159 allows entities the option to measure eligible financial
      instruments at fair value as of specified dates.  Such election, which may
      be applied on an instrument by instrument basis, is typically irrevocable once
      elected.  SFAS 159 is effective for fiscal years beginning after November
      15, 2007, and early adoption is allowed under certain circumstances.  The
      Company is in the process of evaluating the financial impact of adopting SFAS
      159.




4.
      STOCK-BASED AWARDS




The
      Company maintains the 1996 Stock Option Plan (the "Plan") (4,000,000 shares
      authorized) under which incentive and nonqualified options have been granted
      to
      employees, directors and certain key affiliates. Under the Plan, options may
      be
      granted at not less than the fair market value on the date of grant. Options
      may
      be subject to a vesting schedule and expire four, five or ten years from grant.
      This plan remains in effect for all options issued during its life.




The
      Plan
      was superseded by the Tutogen Medical Inc. Incentive and Non-Statutory Stock
      Option Plan (the "New Plan") (1,000,000 shares authorized), adopted by the
      Board
      of Directors on December 5, 2005 and ratified by the shareholders on March
      13,
      2006. On March 19, 2007, the shareholders approved increasing the shares
      authorized under the New Plan from 1,000,000 to 1,500,000. Under the New Plan,
      options may be granted at not less than the fair market value on the date of
      grant. Options may be subject to a vesting schedule and expire four, five or
      ten
      years from grant.




Effective
      October 1, 2005, the Company adopted the provisions of SFAS No. 123(R)
“ *Share
      Based Payment” (“SFAS 123(R)”),* which
      establishes the financial accounting and reporting standards for stock-based
      compensation plans. SFAS No. 123(R) requires the measurement and recognition
      of
      compensation expense for all stock-based awards made to employees and directors.
      Under the provisions of SFAS No. 123(R), stock-based compensation cost is
      measured at the grant date, based on the calculated fair value of the award,
      and
      is recognized as an expense over the requisite service period of the entire
      award (generally the vesting period of the award).




The
      Company elected to use the modified prospective transition method as permitted
      by SFAS No. 123(R) and, therefore, financial results for prior periods have
      not
      been restated. Under this transition method, stock-based compensation expense
      for the three and nine-month periods ended June 30, 2007 includes expense for
      all equity awards granted prior to, but not yet vested as of October 1, 2005,
      based on the grant date fair value estimated in accordance with the original
      provisions of SFAS No. 123, “*Accounting
      for Stock-Based Compensation”*as
      amended by SFAS No. 148, “*Accounting
      for Stock-Based Compensation - Transition and Disclosure”*.
      Since
      the adoption of SFAS No. 123(R), there have been no changes to the Company's
      stock compensation plans or modifications to outstanding stock-based awards
      which would increase the value of any awards outstanding. Compensation expense
      for all stock-based compensation awards granted subsequent to October 1, 2005
      was based on the grant-date fair value determined in accordance with the
      provisions of SFAS No. 123(R). During the three and nine-month periods ended
      June 30, 2007, the Company recognized compensation expense of $129 and $702,
      respectively, relating to stock options granted, in addition to the vesting
      of
      options outstanding as of October 1, 2005. All such expense was recognized
      within "General and administrative expense" in the Statement of Income (Loss)
      and Comprehensive Income (Loss). There were no significant capitalized
      stock-based compensation costs at June 30, 2007.




The
      fair
      value of each stock option grant is estimated on the grant date using the
      Black-Scholes option-pricing model with the following
      assumptions:


**Three
                  Months Ended June 30,**
              
              **Nine
                  Months Ended June 30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Expected
                  volatility
              
              
              50.73%
              
              
              N/A
              
              
              51.92%
              
              
              50.50%Risk-free
                  interest rate (range)
              
              
              5%
              
              
              N/A
              
              
              4.5
                  - 5%
              
              
              3.7
                  -3.9%Expected
                  term (in years)
              
              
              5
              
              
              N/A
              
              
              5
              
              
              5







EXPECTED
      VOLATILITY. The Company's methodology for computing the expected volatility
      is
      based on the Company's historical volatility, taking into account the expected
      term of the option.




6




EXPECTED
      TERM. The expected term is based on employee exercise patterns during the
      Company's history and expectations of employee exercise behavior in the future
      giving consideration to the contractual terms of the stock-based
      awards.




RISK-FREE
      INTEREST RATE. The interest rate used in valuing awards is based on the yield
      at
      the time of grant of a U.S. Treasury security with an equivalent remaining
      term.




DIVIDEND
      YIELD. The Company has never paid cash dividends, and does not currently intend
      to pay cash dividends, and thus has assumed a 0% dividend yield.




PRE-VESTING
      FORFEITURES. Estimates of pre-vesting option forfeitures of 10% are based on
      Company experience and industry trends. The Company will adjust its estimate
      of
      forfeitures over the requisite service period based on the extent to which
      actual forfeitures differ, or are expected to differ, from such estimates.
      Changes in estimated forfeitures will be recognized through a cumulative
      catch-up adjustment in the period of change and will also impact the amount
      of
      compensation expense to be recognized in future periods.




Presented
      below is a summary of the activity of the Company's stock options for the fiscal
      year ended September 30, 2006 and the nine-month period ended June 30, 2007,
      and
      related transactions for the nine-month period ended:


**Weighted****Weighted**
              
              **Average****Average**
              
              **Remaining****Number
                  of**
              
              **Exercise**
              
              **Contractual****Stock
                  Options**
              
              **Price**
              
              **Term**Outstanding
                  at September 30, 2005
              
              
              2,481,368
              
              $
              2.64
              
              
              5.1Granted
              
              
              125,000
              
              
              3.34
              
              
              10.0Canceled
              
              
              (103,225
              )
              
              3.84
              
              
              -Exercised
              
              
              (264,275
              )
              
              2.45
              
              
              -Outstanding
                  at September 30, 2006
              
              
              2,238,868
              
              $
              2.65
              
              
              4.8Granted
              
              
              557,500
              
              
              6.72
              
              
              10.0Canceled
              
              
              (70,250
              )
              
              5.44
              
              
              -Exercised
              
              
              (685,200
              )
              
              2.45
              
              
              -Outstanding
                  at June 30, 2007
              
              
              2,040,918
              
              $
              3.72
              
              
              5.9Vested
                  at June 30, 2007
              
              
              1,369,418
              
              $
              2.88
              
              
              4.4Vested
                  at June 30, 2007 or expected to vest
              
              
              1,836,826
              
              $
              3.72
              
              
              5.9




The
      weighted average fair value of options granted during the nine-month period
      ended June 30, 2007 and the fiscal year ended September 30, 2006 was $3.40
      and
      $1.62, respectively. The aggregate intrinsic value of options exercised during
      the nine-month period ended June 30, 2007 was $3,200.





7







As
      of
      June 30, 2007, there were 875,625 stock options available for grant under the
      New Plan. The following table provides information about stock options
      outstanding and exercisable at June 30, 2007:


Options
                  Outstanding
              
              Options
                  ExercisableWeightedAverage
              
              
              
              
              
              
              
              WeightedRemaining
              
              Weighted
              
              Aggregate
              
              
              
              Average
              
              AggregateOptions
              
              Contractual
              
              Average
              
              Intrinsic
              
              Options
              
              Exercise
              
              IntrinsicRange
                  of Exercise Prices
              
              Outstanding
              
              Life
                  In Years
              
              Exercise
                  Price
              
              Value
              
              Exercisable
              
              Price
              
              Value$0.94
                  to $1.25
              
              
              234,600
              
              
              2.2
              
              $
              0.95
              
              $
              2,121
              
              
              234,600
              
              $
              0.95
              
              $
              2,121$1.56
                  to $2.22
              
              
              188,568
              
              
              1.6
              
              
              1.69
              
              
              1,565
              
              
              183,568
              
              
              1.68
              
              
              1,526$2.28
                  to $3.62
              
              
              828,750
              
              
              6.2
              
              
              2.82
              
              
              5,938
              
              
              653,750
              
              
              2.85
              
              
              4,670$3.95
                  to $5.98
              
              
              269,000
              
              
              6.0
              
              
              4.45
              
              
              1,490
              
              
              177,250
              
              
              4.54
              
              
              966$6.01
                  to $10.60
              
              
              520,000
              
              
              8.6
              
              
              6.77
              
              
              1,676
              
              
              120,250
              
              
              6.22
              
              
              453Totals
              
              
              2,040,918
              
              
              5.9
              
              $
              3.72
              
              $
              12,790
              
              
              1,369,418
              
              $
              2.88
              
              $
              9,736




As
      of
      June 30, 2007, there was $1,227 of total unrecognized compensation cost related
      to nonvested stock options that is expected to be recognized over a
      weighted-average period of 2.17 years.






5.
      INVENTORIES




Major
      classes of inventory were as follows:




June
                  30,
              
              September
                  30,2007
              
              2006Raw
                  materials
              
              $
              3,721
              
              $
              2,017Work
                  in process
              
              
              7,858
              
              
              5,811Finished
                  goods
              
              
              6,529
              
              
              4,850$
              18,108
              
              $
              12,678







The
      increase in inventory from September 30, 2006 to June 30, 2007 was primarily
      due
      to higher inventory levels to support increased demand for dental products,
      the
      buildup of new products introduced in the spine market and the new markets
      of
      hernia repair and breast reconstruction.




6.
      INCOME
      TAXES




The
      Company’s third quarter and nine-month period results include a $4,953 reversal
      of a previously recorded valuation allowance related to our U.S. operations
      since we have determined that it is more likely than not that our existing
      deferred tax assets will be realized. The deferred tax asset balance consists
      primarily of net operating loss carry forwards, deferred distribution fees
      and
      inventory reserves. As of June 30, 2007, the Company has approximately $8,837
      of
      federal net operating loss carry forwards expiring beginning in 2012, a $94
      AMT
      credit carry forward, and a $21 credit on research and development that will
      expire in 2013 if unused. The Company also has state net operating loss carry
      forwards of approximately $2,168 that will begin to expire in 2025.




As
      of
      June 30, 2007, the Company has a corporate net operating loss carry forward
      for
      German income tax purposes of approximately $4,369 (3,242 Euros), and a trade
      net operating loss carry forward for German income tax purposes of approximately
      $2,272 (1,686 Euros), both of which can be carried forward indefinitely. The
      Company continually reviews the adequacy and necessity of the valuation
      allowance in accordance with the provisions of SFAS No. 109, *“Accounting
      for Income Taxes”* .
      The
      Company does not maintain a valuation allowance on its international deferred
      tax assets, because management believes it is more likely than not that these
      tax benefits will be realized through the generation of future international
      taxable income.




Historically,
      the Company has not recorded deferred income taxes on the undistributed earnings
      of its foreign subsidiaries because it is management's intent to indefinitely
      reinvest such earnings. During the 2006 fiscal year, the Company reduced certain
      intercompany accounts, requiring the utilization of some undistributed earnings
      of its German subsidiary. The resulting tax was absorbed by the utilization
      of
      net operating loss carryforwards.




8




Going
      forward, the Company does not intend to record deferred income taxes on future
      undistributed earnings of its foreign subsidiaries because it is management's
      intent to indefinitely reinvest such earnings. Upon distribution of these
      earnings, the Company may be subject to U.S. income taxes and/or foreign
      withholding taxes.




7.
      SEVERANCE COSTS




During
      the year ended September 30, 2006, the Company accrued compensation expense
      of
      $437 for severance costs upon the termination of the Managing Director of the
      Company's German subsidiary. These costs are a component of general and
      administrative expenses in the accompanying Condensed Consolidated Statements
      of
      Income (Loss) and Comprehensive Income (Loss), and the accrual for these costs
      is included in Accrued expenses and other current liabilities in the
      accompanying Condensed Consolidated Balance Sheets. These severance costs are
      being paid in twelve monthly equal payments during the period from July 1,
      2006
      through June 30, 2007. As of September 30, 2006 and June 30, 2007, the remaining
      accrual is $334 and $17, respectively.




8.
      REVOLVING CREDIT ARRANGEMENTS AND SHORT TERM BORROWINGS




Under
      the
      terms of revolving credit facilities with two German banks, the Company may
      borrow up to 1,500 Euros (1,000 Euros and 500 Euros, respectively) or $2,021
      for
      working capital needs. These renewable credit lines allow the Company to borrow
      at interest rates ranging from 8.05% to 10.0%. At June 30, 2007, the Company
      had
      outstanding borrowings of 851 Euros or $1,147. At September 30, 2006, the
      Company had 819 Euros or $1,039 outstanding borrowings under the revolving
      credit agreements. The 500 Euro revolving credit facility is secured by accounts
      receivable of the German subsidiary. The 1,000 Euros revolving credit facility
      is collateralized by a mortgage on the Company's German facility and a guarantee
      up to 4,000 Euros or $5,388 by the Parent Company.




In
      November 2005, the Company entered into a revolving credit facility in the
      U.S.
      for up to $1,500, expiring on November 18, 2007. At June 30, 2007, the Company
      had no outstanding borrowings on this credit facility. At September 30, 2006,
      the Company had $1,500 outstanding under this revolving credit facility. The
      U.S. accounts receivable and inventory assets collateralize the borrowing under
      the revolving credit facility. The Company is required to maintain a maximum
      senior debt to tangible net worth ratio of 2.0 to 1.0. As of June 30, 2007,
      the
      Company was in compliance with this covenant. In addition, the Company maintains
      a lock box arrangement with the bank.




On
      June
      30, 2006, the Company issued a $3,000 convertible debenture with detachable
      warrants to purchase up to 175,000 shares of its common stock. The debenture
      bears interest at 5.0% per year, was due upon the earlier of August 1, 2007
      or
      upon a change of control of the Company and was convertible into common stock
      at
      a price of $5.15 per share at any time at the election of the holder. The
      warrants were exercisable at $5.15 per share at any time at the election of
      the
      shareholder until the earlier of the third anniversary of the date of issuance
      or upon a change in control of the Company. On March 27, 2007, the warrant
      agreement was amended to provide that the warrant holder has no cash settlement
      rights under any circumstances. As of June 30, 2007, the holder of the $3,000
      of
      convertible debentures had converted all of the debentures into 582,524 shares
      of common stock at the stated conversion price of $5.15. This transaction has
      been excluded from the Condensed Consolidated Statement of Cash Flows as it
      represents a non-cash transaction.




Under
      the
      Registration Rights Agreement, which requires common shares to be registered
      for
      the convertible debenture and warrants, the Company was required to file a
      Form
      S-1 registration statement with the United States Securities and Exchange
      Commission (“S-1”) the earlier of the day following the filing of the Company’s
      10-K or December 31, 2006. The Company was then required to have the shares
      registered within 60 days of the filing date of the S-1. In March 2007, the
      Securities and Exchange Commission approved the registration of the
      shares.




The
      relative fair value of the detachable warrants at inception of the convertible
      debenture agreement was $275 and was computed using the Black-Scholes pricing
      model under the following assumptions: (1) expected life of 3 years; (2)
      volatility of 53.5%, (3) risk free interest of 5.13% and dividend yield of
      0%.
      The proceeds of the convertible debenture were allocated to debt and warrants
      based on their relative fair values. The relative fair value of the warrants
      was
      recorded to additional paid-in capital and resulted in a discount on the
      convertible debenture, which will be amortized from debt discount to interest
      expense over the one-year term
      of
      the debenture. The remaining unamortized balance of the warrants as of June
      30,
      2007 is $0. The convertible debenture balance of $0 and $2,793 as of June 30,
      2007 and September 30, 2006, respectively, net of debt discount, is included
      in
      Short-term borrowings on the accompanying Condensed Consolidated Balance Sheets.
      In addition, $357 of direct costs incurred relating to the issuance of the
      convertible debenture was recorded as debt issuance costs in Other current
      assets, which was fully amortized to interest expense by June 30,
      2007.




9




9.
      DERIVATIVE INSTRUMENTS




The
      Company accounts for its hedging activities in accordance with SFAS No. 133, *“Accounting
      for Derivatives and Hedging Activities”(“SFAS No. 133”)* as
      amended. SFAS No. 133 requires that all hedging activities be recognized in
      the
      balance sheet as assets or liabilities and be measured at fair value. Gains
      or
      losses from the change in fair value of hedging instruments that qualify for
      hedge accounting are recorded in other comprehensive income. The Company's
      policy is to specifically identify the assets, liabilities or future commitments
      being hedged and monitor the hedge to determine if it continues to be effective.
      The Company does not enter into or hold derivative instruments for trading
      or
      speculative purposes. The fair value of the Company's interest rate swap
      agreement for its 1,500 Euro or $2,021 long-term loan is based on dealer quotes
      and was not significant as of June 30, 2007. The loan is due on March 30, 2012
      in monthly installments of approximately 63 Euros or $84 including principal
      and
      interest based on an adjustable rate as determined by one-month EURIBOR, fixed
      by a swap agreement for the life of the loan with the lender at 3.7% as a cash
      flow hedge. The proceeds were used to construct new facilities.




As
      indicated in Note 8, on June 30, 2006, the Company issued a $3,000 convertible
      debenture which contained features that qualify as embedded derivatives that
      require bifurcation, however, the value ascribed to these features was
      determined to be de-minimus to the overall financial statement presentation and
      accordingly, value was not allocated to these features and the carrying value
      of
      the convertible debenture was not reduced. As of June 30, 2007, the $3,000
      convertible debenture had fully converted into common stock.




10.
      COMMON STOCK




On
      April
      10, 2007, the Company entered into a Securities Purchase Agreement whereby
      the
      Company agreed to issue to three institutional investors 1,626,012 shares of
      common stock for gross proceeds of $12,000. The Company closed this transaction
      on April 19, 2007 with net proceeds of $11,494. In connection with the
      transaction, the Company entered into a Registration Rights Agreement, under
      which the Company filed a Registration Statement with the Securities and
      Exchange Commission for the resale of common stock sold in the private placement
      on June 1, 2007. In June 2007, the Securities and Exchange commission approved
      the registration of the shares.




11.  SEGMENT
      DATA




The
      Company operates principally in one industry providing specialty surgical
      products and tissue processing services. These operations include two
      geographically determined segments: the United States and International. The
      Company evaluates performance based on the operating income of each segment.
      The
      accounting policies of these segments are consistent with prior periods. The
      Company accounts for intersegment sales and transfers at contractually
      agreed-upon prices.




The
      Company's reportable segments are strategic business units that offer products
      and services to different geographic markets. They are managed separately
      because of the differences in these markets as well as their physical
      location.





10





A
      summary
      of the operations and assets by segment are as follows:


**Three
                  Months Ended June 30, 2007**
              
              **Three
                  Months Ended June 30, 2006****United**
              
              
              
              
              
              **United****International**
              
              **States**
              
              **Total**
              
              **International**
              
              **States**
              
              **Total**Gross
                  revenue
              
              $
              5,874
              
              $
              10,078
              
              $
              15,952
              
              $
              3,975
              
              $
              6,492
              
              $
              10,467Less:
                  Intercompany
              
              
              (1,789
              )
              
              -
              
              
              (1,789
              )
              
              (467
              )
              
              -
              
              
              (467
              )Total
                  revenue - third party
              
              $
              4,085
              
              $
              10,078
              
              $
              14,163
              
              $
              3,508
              
              $
              6,492
              
              $
              10,000Operating
                  income (loss)
              
              $
              1,193
              
              $
              470
              
              $
              1,663
              
              $
              (919
              )
              $
              (327
              )
              $
              (1,246
              )Interest
                  expense
              
              $
              85
              
              $
              287
              
              $
              372
              
              $
              28
              
              $
              47
              
              $
              75Income
                  tax expense (benefit)
              
              $
              429
              
              $
              (4,945
              )
              $
              (4,516
              )
              $
              (413
              )
              $
              -
              
              $
              (413
              )Net
                  income (loss)
              
              $
              687
              
              $
              5,220
              
              $
              5,907
              
              $
              (712
              )
              $
              (417
              )
              $
              (1,129
              )Capital
                  expenditures
              
              $
              186
              
              $
              139
              
              $
              325
              
              $
              1,759
              
              $
              557
              
              $
              2,316Identifiable
                  assets
              
              $
              19,813
              
              $
              39,019
              
              $
              58,832
              
              $
              18,239
              
              $
              18,527
              
              $
              36,766
  **Nine
                  Months Ended June 30, 2007**
              
              **Nine
                  Months Ended June 30, 2006****United**
              
              
              
              
              
              **United****International**
              
              **States**
              
              **Total**
              
              **International**
              
              **States**
              
              **Total**Gross
                  revenue
              
              $
              16,008
              
              $
              27,563
              
              $
              43,571
              
              $
              11,533
              
              $
              17,874
              
              $
              29,407Less:
                  Intercompany
              
              
              (4,928
              )
              
              -
              
              
              (4,928
              )
              
              (2,258
              )
              
              -
              
              
              (2,258
              )Total
                  revenue - third party
              
              $
              11,080
              
              $
              27,563
              
              $
              38,643
              
              $
              9,275
              
              $
              17,874
              
              $
              27,149Operating
                  income (loss)
              
              $
              1,727
              
              $
              2,020
              
              $
              3,747
              
              $
              (742
              )
              $
              (885
              )
              $
              (1,627
              )Interest
                  expense (income)
              
              $
              223
              
              $
              793
              
              $
              1,016
              
              $
              39
              
              $
              14
              
              $
              53Income
                  tax expense (benefit)
              
              $
              589
              
              $
              (4,945
              )
              $
              (4,356
              )
              $
              (711
              )
              $
              -
              
              $
              (711
              )Net
                  income (loss)
              
              $
              928
              
              $
              6,269
              
              $
              7,197
              
              $
              (575
              )
              $
              (613
              )
              $
              (1,188
              )Capital
                  expenditures
              
              $
              1,309
              
              $
              470
              
              $
              1,779
              
              $
              2,365
              
              $
              2,915
              
              $
              5,280Identifiable
                  assets
              
              $
              19,813
              
              $
              39,019
              
              $
              58,832
              
              $
              18,239
              
              $
              18,527
              
              $
              36,766





12.
      EARNINGS (LOSS) PER SHARE




The
      following is a reconciliation of the numerators and denominators of the basic
      and diluted earnings (loss) per share computations for the three and nine-month
      periods ended June 30, 2007 and 2006 (in thousands, except share and per share
      amounts). The Company has excluded 35,000 and 120,000 stock options for the
      three and nine-month periods ended June 30, 2007, as such stock options are
      anti-dilutive to the calculation. The Company has excluded 387,960 and 2,485,000
      stock options for the three and nine-month periods ended June 30, 2006,
      respectively, as such shares are anti-dilutive to the calculation.


**Three
                  Months Ended**
              
              **Nine
                  Months Ended****June
                  30,**
              
              **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**NumeratorNet
                  income (loss)
              
              $
              5,907
              
              $
              (1,129
              )
              $
              7,197
              
              $
              (1,188
              )DenominatorWeighted-average
                  shares of common stock outstandingused
                  in calculation of basic earnings per share
              
              
              18,517,927
              
              
              16,058,724
              
              
              17,201,897
              
              
              15,993,936Effect
                  of dilutive securitesStock
                  options, warrants and convertible debentures
              
              
              1,432,430
              
              
              -
              
              
              1,528,678
              
              
              -Weighted-average
                  shares of common stock outstandingused
                  in calculation of diluted earnings per share
              
              
              19,950,357
              
              
              16,058,724
              
              
              18,730,575
              
              
              15,993,936Basic
                  earnings per share
              
              $
              0.32
              
              $
              (0.07
              )
              $
              0.42
              
              $
              (0.07
              )Diluted
                  earnings per share
              
              $
              0.30
              
              $
              (0.07
              )
              $
              0.38
              
              $
              (0.07
              )







13. LEGAL
      PROCEEDINGS




The
      Company is party to various claims, legal actions, complaints and administrative
      proceedings arising in the ordinary course of business. In management's opinion,
      the ultimate disposition of these matters will not have a material adverse
      effect on its financial condition, cash flows or results of operations.




In
      2003,
      the Company received a proposed judgment in Germany as the result of a dispute
      between the Company and a former international distributor. The estimated
      settlement, including legal costs was accrued as a litigation contingency.
      In
      2004, a decision by the court of appeal in Germany has resulted in a reduction
      of the original proposed judgment received against the Company by $406 between
      the Company and a former international distributor. At September 30, 2005,
      the
      Company maintained an accrual of $476 with respect to the remaining appeal
      and
      legal costs. At September 30, 2006, the Company agreed to a settlement of $360
      resulting from a dispute between the Company and a former international
      distributor and recorded a change in estimate of approximately $91 as a
      reduction of accrued expenses, which reduced the general and administrative
      expense for the year. In the second quarter of 2007, the remaining accrual
      of
      $25 was reversed.




11




On
      October 12, 2005, the Company issued a voluntary recall of all product units
      which utilized donor tissue received from BioMedical Tissue Services/BioTissue
      Recovery Services ("BioMedical"). This action was taken because the Company
      was
      unable to satisfactorily confirm that BioMedical had properly obtained donor
      consent. The Company quarantined all BioMedical products in its inventory,
      having a value of $1,035 and notified all customers and distributors of record
      regarding this action. In connection with the recall, the Company wrote off
      $174
      of inventory during 2005, and $861 for quarantined inventory at September 30,
      2006. Additionally, as of September 30, 2005, the Company had accrued $250
      of
      related costs in connection with the recall. As of June 30, 2007, the accrual
      for these costs was $0, due in part to actual payments made for such costs
      and
      in part to an adjustment made by management during the three-months ended March
      31, 2006 to reduce the accrual by approximately $150 as a result of a change
      in
      management's estimate of other related costs. The effect of this adjustment
      was
      to reduce cost of revenue by approximately $150.




In
      January 2006, the Company was named as one of several defendants in a class
      action suit related to the BioMedical recall. The Company intends to vigorously
      defend this matter and does not believe that the outcome of this class action
      will have an adverse material effect on the Company’s operations, cash flows,
      financial position or financial statement disclosures.




14.
      RELATED PARTY TRANSACTIONS




The
      Company has an exclusive license and distribution agreement with Zimmer Spine,
      a
      wholly owned subsidiary of Zimmer Holdings, Inc., whereby Zimmer Spine has
      been
      granted the right to act as the Company's exclusive distributor of bone tissue
      for spinal applications in the United States.




The
      Company has also engaged Zimmer Dental, a wholly owned subsidiary of Zimmer
      Holdings, Inc., to act as an exclusive distributor for the Company's bone tissue
      for dental applications in the United States and certain international markets.
      Under this distribution agreement, the Company ships directly to Zimmer Dental's
      customers.




The
      following represents a summary of the transactions with Zimmer Spine and Zimmer
      Dental during the periods:


**Three
                  Months Ended**
              
              **Nine
                  Months Ended****June
                  30,**
              
              **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Zimmer
                  Spine - Sales
              
              $
              1,136
              
              $
              617
              
              $
              3,722
              
              $
              1,416Zimmer
                  Dental - Commissions Paid
              
              $
              2,552
              
              $
              1,936
              
              $
              6,629
              
              $
              5,086




As
      of
      June 30, 2007 and September 30, 2006, the net payable to Zimmer Dental was
      $2,261 and $1,918, respectively. As of June 30, 2007 and September 30, 2006,
      the
      receivable from Zimmer Spine was $67 and $952, respectively.




Zimmer
      CEP (formerly Centerpulse) USA Holding Co., a subsidiary of Zimmer Holdings,
      Inc., is a 28% owner of the Company's outstanding shares of common stock as
      of
      June 30, 2007.







12







**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF
      OPERATIONS (In Thousands)**




**CAUTIONARY
      STATEMENT REGARDING FORWARD LOOKING STATEMENTS**




The
      discussion contained in this report under Section 13 or 15(d) of the Securities
      Exchange Act of 1934, as amended (the "Exchange Act"), contains forward-looking
      statements that involve risks and uncertainties. The issuer's actual results
      could differ significantly from those discussed herein. Factors that could
      cause
      or contribute to such differences include, but are not limited to, those
      discussed in "Business" and "Management's Discussion and Analysis or Results
      of
      Operations" as well as those discussed elsewhere in this Report. Statements
      contained in this Report that are not historical facts are forward-looking
      statements that are subject to the safe harbor created by the Private Securities
      Litigation Reform Act of 1995. A number of important factors could cause the
      issuer's actual results for 2007 and beyond to differ materially from those
      expressed in any forward-looking statement made by or on behalf of the
      issuer.




**BUSINESS**




During
      the three-months ended June 30, 2007, the Company generated $14,163 in revenues,
      which represented the highest quarterly revenue in the Company's history. The
      Company continues to experience strong growth in U.S. dental sales. For the
      three-months ending June 30, 2007, U.S. dental sales totaled $6,567 up 39%
      from
      the same quarter last year. U.S. machined graft spine sales continued to grow
      during the quarter and the Company continued to grow the hernia market with
      Davol. Mentor launched breast reconstruction dermis products to clinical sites
      during the second quarter and subsequently launched the breast reconstruction
      dermis products nationwide in the U.S. in early July. On May 9, 2007, the
      Company entered into an agreement with Coloplast Corporation to expand the
      urology business internationally. For the quarter ended June 30, 2007, Surgical
      Specialties (includes urology, ophthalmology, hernia, breast reconstruction
      and
      ENT) increased 107% over the same period in the prior year. The increase was
      due
      primarily to sales of the new hernia repair and breast reconstruction
      products.




The
      international operations continue to grow at double-digit growth patterns.




Gross
      margins continue to improve due to further efficiencies in manufacturing and
      increased production volumes and the introduction of new products with higher
      margins.




As
      a
      result of increased revenues and improved gross margins, the Company generated
      net income for the quarter ending June 30, 2007, which represented the fourth
      consecutive quarterly profit .




In
      April
      2007, the Company entered into a Securities Purchase Agreement whereby the
      Company issued 1,626,012 shares of common stock for gross proceeds of $12,000.
      Net proceeds of $11,494 will be used to fund working capital and general
      corporate purposes .




The
      Company's ability to generate positive operational cash flow is dependent upon
      increasing revenues supported by increased tissue procurement, controlling
      costs
      and the development of additional markets and surgical applications worldwide.
      While the Company believes that it continues to make progress in these areas,
      there can be no assurances.




13





**RESULTS
      OF OPERATIONS**




**FOR
      THE THREE AND NINE-MONTHS ENDED JUNE 30, 2007 AND 2006**




**REVENUE**




An
      analysis of revenue was as follows:


**Three
                  Months Ended June 30,**
              
              **Nine
                  Months Ended June 30,****2007**
              
              **2006**
              
              **Change**
              
              **2007**
              
              **2006**
              
              **Change**Dental
              
              $
              6,567
              
              $
              4,727
              
              
              39
              %
              $
              18,097
              
              $
              12,950
              
              
              40
              %Spine
              
              
              1,136
              
              
              617
              
              
              84
              %
              
              3,722
              
              
              1,416
              
              
              163
              %Surgical
                  Specialties
              
              
              2,375
              
              
              1,148
              
              
              107
              %
              
              5,744
              
              
              3,508
              
              
              64
              %**Total
                  U.S.**
              
              $
              10,078
              
              $
              6,492
              
              
              55
              %
              $
              27,563
              
              $
              17,874
              
              
              54
              %Germany
              
              $
              936
              
              $
              785
              
              
              19
              %
              $
              2,730
              
              $
              2,360
              
              
              16
              %France
              
              
              384
              
              
              317
              
              
              21
              %
              
              1,085
              
              
              1,151
              
              
              -6
              %Rest
                  of World
              
              
              2,622
              
              
              2,258
              
              
              16
              %
              
              6,846
              
              
              5,363
              
              
              28
              %Other
                  - Distribution Fees
              
              
              143
              
              
              148
              
              
              -3
              %
              
              419
              
              
              401
              
              
              5
              %**Total
                  International**
              
              $
              4,085
              
              $
              3,508
              
              
              16
              %
              $
              11,080
              
              $
              9,275
              
              
              19
              %**Total
                  Consolidated**
              
              $
              14,163
              
              $
              10,000
              
              
              42
              %
              $
              38,643
              
              $
              27,149
              
              
              42
              %




Revenue
      for the three and nine-month periods ended June 30, 2007 increased over prior
      year periods by $4,163 and $11,494 or 42%, respectively. U.S. revenues for
      the
      three and nine-month periods ended June 30, 2007 increased by $3,586 ($6,492
      to
      $10,078) or 55% and $9,689 ($17,874 to $27,563) or 54%, respectively. The
      increase in U.S. revenues for both periods was fueled by the continuing increase
      in the demand for the Company's TUTOPLAST(R) bone products for dental
      applications sold by Zimmer Dental, the Company's distributor, and increased
      demand for the Company’s new machined graft spinal products and new hernia
      repair and breast reconstruction products. Spine revenues increased by $519
      ($617 to $1,136) during the quarter compared to the same period last year.
      For
      the nine-month period ended June 30, 2007, spine revenues increased by $2,306
      ($1,416 to $3,722) or 163% compared to same period last year. The increase
      in
      sales is primarily due to the introduction of three new machined graft spinal
      products. Surgical Specialties revenues (primarily urology, ophthalmology,
      hernia, breast reconstruction and ENT) for the three and nine-month periods
      ended June 30, 2007 increased by $1,227 ($1,148 to $2,375) or 107% and $2,236
      ($3,508 to $5,744) or 64%, respectively, due to the new hernia and breast
      reconstruction products. International revenues for the three and nine-month
      periods ended June 30, 2007 increased $577 ($3,508 to $4,085) or 16% and $1,805
      ($9,275 to $11,080) or 19%, respectively. The increases are primarily due to
      increased bovine product sales, dental sales and service processing in Germany
      and increased sales efforts by several key distributors in various countries.
      In
      addition, international revenues received a positive impact during the quarter
      due to the declining exchange rate of the U.S. dollar against the Euro. ****




**GROSS
      MARGIN**




Gross
      margins for three and nine-month periods ended June 30, 2007 increased over
      prior year periods from 48% to 59% and from 54% to 60%, respectively. The higher
      margins were due to (1) efficiencies obtained from higher sales and increased
      production volumes; and (2) the introduction of new products with higher
      margins.




**GENERAL
      AND ADMINISTRATIVE**




General
      and administrative expenses for the three month period decreased over the prior
      year period by $260 ($2,273 to $2,013) and increased $686 ($5,629 to $6,315)
      for
      the nine-month period ended June 30, 2007. The decrease for the three-months
      ended June 30, 2007 was primarily due to lower accounting and consulting fees.
      The increase for the nine-months ended June 30, 2007 was primarily due to the
      following: (1) an increase of $399 in stock option expenses under the Statement
      of Financial Accounting Standards No. 123R associated with year end grants
      to
      employees and the Board of Directors for performance; (2) an increase of $479
      related to salary adjustments, recruiting and relocation costs necessary to
      attract and retain management personnel and support overall company growth;
      (3)
      an increase of $103 related to public relation expenses; and (4) an increase
      of
      $170 related to product liability insurance due to increased sales volume.
      These
      negative variances were offset by the fact that the nine-month period ended
      June
      20, 2006 included a severance charge of $437, which was not incurred during
      the
      nine-month period ended June 30, 2007. As a percentage of sales, general and
      administrative expenses declined from 23% to 14 % for the three-months ended
      June 30, 2007 compared to the same period last year.




14




**DISTRIBUTION
      AND MARKETING**




Distribution
      and Marketing expenses for the three and nine-month periods ended June 30,
      2007
      increased over prior year periods by $852 ($3,332 to $4,184) or 26% and $2,237
      ($9,352 to $11,589) or 24%, respectively. The increase was primarily due to
      higher marketing fees earned by Zimmer Dental of $743 ($1,936 to $2,679) for
      the
      quarter and $2,056 ($5,282 to $7,338) for the nine-month period ended June
      30,
      2007. These increases are consistent with the overall increases in dental sales
      for the above referenced periods. As a percentage of sales, Distribution and
      Marketing expenses declined from 33% to 30% for the three-months ended June
      30,
      2007 compared to the same period last year due to increased sales from our
      non-dental distribution partners.




**RESEARCH
      AND DEVELOPMENT**




Research
      and Development expenses for the three and nine-month periods ended June 30,
      2007 increased over prior year periods by $114 and $243, respectively. As a
      percentage of revenues, Research and Development expenses decreased from 5%
      to
      4% for the three months ended June 30, 2007 when compared to 2006.




**LITIGATION
      CONTINGENCY**




In
      2004,
      a decision by the court of appeal in Germany has resulted in a reduction of
      the
      original proposed judgment received against the Company by $406 between the
      Company and a former international distributor. At September 30, 2005, the
      Company maintained an accrual of $476 with respect to the remaining appeal
      and
      legal costs. At September 30, 2006, the Company agreed to a settlement of $360
      resulting from a dispute between the Company and a former international
      distributor and recorded a change in estimate of approximately $91 as a
      reduction of accrued expenses, which reduced the general and administrative
      expense for the year. In
      the
      second quarter of 2007, the remaining accrual of $25 was reversed.




**INTEREST
      AND OTHER INCOME**




Interest
      and other income, which represents interest income, increased to $121 for the
      three months ended June 30, 2007 compared to $12 for the prior period. This
      increase is related to interest income from the $11,494 in net proceeds from
      the
      equity financing completed in April 2007.




**INTEREST
      EXPENSE**




Interest
      expense for the three and nine-month periods ended June 30, 2007 increased
      over
      prior year periods by $297 and $963, respectively. The increases were primarily
      due to increased borrowings for capital expenditures related to the facility
      expansion programs in Florida and Germany and interest expense associated with
      a
      $3,000 convertible debenture issued in June 2006. During the three months ended
      June 30, 2007, the holders of the $3,000 convertible debenture fully converted
      the debenture into common shares. In addition, from the $11,494 in net proceeds
      from the equity financing completed in April 2007, the Company paid off the
      $1,500 outstanding balance on a line of credit with a U.S. bank. The Company
      also reduced the outstanding balances on the lines of credit with the German
      banks from $1,931 to $1,147. As a result, going forward, the Company expects
      a
      reduction in the total interest expense incurred.




**FOREIGN
      CURRENCY LOSS**




The
      Company had foreign currency exchange losses for the three and nine-month
      periods ended June 30, 2007 of $21 and $83, respectively, due to the declining
      exchange rate of the U.S. dollar against the Euro.




**INCOME
      TAX EXPENSE**




Income
      tax benefit for the three and nine-month periods ending June 30, 2007 was $4,516
      and $4,356, respectively, due to a third quarter reversal of our valuation
      allowance of $4,953 in the U.S., partially offset by income taxes associated
      with the profitability of our international division. Income tax benefit for
      the
      three and nine-month periods ending June 30, 2006 was $413 and $711,
      respectively, due to losses generated by the international division in 2006.





15





**NET
      INCOME (LOSS)**




Net
      income for the three-month period ended June 30, 2007, totaled $5,907, or $.32
      and $.30 basic and diluted earnings per share, respectively. Excluding the
      tax
      benefit of $4,953, net income for the three-month period ended June 30, 2007,
      totaled $954 or $.05 basic and diluted earnings per share, respectively. Net
      loss for the three-month period ended June 30, 2006, totaled $1,129, or $.07
      basic and diluted loss per share, respectively.




Net
      income for the nine-month period ended June 30, 2007, totaled $7,197, or $.42
      and $.38 basic and diluted earnings per share, respectively. Excluding the
      tax
      benefit of $4,953, net income for the nine-month period ended June 30, 2007,
      totaled $2,244 or $.13 and $.12 basic and diluted earnings per share,
      respectively. Net loss for the nine-month period ended June 30, 2006, totaled
      $1,188, or $.07 basic and diluted earnings per share.




Excluding
      the third quarter 2007 tax benefit of $4,953, the increase in net income of
      $2,083 and $3,432 for the three and nine-month periods, respectively, is
      directly due to higher revenues and improved gross margins.




**ACCOUNTS
      RECEIVABLE**




The
      accounts receivable balance increased by $590 from the September 30, 2006
      balance of $6,202 to the June 30, 2007 balance of $6,792. The increase relates
      directly to the increased growth in revenues.




**INVENTORY**




The
      inventory balance increased by $5,430 from the September 30, 2006 balance of
      $12,678 to the June 30, 2007 balance of $18,108. The increase was primarily
      due
      to higher inventory levels to support additional increased demand for dental
      products and new products introduced in the spine market and the new markets
      of
      hernia repair and breast reconstruction.




**CRITICAL
      ACCOUNTING POLICIES**




The
      Company's significant accounting policies are more fully described in Note
      2 to
      the consolidated financial statements in the annual report for the year ended
      September 30, 2006. However, certain of the accounting policies are particularly
      important to the portrayal of the financial position and results of operations
      and require the application of significant judgment by management; as a result,
      they are subject to an inherent degree of uncertainty. In applying those
      policies, management uses its judgment to determine the appropriate assumptions
      to be used in the determination of certain estimates. Those estimates are based
      on historical experience, terms of existing contracts, observance of trends
      in
      the industry, information provided by customers and information available from
      other outside sources, as appropriate. The Company's significant accounting
      policies include:




SHARE-BASED
      COMPENSATION. We adopted Statement of Financial Accounting Standards No. 123(R), *“Share-Based
      Payments”* in the
      first quarter of fiscal year 2006. SFAS No. 123(R) requires the measurement
      and
      recognition of compensation expense for all share-based payment awards including
      employee stock options based on estimated fair values. Under SFAS No. 123(R),
      we
      estimate the value of share-based payments on the date of grant using the
      Black-Scholes model, which was also used previously for the purpose of providing
      pro forma financial information as required under SFAS No. 123. The
      determination of the fair value of, and the timing of expense relating to,
      share-based payment awards on the date of grant using the Black-Scholes model
      is
      affected by our stock price as well as assumptions regarding a number of
      variables including the expected term of awards, expected stock price volatility
      and expected forfeitures.




INVENTORIES.
      Inventories are valued at the lower of cost or market. Work in process and
      finished goods includes costs attributable to direct labor and overhead.
      Impairment charges for slow moving, excess and obsolete inventories are recorded
      based on historical experience, current product demand including meeting
      periodically with distributors, regulatory considerations, industry trends,
      changes and risks and the remaining shelf life. As a result of this analysis,
      the Company records a writedown to reduce the carrying value of any impaired
      inventory to its fair value, which becomes its new cost basis. If the actual
      product life cycles, demand or general market conditions are less favorable
      than
      those projected by management, additional inventory impairment charges may
      be
      required which would affect future operating results due to increased costs
      from
      the resulting adjustment. The adequacy of these impairment charges is evaluated
      quarterly.




16




REVENUE
      RECOGNITION AND ACCOUNTS RECEIVABLE. Revenue on product sales and tissue service
      processing is recognized when persuasive evidence of an arrangement exists,
      the
      price is fixed and final, delivery has occurred and there is a reasonable
      assurance of collection of the sales proceeds. Oral or written purchase
      authorizations are generally obtained from customers for a specified amount
      of
      product at a specified price. Revenue from surgical products is recognized
      upon
      the shipment of the processed tissues. The Company’s terms of sale are FOB
      shipping point. Title transfers at time of shipment. Customers are provided
      with
      a limited right of return. Reasonable and reliable estimates of product returns
      are made in accordance with SFAS No. 48 and allowances for doubtful
      accounts are based on significant historical experience. Revenue from
      distribution fees includes nonrefundable payments received as a result of
      exclusive distribution agreements between the Company and independent
      distributors. Distribution fees under these arrangements are recognized as
      revenue to approximate services provided under the contract. Recognition of
      revenue commenced over the term of the distribution agreement upon delivery
      of
      initial products.




VALUATION
      OF DEFERRED TAX ASSET. We record valuation allowances to reduce the deferred
      tax
      assets to the amounts estimated to be recognized. While we consider taxable
      income in assessing the need for a valuation allowance, in the event we
      determine it is more likely than not we would be able to realize our deferred
      tax assets in the future, an adjustment to the valuation allowance would be
      made
      and income increased in the period of such determination. Likewise, in the
      event
      we determine we would not be able to realize all or part of our deferred tax
      assets in the future, an adjustment would be made to the valuation allowance
      and
      charged to income in the period of such determination. At June 30, 2007, the
      Company recorded a tax benefit of $4,953 due to the reversal of a previously
      recorded valuation allowance related to our U.S. operations since we have
      determined that it is more likely than not that our existing deferred tax assets
      will be realized.




**LIQUIDITY
      AND CAPITAL RESOURCES**




At
      June
      30, 2007 and September 30, 2006, the Company had working capital of $28,165
      and
      $8,215, respectively. The increase in working capital is a result of $11,494
      of
      net proceeds from the equity financing completed in April 2007, the full
      conversion of the $3,000 convertible debenture into common stock and the
      reduction of outstanding balances on the Company’s short-term lines of
      credit.




Cash
      and
      cash equivalents increased from $3,463 at September 30, 2006 to $11,844 at
      June
      30, 2007, as a direct result of $11,494 of net proceeds from the equity
      financing completed in April 2007.




The
      Company had $1,169 in cash used by operating activities for the nine-month
      period ended June 30, 2007 compared to cash flow used in operating activities
      of
      $3,455 for the comparable period last year. The primary reason for the use
      in
      cash flow for the nine-months ended June 30, 2007 was an increase in inventory
      levels to support additional increased demand for dental products and the
      buildup of new products introduced in the spine market and the new markets
      of
      hernia repair and breast reconstruction, offset by net income from
      operations.




Net
      cash
      used in investing activities, representing purchases of capital expenditures,
      was $1,779 for the nine-months ended June 30, 2007 and $5,580 for the comparable
      prior year period. The purchases represented primarily capital expenditures
      associated with the new facility expansions for the U.S. and German
      manufacturing plants that began in early 2006 and was completed in 2007.




Net
      cash
      provided by financing activities was $11,286 for the nine-month period ended
      June 30, 2007 compared to $8,695 for the nine-month period ending June 30,
      2006.
      During the nine-month period ended June 30, 2007, the Company completed an
      equity financing which resulted in $11,494 in net proceeds. During the
      nine-month period ended June 30, 2006, the Company received proceeds from long
      term borrowings to finance the expansion of the U.S. and German manufacturing
      plants, $3,000 in proceeds from the issuance of convertible debenture and
      proceeds from short term borrowings to fund working capital.





17







Future
      minimum rental payments required under the Company's operating leases that
      have
      initial or remaining non-cancelable lease terms in excess of one year on a
      fiscal year basis are as follows:




7/1/07
              - 9/30/07
            
            $
            6482008
            
            
            1,1292009
            
            
            5682010
            
            
            1192011
            
            
            31$
            2,495




Long-term
      debt consists of senior debt construction loans and capital leases. Future
      minimum payments on a fiscal year basis are as follows (1):


7/1/07
                - 9/30/07
              
              $
              2882008
              
              
              1,1192009
              
              
              6162010
              
              
              6162011
              
              
              518Thereafter
              
              
              1,174$
              4,331Less
                current portion
              
              
              1,337Total
                future minimum payments
              
              $
              2,994




(1)
            does
                not include interest




The
      Company maintains current working capital credit lines totaling 1,500 Euros
      or
      $2,000 with two German banks and a $1,500 credit line with a U.S. bank. At
      June
      30, 2007, the Company had outstanding balances of $1,147 and $0 for the working
      capital lines in Germany and the U.S., respectively. On April 10, 2007, the
      Company entered into a Securities Purchase Agreement whereby the Company agreed
      to issue to three institutional investors 1,626,012 shares of common stock
      for
      net proceeds of $11,494. Management believes that the working capital as of
      June
      30, 2007 will be adequate to fund ongoing operations. The Company may seek
      additional financing to meet the needs of its long-term strategic plan. The
      Company can provide no assurance that such additional financing will be
      available, or if available, that such funds will be available on favorable
      terms. The Company's ability to generate positive operational cash flow is
      dependent upon increasing processing revenue through increased recoveries by
      tissue banks in the U.S. and Europe, controlling costs, and the development
      of
      additional markets and surgical applications for its products worldwide. While
      the Company believes that it continues to make progress in these areas, there
      can be no assurances.





18





**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**




For
      information regarding the Company’s exposure to certain market risks, see the
      Annual Report on Form 10-K for the year ended September 30, 2006. There have
      been no significant changes to our market risk exposures.




In
      the
      United States and in Germany, the Company is exposed to interest rate risk.
      Changes in interest rates affect interest income earned on cash and cash
      equivalents and interest expense on revolving credit arrangements. Except for
      an
      interest swap associated with $2,000 of long term debt over six years starting
      March 31, 2006, the Company does not enter into derivative transactions related
      to cash and cash equivalents or debt. Accordingly, we are subject to changes
      in
      interest rates. Based on June 30, 2007 cash and cash equivalents and long-term
      debt, a 1% change in interest rates would have a de-minimus impact on our
      results of operations.




The
      value
      of the U.S. dollar compared to the Euro affects our financial results. Changes
      in exchange rates may positively or negatively affect revenues, gross margins,
      operating expenses and net income. The international operation currently
      transacts business primarily in the Euro. Intercompany transactions translate
      from the Euro to the U.S. dollar. Based on June 30, 2007 outstanding
      intercompany balances, a 1% change in currency rates would have a de-minimus
      impact on our results of operations.




**ITEM
      4. CONTROLS AND PROCEDURES**




**DISCLOSURE
      CONTROLS AND PROCEDURES**




As
      of the
      end of the period covered by this Form 10-Q, the Company's management, including
      the Chief Executive Officer and the Chief Financial Officer, conducted an
      evaluation of the effectiveness of the design and operation of the Company's
      disclosure controls and procedures pursuant to Rule 13a-15 of the Securities
      Exchange Act of 1934. Any controls and procedures, no matter how well designed
      and operated, can provide only reasonable assurance of achieving the desired
      objectives. Based upon that evaluation, the Company's management, including
      the
      Company's Chief Executive Officer and Chief Financial Officer, concluded that
      the design and operation of the Company's disclosure controls and procedures
      provided reasonable assurance that the disclosure controls and procedures are
      effective to accomplish their objectives.




**CHANGES
      IN CONTROL**




There
      has
      not been any change in the Company's internal control over financial reporting
      during the nine-month period ended June 30, 2007 that has materially affected,
      or is reasonably likely to materially affect, those controls.















19





**PART
      II. OTHER INFORMATION**






**ITEM 1.**
            **LEGAL
                PROCEEDINGS**Refer
                to Note 13 of the Unaudited Condensed Consolidated Interim Financial
                Statements.**ITEM 2.**
            **UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**None.**ITEM 3.**
            **DEFAULTS UPON SENIOR
              SECURITIES**None.**ITEM 4.**
            **SUBMISSION OF MATTERS TO A
              VOTE OF
              SECURITY-HOLDERS**None.**ITEM 5.**
            **OTHER
              INFORMATION**None.










20






**ITEM 6.**
            **EXHIBITS**31.1***
            Certification pursuant to Section 302
              of the
              Sarbanes-Oxley Act
              of 2002 -- Chief Executive Officer31.2***
            Certification pursuant to Section 302
              of the
              Sarbanes-Oxley Act
              of 2002 -- Chief Financial Officer32.1***
            Certifications Pursuant to 18 U.S.C.
              Section
              1350, as adopted pursuant
              to Section 906 of the Sarbanes-Oxley Act of
              2002






***
      Filed
      herewith









**SIGNATURES**




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






**TUTOGEN
                MEDICAL, INC.**Date:
                August 14, 2007
            
            /s/
                Guy L. MayerChief
                Executive OfficerDate:
                August 14,2007
            
            /s/ L. Robert Johnston, JrChief
                Financial Officer(Principal
                Financial and Accounting Officer)












21