Cautionary Statement Relating to Forward Looking Statements

Information contained in this filing contains "forward-looking statements" which can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "anticipates" or comparable terminology, or by discussions of strategy. We cannot assure you that the future results covered by these forward-looking statements will be achieved. Some of the matters described in the "Risk Factors" section of our Form 10-K constitute cautionary statements which identify factors regarding these forward-looking statements, including certain risks and uncertainties, that could cause actual results to vary materially from the future results indicated in these forward-looking statements. Other factors could also cause actual results to vary materially from the future results indicated in such forward-looking statements.

Management Overview

Given the macroeconomic climate, we are seeing a decline in elective surgery in our markets which is impacting our growth rates in several of our revenue categories.

Our principal goals for 2009 are to continue to develop revenue synergies resulting from the merger with TMI and building on the Company's competitive strengths. We are focused on several long-term strategies in order to meet our goals. Among them are:

• manage inventory levels while maintaining sufficient tissue for processing to meet customer demand;

• rigorous expense management;

• maintain our commitment to research and development;

• develop new strategically targeted allograft and xenograft implants and focus clinical efforts to support their market acceptance; and

• increase distribution in key markets.

Three and Nine Months Ended September 30, 2009 Compared With Three and Nine
Months Ended September 30, 2008



                                             Three Months Ended       Nine Months Ended           TMI
                                               September 30,            September 30,        Jan 1 - Feb 27
                                              2009         2008       2009      2008 (1)        2008 (2)
                                                                    (In thousands)
Fees from tissue distribution:
Spine                                      $    10,857   $ 10,926   $  31,527   $  29,714   $            210
Sports medicine                                  9,493      8,780      29,211      27,981                 53
Dental                                           6,969      7,789      21,584      19,488              4,957
Surgical specialties                             8,422      5,241      19,638      11,753              2,148
Bone graft substitutes                           3,913      3,044      11,532      11,775                 -
General orthopedic                               1,902      1,894       5,469       4,206              1,156
Other revenues                                   1,257        860       3,606       4,355                (31 )

Total revenues                             $    42,813   $ 38,534   $ 122,567   $ 109,272   $          8,493

Domestic revenues                               37,384     33,518     105,385      94,036              5,452
International revenues                           5,429      5,016      17,182      15,236              3,041

Total revenues                             $    42,813   $ 38,534   $ 122,567   $ 109,272   $          8,493

(1) Includes revenues of the former TMI from February 28, 2008 to September 30, 2008.

(2) Revenues for TMI for the period January 1, 2008 to February 27, 2008.

Three Months Ended September 30, 2009 Compared With Three Months Ended September 30, 2008

Revenues. Our total revenues increased $4.3 million, or 11.1%, to a record level for the company of $42.8 million for the three months ended September 30, 2009 compared to $38.5 million for the three months ended September 30, 2008.

Spine - Revenues from spinal implants decreased $69,000, or 0.6%, to $10.9 million for the three months ended September 30, 2009 compared to $10.9 million for the three months ended September 30, 2008. Unit volumes decreased 6.6% primarily as a result of lower distributions of cervical implants, offset by higher average revenue per unit of 6.4% due primarily to changes in product mix. In addition, for the three months ended September 30, 2008, $547,000 of spine revenue distributed related to product launches to a single distributor.

Sports Medicine - Revenues from sports medicine implants increased $713,000, or 8.1%, to $9.5 million for the three months ended September 30, 2009 compared to $8.8 million for the three months ended September 30, 2008. Sports medicine revenues increased primarily as a result of higher unit volumes of 15.8%, offset by changes in distribution mix.

Dental - Revenues from dental implants decreased $820,000, or 10.5%, to $7.0 million for the three months ended September 30, 2009 compared to $7.8 million for the three months ended September 30, 2008. Dental revenues decreased primarily as a result of a decrease in unit volumes of 2.0%, and a decrease in average revenue per unit due to changes in product mix of 8.7%. Elective dental surgeries have been significantly impacted by the global economic slowdown as patients defer procedures as a result of the lack of medical insurance reimbursements in this area.

Surgical Specialties - Revenues from surgical specialty implants increased $3.2 million, or 60.7%, to $8.4 million for the three months ended September 30, 2009 compared to $5.2 million for the three months ended September 30, 2008. Surgical specialties revenues increased as a result of higher unit volumes of 6.8%, an increase in average revenue per unit of 50.4% and introduction of new products with higher average revenue per unit and

price increases as we recovered higher levels of donated tissue to support this market. In July we announced a new arrangement with the Davol division of CR Bard whereby they would be distributing our implants for breast reconstruction procedures in addition to implants for hernia repair. During the quarter Davol ordered quantities for inventory in conjunction with their entry into the new market and to support growth in their hernia business.

Bone Graft Substitutes - Revenues from bone graft substitutes increased $869,000, or 28.5%, to $3.9 million for the three months ended September 30, 2009 compared to $3.0 million for the three months ended September 30, 2008. Bone graft substitutes revenues increased primarily due to higher average revenues per unit of 6.1% due to changes in product mix and higher unit volumes of 21.2%. During the quarter, we launched a new implant with one of our distributors which contributed to increased volumes.

General Orthopedic - Revenues from general orthopedic implants increased $8,000 or 0.4%, to $1.9 million for the three months ended September 30, 2009 compared to $1.9 million for the three months ended September 30, 2008.

Other Revenues - Revenues from other sources, consisting of tissue recovery fees, biomedical laboratory fees, deferred revenues, shipping fees and distribution of reproductions of our implants to distributors for demonstration purposes, increased by $397,000 to $1.3 million for the three months ended September 30, 2009 compared to $860,000 for the three months ended September 30, 2008.

Foreign Currency Fluctuations - For the three months ended September 30, 2009, foreign currency exchange fluctuations resulted in a decrease in total revenues of $229,000 due to a 5.1% increase in the value of the U.S. dollar versus the Euro, as compared to the prior year period.

Costs of Processing and Distribution. Costs of processing and distribution increased by $1.6 million, or 7.8%, to $22.2 million for the three months ended September 30, 2009. As a percentage of revenues, costs of processing and distribution decreased from 53.4% for the three months ended September 30, 2008 to 51.9% for the three months ended September 30, 2009.

The increase in cost of processing and distribution was due to higher volume levels and due to unfavorable changes in distribution mix as product lines with lower gross margins increased as a percentage of total revenues. In general, our sports medicine, dental and TMI German operations product lines have the highest gross margins. In addition, for the three months ended September 30, 2009, we processed significant amounts of surgical specialty tissue recovered in prior periods that resulted in lower than anticipated tissue utilization, which negatively impacted operating efficiencies for the three months ended September 30, 2009.

Marketing, General and Administrative Expenses. Marketing, general and administrative expenses decreased by $443,000, or 2.9%, to $14.8 million for the three months ended September 30, 2009 from $15.3 million for the three months ended September 30, 2008. Marketing, general and administrative expenses decreased as a percentage of revenues from 39.6% for the three months ended September 30, 2008 to 34.6% for the three months ended September 30, 2009. The decrease was primarily due to lower legal expenses of $442,000, as a result of reduced patent litigation.

Research and Development Expenses. Research and development expenses increased by $128,000, or 6.2%, to $2.2 million for the three months ended September 30, 2009 from $2.1 million for the three months ended September 30, 2008. As a percentage of revenues, research and development expenses decreased from 5.3% for the three months ended September 30, 2008 to 5.1% for the three months ended September 30, 2009. The increase was primarily due to higher studies expense of $160,000.

Asset Abandonments. Asset abandonments were $125,000 for the three months ended September 30, 2009, which was primarily due to the disposal of non-productive assets.

Net Other Expense. Net other expense was $339,000 for the three months ended September 30, 2009 compared to $8,000 for the three months ended September 30, 2008. Interest expense decreased by $36,000 for the three months

ended September 30, 2009 to $138,000 from $174,000 for the three months ended September 30, 2008 due to lower interest paid on long-term obligations. Interest income decreased by $73,000 for the three months ended September 30, 2009 to $20,000 from $93,000 for the three months ended September 30, 2008 due to the lower interest earned on the investment of excess cash in interest bearing cash equivalents than the comparable prior year period. Foreign exchange loss was $221,000 for the three months ended September 30, 2009 compared to foreign exchange gain of $73,000 for the three months ended September 30, 2008 due to changes in the value of the U.S. dollar versus the Euro and the timing of payments on foreign currency liabilities.

Income Tax Provision. Income tax provision for the three months ended September 30, 2009 was $838,000 compared to $237,000 for the three months ended September 30, 2008. Our effective tax rate for the three months ended September 30, 2009 and 2008 was 26.6% and 37.9%, respectively. Our effective tax rate for the three months ended September 30, 2009 compared to the three months ended September 30, 2008 decreased primarily as a result of higher research and experimentation tax credits recognized in 2009 as compared to the prior period.

Nine Months Ended September 30, 2009 Compared With Nine Months Ended September 30, 2008

Revenues. Our total revenues increased $13.3 million, or 12.2%, to $122.6 million for the nine months ended September 30, 2009 compared to $109.3 million for the nine months ended September 30, 2008.

Spine - Revenues from spinal implants increased $1.8 million, or 6.1%, to $31.5 million for the nine months ended September 30, 2009 compared to $29.7 million for the nine months ended September 30, 2008. Spine revenues increased primarily due to distributions of new products to distributors. Unit volumes were up 2.4% primarily as a result of higher distributions of cervical grafts to both current and new distributors. Average revenue per unit increased 3.6% due to changes in product mix.

Sports Medicine - Revenues from sports medicine implants increased $1.2 million, or 4.4%, to $29.2 million for the nine months ended September 30, 2009 compared to $28.0 million for the nine months ended September 30, 2008. Sports medicine revenues increased primarily as a result of higher unit volumes of 2.5% and increases in average revenue per unit of 1.8% due to changes in product mix.

Dental - Revenues from dental implants increased $2.1 million, or 10.8%, to $21.6 million for the nine months ended September 30, 2009 compared to $19.5 million for the nine months ended September 30, 2008. The increase is primarily attributable to nine months of dental revenues for the period ended September 30, 2009 versus seven months in 2008, as we did not offer dental implants prior to our merger with TMI, which closed on February 27, 2008.

Surgical Specialties - Revenues from surgical specialty implants increased $7.9 million, or 67.1%, to $19.6 million for the nine months ended September 30, 2009 compared to $11.8 million for the nine months ended September 30, 2008. Surgical specialty revenues increased primarily as a result of increases in average revenue per unit of 26.7% and higher unit volumes of 31.9% as we recovered higher levels of donated tissue to support this market. However, we did not offer surgical specialty implants (hernia repair, breast reconstruction, ear, nose and throat, urology, and ophthalmology) prior to our merger with TMI, which closed on February 27, 2008.

Bone Graft Substitutes - Revenues from bone graft substitutes decreased $243,000, or 2.1%, to $11.5 million for the nine months ended September 30, 2009 compared to $11.8 million for the nine months ended September 30, 2008. Bone graft substitutes revenues decreased primarily due to delays in launching new products and an unfavorable impact on distribution mix resulting from higher unit volumes with Zimmer Dental which have lower average revenues per unit. Average revenue per unit decreased 22.7% due to changes in product mix, offset by higher unit volumes of 26.7%.

General Orthopedic - Revenues from general orthopedic implants increased $1.3 million or 30.0%, to $5.5 million for the nine months ended September 30, 2009 compared to $4.2 million for the nine months ended September 30, 2008. The increase is primarily attributable to revenues associated with TMI German operations for the nine months ended September 30, 2009 versus seven months in 2008.

Other Revenues - Revenues from other sources, consisting of tissue recovery fees, biomedical laboratory fees, deferred revenues, shipping fees and distribution of reproductions of our implants to distributors for demonstration purposes, decreased by $749,000, or 17.2%, to $3.6 million for the nine months ended September 30, 2009 compared to $4.4 million for the nine months ended September 30, 2008.

Foreign Currency Fluctuations - For the nine months ended September 30, 2009, foreign currency exchange fluctuations resulted in a decrease in total revenues of $1.5 million due to a 10.2% increase in the value of the U.S. dollar versus the Euro as compared to the prior year period.

Costs of Processing and Distribution. Costs of processing and distribution increased by $6.9 million, or 11.9%, to $65.0 million for the nine months ended September 30, 2009. As a percentage of revenues, costs of processing and distribution decreased from 53.2% for the nine months ended September 30, 2008 to 53.0% for the nine months ended September 30, 2009.

The increase in cost of processing and distribution was primarily due to unfavorable changes in distribution mix as product lines with lower gross margins increased as a percentage of total revenues. In general, our sports medicine and dental product lines have the highest gross margins.

Marketing, General and Administrative Expenses. Marketing, general and administrative expenses increased by $4.5 million, or 11.1%, to $44.9 million for the nine months ended September 30, 2009 from $40.4 million for the nine months ended September 30, 2008. Marketing, general and administrative expenses decreased as a percentage of revenues from 37.0% for the nine months ended September 30, 2008 to 36.6% for the nine months ended September 30, 2009. The increase is primarily attributable to including nine months of TMI expenses in 2009 versus seven months in the prior year. Domestic increases included payroll and benefits expense of $1.3 million, an increase in legal expenses of $634,000 due primarily due to patent litigation and an increase in bank charges of $241,000. Marketing, general and administrative expenses associated with the TMI German and French business operations increased $2.0 million as compared to the prior period primarily attributable to including nine months of TMI expenses in 2009 versus seven months in the prior year.

Research and Development Expenses. Research and development expenses decreased by $318,000, or 5.2%, to $5.8 million for the nine months ended September 30, 2009 from $6.2 million for the nine months ended September 30, 2008. As a percentage of revenues, research and development expenses decreased from 5.6% for the nine months ended September 30, 2008 to 4.8% for the nine months ended September 30, 2009. The decrease was primarily due to lower studies and research expenses of $471,000 and lower legal and consulting expenses of $153,000, offset by an increase in domestic payroll and benefits expense of $406,000.

Restructuring Charges. As a result of the merger with TMI, we implemented a formal restructuring plan which resulted in $42,000 of expenses for the nine months ended September 30, 2009 compared to $450,000 for the nine months ended September 30, 2008. These expenses represent severance benefits.

Asset Abandonments. Asset abandonments were $208,000 for the nine months ended September 30, 2009, which were primarily due to the disposal of non-productive assets.

Net Other Expense. Net other expense was $431,000 for the nine months ended September 30, 2009 compared to $46,000 for the nine months ended September 30, 2008. Interest expense decreased by $156,000 for the nine months ended September 30, 2009 to $391,000 from $547,000 for the nine months ended September 30, 2008 due to lower interest paid on long-term obligations. Interest income decreased by $237,000 for the nine months ended September 30, 2009 to $218,000 from $455,000 for the nine months ended September 30, 2008 due to the lower interest earned on the investment of excess cash in interest bearing cash equivalents than the comparable prior year period. Foreign exchange loss was $258,000 for the nine months ended September 30, 2009 compared to foreign exchange gain of $46,000 for the nine months ended September 30, 2008 due to changes in the value of the U.S. dollar versus the Euro and the timing of payments on foreign currency liabilities.

Income Tax Provision. Income tax provision for the nine months ended September 30, 2009 was $1.8 million compared to $1.6 million for the nine months ended September 30, 2008. Our effective tax rate for the nine months ended September 30, 2009 and 2008 was 29.2% and 38.3%, respectively. Our effective tax rate for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 decreased primarily as a result of higher research and experimentation tax credits recognized in 2009 as compared to the prior period.

Liquidity and Capital Resources

Cash Flows - Three Months Ended September 30, 2009 Compared With Three Months Ended September 30, 2008.

Our cash provided by operating activities was $5.5 million for the three month period ended September 30, 2009, compared to $328,000 for the three month period ended September 30, 2008. The cash provided by operating activities was primarily due to $8.0 million in fees for exclusive distribution rights and higher net income of $2.3 million, partially offset by an increase inventories of $4.3 million consisting of unprocessed human dermis tissue to support our surgical specialties business, increased implantable donor tissue relating to our sports medicine business and a decrease in accounts payable of $3.3 million due to the timing of payments to certain vendors.

At September 30, 2009, we had 37 days of revenues outstanding in trade accounts receivable, an increase of 2 days compared to December 31, 2008. At September 30, 2009, we had 340 days of inventory on hand, an increase of 46 days compared to December 31, 2008.

Our cash used in investing activities was $1.2 million for the three month period ended September 30, 2009, compared to $2.3 million for the three month period ended September 30, 2008. Our investing activities for the three month period ended September 30, 2009 consisted primarily of purchases of property, plant and equipment of $1.1 million. Our investing activities for the three months ended September 30, 2008 consisted primarily of purchases of property, plant and equipment of $1.8 million.

Our cash provided by financing activities was $1.9 million for the three months ended September 30, 2009 compared to $2.2 million for the three month period ended September 30, 2008. Cash provided by financing activities for the three months ended September 30, 2009 consisted primarily of net proceeds on short-term obligations of $445,000, proceeds on long-term obligations of $3.0 million and proceeds from exercise of common stock options of $416,000, offset by payments on long-term obligations of $2.2 million. Cash provided by financing activities for the three months ended September 30, 2008 consisted of net proceeds on short-term obligations of $2.0 million and proceeds from exercises of common stock options of $729,000, offset by payments on long-term obligations of $541,000.

Cash Flows - Nine Months Ended September 30, 2009 Compared With Nine Months Ended September 30, 2008.

Our cash provided by operating activities was $1.4 million for the nine month period ended September 30, 2009, compared to cash used in operating activities of $521,000 for the nine month period ended September 30, 2008. The cash provided by operating activities was primarily due to $8.0 million in fees for exclusive distribution rights, higher net income of 4.4 million and an increase in accounts payable of $4.3 million due to the timing of payments to certain vendors, partially offset by an investment in inventories of $18.6 million consisting of a growth in unprocessed donor tissue of $7.1 million, tissue in process of $4.1 million and implantable donor tissue of $6.0 million.

At September 30, 2009, we had 37 days of revenue outstanding in trade accounts receivable, an increase of 2 days compared to December 31, 2008. At September 30, 2009, we had 340 days of inventory on hand, an increase of 46 days compared to December 31, 2008.

Our cash used in investing activities was $3.4 million for the nine month period ended September 30, 2009, compared to cash provided by investing activities of $2.0 million for the nine month period ended September 30, 2008. Our investing activities for the nine month period ended September 30, 2009 consisted primarily of purchases of property, plant and equipment of $3.0 million. Our investing activities for the nine months ended September 30,

2008 consisted primarily of purchases of property, plant and equipment of $3.9 million, offset by cash acquired with the merger with TMI, net of transaction costs of $879,000, and proceeds from the sale of marketable securities acquired in the merger with TMI of $5.2 million.

Our cash provided by financing activities was $2.3 million for the nine months ended September 30, 2009 compared to $1.5 million for the nine month period ended September 30, 2008. Cash provided by financing activities for the nine months ended September 30, 2009 consisted primarily of net payments on short-term obligations of $2.4 million and payments on long-term obligations of $4.6 million, offset by proceeds from long-term obligations of $8.6 million and proceeds from exercise of common stock options of $515,000. Cash provided by financing activities for the nine months ended September 30, 2008 consisted primarily of net proceeds from short-term obligations of $1.8 million and proceeds from exercises of common stock options of $2.2 million, offset by payments on long-term obligations of $2.7 million.

Liquidity.

As of September 30, 2009, we had $20.4 million of cash and cash equivalents. We believe that our working capital as of September 30, 2009, together with anticipated cash generated from operations and our borrowing ability under our credit facilities, will be adequate to fund our on-going operations for the next twelve months.

Certain Commitments.

The Company's short-term and long-term obligations and availability of credit at
September 30, 2009 are as follows:



                                              Outstanding     Available
                                                Balance        Credit
                                                   (In thousands)
              Short-term:
              Credit facilities              $       1,759   $       721

              Total short-term obligations           1,759           721


              Long-term:
              Credit facility                        3,500         4,517
              Long-term obligations                  5,513            -
              Capital leases                           210            -

              Total long-term obligations            9,223         4,517

              Total obligations              $      10,982   $     5,238

The following table provides a summary of our debt obligations, operating lease obligations, and other significant obligations as of September 30, 2009.

                                                         Contractual Obligations Due by Period
                                             Total      2009      2010      2011      2012      After 2012
                                                                    (In thousands)
Debt obligations                            $ 10,982   $ 2,573   $ 1,834   $ 4,694   $   775   $      1,106
Operating leases                               3,327       384     1,259     1,057       379            248
Other significant obligations (1)              4,640     1,160     1,120     1,120     1,110            130

Total                                       $ 18,949   $ 4,117   $ 4,213   $ 6,871   $ 2,264   $      1,484

(1) These amounts consist of contractual obligations for tissue recovery, development grants and licensing fees.

The Company was in compliance with all covenants related to its credit facilities and term loans as of September 30, 2009.