<PAGE>

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

                                    FORM 10-Q


(MARK ONE)

[X]      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934.

For the period ended June 30, 2006.

[ ]      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 or other Jurisdiction of                                 (I.R.S. Employer
Incorporation or Organization)                               Identification No.)


13709 PROGRESS BOULEVARD ALACHUA, FLORIDA                                  32615
(Address of Principal Executive Offices)                              (Zip Code)


REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:               (386) 462-0402

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

Indicate by checkmark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large accelerated filer [ ]   Accelerated filer [ ]    Non-accelerated filer [X]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X].


As of July 31, 2006 there were outstanding 16,093,135 shares of Tutogen Medical,
Inc. Common Stock, par value $0.01.

<PAGE>

                     TUTOGEN MEDICAL, INC. AND SUBSIDIARIES

                                      INDEX
                                      -----

PART I.                                                                     Page
                                                                            No.

            ITEM 1.    Financial Statements.

                       Unaudited - Condensed Consolidated
                       Balance Sheets - June 30, 2006 and
                       September 30, 2005.                                    1

                       Unaudited - Condensed Consolidated
                       Statements of Operations and
                       Comprehensive Loss for the three and nine
                       months ended June 30, 2006 and 2005 (as
                       restated).                                             2

                       Unaudited - Condensed Consolidated
                       Statements of Cash Flows for the nine
                       months ended June 30, 2006 and 2005 (as
                       restated).                                             3

                       Unaudited - Condensed Consolidated
                       Statement of Stockholders' Equity for
                       the nine months ended June 30, 2006.                   4

                       Unaudited - Notes to Condensed Consolidated
                       Financial Statements                                   5

            ITEM 2.    Management's Discussion and Analysis of Financial
                       Condition and Results of Operations.                  17

            ITEM 3.    Quantitative Statements and Supplementary Data.       24

            ITEM 4.    Controls and Procedures.                              24

PART II.

            ITEM 1.    Legal Proceedings                                     25

            ITEM 2.    Unregistered Sales of Equity Securities and
                       Use of Proceeds                                       25

            ITEM 3.    Defaults Upon Senior Securities                       25

            ITEM 4.    Submission of Matters to a Vote of Security-
                       Holders                                               25

            ITEM 5.    Other Information                                     25

            ITEM 6.    Exhibits                                              25

SIGNATURES                                                                   26


                                       i
<PAGE>

                                   PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

                               TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
                               CONDENSED CONSOLIDATED BALANCE SHEETS
                                           (IN THOUSANDS)
                                            (UNAUDITED)

<TABLE>
<CAPTION>

                                                                       JUNE 30,        SEPTEMBER 30,
                                                                         2006              2005
                                                                     ------------      ------------
<S>                                                                  <C>               <C>
ASSETS

Current Assets
    Cash and cash equivalents                                        $      3,795      $      3,562
    Accounts receivable - net of allowance for doubtful accounts
         of $507 in June 2006 and $462 in September 2005                    4,883             3,473
    Inventories - net                                                      11,874             9,554
    Deferred  tax asset                                                       639             1,149
    Other current assets                                                    1,331               623
                                                                     ------------      ------------
                 Total current assets                                      22,522            18,361

Property, plant and equipment, net                                         11,509             6,612

Deposits                                                                      300                 0

Deferred tax asset                                                          2,435             1,232
                                                                     ------------      ------------

TOTAL ASSETS                                                         $     36,766      $     26,205
                                                                     ============      ============


LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
    Accounts payable                                                 $      2,148      $      1,365
    Accrued expenses                                                        3,303             3,383
    Other current liabilities                                               1,067             1,210
    Accrued commissions                                                     1,936             1,765
    Short-term borrowings                                                   6,331             1,048
    Current portion of deferred distribution fees                             996               589
    Current portion of long-term debt                                       1,063               184
                                                                     ------------      ------------
                 Total current liabilities                                 16,844             9,544

Noncurrent Liabilities
    Other noncurrent liabilities                                            3,145             2,309
    Long-term debt                                                          2,709               630
                                                                     ------------      ------------
TOTAL LIABILITIES                                                          22,698            12,483

Shareholders' Equity:
Common stock, $0.01 par value, 30,000,000 authorized;
  16,083,135 and 15,932,960 issued and outstanding                            161               159
Additional paid-in capital                                                 37,340            36,381
Accumulated other comprehensive income                                      2,251             1,678
Accumulated deficit                                                       (25,684)          (24,496)
                                                                     ------------      ------------
                 Total shareholders' equity                                14,068            13,722
                                                                     ------------      ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                           $     36,766      $     26,205
                                                                     ============      ============
</TABLE>


     See accompanying Notes to Condensed Consolidated Financial Statements.

                                        1
<PAGE>

                     TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                      (IN THOUSANDS EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                       THREE MONTHS ENDED JUNE 30,         NINE MONTHS ENDED JUNE 30,
                                                     ------------------------------      ------------------------------
                                                         2006              2005              2006              2005
                                                     ------------      ------------      ------------      ------------
                                                                       (AS RESTATED,                       (AS RESTATED,
                                                                        SEE NOTE 14)                        SEE NOTE 14)

<S>                                                  <C>               <C>               <C>               <C>
REVENUE                                              $     10,000      $      9,281      $     27,149      $     23,908

COST OF REVENUE                                             5,317             6,101            12,842            15,084
                                                     ------------      ------------      ------------      ------------

             Gross profit                                   4,683             3,180            14,307             8,824

OPERATING EXPENSES
         General and administrative                         2,134             1,206             5,209             3,641
         Distribution and marketing                         3,342             3,071             9,402             8,564
         Research and development                             453               406             1,323             1,248
                                                     ------------      ------------      ------------      ------------
                                                            5,929             4,683            15,934            13,453
                                                     ------------      ------------      ------------      ------------

OPERATING LOSS                                             (1,246)           (1,503)           (1,627)           (4,629)

FOREIGN EXCHANGE (LOSS) GAIN                                 (233)              317              (261)              (80)
OTHER INCOME                                                   12                16                42                36
INTEREST EXPENSE                                              (75)              (19)              (53)              (51)
                                                     ------------      ------------      ------------      ------------
                                                             (296)              314              (272)              (95)
                                                     ------------      ------------      ------------      ------------
LOSS BEFORE INCOME TAX (BENEFIT) EXPENSE                   (1,542)           (1,189)           (1,899)           (4,724)
                                                     ------------      ------------      ------------      ------------

Income tax (benefit) expense                                 (413)               88              (711)             (404)
                                                     ------------      ------------      ------------      ------------

NET LOSS                                             $     (1,129)     $     (1,277)     $     (1,188)     $     (4,320)
                                                     ============      ============      ============      ============

Comprehensive Income:
     Foreign currency translation gain                        377               455               573               513
                                                     ------------      ------------      ------------      ------------

COMPREHENSIVE LOSS                                   $       (752)     $       (822)     $       (615)     $     (3,807)
                                                     ============      ============      ============      ============

AVERAGE SHARES OUTSTANDING FOR BASIC AND DILUTED
     LOSS PER SHARE                                    16,058,724        15,917,755        15,993,936        15,917,755
                                                     ============      ============      ============      ============

BASIC AND DILUTED LOSS PER SHARE                     $      (0.07)     $      (0.08)     $      (0.07)     $      (0.27)
                                                     ============      ============      ============      ============
</TABLE>


     See accompanying Notes to Condensed Consolidated Financial Statements.

                                        2
<PAGE>

                            TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
                       CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                        (IN THOUSANDS)
                                         (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  NINE MONTHS ENDED JUNE 30,
                                                                ----------------------------
                                                                   2006             2005
                                                                -----------      -----------
                                                                                (AS RESTATED,
                                                                                 SEE NOTE 14)
<S>                                                             <C>              <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss                                                        $    (1,188)     $    (4,320)
Adjustments to reconcile net loss to net cash
  used in operating activities:
  Depreciation and amortization                                         688              771
  Amortization of deferred distribution fees revenue                   (407)            (479)
  Severance costs                                                       437                0
  Deferred income taxes                                                (693)            (404)
  Provision for inventory write-downs                                   741              201
  Share-based compensation                                              303                0
  Changes in assets and liabilities:
     Accounts receivable                                             (1,410)              13
     Inventories                                                     (3,061)           3,632
     Other current assets                                              (503)              20
     Accounts payable                                                   477           (1,006)
     Accrued expenses                                                  (517)            (103)
     Other current liabilities                                         (143)             710
     Accrued commissions                                                171              325
     Other noncurrent liabilities                                     1,650                0
                                                                -----------      -----------
        Net cash used in operating activities                        (3,455)            (640)

CASH FLOWS USED IN INVESTING ACTIVITIES
   Investment in a marketable security                                    0             (140)
   Deposits on purchase of property and equipment                      (300)               0
   Purchase of property and equipment                                (5,280)          (1,144)
                                                                -----------      -----------
        Net cash used in investing activities                        (5,580)          (1,284)

CASH FLOWS FROM FINANCING ACTIVITIES
    Issuance of common stock                                            383                6
    Proceeds from long-term borrowings                                3,186             (200)
    Proceeds from short-term borrowings                               2,669              626
    Proceeds from issuance of convertible debt and warrants           3,000                0
    Debt issuance costs                                                (205)               0
    Repayment of short-term borrowings                                 (110)               0
    Repayment of long-term debt                                        (228)            (130)
                                                                -----------      -----------
         Net cash provided by financing activities                    8,695              302


EFFECT OF EXCHANGE RATE CHANGES ON CASH                                 573             (147)
                                                                -----------      -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                    233           (1,769)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                      3,562            5,063
                                                                -----------      -----------

CASH AND EQUIVALENTS AT END OF PERIOD                           $     3,795      $     3,294
                                                                ===========      ===========

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

SUPPLEMENTAL CASH FLOW DISCLOSURES:
      Interest paid                                             $       231      $        51
                                                                ===========      ===========

      Income taxes paid                                         $         0      $       151
                                                                ===========      ===========
</TABLE>


     See accompanying Notes to Condensed Consolidated Financial Statements.

                                        3
<PAGE>

                     TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                         NINE MONTHS ENDED JUNE 30, 2006
                                   (Unaudited)
                      (In Thousands, Except for Share Data)

<TABLE>
<CAPTION>
                                                                         ACCUMULATED                                      COMMON
                                              COMMON       ADDITIONAL       OTHER                                         SHARES
                                               STOCK        PAID-IN     COMPREHENSIVE   ACCUMULATED                     ISSUED AND
                                            ($.01 PAR)      CAPITAL         INCOME        DEFICIT          TOTAL        OUTSTANDING
                                            ----------     ----------     ----------     ----------      ----------      ----------
<S>                                         <C>            <C>            <C>            <C>             <C>             <C>
BALANCE, SEPTEMBER 30, 2005                 $      159     $   36,381     $    1,678     $  (24,496)     $   13,722      15,932,960
  Stock issued on exercise of options                2            381             --             --             383         150,175
  Warrants issued                                   --            275             --             --             275              --
  Share-based compensation                          --            303             --             --             303              --
  Net loss                                          --             --             --         (1,188)         (1,188)             --
  Foreign currency translation adjustment           --             --            573             --             573              --
                                            ----------     ----------     ----------     ----------      ----------      ----------

BALANCE, June 30, 2006                      $      161     $   37,340     $    2,251     $  (25,684)     $   14,068      16,083,135
                                            ==========     ==========     ==========     ==========      ==========      ==========

</TABLE>


     See accompanying Notes to Condensed Consolidated Financial Statements.

                                        4

<PAGE>

                     TUTOGEN MEDICAL, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                                  JUNE 30, 2006
                        (IN THOUSANDS, EXCEPT 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 tissue at its two manufacturing facilities in Germany
     and the United States and distributes its products and services to over 30
     countries worldwide.

(2)  BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements of
     the Company have been prepared in conformity with accounting principles
     generally accepted in the United States 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 months ended June 30, 2006 are not necessarily
     indicative of the results which may be expected for the fiscal year ending
     September 30, 2006. 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/A for the year
     ended September 30, 2005. Certain amounts for prior periods have been
     reclassified to be consistent with the current period presentation.

(3)  NEW ACCOUNTING PRONOUNCEMENTS

     In December 2004, the Financial Accounting Standards Board ("FASB") issued
     Statement No. 123R "SFAS No. 123R", SHARE-BASED PAYMENT, that requires
     compensation costs related to share-based payment transactions to be
     recognized in the financial statements. The Company began complying with
     SFAS No. 123R for the three months ended December 31, 2005. In March 2005,
     the Securities and Exchange Commission (the "SEC") issued Staff Accounting
     Bulletin ("SAB") No. 107, SHARE-BASED PAYMENT ("SAB No. 107"), which
     provides interpretive guidance related to the interaction between SFAS No.
     123R and certain SEC rules and regulations, as well as provides the SEC
     staff's views regarding the valuation of share-based payment arrangements.
     See Note 4, "Stock-Based Awards", regarding the impact of these
     pronouncements on the Company's financial statements.

     In November 2004, the FASB issued SFAS No. 151, INVENTORY COSTS, AN
     AMENDMENT OF ARB NO. 43. SFAS No. 151 requires idle facility expenses,
     freight, handling costs, and wasted material (spoilage) costs to be
     excluded from the cost of inventory and expensed when incurred. It also
     requires that allocation of fixed overheads to the costs of conversion be
     based on the normal capacity of the production facilities. This statement
     is effective for inventory costs incurred during fiscal years beginning
     after June 15, 2005. The adoption of SFAS No. 151, effective at the
     beginning of year ended September 30, 2006, had no material impact on the
     Company's financial statements.

     In May of 2005, the FASB issued SFAS 154, ACCOUNTING CHANGES AND ERROR
     CORRECTIONS. This statement replaces APB Opinion 20, ACCOUNTING CHANGES,
     and SFAS 3, REPORTING ACCOUNTING CHANGES IN INTERIM FINANCIAL STATEMENTS.
     This statement changes the requirements for the accounting for and
     reporting of a change in accounting principle, and applies to all voluntary
     changes in accounting principle. This statement also applies to changes
     required by an accounting pronouncement in the unusual instance that the


                                       5
<PAGE>

     pronouncement does not include specific transition provisions. Previously,
     APB Opinion 20 required that most voluntary changes in accounting principle
     be recognized by including in net income of the period of the change the
     cumulative effect of changing to the new accounting principle. SFAS 154
     requires retrospective application to prior periods' financial statements
     of changes in accounting principle, unless it is impracticable to determine
     either the period-specific effects or the cumulative effect of the change.
     This statement is effective for accounting changes and corrections of
     errors made in fiscal years beginning after December 15, 2005. The adoption
     of this standard is not expected to have a material impact on the Company's
     financial statements.

     In June of 2006, the FASB issued FASB Interpretation (FIN) No. 48
     ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES ("FIN 48"). This interpretation
     clarifies the accounting for uncertainty in income taxes recognized in an
     enterprise's financial statements in accordance with SFAS 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 48 also provides guidance on recognition, classification,
     interest and penalties, accounting in interim periods, disclosure and
     transition. FIN 48 is effective for fiscal years beginning after December
     15, 2006. Management does not believe the adoption of this standard will
     have a material impact on the Company's financial statements.

(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. 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.
     123R which establishes the financial accounting and reporting standards for
     stock-based compensation plans. SFAS No. 123R requires the measurement and
     recognition of compensation expense for all stock-based awards made to
     employees and directors. Under the provisions of SFAS No. 123R, 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). As a result of adopting SFAS No. 123R, the Company's net loss
     before income taxes and net loss for the three and nine months ended June
     30, 2006 was $68 and $303, respectively, more than if the Company had
     continued to account for stock-based compensation under Accounting
     Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
     ("APB 25") and its related interpretations. Basic and diluted net loss per
     share for the three months ended June 30, 2006 was not affected by the
     adoption of SFAS No. 123R. Basic and diluted net loss per share for the
     nine months ended June 30, 2006 was $0.02 more than if the Company had
     continued to account for stock-based compensation under APB 25. In
     addition, there was no tax effect related to the adoption of SFAS No. 123R
     due to the recording of a full valuation allowance against U.S. net
     deferred tax assets.


                                       6
<PAGE>

     The Company elected to use the modified prospective transition method as
     permitted by SFAS No. 123R and, therefore, financial results for prior
     periods have not been restated. Under this transition method, stock-based
     compensation expense for the three and nine months ended June 30, 2006
     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" ("SFAS No. 123,") as amended by SFAS No. 148,
     "Accounting for Stock-Based Compensation--Transition and Disclosure." Since
     the adoption of SFAS No. 123R, 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. 123R. During the three and nine
     months ended June 30, 2006, the Company recognized compensation expense of
     $68 and $303, respectively relating to stock options granted during the
     three and nine months ended June 30, 2006 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 Operations.
     There were no significant capitalized stock-based compensation costs at
     June 30, 2006.

     Prior to October 1, 2005, the Company accounted for stock-based
     compensation in accordance with APB 25 and also followed the disclosure
     requirements of SFAS No. 123. Under APB 25, the Company accounted for
     stock-based awards to employees and directors using the intrinsic value
     method as allowed under SFAS No. 123. Under the intrinsic value method, no
     stock-based compensation expense had been recognized in the Company's
     Statement of Operations because the exercise price of the Company's stock
     options granted to employees and directors equaled the fair market value of
     the underlying stock at the date of grant. The following table illustrates
     the effect on net loss and loss per share for the three and nine months
     ended June 30, 2005 as if the Company had applied the fair value
     recognition provisions of SFAS 123 to its stock plans:

<TABLE>
                                                  Three Months ended    Nine Months ended
                                                       June 30,             June 30,
                                                         2005                 2005
                                                    ---------------      --------------
<S>                                                 <C>                  <C>
Net loss:                                           $        (1,277)     $       (4,320)

Deduct:
Total stock-based employee compensation
expense determined under fair-value-based
method, net of related tax effects                                2                  34
                                                    ---------------      --------------
Pro-forma net loss                                  $        (1,279)     $       (4,354)
                                                    ===============      ==============

Basic and diluted loss per share:
As reported                                         $         (0.08)     $        (0.27)
Pro-forma using the fair value method               $         (0.08)     $        (0.27)
</TABLE>

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:


                                       7
<PAGE>

                                                June 30, 2006      June 30, 2005
                                                -------------      -------------

         Expected Volatility                           50.5%              48.6%
         Risk-free interest rate (range)          3.7 - 3.9%         4.1 - 4.7%
         Expected term (in years)                         5                  5


         EXPECTED VOLATILITY. The Company's methodology for computing the
         expected volatility is based solely on the Company's historical
         volatility.

         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 status of the Company's stock options
     as of June 30, 2006, and related transactions for the quarter then ended:


                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                                           WEIGHTED
                                          NUMBER OF         WEIGHTED       AVERAGE
                                           COMMON           AVERAGE       REMAINING     AGGREGATE
                                           SHARES           EXERCISE     CONTRACTURAL    INTRINSIC
         STOCK OPTIONS                     (000's)           PRICE           LIFE          VALUE
                                          ---------         --------     ------------    ---------

<S>                                         <C>             <C>              <C>         <C>
Outstanding at September 30, 2005           2,481           $   2.64          5.1        $     --
Granted                                        28               3.12         10.0              --
Canceled                                       --                 --           --              --
Exercised                                     (18)              2.53           --              --
                                         ----------------------------------------------------------
Outstanding at December 31, 2005            2,491           $   2.65          5.3        $     --

Granted                                        88               3.22         10.0              --
Canceled                                       (6)              3.58           --              --
Exercised                                     (88)              2.70           --              --
                                         ----------------------------------------------------------
Outstanding at March 31, 2006               2,485           $   2.66          4.9        $     --

Granted                                        --                 --           --              --
Canceled                                      (53)              3.66           --              --
Exercised                                     (45)              2.21           --              --
                                         ----------------------------------------------------------
Outstanding at June 30, 2006                2,387           $   2.64          4.9        $     --

Vested or expected to vest                  2,149           $   2.64          4.2        $     --

Fully vested at June 30, 2006               1,854           $   2.49          2.0        $     --

</TABLE>

     As of June 30, 2006, 291,728 stock options were available for grant. The
     weighted-average grant-date fair value of options granted during the nine
     months ended June 30, 2006 and June 30, 2005 was $1.63 and $1.18,
     respectively. Cash received from option exercises for the nine months ended
     June 30, 2006 and June 30, 2005, was $383 and $6 respectively.

     As of June 30, 2006, there was $355 of total unrecognized compensation cost
     related to nonvested stock options. That cost is expected to be recognized
     over a weighted-average period of 1.7 years.


                                       9
<PAGE>

(5)  INVENTORIES

     Major classes of inventory at June 30, 2006 and September 30, 2005 were as
follows:

                                                   June 30,        September 30,
                                                     2006              2005
                                                  ----------        ----------

Raw materials                                     $    2,818        $    1,753
Work in process                                        5,587             4,219
Finished goods                                         7,489             6,860
                                                  ----------        ----------
                                                      15,894            12,832
Less reserves for obsolescence                         4,020             3,278
                                                  ----------        ----------

                                                  $   11,874        $    9,554
                                                  ==========        ==========

(6)  INCOME TAXES

     The Company has approximately $16,801 of federal net operating loss
     carryforwards expiring beginning in 2008 and state net operating loss
     carryforwards of approximately $16,304 that will begin to expire in
     September 2006.

     The Company has a corporate net operating loss carryforward for German
     income tax purposes of approximately $4,793 (3,818 Euros), and a trade net
     operating loss carryforward for German income tax purposes of approximately
     $2,883 (2,297 Euros), which can both be carried forward indefinitely.

     The Company continually reviews the adequacy and necessity of the valuation
     allowance in accordance with the provisions of FASB Statement No. 109,
     ACCOUNTING FOR INCOME TAXES. As of June 30, 2006, the Company continues to
     maintain a full valuation allowance on the net deferred tax assets
     attributable to its domestic operations. 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.

     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. 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 three months ended June 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 Condensed
     Consolidated Statement of Operations and Comprehensive Loss for the three
     and nine months ended June 30, 2006, and the accrual for these costs is
     included in Accrued Expenses in the Condensed Consolidated Balance Sheet as
     of June 30, 2006. These severance costs are being paid in twelve monthly
     equal payments during the period from July 1, 2006 through June 30, 2007.


                                       10
<PAGE>

(8)  DEBT AND SHORT-TERM BORROWINGS

     As of March 31, 2006, the Company had a $1,300 construction loan with a
     financing company which has provided funding for the expansion of its U.S.
     manufacturing facility. With the completion of the manufacturing facility
     during the quarter ended June 30, 2006, the construction loan converted
     into a long-term capital lease. During the three months ended June 30,
     2006, the Company commenced lease payments of $55 per month over 24 months.
     At the end of the term, the Company has the option to purchase the property
     for a price determined by the Company and the lessor or continue to extend
     the lease for additional time periods.

     On March 31, 2006, the Company refinanced a $1,800 construction loan which
     provided funding for the expansion of its German manufacturing facility.
     The loan has a term of six years, to be repaid at approximately $78 per
     quarter beginning in June 2006, and an interest rate of 5.15% which was
     fixed by an interest rate swap entered into on March 31, 2006 (See Note 9
     for hedging activities).

     The Company maintains current working capital credit lines totaling 1,500
     euros (approximately $1,883) with three German banks and a
     $1,500 credit line with a U.S. bank. At September 30, 2005 the
     Company had no borrowings against these lines. During the nine months ended
     June 30, 2006, the Company made draws on these lines of credit totaling
     $6,611 and repaid $4,655. As of June 30, 2006, the Company had an
     outstanding balance of $2,934 on these lines.

     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, is due upon the earlier of
     12 months or upon a change of control of the Company and is convertible
     into common stock at a price of $5.15 per share at any time at the election
     of the holder. The warrants are 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. For purposes of interim reporting, convertible debt is included in
     short-term borrowings on the balance sheet at June 30, 2006.

     The relative fair value of the detachable warrants is $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 to interest expense over the one-year term of the
     debenture. The convertible debenture balance of $2,725, net of debt
     discount, is included in short-term borrowings. In addition, $205 of direct
     costs incurred relating to the issuance of the convertible debenture was
     recorded as debt issuance costs in other current assets, which will also be
     amortized to interest expense over the one-year term of the debenture.

(9)  HEDGING ACTIVITIES

     The Company accounts for its hedging activities in accordance with SFAS No.
     133, "Accounting for Derivatives and Hedging Activities", 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 $1,800 construction
     loan is based on dealer quotes and was not significant as of June 30, 2006.
     The construction loan payable is due on March 30, 2012 in monthly
     installments of approximately $78 (63 Euros) 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.


                                       11
<PAGE>

(10) 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 accounting policies of these segments are consistent
     with prior periods. The Company evaluates performance based on the
     operating income of each segment. The Company accounts for inter-segment
     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 unique regulatory and marketing differences in
     these markets as well as their physical location.

     A summary of the operations and assets by segment as of and for the three
     months ended June 30, 2006 and 2005, respectively are as follows:

                               THREE MONTHS - 2006
                               -------------------

SEGMENT DATA                   INTERNATIONAL           US              TOTAL
                               -------------     ------------      ------------

GROSS REVENUE                  $      3,975      $      6,492      $     10,467
LESS: INTERCOMPANY             $       (467)     $          0      $       (467)

                               ============      ============      ============
TOTAL REVENUE - THIRD PARTY    $      3,508      $      6,492      $     10,000

OPERATING LOSS                 $       (919)     $       (327)     $     (1,246)

NET LOSS                       $       (712)     $       (417)     $     (1,129)

TOTAL IDENTIFIABLE ASSETS      $     18,239      $     18,527      $     36,766
                               ============      ============      ============


                                       12
<PAGE>

                               THREE MONTHS - 2005
                               -------------------

SEGMENT DATA                   INTERNATIONAL           US              TOTAL
                               -------------     ------------      ------------

GROSS REVENUE                  $      5,042      $      6,529      $     11,571
LESS: INTERCOMPANY             $     (2,290)     $          0      $     (2,290)

                               ============      ============      ============
TOTAL REVENUE - THIRD PARTY    $      2,752      $      6,529      $      9,281

OPERATING INCOME (LOSS)        $        537      $     (2,040)     $     (1,503)

NET INCOME (LOSS)              $        291      $     (1,568)     $     (1,277)

TOTAL IDENTIFIABLE ASSETS      $     17,181      $     11,460      $     28,641
                               ============      ============      ============

     A summary of the operations and assets by segment as of and for the nine
     months ended June 30, 2006 and 2005, respectively are as follows:


                               NINE MONTHS - 2006
                               ------------------

SEGMENT DATA                   INTERNATIONAL           US              TOTAL
                               -------------     ------------      ------------

GROSS REVENUE                  $     11,533      $     17,874      $     29,407
LESS: INTERCOMPANY             $     (2,258)     $          0      $     (2,258)

                               ============      ============      ============
TOTAL REVENUE - THIRD PARTY    $      9,275      $     17,874      $     27,149

OPERATING LOSS                 $       (742)     $       (885)     $     (1,627)

NET LOSS                       $       (575)     $       (613)     $     (1,188)

TOTAL IDENTIFIABLE ASSETS      $     18,239      $     18,527      $     36,766
                               ============      ============      ============


                                       13
<PAGE>

                               NINE MONTHS - 2005
                               ------------------

SEGMENT DATA                   INTERNATIONAL           US              TOTAL
                               -------------     ------------      ------------

GROSS REVENUE                  $     13,292      $     16,172      $     29,464
LESS: INTERCOMPANY             $     (5,556)     $          0      $     (5,556)

                               ============      ============      ============
TOTAL REVENUE - THIRD PARTY    $      7,736      $     16,172      $     23,908

OPERATING LOSS                 $     (1,068)     $     (3,561)     $     (4,629)

NET LOSS                       $     (1,155)     $     (3,165)     $     (4,320)

TOTAL IDENTIFIABLE ASSETS      $     17,181      $     11,460      $     28,641
                               ============      ============      ============

(11) LEGAL PROCEEDINGS

     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 resulted
     in a reduction of the original proposed judgment received against the
     Company by $406. At June 30, 2006 and September 30, 2005, the Company
     maintained an accrual of $477 (380 euros) with respect to the remaining
     appeal and legal costs. Management believes that such accrual is sufficient
     and that the final settlement should not have a material impact on the
     results of operations.

     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 $1,046 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
     reserved $872 for quarantined inventory, which remains reserved at June 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, 2006, 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. It is management's
     opinion that it is too early in the process to determine the effect of this
     class action on the financial condition of the Company. However, the
     Company intends to vigorously defend this matter and does not believe that
     settlement of this class action will have an adverse material effect on the
     Company's operations, cash flow or financial position.

     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.


                                       14
<PAGE>

(12) RELATED PARTY

     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.
     For the quarters ended June 30, 2006 and 2005, product sales to Zimmer
     spine totaled $617 and $1,260, respectively, representing 6.2% and 13.6%
     respectively of the Company's total revenues. For the nine months ended
     June 30, 2006 and 2005, product sales to Zimmer spine totaled $1,416 and
     $2,792, respectively, representing 5.2% and 11.7% respectively of the
     Company's total revenues. Accounts receivable from Zimmer Spine were $410
     and $44 at June 30, 2006 and September 30, 2005, respectively.

     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 sells
     directly to Zimmer Dental's customers. For the quarters ended June 30, 2006
     and 2005, Zimmer Dental was paid commissions aggregating approximately
     $1,936 and $1,735, respectively. For the nine months ended June 30, 2006
     and 2005, Zimmer Dental was paid commissions aggregating approximately
     $5,282 and $4,404, respectively. Accounts payable to Zimmer Dental total
     $1,936 and $1,740 at June 30, 2006 and September 30, 2005, respectively.

     Zimmer CEP (formerly Centerpulse) USA Holding Co., a subsidiary of Zimmer
     Holdings, Inc., is a 33% owner of the Company's outstanding shares of
     Common Stock.

     On March 10, 2006, Zimmer Holdings Inc. ("Zimmer") filed an amended
     Schedule 13 (d) expressing its intention to initiate discussions with the
     Company which could possibly include further investment by Zimmer in
     securities of the Company or the acquisition by Zimmer of some or all of
     the outstanding common stock of the Company.

     On August 9, 2006, representatives of Zimmer Holdings, Inc. ("Zimmer")
     contacted the management of the Company telephonically to propose to the
     Company a non-binding indication of interest ("the Indication of Interest")
     with respect to a proposed acquisition of the Company at an indicative
     price range of $5.00 - $6.00 per share of Common Stock. Later on the same
     day, the Company contacted Zimmer and rejected the Indication of Interest.
     Zimmer has determined not to pursue an acquisition of the Company at this
     time, but based on other factors deemed relevant by Zimmer, including, but
     not limited to, the price and availability of Common Stock, subsequent
     developments affecting Zimmer and the Company, the business prospects of
     Zimmer and the Company, general stock market and economic conditions and
     tax considerations, Zimmer may formulate other plans and/or make other
     proposals and take other actions with respect to its investment in the
     Company that it deems to be appropriate.

(13) SUBSEQUENT EVENTS

     On August 8, 2006, the Company received the second milestone payment of
     $1,650 from Davol, Inc. for the release of new hernia products.

(14) RESTATEMENT

     As part of the financial review for the three and six months ended March
     31, 2006, the Company became aware of misstatements in previously reported
     inventory and cost of revenue. The Company discovered that the
     misstatements were attributable to errors in the calculation of
     intercompany profit to be eliminated during the consolidation process for
     prior periods. While investigating the inventory errors, the Company also
     discovered other errors affecting the Company's deferred tax benefit,
     accrued expenses, general and administrative and distribution and marketing
     expenses for the fiscal year ended September 30, 2005. As a result, the
     Company has restated the accompanying condensed consolidated financial
     statements for the three and nine months ended June 30, 2005 to correct
     these errors.


                                       15
<PAGE>

      The impact of this restatement on the accompanying condensed consolidated
financial statements is summarized below:

<TABLE>
<CAPTION>
                                                     As
                                                 Previously                           As
FOR THE THREE MONTHS ENDED JUNE 30, 2005          Reported       Adjustments       Restated
----------------------------------------        ------------     -----------      -----------
<S>                                             <C>              <C>              <C>
Cost of revenues                                $     6,256      $      (155)     $     6,101
Gross profit                                          3,025              155            3,180
Operating loss                                       (1,658)             155           (1,503)
Net loss                                             (1,432)             155           (1,277)
Comprehensive loss                                     (977)             155             (822)
Basic and diluted loss per share                      (0.09)            0.01            (0.08)



                                                     As
                                                 Previously                           As
FOR THE NINE MONTHS ENDED JUNE 30, 2005           Reported       Adjustments       Restated
---------------------------------------         ------------     ------------     -----------

Cost of revenues                                $    14,817      $       267      $    15,084
Gross profit                                          9,091             (267)           8,824
Operating loss                                       (4,362)            (267)          (4,629)
Net loss                                             (4,053)            (267)          (4,320)
Comprehensive loss                                   (3,540)            (267)          (3,807)
Basic and diluted loss per share                      (0.25)           (0.02)           (0.27)
Cash flows from operating activities
     Net loss                                        (4,053)            (267)          (4,320)
     Inventories                                      3,365              267            3,632
</TABLE>


                                                16
<PAGE>


     ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
                                 (IN THOUSANDS)

RESTATED FINANCIAL STATEMENTS
-----------------------------

The accompanying management's discussion and analysis of the Company's financial
condition and results of operations included in this report reflects the impact
of the restatement described in Note 14 to the unaudited condensed consolidated
financial statements.

FORWARD-LOOKING STATEMENTS
--------------------------

This report contains forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements typically are identified by use of terms such as
"may," "will," "should," "plan," "expect," "anticipate," "estimate," and similar
words, although some forward-looking statements are expressed differently.
Actual results could differ significantly from those discussed herein. Some of
the matters described in the "Risk Factors" and "Description of Business"
sections of its Form 10-K/A and other reports filed with the Securities and
Exchange Commission, constitute cautionary statements, including certain risks
and uncertainties, that could cause actual results to vary materially from the
future results indicated in such forward-looking statements. Other factors could
also cause actual results to vary materially from the future results indicated
in such forward-looking statements. The following discussion of our results of
operations should be read in conjunction with the Financial Statements and Notes
included in Part I. "Financial Information".

BUSINESS
--------

During the three months ended June 30, 2006, the Company generated $10,000 in
revenues which represented the highest quarterly revenue in the Company's
history. The Company continues to experience growth in dental sales. By the end
of the three months ended June 30, 2006, the Company launched new products in
the important hernia repair market with Davol as the Company's distribution
partner. A new cervical graft introduced near the end of the quarter ended June
30, 2006, coupled with additional new spine products to be released over the
next six months are expected to contribute to continued growth in spinal sales.
The expansion of the US facility was essentially completed during the three
months ended June 30, 2006 to add flexibility and efficiencies to the
manufacturing capabilities of the Company.

The international operations continue to grow at double-digit growth patterns.
In conjunction with this, the Company is also expanding the physical plant in
Neunkirchen, Germany in order to fully support the growing and important
international segment.

During the three and nine months ended June 30, 2006, the Company had several
large expenses totaling approximately $864 principally associated with strategic
discussions with Zimmer Holdings, Inc., the costs of restating the Company's
financial statements for certain historical periods, and severance costs
associated with the replacement of the Managing Director of the Company's German
subsidiary. These expenses are described more fully in the Results of
Operations.

We also experienced a foreign currency exchange loss of $233 and $261 for the
three and nine months ended June 30, 2006, respectively due to the dollar's
declining exchange rate against the euro. During the fourth quarter of 2006, the
Company expects to substantially reduce its foreign currency exposure through
the settlement of certain intercompany accounts.

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.


                                       17
<PAGE>

On March 10, 2006, Zimmer Holdings Inc. ("Zimmer") filed an amended Schedule 13
(d) expressing its intention to initiate discussions with the Company which
could possibly include further investment by Zimmer in securities of the Company
or the acquisition by Zimmer of some or all of the outstanding common stock of
the Company.

On August 9, 2006, representatives of Zimmer Holdings, Inc. ("Zimmer") contacted
the management of the Company telephonically to propose to the Company a
non-binding indication of interest ("the Indication of Interest") with respect
to a proposed acquisition of the Company at an indicative price range of $5.00 -
$6.00 per share of Common Stock. Later on the same day, the Company contacted
Zimmer and rejected the Indication of Interest. Zimmer has determined not to
pursue an acquisition of the Company at this time, but based on other factors
deemed relevant by Zimmer, including, but not limited to, the price and
availability of Common Stock, subsequent developments affecting Zimmer and the
Company, the business prospects of Zimmer and the Company, general stock market
and economic conditions and tax considerations, Zimmer may formulate other plans
and/or make other proposals and take other actions with respect to its
investment in the Company that it deems to be appropriate.


                                       18
<PAGE>

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2006 AND 2005

Revenues for the three months ended June 30, 2006, increased 8% to $10,000 from
$9,281 for the same period in 2005. Revenues for the U.S. operations remained
level at $6,492 for the three months ended June 30, 2006 compared to $6,529
for the same period last year. U.S. dental sales increased 19% from the
three-month period a year ago offset by lower spine sales during the quarter.
The international operations continued a favorable trend of increased sales
growth of 27% from $2,752 to $3,508 for the three-month periods ended June 30,
2005 and 2006, respectively. The increase in international revenue was primarily
due to increased sales in Germany and the rest of the world. An analysis of
revenues by geographic region is as follows:


                                                 Three          Three
                                                 Months         Months
                  (000'S OMITTED)               06/30/06       06/30/05
                                              -----------    -----------

                  Spine                       $      617     $    1,260
                  Dental                           4,727          3,969
                  Surgical Specialties             1,148          1,300
                                              ----------     -----------
                    Total - U.S.                   6,492          6,529

                  Germany                            785            594
                  France                             318            329
                  ROW                              2,258          1,688
                  Other                              147            141
                                              ----------     -----------
                    Total - International          3,508          2,752

                      Total Consolidated      $   10,000     $    9,281
                                              ==========     ===========


Gross margin for the three months ended June 30, 2006 was 47% as compared to 34%
for the comparable period last year. The higher gross margin compared to the
same period last year was due to greater efficiencies in the U.S. operations as
more manufacturing capabilities have come on line.

General and administrative expenses increased $928 for the three months ended
June 30, 2006 over the comparable period last year. The increase from prior year
quarter to this quarter was primarily due to $437 in severance costs associated
with the replacement of the Managing Director of the Company's German
subsidiary, $217 in legal, accounting and other professional costs associated
with the restatement of prior-period financial results, $210 related to the
strategic discussions with Zimmer Holdings and increased costs of $68 associated
with stock option expenses. General and Administrative expenses were 21% and 13%
of total revenues for the three months ended June 30, 2006 and 2005,
respectively.

Distribution and marketing expenses increased 9% for the three months ended June
30, 2006 over the comparable period last year. The increase was primarily due to
higher marketing fees paid to Zimmer Dental of $1,936 versus $1,735 a year ago
as a result of the 19% increase in dental revenues in the U.S. As a percentage
of revenues, distribution and marketing expenses were 33% for both three month
periods ended June 30, 2006 and 2005.


                                       19
<PAGE>

Research and development expenses remained at similar levels for the three
months ended June 30, 2006, over the comparable period last year. As a
percentage of revenues, research and development expenses increased from 4% for
three months ended June 30, 2005 to 5% for the three months ended June 30, 2006.

The Company had a foreign exchange loss for the three months ended June 30, 2006
of $233 due to the declining exchange rate of the U.S. dollar against the euro.
During the fourth quarter of 2006, we expect to substantially reduce our foreign
currency exposure through the settlement of certain intercompany accounts.

Interest expense increased $56 for the three months ended June 30, 2006 compared
to the same period last year. The increase in interest expense is primarily
related to the increased debt used to fund the expansion of the manufacturing
facilities in the U.S. and Germany and increased utilization of the Company's
credit lines to support growth and operations.

Due to the several large general and administrative expenses and the foreign
exchange loss identified above, the net loss for the three months ended June 30,
2006 totaled $1,129 or $0.07 basic and diluted loss per share as compared to a
net loss of $1,277 or $0.08 basic and diluted loss per share for the comparable
period in 2005.

NINE MONTHS ENDED JUNE 30, 2006 AND 2005

Revenues for the nine months ended June 30, 2006, increased 14% to $27,149 from
$23,908 for the same period in 2005. The U.S. operation had an 11% increase in
revenues from $16,172 for the nine months ended June 30, 2005 to $17,874 for the
current nine-month period. This increase 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 marketing partner. U.S. dental
sales increased 34% from the nine-month period a year ago. The International
operation had an increase of 20% from $7,736 for the nine months ended June 30,
2005 to $9,275 for the nine-month period ended June 30, 2006. The increase in
International revenue was primarily due to increased sales in Germany, France
and the rest of the world through direct sales force efforts and favorable
outcomes in the regulatory environment of these countries. An analysis of
revenues for the nine months ended June 30, 2006 by geographic region follows:


                                                  Nine           Nine
                                                 Months         Months
                  (000'S OMITTED)               06/30/06       06/30/05
                                              -----------    -----------

                  Spine                       $    1,416     $    2,792
                  Dental                          12,950          9,670
                  Surgical Specialties             3,508          3,710
                                              ----------     -----------
                    Total - U.S.                  17,874         16,172

                  Germany                          2,360          1,493
                  France                           1,151            956
                  ROW                              5,363          4,845
                  Other                              401            442
                                              ----------     -----------
                    Total - International          9,275          7,736

                      Total Consolidated      $   27,149     $   23,908
                                              ==========     ===========


                                       20
<PAGE>

Gross margin for the nine months ended June 30, 2006 was 53% as compared to 37%
for the comparable period last year. The higher gross margin was due to greater
efficiencies in the U.S. operations as more manufacturing capabilities have come
on line.

General and administrative expenses increased 43% for the nine months ended June
30, 2006 over the comparable period last year. The increase for the nine-month
period was primarily due to the increased costs of $437 in severance costs
associated with the replacement of the Managing Director of the Company's German
subsidiary, $303 associated with stock option expenses, $217 associated with
legal, accounting and other professional fees associated with the restatement of
prior-period financial results, $210 related to the strategic discussions with
Zimmer Holdings, and costs related to new personnel. As a percentage of revenues
general and administrative expenses were 19% and 15% for the nine months ended
2006 and 2005, respectively.

Distribution and marketing expenses increased 10% for the nine months ended June
30, 2006 over the comparable period last year. The increase was primarily due to
higher distribution fees paid to Zimmer Dental of $5,282 versus $4,404 a year
ago as a result of the 34% increase in dental revenues in the U.S. As a
percentage of revenues, distribution and marketing expenses were 35% and 36% for
the nine months ended June 30, 2006 and 2005, respectively.

Research and development expenses remained at similar levels for the nine months
ended June 30, 2006 as compared to the comparable period last year. As a
percentage of revenues, research and development expenses remained at 5% for the
nine months ended June 30, 2006 and 2005.

The Company had a foreign exchange loss for the nine-month period of $261 due to
the declining exchange rate of the U.S.dollar against the euro. During the
fourth quarter of 2006, we expect to substantially reduce our foreign currency
exposure through the settlement of certain intercompany accounts.

Interest expense remained similar for the nine months ended June 30, 2006
compared to the same period last year.

Due to the several large general and administrative expenses identified above
during the nine months ended June 30, 2006, net loss for the nine months ended
June 30, 2006 totaled $1,188 or $0.07 basic and diluted loss per share as
compared to a net loss of $4,320 or $0.27 basic and diluted loss per share for
the comparable period in 2005. The reduced loss was primarily due to increased
sales and improving gross margins.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment increased 74% during the nine months ended June
30, 2006 related to the costs associated with the expansion of both the U.S. and
German facilities.

INVENTORY

Net Inventory increased 24%, from $9,554 at last fiscal year-end to $11,874 at
June 30, 2006. Raw material levels increased 61% due to increased purchase
orders for various new products during the period. For the same reason,
work-in-process ("WIP") is up 32% and finished goods levels are up 9%.


                                       21
<PAGE>

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, 2005. 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:

         INVENTORIES. Inventories are valued at the lower of cost (weighted
average basis) or market. Work in process and finished goods include costs
attributable to direct labor and overhead. Reserves for slow moving and obsolete
inventories are provided based on historical experience, current product demand
and the estimated remaining shelf life. The adequacy of these reserves is
evaluated quarterly.

         REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE. Revenue on product sales
is recognized when persuasive evidence of an arrangement exists, the price is
fixed, 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. Title transfers at the time of shipment. Customers are provided
with a limited right of return. Revenue is recognized at shipment. Reasonable
and reliable estimates of product returns are made in accordance with SFAS No.
48 and allowances for doubtful accounts is based on significant historical
experience. Revenue from service sales is recognized when the service procedures
have been completed or applicable milestones have been achieved. Revenue from
distribution fees include nonrefundable payments received as a result of
exclusive distribution agreements between the Company and independent
distributors. Distribution fees under these arrangements are recognized ratably
over the life of the contract.

         FOREIGN CURRENCY TRANSLATION. The functional currency of the Company's
German subsidiary is the Euro for the years 2006 and 2005. Assets and
liabilities of foreign subsidiaries are translated at the period end exchange
rate ("spot rate") while revenues and expenses are translated at the average
exchange rate for the period. The resulting translation adjustments,
representing unrealized, non-cash losses or gains are made directly to
comprehensive income. Gains and losses resulting from transactions of the
Company and its subsidiaries, which are made in currencies different from their
own, are included in net income as they occur. The Company recognized a foreign
exchange loss of $233 for the three months ended June 30, 2006 as compared to a
gain of $317 for the three months ended June 30, 2005. The Company recognized a
foreign exchange loss of $261 for the nine months ended June 30, 2006 versus a
loss of $80 for the nine months ended June 30, 2005.

         VALUATION OF DEFERRED TAX ASSET. The Company records 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 to
the valuation allowance would be made and charged to income in the period of
such determination.


                                       22
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2006, the Company has working capital of $5,678 as compared to
$8,817 at September 30, 2005. The Company maintains current working capital
credit lines totaling 1,500 euros (approximately $1,800) with two German banks
and a $1,500 credit line with a U.S. bank. At June 30, 2006, the Company had
outstanding $1,434 on the credit lines in Germany and $1,500 outstanding on the
U.S. credit line to support ongoing working capital initiatives. At September
30, 2005, the Company had no borrowings against these lines. During the nine
months ended June 30, 2006, the Company made draws on these lines of credit
totalling $6,611 and repaid $4,655. As of June 30, 2006, the Company had an
outstanding balance of $2,934 on these lines.

The Company had a negative cash flow from operations of $3,770 for the nine
months ended June 30, 2006 as compared to a negative cash flow from operations
of $640 for the same period in 2005. The primary reasons for the increased cash
utilized for operating activities in 2006 was due mainly to increased inventory
purchases and an increase in accounts receivable due to increased sales
offset somewhat by the receipt of a deferred distribution payment and a reduced
net loss for the nine-month period ended June 30, 2006. Cash flows used in
investing activities increased to $5,265 as the Company continued to expand its
manufacturing facilities in the U.S. and Germany. The increase in investing
activities has been financed by construction facilities of $1,300 and $1,800 in
the U.S. and Germany, respectively, increasing cash from financing activities by
$3,186 in cash flow statement. In addition, the Company generated $3,000 through
the issuance of convertible debt and warrants during the nine months ended June
30, 2006. The Company's ability to generate positive operational cash flow is
dependent upon increased 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.

Future minimum rental payments required under Company's operating leases that
have initial or remaining non-cancelable lease terms in excess of one year as of
June 30, 2006 are as follows:

                  2006               $       418
                  2007                       747
                  2008                       445
                  2009                       233
                  2010                        63
                                     ------------
                                     $     1,906
                                     ============

Long-term debt consists of senior debt construction loans and capital leases.
Future minimum payments as of June 30, 2006 are as follows (1):

                  2006                                  $         257
                  2007                                          1,087
                  2008                                            989
                  2009                                            444
                  2010 & beyond                                   995
                                                        --------------
                                                                3,772
                  Less current portion                          1,063
                                                        --------------

                  Total future minimum payments         $       2,709
                                                        ==============

(1) The above payments do not include interest.


                                       23
<PAGE>

ITEM 3.  QUANTITATIVE STATEMENTS AND SUPPLEMENTARY DATA

For information regarding the Company's exposure to certain market risks, see
Item 7A, Quantitative Statements and Supplementary Data, in the Annual Report on
Form 10K/A for the year ended September 30, 2005. There have been no significant
changes in our market risk exposures.

We are subject to market risk from exposure to changes in interest rates based
upon our financing, investing and cash management activities. A 1% increase in
interest rates would not have a material effect on our results of operations.

ITEM 4.  CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

As part of the financial review for the three and six months ended March 31,
2006 under the direction of the Company's chief executive officer and new chief
financial officer, the Company conducted an analysis of the Company's inventory
on hand as of prior reporting periods, its policies and procedures over certain
journal entries recorded in the financial close process, and the effectiveness
of the design and operation of the Company's disclosure controls and procedures,
(as defined in Rule 13(a) - 15(e) under the 34 Act). Accordingly, the Company
concluded that as of September 30, 2005 and December 31, 2005 the Company's
disclosure controls and procedures were not effective in ensuring that
information required to be disclosed by us in the reports that we file under the
Securities and Exchange Act is recorded, processed, summarized and reported
within the time periods specified by the Securities and Exchange Commission
rules and forms.

As a result, the Company has restated the financial statements for prior
periods. (See Note 14 to the accompanying unaudited interim condensed
Consolidated Financial Statements.)

A material weakness in internal control is a significant deficiency or
combination of significant deficiencies that results in more than a remote
likelihood that a material misstatement of the financial statements would not be
prevented or detected on a timely basis by the Company. For the quarter ended
March 31, 2006, the Company has subsequently taken steps to remediate this
material weakness including designing and implementing a more effective and
precise analytic model for calculating intercompany profit. Additionally, the
Company has developed a system for assuring the accuracy of this model. This
system includes an enhanced reporting process for determining actual costs and
transfer prices used in the calculation of intercompany profit to be eliminated
during the consolidation process. Also, the Company has designed and documented
new policies and procedures to strengthen its controls over certain journal
entries recorded in its financial close process.

Management believes that these subsequent changes in the design of internal
controls have strengthened the Company's disclosure controls and procedures, as
well as its internal control over financial reporting, and have remediated the
material weakness that the Company identified in its internal control over
financial reporting as of September 30, 2005 and December 31, 2005. The Company
has discussed this material weakness and its remediation program with its Audit
Committee. The Company recognizes that controls and procedures can provide only
reasonable assurance of achieving the desired control objectives. Accordingly,
the Company intends to continue to refine its internal control over financial
reporting on an ongoing basis as it deems appropriate.

The Company instituted the changes noted above during its financial close
process during the quarter ended March 31, 2006 to materially enhance its
internal control over financial reporting of inventory, net revenues, cost of
revenues and financial close process.

Based on their evaluation as of the filing date of this Form 10-Q, the Company's
principal executive officer and principal financial officer have concluded that
the Company's disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act") are
effective to ensure that information required to be disclosed in the reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms.

CHANGES IN CONTROL:

There has not been any change in the Company's internal control over financial
reporting during the quarter ended June 30, 2006 that has materially affected,
or is reasonably likely to materially affect, those controls.


                                       24
<PAGE>

PART II.    OTHER INFORMATION

         ITEM 1.  LEGAL PROCEEDINGS

                  Please refer to Note 11 of the 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

                  The Company filed four reports on Form 8-K and one report on
                  Form 8-K/A during the quarter ended June 30, 2006.

                  On August 14, 2006, the Company issued a press release
                  announcing financial results for the fiscal quarter ended June
                  30, 2006. The full text of the press release is set forth in
                  Exhibit 99.1 hereto. The exhibit is furnished under this Item
                  5 in lieu of its being furnished under cover of and pursuant
                  to Item 2.02 of Form 8-K. This information furnished pursuant
                  to this Item 5 (including the exhibits hereto) shall not be
                  deemed "filed" for purposes of Section 18 of the Securities
                  Exchange Act of 1934 (the "Exchange Act") or otherwise subject
                  to the liabilities of that section, nor shall it be deemed
                  incorporated by reference in any filing under the Securities
                  Act of 1933 or the Exchange Act, except as expressly set forth
                  by specific reference in such a filing.

         ITEM 6.  EXHIBITS

         4.1*     Registration Rights Agreement dated June 30, 2006, by and
                  between Tutogen Medical, Inc. and Azimuth Opportunity, Ltd.

         4.2*     5.0% Subordinated Convertible Debenture of Tutogen Medical,
                  Inc. dated June 30, 2006 in an aggregate principal amount of
                  $3,000,000 issued to Azimuth Opportunity, Ltd.

         4.3*     Common Stock Purchase Warrant dated June 30, 2006 issued to
                  Azimuth Opportunity, Ltd. for the purchase of up to 175,000
                  shares of the common stock of Tutogen Medical, Inc.

         10.1*    Securities Purchase Agreement dated June 30, 2006 by and
                  between Tutogen Medical, Inc. and Azimuth Opportunity, Ltd.

         31.1***  Certification pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002 -- Chief Executive Officer

         31.2***  Certification pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002 -- Chief Financial Officer

         32.1***  Certifications Pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

         99.1***  Press release dated August 14, 2006


             *    Previously filed and incorporated herein by reference from the
                  Form 8-K filed on July 6, 2006.

             ***  Filed herewith


                                       25
<PAGE>

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, 2006              /s/ Guy L. Mayer
                                    ----------------
                                    Chief Executive Officer


Date:  August 14, 2006              /s/ L. Robert Johnston, Jr.
                                    ---------------------------
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)


                                       26