You should read the following discussion of our financial condition and results of operations together with those financial statements and the notes to these statements included elsewhere in this filing. This discussion contains forward looking statements based on our current expectations, assumptions, estimates and projections about us and our industry. Our actual results could differ materially from those anticipated in these forward looking statements. We undertake no obligation to update publicly any forward looking statements for any reason, even if new information becomes available or other events occur in the future.

Management Overview: Recent Developments

Given the country's macroeconomic climate, we are seeing elective, non-critical surgeries in some of our markets, such as dental being postponed. We believe that it is possible that more critical surgeries such as spine surgeries, sports medicine for athletes, and general orthopedic procedures may also be delayed or postponed due to the macro-economic conditions.

Our goals for 2009 are to develop potential revenue synergies from the merger with TMI, and build on the Company's competitive strengths as we focus on our future. We continue to focus on several long-term strategies in order to meet our goals. The key strategies are:

• maintain sufficient tissue available for processing from tissue recovery agencies;

• continue to grow distributions in key markets;

• focus on marketing, distribution and regulatory support of our line of xenograft implants;

• develop new allograft and xenograft implants to enhance our current lines of implants;

• maintain our commitment to research and development and focus clinical efforts to support the market acceptance of our allograft and xenograft implants;

• control and, where possible, reduce costs; and

• manage inventory levels consistent with market demand.

Merger with Tutogen Medical, Inc.

On February 27, 2008, we completed our merger with TMI, a Delaware corporation, in a tax-free stock-for-stock merger transaction. TMI, with its consolidated subsidiaries, processes, manufactures and distributes specialty surgical products and performs tissue processing services for dental, spine, urology, hernia repair, breast reconstruction, ophthalmology, and ear, nose and throat applications. The transaction was accounted for using the purchase method of accounting in accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") Business Combinations, ("SFAS 141"). The results of TMI's operations have been included in our consolidated financial statements since the merger date of February 27, 2008.

Pursuant to the merger agreement, TMI shareholders received 1.22 shares of our common stock in exchange for each share of TMI common stock held. We issued 23,706,632 shares of our common stock as consideration for this merger. In addition, we assumed 2,889,021 TMI stock options that became fully vested on February 27, 2008, as part of the transaction.

Total purchase price consideration includes $245,557 which represents the fair market value of our securities issued to TMI shareholders, and $20,357 which represents the fair value of the TMI stock options which became fully vested on February 27, 2008 in accordance with change of control provisions included in the stock option agreements. The fair value of the outstanding options was determined using a Black-Scholes

valuation model with the following weighted average assumptions: volatility of 52.87%; risk-free interest rate of 3.35%; remaining expected term of three years; and dividend yield of zero.

A summary of the components of the purchase price consideration is as follows:

  Fair market value of securities issued                               $ 245,557
  Fair market value of TMI vested stock options assumed                   20,357
  Transaction costs not included in TMI net tangible assets acquired       4,714
  Net receivables from TMI on date of merger                                 282

  Total purchase price                                                 $ 270,910

The following unaudited pro forma information shows the results of the Company's operations as though the merger had occurred as of the beginning of that period for the years ended December 31, 2008 and 2007 (in thousands, except per share data):

                                             Year Ended December 31,
                                               2008             2007
              Total revenues               $     155,128      $ 148,523
              Net loss                     $    (101,230 )    $  (2,597 )
              Basic net loss per share     $       (1.86 )    $   (0.05 )
              Diluted net loss per share   $       (1.86 )    $   (0.05 )

The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the merger taken place as of the beginning of the periods presented, or the results that may occur in the future.

Critical Accounting Policies

Although our financial statements have been prepared in accordance with accounting principles generally accepted in the United States, we must often make estimates and judgments that affect reported amounts. These estimates and judgments are based on historical experience and assumptions that we believe to be reasonable under the circumstances. Assumptions and judgments based on historical experience may provide reported results which differ from actual results; however, these assumptions and judgments historically have not varied significantly from actual experience and we therefore do not expect them to vary significantly in the future.

The accounting policies which we believe are "critical," or require the most use of estimates and judgment, relate to the following items presented in our financial statements: 1) Tissue Inventory Valuation; 2) Accounts Receivable Allowances; 3) Long-Lived Assets; 4) Intangible assets and Goodwill and; 5) Revenue Recognition.

Tissue Inventory Valuation. Accounting principles generally accepted in the United States require that inventory be stated at the lower of cost or market value. Due to various reasons, some tissue within our inventory will never become available for distribution. Therefore, we must make estimates of future distribution from existing inventory in order to write-off inventory which will not be distributed and which therefore has reduced or no market value.

Our management reviews available information regarding processing costs, inventory distribution rates, industry supply and demand, medical releases and processed tissue rejections, in order to determine write-offs of cost above market value. For a variety of reasons, we may from time to time be required to adjust our assumptions as processes change and as we gain better information. Although we continue to refine the information on which we base our estimates, we cannot be sure that our estimates are accurate indicators of future events. Accordingly, future adjustments may result from refining these estimates. Such adjustments may be significant.

Accounts Receivable Allowances. We maintain allowances for doubtful accounts based on our review and assessment of payment history and our estimate of the ability of each customer to make payments on amounts invoiced. If the financial condition of any of our customers were to deteriorate, additional allowances might be required. From time to time we must adjust our estimates. Changes in estimates of the collection risk related to accounts receivable can result in decreases and increases to current period net income.

Long-Lived Assets. We periodically evaluate the period of depreciation or amortization for long-lived assets to determine whether current circumstances warrant revised estimates of useful lives. We review our property, plant and equipment for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount to the net undiscounted cash flows expected to be generated by the asset. An impairment loss would be recorded for the excess of net carrying value over the fair value of the asset impaired. The fair value is estimated based on expected discounted future cash flows. The results of impairment tests are subject to our estimates and assumptions of projected cash flows and operating results. Changes in assumptions or market conditions could result in a change in estimated future cash flows and the likelihood of materially different reported results. Past estimates by us of the fair values and useful lives of long-lived assets and investments have been accurate but have periodically been impacted by one time events as described below for the investment in LSI and assets held for sale.

Intangible Assets and Goodwill. Financial Accounting Standards Board Statement of Financial Accounting Standards No. 142 ("SFAS 142"), Goodwill and Other Intangible Assets, requires companies to test goodwill for impairment on an annual basis at the reporting unit level (or an interim basis if an event occurs that might reduce the fair value of a reporting unit below its carrying value). The Company has one reporting unit and the annual impairment test is performed at each year-end unless indicators of impairment are present and require more frequent testing. SFAS 142 also requires that the carrying value of an identifiable intangible asset that has an indefinite life be determined by using a fair value based approach.

Intangible assets generally consist of patents, trademarks, procurement contracts, customer lists, non-compete agreements, distribution agreements and acquired exclusivity rights. Patents and trademarks are amortized on the straight-line method over the shorter of the remaining protection period or estimated useful lives of between 8 and 16 years. Procurement contracts, customer lists, non-compete agreements and distribution agreements are amortized over estimated useful lives of between 5 to 25 years. The acquired exclusivity rights are being amortized over eight years, the remaining term of the amended distribution agreement.

The valuation of goodwill and intangible assets with indefinite useful lives requires management to use significant judgments and estimates including, but not limited to, projected future revenue and cash flows. Changes in assumptions or market conditions could result in a change in estimated future cash flows and the likelihood of materially different report results. The valuation of the goodwill associated with the merger of TMI will be evaluated on an annual basis in accordance with the provisions of SFAS 142 and is subject to risk based on the performance of the Company following the acquisition.

If we overestimate the useful life of an asset, or overestimate the fair value of an asset, and at some time in the future we dispose of that asset for a lower amount than its carrying value, our historically reported total assets and net income would have been higher than they would have been during periods prior to our recognition of the loss on disposal of assets, and lower during the period when we recognize the loss.

Long-lived assets include certain long-term investments, such as our investment in Lifeline Scientific, Inc. (formerly Organ Recovery Systems, Inc.), ("LSI") and the goodwill associated with our acquisition of TMI. The fair value of these long-term investments is dependent on their performance, as well as volatility inherent in the external markets for these investments. These determinations require complex calculations based on estimated future benefit and fair value. We have often made investments for which the expected future benefit has not been easily estimated. Examples of such investments include, but are not limited to, our acquisition of TMI, our acquisition of RTI Biologics, Inc.-Cardiovascular (inactive); our investment in LSI; our investment in

equipment; and our investment in obtaining patents. In assessing potential impairment for these investments, we consider these factors as well as forecasted financial performance. If forecasts are not met, impairment charges may be required.

Revenue Recognition. We recognize revenue upon shipping, or receipt by our customers of the processed tissue for implantation, depending on our distribution agreements with our customers or distributors. We recognize our other revenues when all significant contractual obligations have been satisfied.

We permit returns of tissue in accordance with the terms of contractual agreements with customers if the tissue is returned in a timely manner, in unopened packaging and from the normal channels of distribution. We provide allowances for returns based upon analysis of our historical patterns of returns, matched against the fees from which they originated. Historical returns have been within the amounts we reserved.

On May 14, 2007, we entered into an exclusive distribution agreement with Zimmer with an initial term of 10 years. The distribution agreement relates to certain new products currently in production. As part of the agreement, Zimmer agreed to pay us $5.0 million for the aforementioned exclusive distribution rights, and maintain certain minimum order volumes. The $5.0 million exclusivity payment has been deferred and is being recognized as other revenue on a straight-line basis over ten years, the initial term of the contract.

Deferred revenue consisting of up-front fees received from Medtronic ("MDT") in 1998 was deferred and is being recognized as revenue on a straight-line basis over the twelve year life of the exclusive management services agreement with MDT. This revenue is recorded in other revenues in the consolidated statements of operations. As a result of the amended agreement with MDT, there was no remaining deferred revenue as of December 31, 2007.

During 2006, Davol paid TMI $3.3 million in fees for exclusive distribution rights and for the commencement of the shipment of products. In addition, during 2006, Mentor agreed to pay TMI fees associated with the exclusive distribution rights and the attainment of certain terms and conditions. During 2007, Coloplast agreed to pay TMI fees associated with an exclusive distribution agreement. These payments have been deferred and are being recognized as other revenue on a straight-line basis over the initial term of the contracts. These distribution agreements have terms from three to ten years.

New Accounting Standards. In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial assets and liabilities in fiscal years beginning after November 15, 2007, and for non-financial assets and liabilities in fiscal years beginning after November 15, 2008. The Company adopted SFAS 157 for financial assets and liabilities in the first quarter of 2008 with no material impact to our consolidated financial statements. The Company's financial assets and liabilities consist of cash and cash equivalents, investments, accounts receivable, accounts payable, debt, and certain current liabilities. Fair value for these instruments is based on readily available market prices. SFAS 157 fair value measurements relating to non-financial assets and non-financial liabilities will be effective for the Company for such measurements after January 1, 2009.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS 159"). SFAS 159 expands opportunities to use fair value measurement in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company adopted SFAS 159 on January 1, 2008 resulting in no impact to its financial condition, results of operations or cash flows as the Company did not elect to report any financial instruments at fair value.

In 2007 the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 ("SFAS 160"). This Statement significantly changes the financial

accounting and reporting of noncontrolling (or minority) interests of a subsidiary in consolidated financial statements. SFAS 160 will be applicable to any non-controlling interests in entities acquired on or after January 1, 2009.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations ("SFAS
141(R)"), which is intended to improve the relevance, representational faithfulness and comparability of information provided in financial reports about business combinations. SFAS 141(R) retains the fundamental requirements set forth by SFAS No. 141, Business Combinations ("SFAS 141") specifically that the acquisition method of accounting be used for all business combinations and that an acquirer be identified. However, SFAS 141(R) is broader in scope than its predecessor in that the acquisition method of accounting will now be applied not only to business combinations in which control was obtained by transferring consideration, but to all transactions and other events in which one entity obtains control over one or more businesses. SFAS 141(R) requires the acquirer to recognize assets acquired, liabilities assumed and any noncontrolling interest in the acquiree at fair value as of the date of acquisition, effectively eliminating the practice of allocating costs to assets acquired and liabilities assumed based on their estimated fair values as stipulated by SFAS
141. Costs incurred to effect the acquisition, previously considered in the aforementioned cost-allocation process, are to be recognized as a component of earnings. SFAS 141(R) is effective for acquisitions consummated on or after January 1, 2009.

Off Balance-Sheet Arrangements

As of December 31, 2008, we had no off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Recent Regulatory Actions

• March 2008: RTI obtained the certificate necessary to apply the CE Mark to the CopiOs ฎ trade name version of the BioCleanse bovine bone void filler products.

• April 2008: FDA cleared a 510(k) for the dental allograft pastes (e.g., Regenafil/form).

• May 2008: FDA cleared a 510(k) for TutoDent/CopiOs Pericardium Dental Membrane.

• June 2008: FDA cleared a 510(k) for TutoMesh/modified TutoPatch Membrane.

• December, 2008: BioSetฎ brand name of bone paste licensed in Canada.