##### Table of Contents



UNITED
    STATES SECURITIES AND EXCHANGE COMMISSION
    Washington D.C. 20549
   Form 10-Q
   þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    March 31, 2007.oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition
    from          to          .   Commission File Number:
    000-50449
   IsoTis S.A.
 (Exact name of registrant as
    specified in its charter)
  Switzerland(State of
    incorporation)

(I.R.S. Employer
    Identification No.)   2 Goodyear
    Irvine, California 92618 (Address of principal
    executive offices) (Zip Code)
  (949) 595-8710 (Registrants telephone
    number, including area code)
  þ o
  non-accelerated Rule 12b-2
 o þ o
  Rule 12b-2 o þ
    Class

Outstanding at May 1, 2007Common stock, CHF 1 par value

6,766,152




---



##### 



IsoTis
    S.A.
  FORM 10-Q
  For the
    Quarterly Period Ended March 31, 2007
  INDEX
  Page NumberPART I
    FINANCIAL INFORMATIONItem 1.

Financial
    Statements


1Item 2.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


15Item 3.

Quantitative and
    Qualitative Disclosures about Market Risk


23Item 4.

Controls and
    Procedures


24PART II
    OTHER INFORMATIONItem 1.

Legal
    Proceedings


24Item 1A.

Risk
    Factors


24Item 2.

Unregistered Sales
    of Equity Securities and Use of Proceeds


24Item 3.

Defaults upon
    Senior Securities


24Item 4.

Submission of
    Matters to a Vote of Security Holders


24Item 5.

Other
    Information


25Item 6.

Exhibits


25SignaturesCertificationsEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2   i




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##### Table of Contents



PART I 
    FINANCIAL INFORMATION Item 1.  Financial
    Statements  IsoTis
    S.A.
  Condensed
    Consolidated Balance Sheets
  March 31,


December 31,2007


2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
7,871,232


$
13,362,915Restricted cash


1,599,123



1,659,787Trade receivables, net of
    allowances for doubtful accounts of $632,103 and $616,347,
    respectively


7,686,038



7,463,194Receivable from parent


4,533,471



Inventories


15,111,769



14,211,189Other receivables


213,234



374,061Prepaid expenses and other current
    assets


957,641



923,746Total current assets


37,972,508



37,994,892Restricted cash


1,000,000



1,250,000Property, plant and equipment, net


4,217,118



3,907,175Goodwill


16,383,069



16,383,069Intangible assets, net


10,381,626



11,026,656Total assets

$
69,954,321


$
70,561,792LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Trade payables

$
5,581,137


$
6,707,212Accrued liabilities


7,417,853



6,560,894Deferred revenue


1,396,702



1,342,797Current portion of
    interest-bearing loans and borrowings


4,462,235



3,751,201Total current liabilities


18,857,927



18,362,104Deferred revenue


4,456,939



4,792,638Interest-bearing loans and
    borrowings


1,375,808



1,696,963Other long term liabilities


258,315



279,025Total liabilities


24,948,989



25,130,730Commitments and contingencies
    (Note 6)Stockholders equity:Common stock; CHF 1 par
    value; 86,740,713 shares authorized at March 31, 2007
    and December 31, 2006; 6,766,152 issued and outstanding at
    March 31, 2007 and 70,946,612 at December 31, 2006
    (Note 1)


50,728,864



50,728,864Additional paid-in capital


107,074,274



106,867,774Accumulated other comprehensive
    income


20,241,972



20,141,408Accumulated deficit


(133,039,778
)


(132,306,984
)Total stockholders equity


45,005,332



45,431,062Total liabilities and
    stockholders equity

$
69,954,321


$
70,561,792    1




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IsoTis
    S.A.
  Condensed
    Consolidated Statements of Operations
  Three Months EndedMarch 31,2007


2006(Unaudited)RevenueProduct sales

$
9,974,489


$
9,778,365Other revenue






35,816Total revenue


9,974,489



9,814,181Operating expensesCosts of sales


3,972,673



3,693,828General and administrative


3,418,087



2,607,195Sales and marketing


4,507,755



4,313,790Research and development


1,543,333



1,713,821Total operating expenses


13,441,848



12,328,634Loss from operations


(3,467,359
)


(2,514,453
)Interest income


106,213



140,835Interest expense


(124,461
)


(27,860
)Foreign exchange gain (loss)


7,034



(1,402,787
)Other income


38,405



Net loss before provision for taxes


(3,440,168
)


(3,804,265
)Provision for income taxes


5,000



Net loss

$
(3,445,168
)

$
(3,804,265
)Basic and diluted net loss per
    common share

$
(0.13
)

$
(0.05
)Weighted average shares used in
    per share calculation  basic and diluted


26,060,963



70,873,158    2




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##### Table of Contents



IsoTis
    S.A.
  Condensed
    Consolidated Statements of Cash Flows
  Three Months EndedMarch 31,2007


2006(Unaudited)Cash flows from operating
    activities:Net loss

$
(3,445,168
)

$
(3,804,265
)Adjustments to reconcile net loss
    to net cash used in operating activities:Depreciation and amortization


844,727



831,187Bad debt expense


8,210



15,557Gain on sale of assets






(642
)Stock-based compensation expense


207,500



89,669Foreign currency transaction
    (gain) loss


(7,034
)


1,402,787Change in operating assets and
    liabilities:Inventories


(889,775
)


21,965Trade receivables


(201,174
)


(216,208
)Other current assets


137,454



(462,626
)Deferred revenue


(281,794
)


(207,830
)Trade and other payables


(254,896
)


300,971Other long term liabilities


(20,710
)


Net cash used in operating
    activities


(3,902,660
)


(2,029,435
)Cash flows from investing
    activitiesPurchase of property, plant and
    equipment


(503,428
)


(421,138
)Change in restricted cash


318,143



250,000Net cash used in investing
    activities


(185,285
)


(171,138
)Cash flow from financing
    activitiesProceeds from issuance of common
    shares






97,561Payments to parent


(1,822,097
)


Proceeds from interest-bearing
    loans and borrowings


389,313



Repayments of interest-bearing
    loans and borrowings






(253,827
)Net cash provided by (used in)
    financing activities


(1,432,784
)


(156,266
)Gain on cash held in foreign
    currency


29,046



12,134Net decrease in cash and cash
    equivalents


(5,491,683
)


(2,344,705
)Cash and cash equivalents at the
    beginning of period


13,362,915



15,714,442Cash and cash equivalents at the
    end of period

$
7,871,232


$
13,369,737    3




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##### Table of Contents



IsoTis
    S.A.
  Notes to
    Condensed Consolidated Financial Statements
 (Unaudited)
  1.
    Basis of
    Preparation        Principles
    of Consolidation
    Company

LocationIsoTis NV

The Netherlands


100.0
%IsoTis TE Facility BV

The Netherlands


100.0
%IsoTis OrthoBiologics, Inc.

United States


100.0
%Episource S.A.

Switzerland


100.0
%Modex Therapeutics GmbH

Germany


100.0
%          4




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##### Table of Contents



IsoTis
    S.A.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
   Financial
    Statement Presentation
  Form 10-Q Regulation S-X.
       5




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##### Table of Contents



IsoTis
    S.A.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
   Form 20-F
  Stock-Based
    Compensation
  Share-Based Payment Accounting for
    Stock-Based Compensation
        Three Months Ended March 31,2007

2006(Unaudited)Risk-free interest rate

4.66%

4.32% to 4.59%Expected dividend yield



Expected volatility

55.65%

59.53% to 65.02%Expected life (years)

6.00

6.00Forfeiture rate

4.8%

4.8%  6




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##### Table of Contents



IsoTis
    S.A.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
    Three Months Ended March 31,2007


2006(Unaudited)Costs of sales

$
24,577


$
6,400Research and development


99,203



4,307Sales and Marketing


56,318



23,873General and administrative


27,402



55,089$
207,500


$
89,669       Stock
    Option Plans
    2006
    Incentive Award Plan
   7




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##### Table of Contents



IsoTis
    S.A.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
    IsoTis
    S.A. Stock Option Plan
    2003/0
    IsoTis
    S.A. Stock Option Plan
    2003/1
    IsoTis
    S.A. Stock Option Plan
    2003/2
   8




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##### Table of Contents



IsoTis
    S.A.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
    Recent
    Accounting Pronouncements
  Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement 109
  Fair Value Measurements,
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities, including an amendment of
    SFAS No. 115.
  2.
    Composition
    of Certain Financial Statement Items  Inventories
    March 31,


December 31,2007


2006(Unaudited)Raw materials and deferred
    processing costs

$
6,952,882


$
5,906,116Work in progress


4,071,942



3,838,885Finished goods


4,086,945



4,466,188$
15,111,769


$
14,211,189  9




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##### Table of Contents



IsoTis
    S.A.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
  Intangible
    Assets
    As of March 31, 2007(Unaudited)


As of December 31, 2006Gross








GrossCarrying


Accumulated


Net Carrying


Carrying


Accumulated


Net CarryingValue


Amortization


Value


Value


Amortization


ValueUnpatented technology

$
8,937,000


$
(4,023,530
)

$
4,913,470


$
8,937,000


$
(3,755,522
)

$
5,181,478Patents


9,071,354



(4,473,344
)


4,598,010



9,052,907



(4,215,266
)


4,837,641Distribution network


2,900,000



(2,029,854
)


870,146



2,900,000



(1,892,463
)


1,007,537$
20,908,354


$
(10,526,728
)

$
10,381,626


$
20,889,907


$
(9,863,251
)

$
11,026,656     2007

$
2,604,2772008


2,512,6862009


2,054,7132010


2,054,7132011


1,725,141Thereafter


75,126$
11,026,656   Interest-Bearing
    Loans and Borrowings
    As of March 31,


As of December 31,2007


2006(Unaudited)Revolving credit facility

$
3,043,159


$
2,399,373Term loan


1,000,000



1,000,000Structured debt payments


1,750,000



2,000,000Promissory note


44,884



48,7915,838,043



5,448,164Less current maturities


(4,462,235
)


(3,751,201
)Long term portion

$
1,375,808


$
1,696,963   Credit
    Facility
   10




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##### Table of Contents



IsoTis
    S.A.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
     Structured
    Debt Payments
    Promissory
    Note
    Comprehensive
    Loss
    Three Months EndedMarch 31,2007


2006(Unaudited)Net loss

$
(3,445,168
)

$
(3,804,265
)Foreign currency translation
    adjustments


100,564



1,460,470Comprehensive loss

$
(3,344,604
)

$
(2,343,795
)Supplemental comprehensive income
    information, net of tax:Cumulative foreign currency
    translation gain adjustments

$
20,241,972


$
14,392,900   Deferred
    Revenue
    3.
    Related
    Party Transactions  out-of-pocket
 11




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##### Table of Contents



IsoTis
    S.A.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
   4.
    Income
    Taxes           12




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##### Table of Contents



IsoTis
    S.A.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
   5.
    Geographic
    Information      Three Months Ended March 31,2007


2006(Unaudited)United States

$
8,314,949


$
7,703,566Europe


1,659,540



2,110,615$
9,974,489


$
9,814,181     March 31,


December 31,2007


2006(Unaudited)United States

$
14,063,197


$
14,375,783Europe


535,547



558,048$
14,598,744


$
14,933,831   6.
    Commitments
    and Contingencies  Government
    Grant
    Purchase
    Commitments
   13




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##### Table of Contents



IsoTis
    S.A.
  Notes to
    Condensed Consolidated Financial Statements
    (Unaudited)  (Continued)
   Restricted
    Cash
    Collaborative
    Agreement
    Epidex
    Claim
    Contingencies
    7.
    Subsequent
    Events    ®
 14




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##### Table of Contents



Cautionary
    Note Regarding Forward-Looking Statements
    Form 20-F
 Item 2.  Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations



Overview



We are an orthobiologics company that develops, manufactures and
    markets proprietary products for the treatment of
    musculoskeletal diseases and disorders. Our current
    orthobiologics products are bone graft substitutes that promote
    the regeneration of bone and are used to repair natural,
    trauma-related and surgically-created defects common in
    orthopedic procedures, including spinal fusions. Our current
    commercial business is highlighted by our Accell line of
    products, which we believe represents the next generation in
    bone graft substitution. We also sell our traditional bone graft
    substitute products in the United States and internationally.



We market our Accell and first generation orthobiologic products
    through three distinct distribution channels: independent
    distributor agents in the United States, stocking dealers
    internationally and private label partners in the United States
    and internationally. We pay our independent distributor agents a
    commission based on their sales. We sell directly to our
    stocking dealers and private label partners at negotiated
    prices. We support our independent distributor agents with
    orthobiologics specialists that provide education and training
    to agents, physician users and their hospital staff. We expect
    to continue to pursue attractive opportunities to distribute our
    first generation products through private label partners and to
    increase the penetration of our Accell products in international
    markets.



We currently manufacture virtually all of our products at our
    facility in Irvine, California. Manufacturing of our products
    requires allograft custom mixing agents and other raw materials.
    Prices for these materials have remained relatively stable over
    several years and we believe alternate suppliers exist for each
    of these materials. However, to protect against potential
    shortfalls in supply, we maintain inventory on-hand of finished
    goods and raw materials that is sufficient to meet our expected
    needs for a minimum of six weeks and six months, respectively.
    We recently entered into a lease for a new facility in Irvine,
    California and have moved our laboratory and production offices.
    We are in the process of transitioning our administrative office
    to the

15




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Critical
    Accounting Policies
     16




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##### Table of Contents



Revenue
    and Revenue Recognition
        Excess
    and Obsolete Inventories
    Long-Lived
    Assets other than Goodwill
     17




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##### Table of Contents



Goodwill
    Stock-Based
    Compensation
           18




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##### Table of Contents



Recent
    Accounting Pronouncements
    Results
    of Operations
  Three
    Months Ended March 31, 2007 compared to the Three Months
    Ended March 31, 2006
  Revenue
    Quarter Ended








Quarter EndedMarch 31,








March 31,2007


+/−


%


2006(Unaudited)(In thousands)Total revenue

$
9,974


$
160



2
%

$
9,814         Cost
    of Sales
    19




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##### Table of Contents



Quarter Ended








Quarter EndedMarch 31,








March 31,2007


+/−


%


2006(Unaudited)(In thousands)Cost of sales

$
3,973


$
279



8
%

$
3,694     General
    and Administrative
    Quarter Ended








Quarter EndedMarch 31,








March 31,2007


+/−


%


2006(Unaudited)(In thousands)General and administrative

$
3,418



811



31
%

$
2,607   Form S-1
  Sales
    and Marketing
    Quarter Ended








Quarter EndedMarch 31,








March 31,2007


+/−


%


2006(Unaudited)(In thousands)Sales and Marketing

$
4,508


$
194



4
%

$
4,314     Research
    and Development
   20




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##### Table of Contents



Quarter Ended








Quarter EndedMarch 31,








March 31,2007


+/−


%


2006(Unaudited)(In thousands)Research and development

$
1,543


$
(171
)


(10
)%

$
1,714     Interest
    Income
  Quarter Ended








Quarter EndedMarch 31,








March 31,2007


+/−


%


2006(Unaudited)(In thousands)Interest income

$
106



(35
)


(25
)%

$
141     Interest
    Expense
  Quarter Ended








Quarter EndedMarch 31,








March 31,2007


+/−


%


2006(Unaudited)(In thousands)Interest expense

$
(124
)


(96
)


342
%

$
(28
)     Foreign
    Exchange Gain (loss)
  Quarter Ended







Quarter EndedMarch 31,







March 31,2007


+/−


%

2006(Unaudited)(In thousands)Foreign currency gain (loss)

$
7


$
1,410


% not meaningful

$
(1,403
)    21




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##### Table of Contents



Provision
    for Income Taxes
  Quarter Ended







Quarter EndedMarch 31,







March 31,2007


+/−


%

2006(Unaudited)(In thousands)Provision for income taxes

$
5


$
5


% not meaningful

$
     Net
    Loss
  Quarter Ended








Quarter EndedMarch 31,








March 31,2007


+/−


%


2006(Unaudited)(In thousands)Net loss

$
(3,445
)

$
(359
)


(9
)%

$
(3,804
)     Liquidity
    and Capital Resources
  March 31,


December 31,2007


2006(Unaudited)(In thousands)Cash and cash equivalents

$
7,871


$
13,363Restricted cash

$
2,599


$
2,910Working capital

$
19,115


$
19,633   Three MonthsEnded March 31,2007


2006(Unaudited)(In thousands)Net cash flows used in operating
    activities

$
(3,903
)

$
(2,029
)Net cash flows used in investing
    activities


(185
)


(171
)Net cash used in financing
    activities

$
(1,432
)

$
(157
)        22




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##### Table of Contents



Form 20-F
 Item 3.  Quantitative
    and Qualitative Disclosures about Market Risk   23




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##### Table of Contents



Item 4.  Controls
    and Procedures  Rule 13a-15(e)
  Rule 13a-15.
   PART II 
    OTHER INFORMATION  Item 1.
    Legal
    Proceedings.   Item 1A.  Risk
    Factors.



You should carefully consider all of the information set forth
    in this
    Form 10-Q
    and the risk factors discussed in Part I,
    Item 1A. Risk Factors in the IsoTis S.A.
    2006 Annual Report on
    Form 20-F
    for the year ended December 31, 2006, which could
    materially affect our business, financial condition or future
    results. The risks described in this
    Form 10-Q
    and in the IsoTis S.A. 2006 Annual Report on
    Form 20-F
    are not the only risks we face. Additional risks and
    uncertainties not currently known to us or that we currently
    deem to be immaterial also may materially adversely affect our
    business, financial condition or operating results.  Item 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds.    Item 3.
    Defaults
    upon Senior Securities.    Item 4.
    Submission
    of Matters to a vote of Security Holders.   24




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##### Table of Contents



Item 5.
    Other
    Information.    Item 6.
    Exhibits:  Exhibit Index
  31
.1

Certification by the Principal
    Executive Officer pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.31
.2

Certification by the Principal
    Financial Officer pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.32
.1

Certification of Principal
    Executive Officer pursuant to Section 906 of the Sarbanes
    Oxley Act of 2002.32
.2

Certification of Principal
    Financial Officer pursuant to Section 906 of the Sarbanes
    Oxley Act of 2002.  25




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##### Table of Contents



IsoTis
    S.A.
 Signatures



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



IsoTis S.A.

(Registrant) /s/  Pieter
    Wolters      
    
   26




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##### Table of Contents



Exhibit Index
   31
.1

Certification by the Principal
    Executive Officer pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.31
.2

Certification by the Principal
    Financial Officer pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.32
.1

Certification of Principal
    Executive Officer pursuant to Section 906 of the Sarbanes
    Oxley Act of 2002.32
.2

Certification of Principal
    Financial Officer pursuant to Section 906 of the Sarbanes
    Oxley Act of 2002.