##### 



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 quarterly period ended September 30, 2003                                       
|           |  | Or                                                                                      
|(   )      |  | 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 000-20805

ReGen Biologics, Inc.(Exact name of registrant as specified in its charter)

|                                                                                       |  |                                               
|-------------------------------------------------------------------------------------- |  | ----------------------------------------------
|Delaware(State or other jurisdiction of
incorporation or organization)                 |  | 23-2476415(I.R.S. Employer
Identification No.)
|                                                                                      
|1290 Bay Dale Drive,
PMB 351,
Arnold, Maryland(Address of principal executive offices) |  | 21012(Zip Code)                               

Registrants telephone number, including area code:

(410) 349-2431

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 check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes (   ) No (X)

The number of shares outstanding of the registrants common stock, $.01
par value, was 29,300,786 as of November 12, 2003.





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##### 



REGEN BIOLOGICS, INC.

INDEX

|                               |  |                                                                                                                                                                                                                                                                                  
|------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|PART I  Financial Information
|Item 1.                        |  | Financial Statements                                                                                                                                                                                                                                                             
|                               |  | Condensed Consolidated Balance Sheets at September 30, 2003 (unaudited) and December 31, 2002                                                                                                                                                                                    
|                              
|                               |  | Condensed Consolidated Statements of Operations for the Three Months Ended September 30,
2003 (unaudited) and 2002 (unaudited), the Nine Months Ended September 30, 2003 (unaudited)
and 2002 (unaudited) and the Period from December 21, 1989 to September 30, 2003 (unaudited)
|                              
|                               |  | Consolidated Statement of Changes in Stockholders Equity (Deficit) and Series A & Series C
Redeemable Convertible Preferred Stock for the Period from December 21, 1989 (inception) to
September 30, 2003 (unaudited)                                                           
|                              
|                               |  | Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003
(unaudited) and 2002 (unaudited) and the Period from December 21, 1989 (inception) to
September 30, 2003 (unaudited)                                                                
|                              
|                               |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                                                                                                                                                                 
|Item 2.                        |  | Managements Discussion and Analysis of Financial Conditions and Results of Operations                                                                                                                                                                                           
|Item 3.                        |  | Quantitative and Qualitative Disclosures about Market Risk                                                                                                                                                                                                                       
|Item 4.                        |  | Controls and Procedures                                                                                                                                                                                                                                                          
|PART II  Other Information   
|                              
|Item 1.                        |  | Legal Proceedings                                                                                                                                                                                                                                                                
|Item 2.                        |  | Changes in Securities and Use of Proceeds                                                                                                                                                                                                                                        
|Item 3.                        |  | Defaults upon Senior Securities                                                                                                                                                                                                                                                  
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                                                                                                                                                                                                              
|Item 5.                        |  | Other Information                                                                                                                                                                                                                                                                
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                                                                                                                                                                                                                 
|Signatures                     |  |                                                                                                                                                                                                                                                                                  
|Certifications                 |  |                                                                                                                                                                                                                                                                                  

2



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##### 



PART I  Financial Information

Item 1. Financial Statements

REGEN BIOLOGICS, INC.
(A Development Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

|                                                                                                                                                                                                                                                                                         |                                                      |   |         |         |                    |   |                   |         |   |  | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | - | ------- | ------- | ------------------ | - | ----------------- | ------- | - |  | 
|                                                                                                                                                                                                                                                                                         |                                                      |   |         |         | September 30, 2003 |   | December 31, 2002
|                                                                                                                                                                                                                                                                                         |                                                      |   |         |         |                    |   |                  
|                                                                                                                                                                                                                                                                                         |                                                      |   |         |         | (unaudited)        |   |                   |         |  
|ASSETS                                                                                                                                                                                                                                                                                   |                                                      |   |         |         |                    |   |                   |        
|Current assets:                                                                                                                                                                                                                                                                          |                                                      |   |         |         |                    |   |                   |        
|Cash and cash equivalents                                                                                                                                                                                                                                                                |                                                      | $ | 9,484   |         |                    | $ | 1                 |        
|Short-term investments                                                                                                                                                                                                                                                                   |                                                      |   |        |         |                    |   | 3,473             |        
|Receivables                                                                                                                                                                                                                                                                              |                                                      |   | 7       |         |                    |   | 8                 |        
|Receivables from related parties                                                                                                                                                                                                                                                         |                                                      |   | 87      |         |                    |   | 81                |        
|Inventory                                                                                                                                                                                                                                                                                |                                                      |   | 235     |         |                    |   | 262               |        
|Prepaid expenses and other                                                                                                                                                                                                                                                               |                                                      |   | 183     |         |                    |   | 91                |        
|                                                                                                                                                                                                                                                                                         |                                                      |   |         |         |                    |   |                   |        
|                                                                                                                                                                                                                                                                                         | Total current assets                                 |   |         | 9,996   |                    |   |                   | 3,916   |  
|Property and equipment, net                                                                                                                                                                                                                                                              |                                                      |   | 71      |         |                    |   | 129               |        
|Other assets                                                                                                                                                                                                                                                                             |                                                      |   | 159     |         |                    |   | 181               |        
|                                                                                                                                                                                                                                                                                         |                                                      |   |         |         |                    |   |                   |        
|                                                                                                                                                                                                                                                                                         | Total assets                                         |   | $       | 10,226  |                    |   | $                 | 4,226   |  
|                                                                                                                                                                                                                                                                                         |                                                      |   |         |         |                    |   |                   |        
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                                                                                                                                                                           |                                                      |   |         |         |                    |   |                   |        
|Current liabilities:                                                                                                                                                                                                                                                                     |                                                      |   |         |         |                    |   |                   |        
|Accounts payable                                                                                                                                                                                                                                                                         |                                                      | $ | 313     |         |                    | $ | 251               |        
|Accounts payable to related parties                                                                                                                                                                                                                                                      |                                                      |   | 68      |         |                    |   | 7                 |        
|Accrued expenses                                                                                                                                                                                                                                                                         |                                                      |   | 212     |         |                    |   | 206               |        
|Accrued merger expenses                                                                                                                                                                                                                                                                  |                                                      |   | 198     |         |                    |   | 198               |        
|Current portion of capital leases                                                                                                                                                                                                                                                        |                                                      |   | 3       |         |                    |   | 5                 |        
|                                                                                                                                                                                                                                                                                         |                                                      |   |         |         |                    |   |                   |        
|                                                                                                                                                                                                                                                                                         | Total current liabilities                            |   |         | 794     |                    |   |                   | 667     |  
|                                                                                                                                                                                                                                                                                         |                                                      |   |         |         |                    |   |                   |        
|Pension liability                                                                                                                                                                                                                                                                        |                                                      |   | 144     |         |                    |   | 144               |        
|Other liabilities                                                                                                                                                                                                                                                                        |                                                      |   | 16      |         |                    |   | 41                |        
|Long-term portion of notes payable and capital leases                                                                                                                                                                                                                                    |                                                      |   | 6,825   |         |                    |   | 6,735             |        
|                                                                                                                                                                                                                                                                                         |                                                      |   |         |         |                    |   |                   |        
|                                                                                                                                                                                                                                                                                         | Total liabilities                                    |   |         | 7,779   |                    |   |                   | 7,587   |  
|Series A
          redeemable convertible preferred stock, $.01 par value; 30,000,000 shares
          authorized, liquidation preference of $6,855; and 15,298,351 shares
          issued and outstanding as of September 30, 2003 and December 31,
          2002                     |                                                      |   | 6,855   |         |                    |   | 6,855             |        
|Series C
          redeemable convertible preferred stock, $.01 par value; 30,000,000 shares
          authorized, liquidation preference of $9,969; and 22,246,153 and 0 shares
          issued and outstanding as of September 30, 2003 and December 31,
          2002, respectively |                                                      |   | 8,425   |         |                    |   |                  |        
|Stockholders equity (deficit):                                                                                                                                                                                                                                                          |                                                      |   |         |         |                    |   |                   |        
|Common stock                                                                                                                                                                                                                                                                             |                                                      |   | 291     |         |                    |   | 291               |        
|Accumulated other comprehensive loss                                                                                                                                                                                                                                                     |                                                      |   | (58     | )       |                    |   | (58               | )      
|Additional paid-in capital                                                                                                                                                                                                                                                               |                                                      |   | 36,767  |         |                    |   | 31,373            |        
|Deficit accumulated during development stage                                                                                                                                                                                                                                             |                                                      |   | (49,833 | )       |                    |   | (41,822           | )      
|                                                                                                                                                                                                                                                                                         |                                                      |   |         |         |                    |   |                   |        
|                                                                                                                                                                                                                                                                                         | Total stockholders equity (deficit)                 |   |         | (12,833 | )                  |   |                   | (10,216 | )
|                                                                                                                                                                                                                                                                                         |                                                      |   |         |         |                    |   |                   |        
|                                                                                                                                                                                                                                                                                         | Total liabilities and stockholders equity (deficit) |   | $       | 10,226  |                    |   | $                 | 4,226   |  
|                                                                                                                                                                                                                                                                                         |                                                      |   |         |         |                    |   |                   |        

See accompanying Notes to Condensed Consolidated Financial Statements.

3



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##### 



REGEN BIOLOGICS, INC.
(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

|                                                                                                                                                                                        |                                                                 |                |        |                                  |       |                                 |        |                   |       |             |        |                    |       |   |        |        |       |   |         |             |        | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | -------------- | ------ | -------------------------------- | ----- | ------------------------------- | ------ | ----------------- | ----- | ----------- | ------ | ------------------ | ----- | - | ------ | ------ | ----- | - | ------- | ----------- | ------ | 
|                                                                                                                                                                                        |                                                                 |                |        |                                  |       |                                 |        |                   |       |             |        |                    |       |   |        |        |       |   |         | Period from
|                                                                                                                                                                                        |                                                                 |                |        | Three Months Ended September 30, |       | Nine Months Ended September 30, |        | December 21, 1989
|                                                                                                                                                                                        |                                                                 |                |        |                                  |       |                                 |        | (Inception) to   
|                                                                                                                                                                                        |                                                                 |                |        | 2003                             |       | 2002                            |        | 2003              |       | 2002        |        | September 30, 2003
|                                                                                                                                                                                        |                                                                 |                |        |                                  |       |                                 |        |                   |       |             |        |                   
|                                                                                                                                                                                        |                                                                 |                |        | (unaudited)                      |       | (unaudited)                     |        | (unaudited)       |       | (unaudited) |        | (unaudited)       
|Revenues:                                                                                                                                                                               |                                                                 |                |        |                                  |       |                                 |        |                   |       |             |        |                    |       |   |        |        |       |   |         |            
|                                                                                                                                                                                        | Sales                                                           |                | $      | 62                               |       |                                 | $      | 381               |       |             | $      | 260                |       |   | $      | 698    |       |   | $       | 2,393       |       
|                                                                                                                                                                                        | Royalties                                                       |                |        | 7                                |       |                                 |        | 7                 |       |             |        | 20                 |       |   |        | 37     |       |   |         | 130         |       
|                                                                                                                                                                                        | Grant and other revenue                                         |                |        |                                 |       |                                 |        |                  |       |             |        |                   |       |   |        |       |       |   |         | 433         |       
|                                                                                                                                                                                        |                                                                 |                |        |                                  |       |                                 |        |                   |       |             |        |                    |       |   |        |        |       |   |         |             |       
|                                                                                                                                                                                        |                                                                 | Total revenues |        |                                  | 69    |                                 |        |                   | 388   |             |        |                    | 280   |   |        |        | 735   |   |         |             | 2,956  | 
|Expenses:                                                                                                                                                                               |                                                                 |                |        |                                  |       |                                 |        |                   |       |             |        |                    |       |   |        |        |       |   |         |            
|                                                                                                                                                                                        | Costs of goods sold                                             |                |        | 52                               |       |                                 |        | 408               |       |             |        | 348                |       |   |        | 988    |       |   |         | 2,930       |       
|                                                                                                                                                                                        | Research and development                                        |                |        | 660                              |       |                                 |        | 480               |       |             |        | 1,863              |       |   |        | 1,769  |       |   |         | 27,039      |       
|                                                                                                                                                                                        | Business development, general
and administrative                |                |        | 498                              |       |                                 |        | 686               |       |             |        | 1,749              |       |   |        | 1,499  |       |   |         | 12,992      |       
|                                                                                                                                                                                        | Compensation expense
associated with stock
options and warrants |                |        | 35                               |       |                                 |        |                  |       |             |        | 36                 |       |   |        | 3,300  |       |   |         | 6,011       |       
|                                                                                                                                                                                        |                                                                 |                |        |                                  |       |                                 |        |                   |       |             |        |                    |       |   |        |        |       |   |         |             |       
|                                                                                                                                                                                        |                                                                 | Total expenses |        |                                  | 1,245 |                                 |        |                   | 1,574 |             |        |                    | 3,996 |   |        |        | 7,556 |   |         |             | 48,972 | 
|Operating loss                                                                                                                                                                          |                                                                 |                | (1,176 | )                                |       |                                 | (1,186 | )                 |       |             | (3,716 | )                  |       |   | (6,821 | )      |       |   | (46,016 | )          
|                                                                                                                                                                                        | Merger cost                                                     |                |        |                                 |       |                                 |        | (113              | )     |             |        |                   |       |   |        | (515   | )     |   |         | (515        | )     
|                                                                                                                                                                                        | Interest and other income                                       |                |        | 1                                |       |                                 |        | 5                 |       |             |        | 8                  |       |   |        | 10     |       |   |         | 1,219       |       
|                                                                                                                                                                                        | Rental income                                                   |                |        | 1                                |       |                                 |        | 88                |       |             |        | 81                 |       |   |        | 179    |       |   |         | 497         |       
|                                                                                                                                                                                        | Interest expense                                                |                |        | (29                              | )     |                                 |        | (4                | )     |             |        | (92                | )     |   |        | (1,732 | )     |   |         | (2,776      | )     
|                                                                                                                                                                                        | License fees                                                    |                |        |                                 |       |                                 |        |                  |       |             |        |                   |       |   |        |       |       |   |         | 2,050       |       
|                                                                                                                                                                                        |                                                                 |                |        |                                  |       |                                 |        |                   |       |             |        |                    |       |   |        |        |       |   |         |             |       
|Net loss                                                                                                                                                                                |                                                                 | $              | (1,203 | )                                |       | $                               | (1,210 | )                 |       | $           | (3,719 | )                  |       | $ | (8,879 | )      |       | $ | (45,541 | )          
|                                                                                                                                                                                        |                                                                 |                |        |                                  |       |                                 |        |                   |       |             |        |                    |       |   |        |        |       |   |         |             |       
|Basic and diluted net loss per share:                                                                                                                                                   |                                                                 | $              | (0.04  | )                                |       | $                               | (0.07  | )                 |       | $           | (0.13  | )                  |       | $ | (0.52  | )      |       | $ | (2.57   | )          
|                                                                                                                                                                                        |                                                                 |                |        |                                  |       |                                 |        |                   |       |             |        |                    |       |   |        |        |       |   |         |             |       
|Weighted average number of shares
used for calculation of net loss per
share (shares outstanding
immediately after reverse merger
and recapitalization used for 2002
periods presented) |                                                                 |                | 29,071 |                                  |       |                                 | 17,045 |                   |       |             | 29,071 |                    |       |   | 17,045 |        |       |   | 17,743  |            

See accompanying Notes to Condensed Consolidated Financial Statements.

4



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##### 



ReGen Biologics, Inc.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statement of Changes in Stockholders Equity (Deficit) and Series
A and Series C Redeemable Convertible Preferred Stock
Period from December 21, 1989 (inception) to September 30, 2003 (unaudited)(In thousands, except share data)



|                             |                                                                                                                                                                                    |  |                        |  |                       |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                               |           |        |  |   |   |  |  |  |  |  |  |  |  |  |  |           |           |  |  |   |   | 
|---------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- |  | --------------------- |  | --------------- |  | --------------------- |  | ------------ |  | ------ |  | ------ |  | ------ |  | ----------------------------- | --------- | ------ |  | - | - |  |  |  |  |  |  |  |  |  |  | --------- | --------- |  |  | - | - | 
|                             |                                                                                                                                                                                    |  |                        |  |                       |  |                 |  |                       |  |              |  |        |  |        |  |        |  | Stockholders Equity (Deficit)
|                             |                                                                                                                                                                                    |  |                        |  |                       |  |                 |  |                       |  | Redeemable   |  |       
|                             |                                                                                                                                                                                    |  | Redeemable Convertible |  | Convertible Preferred |  | Convertible     |  | Convertible Preferred |  |              |  |        |  |        |  |       
|                             |                                                                                                                                                                                    |  | Preferred Series A     |  | Series C              |  | Preferred Stock |  | Series B              |  | Common Stock
|                             |                                                                                                                                                                                    |  |                        |  |                       |  |                 |  |                       |  |             
|                             |                                                                                                                                                                                    |  | Share                  |  | Amount                |  | Share           |  | Amount                |  | Shares       |  | Amount |  | Shares |  | Amount |  | Shares                        |           | Amount
|                             |                                                                                                                                                                                    |  |                        |  |                       |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                               |           |       
|                             | Issuance of common stock
at $0.03127 per share for
net assets contributed by
founders in May 1990                                                                                  |  |                        |  |                       |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                               |          |        |  | $ |  |  |  |  |  |  |  |  |  |  |  |           | 1,400,000 |  |  | $ | 1 | 
|                             | Issuance of common stock
at $0.005 per share for
cash in November 1991                                                                                                             |  |                        |  |                       |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                               |          |        |  |   |  |  |  |  |  |  |  |  |  |  |  |           | 700,000   |  |  |   |  | 
|                             | Issuance of Series A
convertible preferred
stock at $1.00 per share
for cash in April 1991,
net of offering costs of
$44                                                           |  |                        |  |                       |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                               | 725,000   |        |  |   | 1 |  |  |  |  |  |  |  |  |  |  |           |          |  |  |   |  | 
|                             | Issuance of Series B
convertible preferred
stock at $3.00 per share
for cash and in exchange
for notes payable in
January, March, May, and
July 1992, net of
offering costs of $28 |  |                        |  |                       |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                               | 1,226,338 |        |  |   |  |  |  |  |  |  |  |  |  |  |  |           |          |  |  |   |  | 
|                             | Net loss from inception
(December 21, 1989)
through December 31, 1992                                                                                                              |  |                        |  |                       |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                               |          |        |  |   |  |  |  |  |  |  |  |  |  |  |  |           |          |  |  |   |  | 
|Balance at December 31, 1992 |                                                                                                                                                                                    |  |                        |  |                       |  |                 |  |                       |  |              |  |        |  |        |  |        |  | 1,951,338                     |           |        |  | 1 |   |  |  |  |  |  |  |  |  |  |  | 2,100,000 |           |  |  | 1 |  
|                             | Issuance of Series C
convertible preferred
stock at $4.50 per share
for cash in December
1993, net of offering
costs of $29                                                        |  |                        |  |                       |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                               | 550,552   |        |  |   |  |  |  |  |  |  |  |  |  |  |  |           |          |  |  |   |  | 
|                             | Exercise of common stock
options at $0.30 per
share for cash in
February 1993                                                                                                      |  |                        |  |                       |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                               |          |        |  |   |  |  |  |  |  |  |  |  |  |  |  |           | 200       |  |  |   |  | 
|                             | Issuance of common stock
at $0.30 per share in
1993 in exchange for
services to a consultant                                                                                       |  |                        |  |                       |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                               |          |        |  |   |  |  |  |  |  |  |  |  |  |  |  |           | 5,000     |  |  |   |  | 
|                             | Net loss                                                                                                                                                                           |  |                        |  |                       |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                               |          |        |  |   |  |  |  |  |  |  |  |  |  |  |  |           |          |  |  |   |  | 
|Balance at December 31, 1993 |                                                                                                                                                                                    |  |                        |  |                       |  |                 |  |                       |  |              |  |        |  |        |  |        |  | 2,501,890                     |           |        |  | 1 |   |  |  |  |  |  |  |  |  |  |  | 2,105,200 |           |  |  | 1 |  
|                             | Net loss                                                                                                                                                                           |  |                        |  |                       |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                               |          |        |  |   |  |  |  |  |  |  |  |  |  |  |  |           |          |  |  |   |  | 
|Balance at December 31, 1994 |                                                                                                                                                                                    |  |                        |  |                       |  |                 |  |                       |  |              |  |        |  |        |  |        |  | 2,501,890                     |           |        |  | 1 |   |  |  |  |  |  |  |  |  |  |  | 2,105,200 |           |  |  | 1 |  
|                             | Net loss                                                                                                                                                                           |  |                        |  |                       |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                               |          |        |  |   |  |  |  |  |  |  |  |  |  |  |  |           |          |  |  |   |  | 
|Balance at December 31, 1995 |                                                                                                                                                                                    |  |                        |  |                       |  |                 |  |                       |  |              |  |        |  |        |  |        |  | 2,501,890                     |           |        |  | 1 |   |  |  |  |  |  |  |  |  |  |  | 2,105,200 |           |  |  | 1 |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                             |                                                                                                                                                                                    |  |                               |       |              |  |             |   |               |  |                     |        |                   |  |  |  |  |  |       |        |  
|---------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ----- | ------------ |  | ----------- | - | ------------- |  | ------------------- | ------ | ----------------- |  |  |  |  |  | ----- | ------ | -
|                             |                                                                                                                                                                                    |  | Stockholders Equity (Deficit)
|                             |                                                                                                                                                                                    |  |                              
|                             |                                                                                                                                                                                    |  | Additional                    |       |              |  |             |   |               |  |                     |        | Accumulated Other |  |  |  | 
|                             |                                                                                                                                                                                    |  | Paid In                       |       | Deferred     |  | Accumulated |   | Comprehensive |  | Total Stockholders'
|                             |                                                                                                                                                                                    |  | Capital                       |       | Compensation |  | Deficit     |   | Loss          |  | Equity (Deficit)   
|                             |                                                                                                                                                                                    |  |                               |       |              |  |             |   |               |  |                    
|                             | Issuance of common stock
at $0.03127 per share for
net assets contributed by
founders in May 1990                                                                                  |  | $                             | 44    |              |  | $           |  |               |  | $                   |       |                   |  |  |  |  |  | $     | 45     |  
|                             | Issuance of common stock
at $0.005 per share for
cash in November 1991                                                                                                             |  |                               | 3     |              |  |             |  |               |  |                     |       |                   |  |  |  |  |  |       | 3      |  
|                             | Issuance of Series A
convertible preferred
stock at $1.00 per share
for cash in April 1991,
net of offering costs of
$44                                                           |  |                               | 681   |              |  |             |  |               |  |                     |       |                   |  |  |  |  |  |       | 682    |  
|                             | Issuance of Series B
convertible preferred
stock at $3.00 per share
for cash and in exchange
for notes payable in
January, March, May, and
July 1992, net of
offering costs of $28 |  |                               | 3,650 |              |  |             |  |               |  |                     |       |                   |  |  |  |  |  |       | 3,650  |  
|                             | Net loss from inception
(December 21, 1989)
through December 31, 1992                                                                                                              |  |                               |      |              |  |             |  |               |  |                     | (2,476 | )                 |  |  |  |  |  |       | (2,476 | )
|Balance at December 31, 1992 |                                                                                                                                                                                    |  | 4,378                         |       |              |  |            |   |               |  | (2,476              | )      |                   |  |  |  |  |  | 1,904 |       
|                             | Issuance of Series C
convertible preferred
stock at $4.50 per share
for cash in December
1993, net of offering
costs of $29                                                        |  |                               | 2,448 |              |  |             |  |               |  |                     |       |                   |  |  |  |  |  |       | 2,448  |  
|                             | Exercise of common stock
options at $0.30 per
share for cash in
February 1993                                                                                                      |  |                               | 1     |              |  |             |  |               |  |                     |       |                   |  |  |  |  |  |       | 1      |  
|                             | Issuance of common stock
at $0.30 per share in
1993 in exchange for
services to a consultant                                                                                       |  |                               | 1     |              |  |             |  |               |  |                     |       |                   |  |  |  |  |  |       | 1      |  
|                             | Net loss                                                                                                                                                                           |  |                               |      |              |  |             |  |               |  |                     | (1,342 | )                 |  |  |  |  |  |       | (1,342 | )
|Balance at December 31, 1993 |                                                                                                                                                                                    |  | 6,828                         |       |              |  |            |   |               |  | (3,818              | )      |                   |  |  |  |  |  | 3,012 |       
|                             | Net loss                                                                                                                                                                           |  |                               |      |              |  |             |  |               |  |                     | (1,463 | )                 |  |  |  |  |  |       | (1,463 | )
|Balance at December 31, 1994 |                                                                                                                                                                                    |  | 6,828                         |       |              |  |            |   |               |  | (5,281              | )      |                   |  |  |  |  |  | 1,549 |       
|                             | Net loss                                                                                                                                                                           |  |                               |      |              |  |             |  |               |  |                     | (1,959 | )                 |  |  |  |  |  |       | (1,959 | )
|Balance at December 31, 1995 |                                                                                                                                                                                    |  | 6,828                         |       |              |  |            |   |               |  | (7,240              | )      |                   |  |  |  |  |  | (410  | )     

See accompanying Notes to Condensed Consolidated Financial Statements

5



---



##### 



ReGen Biologics, Inc.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statement of Changes in Stockholders Equity (Deficit) and Series
A and Series C Redeemable Convertible Preferred Stock
Period from December 21, 1989 (inception) to September 30, 2003 (unaudited)(In thousands, except share data)



|                                               |                                                                                                                                         |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                                |           |        |   |   |   |  |  |  |  |  |  |  |  |  |  |           |         |  |   |   |   | 
|---------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- |  | ---------------------- |  | --------------- |  | --------------------- |  | ------------ |  | ------ |  | ------ |  | ------ |  | ------------------------------ | --------- | ------ | - | - | - |  |  |  |  |  |  |  |  |  |  | --------- | ------- |  | - | - | - | 
|                                               |                                                                                                                                         |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  | Stockholders' Equity (Deficit)
|                                               |                                                                                                                                         |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                               
|                                               |                                                                                                                                         |  | Redeemable Convertible |  | Redeemable Convertible |  | Convertible     |  | Convertible Preferred |  |              |  |        |  |        |  |       
|                                               |                                                                                                                                         |  | Preferred Series A     |  | Preferred Series C     |  | Preferred Stock |  | Series B              |  | Common Stock
|                                               |                                                                                                                                         |  |                        |  |                        |  |                 |  |                       |  |             
|                                               |                                                                                                                                         |  | Shares                 |  | Amount                 |  | Shares          |  | Amount                |  | Shares       |  | Amount |  | Shares |  | Amount |  | Shares                         |           | Amount
|                                               |                                                                                                                                         |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                                |           |       
|Balance at December 31, 1995 (carried forward) |                                                                                                                                         |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  | 2,501,890                      |           |        | $ | 1 |   |  |  |  |  |  |  |  |  |  |  | 2,105,200 |         |  | $ | 1 |  
|                                               | Issuance of Series D convertible preferred stock at $7.25 per share for
cash in March and April 1996, net of offering costs of $536     |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                                | 1,191,321 |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           |        |  |   |   |  | 
|                                               | Exercise of common stock options at $0.10, $0.30, and $0.45 per share in
August and October 1996                                        |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                                |          |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           | 163,333 |  |   |   |  | 
|                                               | Net loss                                                                                                                                |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                                |          |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           |        |  |   |   |  | 
|Balance at December 31, 1996                   |                                                                                                                                         |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  | 3,693,211                      |           |        |   | 1 |   |  |  |  |  |  |  |  |  |  |  | 2,268,533 |         |  |   | 1 |  
|                                               | Issuance of Series E convertible preferred stock at $7.25 per share for
cash in August and September 1997, net of offering costs of $53 |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                                | 335,314   |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           |        |  |   |   |  | 
|                                               | Exercise of common stock options at $0.10, $0.30, and $0.45 per share in
April, August, and September 1997                              |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                                |          |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           | 32,111  |  |   |   |  | 
|                                               | Net loss                                                                                                                                |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                                |          |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           |        |  |   |   |  | 
|Balance at December 31, 1997                   |                                                                                                                                         |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  | 4,028,525                      |           |        |   | 1 |   |  |  |  |  |  |  |  |  |  |  | 2,300,644 |         |  |   | 1 |  
|                                               | Exercise of common stock options at $0.10, $0.20, $1.27, and $1.45 per
share in May, July, November and December 1998, respectively     |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                                |          |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           | 159,879 |  |   |   |  | 
|                                               | Compensation expense associated with stock
option modifications                                                                         |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                                |          |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           |        |  |   |   |  | 
|                                               | Net loss                                                                                                                                |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                                |          |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           |        |  |   |   |  | 
|Balance at December 31, 1998                   |                                                                                                                                         |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  | 4,028,525                      |           |        |   | 1 |   |  |  |  |  |  |  |  |  |  |  | 2,460,523 |         |  |   | 1 |  
|                                               | Exercise of common stock options at $.725 and $1.45 per share in April,
June and August 1999                                            |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                                |          |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           | 42,396  |  |   |   |  | 
|                                               | Issuance of Series F convertible preferred stock at $8.73 per share for cash                                                            |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                                | 453,310   |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           |        |  |   |   |  | 
|                                               | Compensation expense associated with stock option grants                                                                                |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                                |          |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           |        |  |   |   |  | 
|                                               | Net loss                                                                                                                                |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  |                                |          |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           |        |  |   |   |  | 
|Balance at December 31, 1999                   |                                                                                                                                         |  |                        |  |                        |  |                 |  |                       |  |              |  |        |  |        |  |        |  | 4,481,835                      |           |        |   | 1 |   |  |  |  |  |  |  |  |  |  |  | 2,502,919 |         |  |   | 1 |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                               |                                                                                                                                         |   |                                |       |              |   |             |        |               |   |                     |        |                   |  |  |  |  |   |       |        |  
|---------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------------------ | ----- | ------------ | - | ----------- | ------ | ------------- | - | ------------------- | ------ | ----------------- |  |  |  |  | - | ----- | ------ | -
|                                               |                                                                                                                                         |   | Stockholders' Equity (Deficit)
|                                               |                                                                                                                                         |   |                               
|                                               |                                                                                                                                         |   | Additional                     |       |              |   |             |        |               |   |                     |        | Accumulated Other |  |  |  | 
|                                               |                                                                                                                                         |   | Paid In                        |       | Deferred     |   | Accumulated |        | Comprehensive |   | Total Stockholders'
|                                               |                                                                                                                                         |   | Capital                        |       | Compensation |   | Deficit     |        | Loss          |   | Equity (Deficit)   
|                                               |                                                                                                                                         |   |                                |       |              |   |             |        |               |   |                    
|Balance at December 31, 1995 (carried forward) |                                                                                                                                         | $ | 6,828                          |       |              | $ |            |        |               | $ | (7,240              | )      |                   |  |  |  |  | $ | (410  | )     
|                                               | Issuance of Series D convertible preferred stock at $7.25 per share for
cash in March and April 1996, net of offering costs of $536     |   |                                | 8,101 |              |   |             |       |               |   |                     |       |                   |  |  |  |  |   |       | 8,101  |  
|                                               | Exercise of common stock options at $0.10, $0.30, and $0.45 per share in
August and October 1996                                        |   |                                | 43    |              |   |             |       |               |   |                     |       |                   |  |  |  |  |   |       | 43     |  
|                                               | Net loss                                                                                                                                |   |                                |      |              |   |             |       |               |   |                     | (1,931 | )                 |  |  |  |  |   |       | (1,931 | )
|Balance at December 31, 1996                   |                                                                                                                                         |   | 14,972                         |       |              |   |            |        |               |   | (9,171              | )      |                   |  |  |  |  |   | 5,803 |       
|                                               | Issuance of Series E convertible preferred stock at $7.25 per share for
cash in August and September 1997, net of offering costs of $53 |   |                                | 2,378 |              |   |             |       |               |   |                     |       |                   |  |  |  |  |   |       | 2,378  |  
|                                               | Exercise of common stock options at $0.10, $0.30, and $0.45 per share in
April, August, and September 1997                              |   |                                | 5     |              |   |             |       |               |   |                     |       |                   |  |  |  |  |   |       | 5      |  
|                                               | Net loss                                                                                                                                |   |                                |      |              |   |             |       |               |   |                     | (3,868 | )                 |  |  |  |  |   |       | (3,868 | )
|Balance at December 31, 1997                   |                                                                                                                                         |   | 17,355                         |       |              |   |            |        |               |   | (13,039             | )      |                   |  |  |  |  |   | 4,318 |       
|                                               | Exercise of common stock options at $0.10, $0.20, $1.27, and $1.45 per
share in May, July, November and December 1998, respectively     |   |                                | 108   |              |   |             |       |               |   |                     |       |                   |  |  |  |  |   |       | 108    |  
|                                               | Compensation expense associated with stock
option modifications                                                                         |   |                                | 56    |              |   |             |       |               |   |                     |       |                   |  |  |  |  |   |       | 56     |  
|                                               | Net loss                                                                                                                                |   |                                |      |              |   |             |       |               |   |                     | (3,815 | )                 |  |  |  |  |   |       | (3,815 | )
|Balance at December 31, 1998                   |                                                                                                                                         |   | 17,519                         |       |              |   |            |        |               |   | (16,854             | )      |                   |  |  |  |  |   | 667   |       
|                                               | Exercise of common stock options at $.725 and $1.45 per share in April,
June and August 1999                                            |   |                                | 32    |              |   |             |       |               |   |                     |       |                   |  |  |  |  |   |       | 32     |  
|                                               | Issuance of Series F convertible preferred stock at $8.73 per share for cash                                                            |   |                                | 3,956 |              |   |             |       |               |   |                     |       |                   |  |  |  |  |   |       | 3,956  |  
|                                               | Compensation expense associated with stock option grants                                                                                |   |                                | 3,436 |              |   |             | (3,247 | )             |   |                     |       |                   |  |  |  |  |   |       | 189    |  
|                                               | Net loss                                                                                                                                |   |                                |      |              |   |             |       |               |   |                     | (5,458 | )                 |  |  |  |  |   |       | (5,458 | )
|Balance at December 31, 1999                   |                                                                                                                                         |   | 24,943                         |       |              |   | (3,247      | )      |               |   | (22,312             | )      |                   |  |  |  |  |   | (614  | )     

See accompanying Notes to Condensed Consolidated Financial Statements

6



---



##### 



ReGen Biologics, Inc.
(A DEVELOPMENT STAGE COMPANY)
Condensed Statement of Changes in Stockholders Equity (Deficit) and Series A
and Series C Redeemable Convertible Preferred Stock
Period from December 21, 1989 (inception) to September 30, 2003 (unaudited)(In thousands, except share data)



|                                               |                                                                                          |  |                        |  |                        |  |                 |  |                    |  |              |  |        |  |        |  |        |  |                                |   |        |   |   |   |  |  |  |  |  |  |  |  |  |  |           |        |  |   |   |   | 
|---------------------------------------------- | ---------------------------------------------------------------------------------------- |  | ---------------------- |  | ---------------------- |  | --------------- |  | ------------------ |  | ------------ |  | ------ |  | ------ |  | ------ |  | ------------------------------ | - | ------ | - | - | - |  |  |  |  |  |  |  |  |  |  | --------- | ------ |  | - | - | - | 
|                                               |                                                                                          |  |                        |  |                        |  |                 |  |                    |  |              |  |        |  |        |  |        |  | Stockholders' Equity (Deficit)
|                                               |                                                                                          |  |                        |  |                        |  |                 |  |                    |  |              |  |        |  |        |  |        |  |                               
|                                               |                                                                                          |  | Redeemable Convertible |  | Redeemable Convertible |  | Convertible     |  | Convertible        |  |              |  |        |  |        |  |       
|                                               |                                                                                          |  | Preferred Series A     |  | Preferred Series C     |  | Preferred Stock |  | Preferred Series B |  | Common Stock
|                                               |                                                                                          |  |                        |  |                        |  |                 |  |                    |  |             
|                                               |                                                                                          |  | Shares                 |  | Amount                 |  | Shares          |  | Amount             |  | Shares       |  | Amount |  | Shares |  | Amount |  | Shares                         |   | Amount
|                                               |                                                                                          |  |                        |  |                        |  |                 |  |                    |  |              |  |        |  |        |  |        |  |                                |   |       
|Balance at December 31, 1999
(carried forward) |                                                                                          |  |                        |  |                        |  |                 |  |                    |  |              |  |        |  |        |  |        |  | 4,481,835                      |   |        | $ | 1 |   |  |  |  |  |  |  |  |  |  |  | 2,502,919 |        |  | $ | 1 |  
|                                               | Compensation expense associated
with stock option grants in prior
year                   |  |                        |  |                        |  |                 |  |                    |  |              |  |        |  |        |  |        |  |                                |  |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           |       |  |   |   |  | 
|                                               | Compensation expense associated
with stock option grants in
current year                 |  |                        |  |                        |  |                 |  |                    |  |              |  |        |  |        |  |        |  |                                |  |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           |       |  |   |   |  | 
|                                               | Stock options cancelled during 2000                                                      |  |                        |  |                        |  |                 |  |                    |  |              |  |        |  |        |  |        |  |                                |  |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           |       |  |   |   |  | 
|                                               | Net loss                                                                                 |  |                        |  |                        |  |                 |  |                    |  |              |  |        |  |        |  |        |  |                                |  |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           |       |  |   |   |  | 
|Balance at December 31, 2000                   |                                                                                          |  |                        |  |                        |  |                 |  |                    |  |              |  |        |  |        |  |        |  | 4,481,835                      |   |        |   | 1 |   |  |  |  |  |  |  |  |  |  |  | 2,502,919 |        |  |   | 1 |  
|                                               | Exercise of common stock options
at $.10 per share in 2001                               |  |                        |  |                        |  |                 |  |                    |  |              |  |        |  |        |  |        |  |                                |  |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           | 25,000 |  |   |   |  | 
|                                               | Exercise of common stock options
at $1.45 per share in 2001                              |  |                        |  |                        |  |                 |  |                    |  |              |  |        |  |        |  |        |  |                                |  |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           | 125    |  |   |   |  | 
|                                               | Compensation expense associated
with stock option grants in prior
years                  |  |                        |  |                        |  |                 |  |                    |  |              |  |        |  |        |  |        |  |                                |  |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           |       |  |   |   |  | 
|                                               | Compensation expense associated
with stock option grants in
current year                 |  |                        |  |                        |  |                 |  |                    |  |              |  |        |  |        |  |        |  |                                |  |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           |       |  |   |   |  | 
|                                               | Stock options cancelled during 2001                                                      |  |                        |  |                        |  |                 |  |                    |  |              |  |        |  |        |  |        |  |                                |  |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           |       |  |   |   |  | 
|                                               | Deferred stock compensation
associated with stock option
grants to non-employees in 2001 |  |                        |  |                        |  |                 |  |                    |  |              |  |        |  |        |  |        |  |                                |  |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           |       |  |   |   |  | 
|                                               | Net loss                                                                                 |  |                        |  |                        |  |                 |  |                    |  |              |  |        |  |        |  |        |  |                                |  |        |   |   |  |  |  |  |  |  |  |  |  |  |  |           |       |  |   |   |  | 
|Balance at December 31, 2001                   |                                                                                          |  |                        |  |                        |  |                 |  |                    |  |              |  |        |  |        |  |        |  | 4,481,835                      |   |        |   | 1 |   |  |  |  |  |  |  |  |  |  |  | 2,528,044 |        |  |   | 1 |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                               |                                                                                          |   |                                |        |              |   |             |        |               |   |                     |        |       |  |             |  |  |   |        |        |  
|---------------------------------------------- | ---------------------------------------------------------------------------------------- | - | ------------------------------ | ------ | ------------ | - | ----------- | ------ | ------------- | - | ------------------- | ------ | ----- |  | ----------- |  |  | - | ------ | ------ | -
|                                               |                                                                                          |   | Stockholders' Equity (Deficit)
|                                               |                                                                                          |   |                               
|                                               |                                                                                          |   |                                |        |              |   |             |        |               |   |                     |        |       |  | Accumulated |  |  |   |       
|                                               |                                                                                          |   | Additional                     |        |              |   |             |        |               |   |                     |        | Other |  |             |  | 
|                                               |                                                                                          |   | Paid In                        |        | Deferred     |   | Accumulated |        | Comprehensive |   | Total Stockholders'
|                                               |                                                                                          |   | Capital                        |        | Compensation |   | Deficit     |        | Loss          |   | Equity (Deficit)   
|                                               |                                                                                          |   |                                |        |              |   |             |        |               |   |                    
|Balance at December 31, 1999
(carried forward) |                                                                                          | $ | 24,943                         |        |              | $ | (3,247      | )      |               | $ | (22,312             | )      |       |  |             |  |  | $ | (614   | )     
|                                               | Compensation expense associated
with stock option grants in prior
year                   |   |                                |       |              |   |             | 738    |               |   |                     |       |       |  |             |  |  |   |        | 738    |  
|                                               | Compensation expense associated
with stock option grants in
current year                 |   |                                | 2,124  |              |   |             | (1,642 | )             |   |                     |       |       |  |             |  |  |   |        | 482    |  
|                                               | Stock options cancelled during 2000                                                      |   |                                | (1,089 | )            |   |             | 1,089  |               |   |                     |       |       |  |             |  |  |   |        |       |  
|                                               | Net loss                                                                                 |   |                                |       |              |   |             |       |               |   |                     | (5,229 | )     |  |             |  |  |   |        | (5,229 | )
|Balance at December 31, 2000                   |                                                                                          |   | 25,978                         |        |              |   | (3,062      | )      |               |   | (27,541             | )      |       |  |             |  |  |   | (4,623 | )     
|                                               | Exercise of common stock options
at $.10 per share in 2001                               |   |                                | 3      |              |   |             |       |               |   |                     |       |       |  |             |  |  |   |        | 3      |  
|                                               | Exercise of common stock options
at $1.45 per share in 2001                              |   |                                |       |              |   |             |       |               |   |                     |       |       |  |             |  |  |   |        |       |  
|                                               | Compensation expense associated
with stock option grants in prior
years                  |   |                                |       |              |   |             | 935    |               |   |                     |       |       |  |             |  |  |   |        | 935    |  
|                                               | Compensation expense associated
with stock option grants in
current year                 |   |                                | 1,010  |              |   |             | (833   | )             |   |                     |       |       |  |             |  |  |   |        | 177    |  
|                                               | Stock options cancelled during 2001                                                      |   |                                | (161   | )            |   |             | 161    |               |   |                     |       |       |  |             |  |  |   |        |       |  
|                                               | Deferred stock compensation
associated with stock option
grants to non-employees in 2001 |   |                                | 228    |              |   |             | (131   | )             |   |                     |       |       |  |             |  |  |   |        | 97     |  
|                                               | Net loss                                                                                 |   |                                |       |              |   |             |       |               |   |                     | (4,330 | )     |  |             |  |  |   |        | (4,330 | )
|Balance at December 31, 2001                   |                                                                                          |   | 27,058                         |        |              |   | (2,930      | )      |               |   | (31,871             | )      |       |  |             |  |  |   | (7,741 | )     

See accompanying Notes to Condensed Consolidated Financial Statements

7



---



##### 



ReGen Biologics, Inc.
(A DEVELOPMENT STAGE COMPANY)
Condensed Statement of Changes in Stockholders Equity (Deficit) and Series A
and Series C Redeemable Convertible Preferred Stock
Period from December 21, 1989 (inception) to September 30, 2003 (unaudited)(In thousands, except share data)



|                                                                                                                                                                                                  |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  |            |            |   |   |     |    |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ---------- | ---------------------- | - | --------------- | ----- | --------------------- |  | ------------ |  | ------ | - | ------ | ------ | ------ |  | ------------------------------------ | ---------- | ------ | - | - | -- | - |  | ----------- | ---------- |  | - | ---- | --- |  |  | ---------- | ---------- | - | - | --- | -- | -
|                                                                                                                                                                                                  |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  | Stockholders
      Equity (Deficit)
|                                                                                                                                                                                                  |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                     
|                                                                                                                                                                                                  |                                                                                                                                           |  | Redeemable Convertible |            | Redeemable Convertible |   | Convertible     |       | Convertible Preferred |  |              |  |        |   |        |        |       
|                                                                                                                                                                                                  |                                                                                                                                           |  | Preferred Series A     |            | Preferred Series C     |   | Preferred Stock |       | Series B              |  | Common Stock
|                                                                                                                                                                                                  |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |             
|                                                                                                                                                                                                  |                                                                                                                                           |  | Shares                 |            | Amount                 |   | Shares          |       | Amount                |  | Shares       |  | Amount |   | Shares |        | Amount |  | Shares                               |            | Amount
|                                                                                                                                                                                                  |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      |            |       
|Balance
        at December 31, 2001 (carried forward)                                                                                                                                            |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  | 4,481,835                            |            |        | $ | 1 |    |   |  |             |            |  |   |      |     |  |  | 2,528,044  |            |   | $ | 1   |   
|Issuance
        of Common Stock                                                                                                                                                                  |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  | 301,930    |            |   |   | 1   |   
|Issuance
        of Convertible Preferred Stock for cash and conversion of bridge financing
        net of issuance costs of $138                                                                 |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  | 5,564,047                            |            |        |   | 1 |    |   |  |             |            |  |   |      |     |  |  |            |            |   |   |     |   
|Deferred
        stock compensation associated with stock option grants in 2002                                                                                                                   |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  |            |            |   |   |     |   
|Compensation
        expense associated with stock options outstanding                                                                                                                            |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  |            |            |   |   |     |   
|Effect
        of reverse merger and recapitalization:                                                                                                                                            |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  |            |            |   |   |     |   
|                                                                                                                                                                                                  | Valuation
        of warrants associated with bridge financing                                                                            |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  |            |            |   |   |     |    |  
|                                                                                                                                                                                                  | Valuation
        of beneficial conversion associated with bridge Financing                                                               |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  |            |            |   |   |     |    |  
|                                                                                                                                                                                                  | Compensation
        expense associated with stock options outstanding recognized as a result
        of the reverse merger               |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  |            |            |   |   |     |    |  
|                                                                                                                                                                                                  | Conversion
        of convertible preferred shares to Redeemable Convertible Preferred Series A
        at liquidation / redemption value |  |                        | 15,298,351 |                        |   | $               | 6,855 |                       |  |              |  |        |   |        |        |        |  |                                      | (5,564,047 | )      |   |   | (1 | ) |  |             |            |  |   |      |     |  |  |            |            |   |   |     |    |  
|                                                                                                                                                                                                  | Conversion
        of convertible preferred shares to Common Stock and Series B Preferred
        Shares                                  |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      | (4,481,835 | )      |   |   | (1 | ) |  |             | 12,025,656 |  |   | $    | 120 |  |  |            | 297,146    |   |   |     | 3  |  
|Conversion
        of Subsidiary Common Stock into Company Common Stock and Series B
        Preferred Shares:                                                                                    |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  |            |            |   |   |     |   
|                                                                                                                                                                                                  | Elimination
        of Subsidiary Common Stock                                                                                            |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  |            | (2,829,974 | ) |   |     | (1 | )
|                                                                                                                                                                                                  | Issuance
        of Company Common Stock                                                                                                  |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  |            | 7,781,018  |   |   |     | 78 |  
|Company
        Common Stock and related equity held by existing shareholders (net of
        18,115 shares held treasury)                                                                        |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  | 8,966,966  |            |   |   | 89  |   
|Minimum
        Pension Liability                                                                                                                                                                 |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  |            |            |   |   |     |   
|Conversion
        of Convertible Preferred Series B Stock to Company Common Stock                                                                                                                |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      |            |        |   |   |    |   |  | (12,025,656 | )          |  |   | (120 | )   |  |  | 12,025,656 |            |   |   | 120 |   
|Net
        loss                                                                                                                                                                                  |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  |            |            |   |   |     |   
|Balance
        at December 31, 2002                                                                                                                                                              |                                                                                                                                           |  | 15,298,351             |            |                        |   | 6,855           |       |                       |  |              |  |        |   |        |        |        |  |                                     |            |        |   |  |    |   |  |            |            |  |   |     |     |  |  | 29,070,786 |            |   |   | 291 |   
|Compensation
        expense associated with stock options outstanding                                                                                                                            |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  |            |            |   |   |     |   
|Issuance
        of Redeemable Convertible Preferred Series C Stock, net of issuance
        costs of $575, which includes the issuance of non-cash consideration in
        the form of warrants |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  | 22,246,153   |  |        | $ | 9,394  |        |        |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  |            |            |   |   |     |   
|                                                                                                                                                                                                  | Issuance
        of Common Stock warrants to Series C Stockholders                                                                        |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        | (969   | )      |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  |            |            |   |   |     |    |  
|                                                                                                                                                                                                  | Valuation
        of beneficial conversion associated with Series C Stock financing                                                       |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        | (4,292 | )      |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  |            |            |   |   |     |    |  
|Accretion of beneficial conversion associated with Series C Stock financing                                                                                                                       |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   | 4,292  |        |        |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  |            |            |   |   |     |   
|Net
        loss                                                                                                                                                                                  |                                                                                                                                           |  |                        |            |                        |   |                 |       |                       |  |              |  |        |   |        |        |        |  |                                      |            |        |   |   |    |   |  |             |            |  |   |      |     |  |  |            |            |   |   |     |   
|Balance
        at September 30, 2003 (unaudited)                                                                                                                                                 |                                                                                                                                           |  | 15,298,351             |            |                        | $ | 6,855           |       |                       |  | 22,246,153   |  |        | $ | 8,425  |        |        |  |                                     |            |        | $ |  |    |   |  |            |            |  | $ |     |     |  |  | 29,070,786 |            |   | $ | 291 |   

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                                                                                                                                  |                                                                                                                                           |   |                                      |        |              |   |             |       |               |   |           |   |       |   |                     |   |  |   |         |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------------------------ | ------ | ------------ | - | ----------- | ----- | ------------- | - | --------- | - | ----- | - | ------------------- | - |  | - | ------- | ------ | -
|                                                                                                                                                                                                  |                                                                                                                                           |   | Stockholders
      Equity (Deficit)
|                                                                                                                                                                                                  |                                                                                                                                           |   |                                     
|                                                                                                                                                                                                  |                                                                                                                                           |   |                                      |        |              |   |             |       |               |   |           |   |       |   | Accumulated         |   |  |   |        
|                                                                                                                                                                                                  |                                                                                                                                           |   | Additional                           |        |              |   |             |       |               |   |           |   | Other |   | Total Stockholders
|                                                                                                                                                                                                  |                                                                                                                                           |   | Paid In                              |        | Deferred     |   | Accumulated |       | Comprehensive |   | Equity   
|                                                                                                                                                                                                  |                                                                                                                                           |   | Capital                              |        | Compensation |   | Deficit     |       | Loss          |   | (Deficit)
|                                                                                                                                                                                                  |                                                                                                                                           |   |                                      |        |              |   |             |       |               |   |          
|Balance
        at December 31, 2001 (carried forward)                                                                                                                                            |                                                                                                                                           | $ | 27,058                               |        |              | $ | (2,930      | )     |               | $ | (31,871   | ) |       |   |                     |   |  | $ | (7,741  | )     
|Issuance
        of Common Stock                                                                                                                                                                  |                                                                                                                                           |   | 104                                  |        |              |   |             |       |               |   |           |   |       |   |                     |   |  |   | 105     |       
|Issuance
        of Convertible Preferred Stock for cash and conversion of bridge financing
        net of issuance costs of $138                                                                 |                                                                                                                                           |   | 6,716                                |        |              |   |             |       |               |   |           |   |       |   |                     |   |  |   | 6,717   |       
|Deferred
        stock compensation associated with stock option grants in 2002                                                                                                                   |                                                                                                                                           |   | 370                                  |        |              |   | (370        | )     |               |   |           |   |       |   |                     |   |  |   |         |       
|Compensation
        expense associated with stock options outstanding                                                                                                                            |                                                                                                                                           |   |                                      |        |              |   | 452         |       |               |   |           |   |       |   |                     |   |  |   | 452     |       
|Effect
        of reverse merger and recapitalization:                                                                                                                                            |                                                                                                                                           |   |                                      |        |              |   |             |       |               |   |           |   |       |   |                     |   |  |   |         |       
|                                                                                                                                                                                                  | Valuation
        of warrants associated with bridge financing                                                                            |   |                                      | 657    |              |   |             |       |               |   |           |   |       |   |                     |   |  |   |         | 657    |  
|                                                                                                                                                                                                  | Valuation
        of beneficial conversion associated with bridge Financing                                                               |   |                                      | 843    |              |   |             |       |               |   |           |   |       |   |                     |   |  |   |         | 843    |  
|                                                                                                                                                                                                  | Compensation
        expense associated with stock options outstanding recognized as a result
        of the reverse merger               |   |                                      |        |              |   |             | 2,848 |               |   |           |   |       |   |                     |   |  |   |         | 2,848  |  
|                                                                                                                                                                                                  | Conversion
        of convertible preferred shares to Redeemable Convertible Preferred Series A
        at liquidation / redemption value |   |                                      | (6,854 | )            |   |             |       |               |   |           |   |       |   |                     |   |  |   |         | (6,855 | )
|                                                                                                                                                                                                  | Conversion
        of convertible preferred shares to Common Stock and Series B Preferred
        Shares                                  |   |                                      | (122   | )            |   |             |       |               |   |           |   |       |   |                     |   |  |   |         |        |  
|Conversion
        of Subsidiary Common Stock into Company Common Stock and Series B
        Preferred Shares:                                                                                    |                                                                                                                                           |   |                                      |        |              |   |             |       |               |   |           |   |       |   |                     |   |  |   |         |       
|                                                                                                                                                                                                  | Elimination
        of Subsidiary Common Stock                                                                                            |   |                                      | 1      |              |   |             |       |               |   |           |   |       |   |                     |   |  |   |         |        |  
|                                                                                                                                                                                                  | Issuance
        of Company Common Stock                                                                                                  |   |                                      | (78    | )            |   |             |       |               |   |           |   |       |   |                     |   |  |   |         |        |  
|Company
        Common Stock and related equity held by existing shareholders (net of
        18,115 shares held treasury)                                                                        |                                                                                                                                           |   | 2,678                                |        |              |   |             |       |               |   |           |   |       |   |                     |   |  |   | 2,767   |       
|Minimum
        Pension Liability                                                                                                                                                                 |                                                                                                                                           |   |                                      |        |              |   |             |       |               |   |           |   |       | $ | (58                 | ) |  |   | (58     | )     
|Conversion
        of Convertible Preferred Series B Stock to Company Common Stock                                                                                                                |                                                                                                                                           |   |                                      |        |              |   |             |       |               |   |           |   |       |   |                     |   |  |   |         |       
|Net
        loss                                                                                                                                                                                  |                                                                                                                                           |   |                                      |        |              |   |             |       |               |   | (9,951    | ) |       |   |                     |   |  |   | (9,951  | )     
|Balance
        at December 31, 2002                                                                                                                                                              |                                                                                                                                           |   | 31,373                               |        |              |   |            |       |               |   | (41,822   | ) |       |   | (58                 | ) |  |   | (10,216 | )     
|Compensation
        expense associated with stock options outstanding                                                                                                                            |                                                                                                                                           |   | 36                                   |        |              |   |             |       |               |   |           |   |       |   |                     |   |  |   | 36      |       
|Issuance
        of Redeemable Convertible Preferred Series C Stock, net of issuance
        costs of $575, which includes the issuance of non-cash consideration in
        the form of warrants |                                                                                                                                           |   | 97                                   |        |              |   |             |       |               |   |           |   |       |   |                     |   |  |   | 97      |       
|                                                                                                                                                                                                  | Issuance
        of Common Stock warrants to Series C Stockholders                                                                        |   |                                      | 969    |              |   |             |       |               |   |           |   |       |   |                     |   |  |   |         | 969    |  
|                                                                                                                                                                                                  | Valuation
        of beneficial conversion associated with Series C Stock financing                                                       |   |                                      | 4,292  |              |   |             |       |               |   |           |   |       |   |                     |   |  |   |         |       |  
|Accretion of beneficial conversion associated
      with Series C Stock financing                                                                                                                 |                                                                                                                                           |   |                                      |        |              |   |             |       |               |   | (4,292    | ) |       |   |                     |   |  |   |         |       
|Net
        loss                                                                                                                                                                                  |                                                                                                                                           |   |                                      |        |              |   |             |       |               |   | (3,719    | ) |       |   |                     |   |  |   | (3,719  | )     
|Balance
        at September 30, 2003 (unaudited)                                                                                                                                                 |                                                                                                                                           | $ | 36,767                               |        |              | $ |            |       |               | $ | (49,833   | ) |       | $ | (58                 | ) |  | $ | (12,833 | )     

See accompanying Notes to Condensed Consolidated Financial Statements

8



---



##### 



REGEN BIOLOGICS, INC.
(A Development Stage Company)CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

|                                                                                                    |                                                                               |                                                                                       |                                                 |       |                                         |     |                   |   |                    |     |         |       |             |      |  
|--------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ----------------------------------------------- | ----- | --------------------------------------- | --- | ----------------- | - | ------------------ | --- | ------- | ----- | ----------- | ---- | -
|                                                                                                    |                                                                               |                                                                                       |                                                 |       |                                         |     |                   |   |                    |     |         |       | Period from
|                                                                                                    |                                                                               |                                                                                       |                                                 |       | Nine Months Ended
        September 30, |     | December 21, 1989
|                                                                                                    |                                                                               |                                                                                       |                                                 |       |                                         |     | (Inception) to   
|                                                                                                    |                                                                               |                                                                                       |                                                 |       | 2003                                    |     | 2002              |   | September 30, 2003
|                                                                                                    |                                                                               |                                                                                       |                                                 |       |                                         |     |                   |   |                   
|                                                                                                    |                                                                               |                                                                                       |                                                 |       | (unaudited)                             |     | (unaudited)       |   | (unaudited)       
|                                                                                                    |                                                                               |                                                                                       |                                                 |       |                                         |     |                   |   |                   
|Operating
          Activities                                                                      |                                                                               |                                                                                       |                                                 |       |                                         |     |                   |   |                    |     |         |      
|Net
          loss                                                                                  |                                                                               | $                                                                                     | (3,719                                          | )     |                                         | $   | (8,879            | ) |                    | $   | (45,541 | )    
|Adjustments
          to reconcile net loss to net cash used in operating activities:               |                                                                               |                                                                                       |                                                 |       |                                         |     |                   |   |                    |     |         |      
|                                                                                                    |                                                                               | Compensation
          expense associated with stock options                          |                                                 |       | 36                                      |     |                   |   | 3,300              |     |         |       | 6,011       |     
|                                                                                                    |                                                                               | Issuance
          of common stock to consultant for services                         |                                                 |       |                                        |     |                   |   |                   |     |         |       | 2           |     
|                                                                                                    |                                                                               | Amortization
          of debt discount for warrant and beneficial conversion feature |                                                 |       |                                        |     |                   |   | 1,500              |     |         |       | 1,500       |     
|                                                                                                    |                                                                               | Non-cash
          interest expense                                                   |                                                 |       | 92                                      |     |                   |   | 233                |     |         |       | 973         |     
|                                                                                                    |                                                                               | Depreciation
          and amortization                                               |                                                 |       | 78                                      |     |                   |   | 179                |     |         |       | 2,111       |     
|                                                                                                    |                                                                               | Loss
          on disposal of property and equipment                                  |                                                 |       |                                        |     |                   |   |                   |     |         |       | 9           |     
|                                                                                                    |                                                                               | Changes
          in operating assets and liabilities:                                |                                                 |       |                                         |     |                   |   |                    |     |         |       |             |     
|                                                                                                    |                                                                               |                                                                                       | Other
          current assets and receivables  |       |                                         | (97 | )                 |   |                    | (26 | )       |       |             | (222 | )
|                                                                                                    |                                                                               |                                                                                       | Inventory                                       |       |                                         | 27  |                   |   |                    | 77  |         |       |             | (235 | )
|                                                                                                    |                                                                               |                                                                                       | Other
          assets                          |       |                                         | 22  |                   |   |                    |    |         |       |             | (109 | )
|                                                                                                    |                                                                               |                                                                                       | Accounts
          payable and accrued expenses |       |                                         | 129 |                   |   |                    | 353 |         |       |             | 480  |  
|                                                                                                    |                                                                               |                                                                                       | Other
          liabilities                     |       |                                         | (25 | )                 |   |                    |    |         |       |             | 16   |  
|                                                                                                    |                                                                               |                                                                                       |                                                 |       |                                         |     |                   |   |                    |     |         |      
|Net
          cash used in operating activities                                                     |                                                                               |                                                                                       | (3,457                                          | )     |                                         |     | (3,263            | ) |                    |     | (35,005 | )    
|                                                                                                    |                                                                               |                                                                                       |                                                 |       |                                         |     |                   |   |                    |     |         |      
|Investing
          Activities                                                                      |                                                                               |                                                                                       |                                                 |       |                                         |     |                   |   |                    |     |         |      
|Purchases
          of property and equipment                                                       |                                                                               |                                                                                       | (20                                             | )     |                                         |     |                  |   |                    |     | (1,959  | )    
|Changes
          in short-term investments                                                         |                                                                               |                                                                                       | 3,473                                           |       |                                         |     | (1,684            | ) |                    |     | 2,945   |      
|                                                                                                    |                                                                               |                                                                                       |                                                 |       |                                         |     |                   |   |                    |     |         |      
|Net
          cash provided by (used in) investing activities                                       |                                                                               |                                                                                       | 3,453                                           |       |                                         |     | (1,684            | ) |                    |     | 986     |      
|                                                                                                    |                                                                               |                                                                                       |                                                 |       |                                         |     |                   |   |                    |     |         |      
|Financing
          Activities                                                                      |                                                                               |                                                                                       |                                                 |       |                                         |     |                   |   |                    |     |         |      
|Reduction
          in payable to stockholder                                                       |                                                                               |                                                                                       |                                                |       |                                         |     |                  |   |                    |     | (76     | )    
|Proceeds
          from issuance of convertible preferred stock, net of
offering costs paid in cash |                                                                               |                                                                                       | 9,491                                           |       |                                         |     | 3,857             |   |                    |     | 34,258  |      
|Proceeds
          from issuance of common stock                                                    |                                                                               |                                                                                       |                                                |       |                                         |     | 105               |   |                    |     | 301     |      
|Repayment
          on capital lease obligations                                                    |                                                                               |                                                                                       | (4                                              | )     |                                         |     | (3                | ) |                    |     | (116    | )    
|Proceeds
          from notes payable                                                               |                                                                               |                                                                                       |                                                |       |                                         |     | 988               |   |                    |     | 11,410  |      
|Payments
          on notes payable                                                                 |                                                                               |                                                                                       |                                                |       |                                         |     |                  |   |                    |     | (2,323  | )    
|Other                                                                                               |                                                                               |                                                                                       |                                                |       |                                         |     |                  |   |                    |     | 48      |      
|                                                                                                    |                                                                               |                                                                                       |                                                 |       |                                         |     |                   |   |                    |     |         |      
|Net
          cash provided by financing activities                                                 |                                                                               |                                                                                       | 9,487                                           |       |                                         |     | 4,947             |   |                    |     | 43,502  |      
|                                                                                                    |                                                                               |                                                                                       |                                                 |       |                                         |     |                   |   |                    |     |         |      
|Net
          increase in cash                                                                      |                                                                               |                                                                                       | 9,483                                           |       |                                         |     |                  |   |                    |     | 9,483   |      
|Cash
          at beginning of period                                                               |                                                                               |                                                                                       | 1                                               |       |                                         |     | 1                 |   |                    |     | 1       |      
|                                                                                                    |                                                                               |                                                                                       |                                                 |       |                                         |     |                   |   |                    |     |         |      
|Cash
          at end of period                                                                     |                                                                               | $                                                                                     | 9,484                                           |       |                                         | $   | 1                 |   |                    | $   | 9,484   |      
|                                                                                                    |                                                                               |                                                                                       |                                                 |       |                                         |     |                   |   |                    |     |         |      
|Supplemental
          Disclosure of Cash Flow Information                                          |                                                                               |                                                                                       |                                                 |       |                                         |     |                   |   |                    |     |         |      
|Non-cash
          disclosure:                                                                      |                                                                               |                                                                                       |                                                 |       |                                         |     |                   |   |                    |     |         |      
|                                                                                                    | Beneficial
          Conversion of Series C Stock                             |                                                                                       | $                                               | 4,292 |                                         |     | $                 |  |                    |     | $       | 4,292 |            
|                                                                                                    | Warrants
          associated with Series C Stock                             |                                                                                       |                                                 | 969   |                                         |     |                   |  |                    |     |         | 969   |            
|                                                                                                    | Warrants
          associated with Series C Stock private placement agent fee |                                                                                       |                                                 | 97    |                                         |     |                   |  |                    |     |         | 97    |            

See accompanying Notes to Condensed Consolidated Financial Statements.

9



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##### 



REGEN BIOLOGICS, INC.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

On June 21, 2002, ReGen Biologics, Inc (ReGen or the Company) acquired
RBio, Inc., formerly named ReGen Biologics, Inc. The acquisition was recorded
for accounting purposes as a reverse merger and recapitalization. For purposes
of this Form 10-Q, the historical financial statements of RBio, Inc., including
related notes, have replaced the prior historical financial statements of the
Company.

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and do not
include all the information and notes required by accounting principles
generally accepted in the United States for complete financial statements. In
the opinion of management, the accompanying condensed consolidated financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position and the results of
operations for the interim periods.

ReGen will continue to require additional capital to further develop its
products and further develop sales and distribution channels for its products
around the world. Accordingly, the Company is still considered a development
stage enterprise. Management believes that ReGen will emerge from the
development stage when the Collagen Meniscus Implant, or CMI, product is
available for sale in the U.S. or sales of all of its products have reached a
volume that will provide for positive gross margins.

For further information, refer to the consolidated financial statements
and notes included in ReGens Annual Report on Form 10-K/A for the year ended
December 31, 2002.

ReGen currently operates in one business segment that designs, develops,
manufactures and markets minimally invasive human implants and medical devices
for the repair and regeneration of damaged human tissue. ReGen is managed and
operated as one business segment. Accordingly, ReGen does not prepare financial
information for separate product areas and does not have separate reportable
segments as defined by Statement of Financial Accounting Standards (SFAS) No.
131, Disclosure about Segments of an Enterprise and Related Information.

Concentrations of Risk

The Company currently has two principal customers that market and sell the
Companys two currently available products. The first customer has the license
to sell the Sharp Shooter product (customer A). The second customer, which is also a
stockholder of the Company, has the license to sell the CMI product outside of
the United States (customer B). Both customers have an exclusive perpetual license, subject
to certain performance criteria, to sell our products in various geographic
areas. As of September 30, 2003 and December 31, 2002, approximately $41 and
$49, respectively, were included in receivables from related parties and related to reimbursable
travel costs to be paid by customer B. Concentrations of receivables and
receivables from related parties and revenues by customer as of and for the
quarters ended September 30, 2003 and 2002 are as follows:

10



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##### 



|                |  |            |  |  |     |                    |  |                   |     |      |  |      |     |   |  |  |     |   |  | 
|--------------- |  | ---------- |  |  | --- | ------------------ |  | ----------------- | --- | ---- |  | ---- | --- | - |  |  | --- | - |  | 
|                |  |            |  |  |     | Three Months Ended |  | Nine Months Ended
|                |  |            |  |  |     | September 30,      |  | September 30,    
|                |  |            |  |  |     |                    |  |                  
|                |  |            |  |  |     | 2003               |  | 2002              |     | 2003 |  | 2002
|                |  |            |  |  |     |                    |  |                   |     |      |  |     
|Receivables:    |  |            |  |  |     |                    |  |                   |     |      |  |      |     |   |  |  |     |   |  | 
|                |  | Customer A |  |  |    | %                  |  |                   | 34  | %    |  |      |    | % |  |  | 34  | %
|                |  | Customer B |  |  | 100 | %                  |  |                   | 66  | %    |  |      | 100 | % |  |  | 66  | %
|Sales revenues: |  |            |  |  |     |                    |  |                   |     |      |  |      |     |   |  |  |     |   |  | 
|                |  | Customer A |  |  | 17  | %                  |  |                   | 61  | %    |  |      | 23  | % |  |  | 62  | %
|                |  | Customer B |  |  | 83  | %                  |  |                   | 39  | %    |  |      | 77  | % |  |  | 38  | %
|Royalties:      |  |            |  |  |     |                    |  |                   |     |      |  |      |     |   |  |  |     |   |  | 
|                |  | Customer A |  |  | 100 | %                  |  |                   | 100 | %    |  |      | 100 | % |  |  | 100 | %

Adoption of New Accounting Pronouncements

In December 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 148, Accounting for Stock-Based CompensationTransition and
Disclosurean amendment of SFAS 123.This statement amends SFAS No. 123,
Accounting for Stock-Based Compensation,to provide alternative methods of
transition for voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company has chosen to continue to account for employee stock-based
compensation using the intrinsic value method prescribed in APB Opinion No. 25
and related Interpretations. Accordingly, compensation expense for stock
options issued to employees is measured as the excess, if any, of the fair
market value of the Companys stock at the date of the grant over the exercise
price of the related option.

Had compensation costs for the Companys stock options issued to employees
been determined based on SFAS No. 123, the Companys net loss and loss per
share would have been as follows:

|                                                                                                                                                           |  |                    |        |                                |  |      |        |      |  |   |        |   |  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ------------------------------ |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------- | -
|                                                                                                                                                           |  | Three Months Ended |        |                                |  |      |        |      |  |  
|                                                                                                                                                           |  | September 30       |        | Nine Months Ended September 30
|                                                                                                                                                           |  |                    |        |                               
|                                                                                                                                                           |  | 2003               |        | 2002                           |  | 2003 |        | 2002
|                                                                                                                                                           |  |                    |        |                                |  |      |        |     
|Net loss, as reported                                                                                                                                      |  | $                  | (1,203 | )                              |  | $    | (1,210 | )    |  | $ | (3,719 | ) |  | $ | (8,879  | )
|Add: Total stock-based
employee compensation expense
as reported under intrinsic
value method (APB No. 25) for
all awards, net of related tax
effects      |  |                    | 34     |                                |  |      |       |      |  |   | 34     |   |  |   | 3,128   |  
|Deduct: Total stock-based
employee compensation expense
determined under fair value
based method (SFAS No. 123)
for all awards, net of related
tax effects |  |                    | (46    | )                              |  |      |       |      |  |   | (138   | ) |  |   | (6,037  | )
|                                                                                                                                                           |  |                    |        |                                |  |      |        |      |  |   |        |   |  |   |         |  
|Pro forma net loss                                                                                                                                         |  | $                  | (1,215 | )                              |  | $    | (1,210 | )    |  | $ | (3,823 | ) |  | $ | (11,788 | )
|                                                                                                                                                           |  |                    |        |                                |  |      |        |      |  |   |        |   |  |   |         |  
|Net loss per share:                                                                                                                                        |  |                    |        |                                |  |      |        |      |  |   |        |   |  |   |         |  
|Basic and diluted  as reported                                                                                                                            |  | $                  | (0.04  | )                              |  | $    | (0.07  | )    |  | $ | (0.13  | ) |  | $ | (0.52   | )
|                                                                                                                                                           |  |                    |        |                                |  |      |        |      |  |   |        |   |  |   |         |  
|Basic and diluted  pro forma                                                                                                                              |  | $                  | (0.04  | )                              |  | $    | (0.07  | )    |  | $ | (0.13  | ) |  | $ | (0.69   | )
|                                                                                                                                                           |  |                    |        |                                |  |      |        |      |  |   |        |   |  |   |         |  
|Shares                                                                                                                                                     |  |                    | 29,071 |                                |  |      | 17,045 |      |  |   | 29,071 |   |  |   | 17,045  |  

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
This statement establishes standards for how an issuer classifies and measures
certain financial instruments

11



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##### 



with characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is within its scope as a liability
(or an asset in some circumstances). This statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The Company adopted this statement with no effect to its financial
statements in the third quarter of 2003.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities. Interpretation No. 46 requires a variable interest
entity to be consolidated by a company if that company is subject to a majority
of the risk of loss from the variable interest entitys activities or is
entitled to receive a majority of the entitys residual returns or both.
Currently, entities are generally consolidated by a company that has a
controlling financial interest through ownership of a majority voting interest
in the entity. The Company will be required to adopt Interpretation No. 46 in
the fourth quarter of 2003. The Company is currently evaluating what effects,
if any, the adoption of Interpretation No. 46 will have on its financial
statements.

Reclassifications

Certain prior period and inception to September 30, 2003 balances have
been reclassified to conform to the current years presentation.

Short-term Investments and Cash and Cash Equivalents

At December 31, 2002, all short-term investments were debt securities
classified as held to maturity, and, accordingly, were carried at amortized
cost, which approximates fair value. The cost of securities sold is based on
the specific identification method, when applicable. The Company had $0 and
$3,473 of short-term investments invested in U.S. and foreign government agency
and corporate securities as of September 30, 2003 and December 31, 2002,
respectively. The Company did not have any material realized or unrealized
gains or losses at September 30, 2003 and December 31, 2002 and for the periods
then ended. During the third quarter of 2003, the Company changed its
investment portfolio and as of September 30, 2003, held cash
equivalents of $8,970 in a money market account
and $495 in a sweep account. The Company considers all highly liquid
investments purchased with a maturity of 90 days or less at the date of
acquisition to be cash equivalents and as such has classified the cash held in
the money market account and sweep account as a cash equivalent.

Inventories

Inventories are valued at the lower of actual cost or market, using the
first-in, first-out (FIFO) method. Work in process is calculated by estimating
the number of units that will be successfully converted to finished goods,
based upon a build-up in the stage of completion using estimated labor inputs
for each stage and historical yields reduced by estimated usage for quality
control testing. Inventories consisted of the following:

|                |  |               |     |              |  |   |     | 
|--------------- |  | ------------- | --- | ------------ |  | - | --- | 
|                |  | September 30, |     | December 31,
|                |  | 2003          |     | 2002        
|                |  |               |     |             
|Raw materials   |  | $             | 19  |              |  | $ | 24  | 
|Work in process |  |               | 29  |              |  |   | 146 | 
|Finished goods  |  |               | 187 |              |  |   | 92  | 
|                |  |               |     |              |  |   |     | 
|Total           |  | $             | 235 |              |  | $ | 262 | 
|                |  |               |     |              |  |   |     | 

As of
September 30, 2003 and December 31, 2002 inventory was adjusted down
approximately $12 and $18, respectively, to reflect values at the
lower of cost or market.

(2) FINANCINGS AND CAPITAL TRANSACTIONS

On September 23 and September 30, 2003, ReGen completed the private
placement of approximately 17,113 and 5,133, respectively, shares of Series C redeemable
convertible preferred stock (Series C Stock), resulting in proceeds, net of
issuance costs including cash and non-cash consideration, of
approximately $9,394. At the option of the holder, the
Series C Stock is convertible into common stock on a one-for-one basis, subject
to adjustment for stock splits and similar adjustments of the Series C Stock,
and will automatically convert into common stock concurrent with the closing of
a firm commitment underwritten public offering of common stock under the
Securities Act of 1933 in which the Company receives at least $10,000 in gross
proceeds at a valuation of at least $50,000. The holders of Series C Stock
each have one vote for each full share of common stock into which their shares
of preferred stock are convertible on the record date for the vote.

The Series C Stock was issued with a beneficial conversion option. The
value attributable to the beneficial conversion option of $4,292 was recognized
and measured by allocating a portion of the proceeds equal to the intrinsic
value to additional paid-in capital. The intrinsic value was calculated as the
difference between the conversion price and the fair value of the underlying
common stock at

12



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##### 



the issuance date and multiplied by the number of shares into which the Series
C Stock is convertible. The Series C Stock was convertible at the issuance
date and as such the total value of the beneficial conversion option was
accreted immediately through a charge to retained earnings.

In connection with the Series C Stock financing, ReGen issued to the
purchasers of the Series C Stock, warrants to purchase an aggregate of up to
2,080 shares of its Common Stock. The warrants have a term of five
years subject to a subsequent equity financing and an exercise price of $0.4481. The number of warrants, if any,
that become exercisable is dependent upon the price per share of any subsequent
equity financing occurring within eighteen months of the warrant issue date. In
order for the warrants to become exercisable, there must be a subsequent equity
financing at a price equal to or greater than $0.25 and less than $0.4481 per
share. All of the warrants become exercisable if the subsequent equity
financing price per share is greater than $0.25 and less than $0.40 and 50% of
the warrants become exercisable if the subsequent equity financing price per
share is equal to or greater than $0.40 but less than $0.4481. The
warrants expire if a triggering event does not occur.  A value of
approximately $969 has been assigned to these warrants as of the closing dates
of the Series C Stock, using the Black-Scholes valuation model, and assuming
they become fully exercisable within the prescribed 18 month time frame. The
values of these warrants are being carried in additional paid-in capital and as
a reduction to the Series C Stock.

The Series C Stock and Series A Stock are subject to Registration Rights
Agreements entered into as of September 23, 2003 and September 30, 2003 whereby
the holders of such shares have, in certain circumstances, the right to require
the Company to register the common shares into which the Series C Stock and the
Series A Stock is convertible. ReGen has received notice from certain holders
of the Series C Stock and Series A Stock, representing approximately 32,401
shares, requesting that ReGen register such shares pursuant to the terms of the
Registration Rights Agreements. The Company plans to file for registration of
the shares on Form S-3 immediately after the filing of this quarterly report.

The holders of Series C Stock are entitled to non-cumulative dividends if
and when such dividends are declared by the Board of Directors. No dividends
have been declared to date. In the event of any liquidation, dissolution, or
winding up of the Company, the holders of Series C Stock are entitled to
receive an amount per share equal to the liquidation preference, which is equal
to the purchase price of Series C Stock, plus any declared but unpaid dividends
and subject to adjustment for stock splits and similar adjustments.

Beginning on the 7th anniversary of the issuance and delivery of the
Series C Stock, or September 2010, the Series C Stock shall be subject to
redemption at the option of not less than a majority of the holders of the
Series C Stock at a per share redemption price equal to the liquidation value
of the Series C Stock at the time of redemption. The liquidation value will
equal the purchase price of the Series C Stock plus any declared, but unpaid
dividends and taking into account any stock splits or similar adjustments to
the Series C Stock. If a request for redemption at the option of
the Series C Stockholders is made, the Company shall redeem not less than all of the Series C
Stock at the Redemption Price, pro-rata among all of the holders of the Series
C Stock, in one-third (1/3) increments on each of the 7th, 8th and 9th
anniversaries of the issuance and delivery of the Series C Stock.

In connection with the private placement of its Series C Stock, the
Company agreed to provide compensation in the form of cash and warrants for the
Companys Common Stock to placement agents who assisted the Company in
identifying purchasers of its Series C Stock (the Placement Fee). The
Placement Fee included approximately $421 in cash and warrants to
purchase 200 shares of Common Stock, exercisable through September 23, 2009 at
$0.4481 per share, which was the issuance price of the Series C Stock. The warrants issued to the placement agents were valued at
$97 using the Black-Scholes valuation model. The total issuance costs,
which include the Placement Fee, of approximately $575 have been
recorded as a reduction to the Series C Stock.

The
Series C Stock has been recorded outside of permanent equity in the
accompanying balance sheet, net of the issuance costs of approximately $575 and
warrants issued to Series C Stockholders valued at $969. The Series C Stock
will be accreted to the redemption value through a charge to retained earnings
over a period of 7 years using the effective interest method.

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(in thousands, except per unit and per share data)

On June 21, 2002, ReGen Biologics, Inc (ReGen) acquired RBio, Inc.,
formerly named ReGen Biologics, Inc. The acquisition was recorded for
accounting purposes as a reverse merger and recapitalization. For purposes of
this filing, the historical financial statements of RBio, Inc. including
related notes have replaced the prior historical financial statements of ReGen.

The following discussion and analysis should be read in conjunction with
the consolidated financial statements and related notes included elsewhere in
this Form 10-Q. This section of the Form 10-Q contains forward-looking
statements that involve risks and uncertainties, such as statements about our
plans, objectives, expectations and intentions. We use words such as
anticipate, believe, expect, future and intend and similar
expressions to identify forward-looking statements. Our actual results could
differ materially from those anticipated in these forward-looking statements
for many reasons. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this Form 10-Q.

13



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##### 



Business

We are an orthopedic products company that designs, develops, manufactures
and markets minimally invasive human implants and medical devices for the
repair, regrowth and remodeling of damaged human tissue.

Our flagship product, the Collagen Meniscus Implant, or CMI, is an implant
for the meniscus of the human knee. A damaged meniscus is frequently repaired
by an arthroscopic surgical procedure known as a partial meniscectomy. During
this procedure, surgeons remove damaged meniscus tissue leaving less meniscus
tissue to support the knee and protect the patient from further degeneration or
injury. Implantation of the CMI represents the only procedure with the
potential to re-grow much of the tissue otherwise lost in partial meniscectomy
procedures, allowing a return to a more active lifestyle. In November 2002 we
completed enrollment and surgeries in a large-scale clinical trial of the CMI,
the results of which will comprise our Pre-Market Approval Application, or PMA.
The CMI is currently approved for sale in Europe, Australia, Chile, and will
selectively be available in Canada during 2003. The CMI is distributed outside
the U.S. by the Centerpulse unit of Zimmer Holdings, Inc. (Zimmer).

On October 2, 2003, Zimmer announced the completion of its exchange offer
for Centerpulse AG and InCentive Capital AG, whereby as a result of the
exchange, Zimmer beneficially owns approximately 98.7% of the issued
Centerpulse shares. Our distribution agreements with Centerpulse, which are
assignable under these circumstances, remain in full force and effect after the
exchange.

In general, we have seen positive reception to the CMI by surgeons and
patients in Europe. The CMI is approved for sale in most European countries
and Australia, but application for reimbursement approval in certain countries,
including Germany, the largest European country, is still underway.
Centerpulse, the Companys distribution partner in Europe, has been in the
process of building a sports medicine division, designed to market and sell the
CMI. It was necessary for Centerpulse to build a sports medicine business
because its historical focus was on producing, marketing and selling joint
replacement products, which are used at later time points in the progression of
the patients osteoarthritis than is the CMI. We believe that the ongoing
acquisition-related activities that affected Centerpulse throughout 2003 were
disruptive to Centerpulses focus on marketing and selling sports medicine
products in general, and the CMI in particular.

We also sell the SharpShooter Tissue Repair System, or SharpShooter, a
suturing device used to facilitate the surgical implantation of the CMI, as
well as to perform other similar arthroscopic meniscal repair procedures. The
SharpShooter is currently marketed through a distribution agreement with
Linvatec Corporation, a subsidiary of ConMed, in the U.S., Europe, Canada,
Australia, Chile, and Japan.

Our current strategy is to focus on the following initiatives:



| |  |  | Obtaining FDA approval of the CMI;                                                                       
| | - |  | ---------------------------------------------------------------------------------------------------------
|
| |  |  | Finding a suitable partner to market the CMI in the U.S.;                                                
|
| |  |  | Launching the CMI in the U.S.; and                                                                       
|
| |  |  | Conducting further research on select product opportunities within our research and development pipeline.

Our long-term strategy is to capitalize on our proven collagen scaffold
technology by continuing to design, develop, manufacture, and market our own
products, as well as partner with key market leaders to develop and market
products in other targeted therapeutic areas.

Our Core Technology

Our core technology focuses on guided tissue regeneration: the concept is
that if the body is provided with a suitable environment for cellular ingrowth,
the body has the ability to regenerate missing tissue. We have developed a
proprietary biologically active porous bovine type I collagen scaffold material
and various tissue matrix engineering processes as the basis of our tissue
re-growth product offerings. Our proprietary processes are capable of
producing implants with the various physical properties required for remodeling
each specific target tissue. Our initial application is a resorbable, collagen
matrix that guides the regeneration of medial meniscus cartilage in the knee,
the CMI.

Collagen is a multifunctional family of proteins with unique structural
characteristics. To date, 19 different proteins can be classified as collagen,
making collagen the most abundant protein in the human body. Among the various
collagens, type I collagen is the most abundant and is the major constituent of
bone, skin, and tendon.

The structure of animal type I collagen is highly similar to the structure
of human type I collagen. This finding is supported by data from our current
U.S. clinical trial. Based on the important functions of type I collagen in the
body and the biocompatibility of the animal type I collagen, this material has
become increasingly popular as a biomaterial for clinical applications,
particularly in the repair and regeneration of damaged or diseased tissue.

14



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##### 



Critical Accounting Policies

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. ReGen believes, given current facts and
circumstances, its estimates and assumptions are reasonable, adhere to
accounting principles generally accepted in the United States, and are
consistently applied. Actual results could differ from those estimates.

We have identified below some of the more significant accounting policies
we follow in preparing the accompanying condensed consolidated financial
statements.

Revenue Recognition

We recognize revenue in accordance with the provisions of Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements, whereby revenue
is not recognized until it is realized or realizable and earned. Revenue is
recognized when all of the following criteria are met: persuasive evidence of
an arrangement exists, delivery has occurred, the sellers price to the buyer
is fixed or determinable and collection of such revenue is reasonably assured.
We generally recognize revenue from product sales upon the shipment of such
products to our distributors. Title of product passes to the customers F.O.B.
origin.

We receive royalties from our licensees. Royalties are generally due under
the license agreements when the licensee sells the product to a third party. If
determinable at the time we publish our results, royalties are recognized when
the licensee has sold the product to the end user and we have fulfilled our
obligations under the applicable agreement. If not determinable at the time
results are published, royalties are recognized in the period they become
determinable.

License fees represent payments received from distributors for exclusive
perpetual licenses to sell our products in various geographic areas. These fees
are recognized as other income when all performance criteria in the underlying
agreement have been met. Generally, license fees for existing license
arrangements are not recurring.

Inventory Valuation

Inventory is valued at the lower of cost or market. Market is based on
current sales of product to existing customers reduced by an estimate of cost
to dispose. 15% of our inventory is being carried at market. Work in process is
calculated by estimating the number of units that will be successfully
converted to finished goods, based upon a build-up in the stage of completion
using estimated labor inputs for each stage, and historical yields reduced by
estimated usage for quality control testing.

During 2001 and 2002, the Company shipped certain components of the
SharpShooter that were later identified to have the potential to become
non-sterile. The Company instituted a recall of such product components during
2002. Ultimately, in the fourth quarter of 2002 the Company agreed to take
title of the returned product rather than issuing a credit to the customer. The
Company received and included in inventory the reworked product at a net
carrying amount equal to the original carrying amount of the returned inventory
less a reserve representing the estimated cost to rework the product. Costs
incurred and paid to rework the returned inventory were included in inventory
to the extent of the original carrying amount. The Company received the
termination letter from the FDA closing the recall on July 3, 2003. No
additional costs are anticipated by the Company. With the exception of the
returns associated with the product recall described above, the Companys
history of product returns has been insignificant.

Research and Development Costs

Research and development costs are expensed as incurred. We will continue
to incur research and development costs as we continue our product development
activities and pursue regulatory approval to market our products. Research and
development costs have, and will continue to include, expenses for internal
development, personnel, clinical trials, regulatory compliance and filings,
validation of processes, start up costs to establish commercial manufacturing
capabilities and related facilities, supplies and other expenses.

Stock Based Compensation

We have accounted for our employee stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. No expense is recognized for options issued to employees where the
exercise price is equal to or greater than the market value of the underlying
security at the time of issuance. Expense is recognized in the financial
statements for options issued to employees where the option price is below the
fair value of the underlying security at the time of issuance, for

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options issued to non-employees and for options and warrants issued in
connection with financing and equity transactions (collectively referred to as
Compensatory Options).

If ReGen had elected to recognize compensation based on the fair value of
options granted to employees as prescribed by Statement of Financial Account
Standards (SFAS) No. 123, net loss and net loss per share would have been
$(1,215) and $(0.04), and $(1,210) and $(0.07) for the three months ended
September 30, 2003 and 2002, respectively and $(3,823) and $(0.13) and
$(11,788) and $(0.69) for the nine months ended September 30 2003 and 2002,
respectively.

For periods prior to the merger of the Company with RBio, expense
associated with Compensatory Options and warrants has been measured based on
managements estimate of the fair value of the underlying security (which in
turn is based on managements estimate of the fair value of RBio.)

Income Taxes

The Company had net operating loss carryforwards at December 31, 2002 of
approximately $33,900 and a research and development tax credit of
approximately $410. The federal net operating loss and credit carryforwards
will begin to expire in 2006, if not utilized. The state net operating loss and
credit carryforwards will begin to expire in 2006, if not utilized. The utilization of net operating loss carryforwards may be
limited due to changes in the ownership of the Company, and the effect of the
reverse merger and recapitalization completed on June 21, 2002.

Results of Operations

Three and Nine Months Ended September 30, 2003 Compared to Three and Nine
Months Ended September 30, 2002

REVENUE.Total revenue decreased $319, or 82%, to approximately $69 for the
three months ended September 30, 2003 from approximately $388 for the same
period in 2002. Total revenue decreased $455, or 62%, to approximately $280
for the nine months ended September 30, 2003 from approximately $735 for the
same period in 2002.

CMI sales decreased approximately $124, or 100%, to $0 for the three months
ended September 30, 2003 from $124 during the three months ended September 30,
2002. CMI sales decreased approximately $143, or 68%, to approximately $68 for
the nine months ended September 30, 2003 from $211 during the nine months ended
September 30, 2002. These decreases were due to decreases in the number of CMI
units shipped during the respective period to Centerpulse, a unit of Zimmer
(Centerpulse), ReGens exclusive distributor of the CMI outside of the U.S.
Unit shipments of the CMI decreased by 259 units, or 100%, to 0 for the three
months ended September 30, 2003 from 259 for the same period in 2002. Unit
shipments of the CMI decreased by 302 units, or 68%, to 139 for the nine months
ended September 30, 2003 from 441 for the same period in 2002. While shipments
of the CMI, and therefore revenue to the Company have been historically
inconsistent, we believe that corporate organizational matters surrounding the
recent acquisition of Centerpulse have affected operating activities at
Centerpulse, such that recent orders of our product have been negatively
impacted.

SharpShooter sales decreased by approximately $195, or 76%, to approximately
$62 for the three months ended September 30, 2003 from approximately $257 for
the same period in 2002. SharpShooter sales decreased by approximately $281, or
59%, to approximately $192 for the nine months ended September 30, 2003 from
approximately $473 for the same period in 2002. These decreases were due to
decreases in the number of SharpShooter product components shipped during the
respective period to Linvatec Corporation (Linvatec), ReGens primary
distributor for the SharpShooter. SharpShooter sales to Linvatec Corporation
accounted for approximately 17% and 31% and approximately 91% and 95% for the
three and nine months ended September 30, 2003 and September 30, 2002,
respectively.

Royalties received from Linvatec stayed the same at approximately $7 for the
three months ended September 30, 2003 and for the three months ended September
30, 2002. Royalties received decreased approximately $17 or 46%, to
approximately $20 for the nine months ended September 30, 2003 from $37 during
the nine months ended September 30, 2002.

In March and April 2003, Conmed Corporation (Conmed), parent company to
Linvatec announced that it had completed the acquisition of Bionx Implants,
Inc. (Bionx) and that it would be integrating the sale of the Bionx products
with its orthopdedic subsidiary, Linvatec. As part of this integration, Conmed
announced that it would be reorganizing its 90 direct orthopdedic sales
representatives into 18 exclusive sales agent groups that would eventually
manage 230 sales professionals in the U.S. While shipments of the SharpShooter
products have been historically inconsistent, we believe that these corporate
and operating organizational matters have affected activities at Linvatec, such
that recent orders of our products have been negatively impacted.

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Representatives of Linvatec have stated that they believe that sales of the
SharpShooter will begin to regain momentum in the fourth quarter of this year.

Recent new product introductions in the area of meniscus repair instrumentation
have simplified the surgical techniques compared to those employed during use
of the SharpShooter product for similar procedures. We believe these new
products are gaining popularity among surgeons performing meniscus repair
procedures, which represents a portion of the market for the SharpShooter, and
are likely contributing to the reduction in SharpShooter sales during recent
quarters.

COST OF GOODS SOLD.Cost of goods sold decreased by approximately $356, or 87%,
to approximately $52 for the three months ended September 30, 2003 from
approximately $408 for the three months ended September 30, 2002. Cost of goods
sold decreased by approximately $640, or 65%, to approximately $348 for the
nine months ended September 30, 2003 from approximately $988 for the nine
months ended September 30, 2002. The decreases in cost of goods sold are
directly correlated to the decrease in sales. For the three months ended
September 30, 2003 and 2002 respectively, CMI costs accounted for approximately
$0 and $175 and SharpShooter costs accounted for approximately $56 and $233.
For the nine months ended September 30, 2003 and 2002 respectively, CMI costs
accounted for approximately $89 and $318 and SharpShooter costs accounted for
approximately $255 and $581. At September 30, 2003, 15% of our inventory is
being carried at market. Due to a high degree of fixed costs in the production
process, and the early stage of market acceptance for our products, current
sales and production volumes are not adequate to provide for per unit costs
that are lower than the current market price for certain of our products.

RESEARCH AND DEVELOPMENT.Research and development expenses increased by
approximately $180, or 38%, to approximately $660 for the three months ended
September 30, 2003 from approximately $480 for the three months ended September
30, 2002. Research and development expenses increased by approximately $94, or
5%, to approximately $1,863 for the nine months ended September 30, 2003 from
approximately $1,769 for the nine months ended September 30, 2002. These
increases primarily were due to increases in the proportion of CMI units
produced for testing and quality purposes versus those produced for commercial
resale during the respective periods.

BUSINESS DEVELOPMENT, GENERAL AND ADMINISTRATIVE.Business development, general
and administrative expenses decreased by approximately $188, or 27%, to
approximately $498 for the three months ended September 30, 2003, compared with
$686 for the three months ended September 30, 2002. The reduction in expense
during the quarter mainly resulted from (i) a reduction of approximately $130
in legal, accounting and printing costs incurred during the prior year period,
which were associated with the Companys 2002 financial statement reporting,
including the 2002 proxy and (ii) a reduction of approximately $25 in business
development due to a reduction in marketing staff. Business development,
general and administrative expenses increased by approximately $250, or 17%, to
approximately $1,749 for the nine months ended September 30, 2003, compared
with $1,499 for the nine months ended September 30, 2002. The increase in
expense during the year was mainly a result of (i) approximately $158 in potential financing costs in the second quarter of
2003 relating to a financing that at that time was not definitive or probable
in light of the current available information and (ii) an increase of
approximately $90 in directors and officers, general liability and workers
compensation insurance policies.

COMPENSATION EXPENSE ASSOCIATED WITH STOCK OPTIONS AND WARRANTS.Compensation
expense associated with stock options and warrants for the three and nine
months ended September 30, 2003, was approximately $35 and $36, respectively
compared to approximately $0 and $3,300, respectively, for the corresponding
periods in 2002. During the quarter, Compensation expense increased
from the prior period due to a modification to certain original
employee option awards. Compensation expense for 2002 was associated, primarily, with
the acceleration of option vesting at the time of the reverse merger and
recapitalization in June 2002.

NON-OPERATING INCOME (EXPENSE).Non-operating income (expense) consists of
merger cost, interest and other income, rental income and interest expense.
Merger cost decreased to $0 for the three and nine months ended September 30,
2003 from approximately $113 and $515 for the same periods in 2002 due to the
recording of costs associated with the reverse merger and recapitalization
which occurred in June 2002. Interest and other income decreased to
approximately $1 for the three months ended September 30, 2003 from $5 for the
three months ended September 30, 2002. Interest and other income decreased to
approximately $8 for the nine months ended September 30, 2003 from $10 for the
nine months ended September 30, 2002. The decreases were primarily the result
of fluctuations in the amount of short term investments during those periods.
Rental income, which is sub-lease rental revenue less rental expense, related to the Companys sub-leased portion of its Redwood City,
CA facility, approximated $1 and $81 for the three months and the nine months
ended September 30, 2003, respectively, and approximated $88 and $179,
respectively, for the same periods in 2002. The decreases (approximately $87
and $98, respectively, for the three and nine month periods) resulted from
reduced sub-lease rent pursuant to amendments to the sub-lease agreement, which
became effective June 1, 2003. Interest expense increased approximately $25 for
the three months ended September 30, 2003 from $4 for the three months ended
September 30, 2002, respectively. The increase resulted from a 2002 third
quarter adjustment reducing the interest expense by approximately $24. Interest
expense decreased approximately $1,640 for the nine months ended September 30,
2003 from approximately $1,732 for the nine months ended September 30, 2002.
The

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decrease was primarily due to the elimination of interest expense on the bridge
loan financing which was converted to equity in the second quarter of 2002.

Liquidity and Capital Resources

Cash, cash equivalents and short-term investments were approximately
$9,484 as of September 30, 2003 compared with approximately $3,473 as of
December 31, 2002. The increase in cash, cash equivalents and short-term
investments is a result of the receipt of approximately $9,491 in net proceeds
associated with the issuance of the Series C redeemable convertible preferred
stock in the third quarter of 2003.

Cash used in operating activities of approximately $3,457 resulted from
the net loss of approximately $3,719, adjusted to account for a net increase in
other current assets, receivables and inventory of approximately $70, a
decrease in other assets of approximately $22 and a net increase in accounts
payable, accrued expenses and other liabilities of $104 together with non-cash
items, depreciation, compensation and interest expense, of $206.

During the nine months ended September 30, 2003, ReGen operations used
approximately $3,473 through funding provided by short-term investments and
converted approximately $495 of short-term investments to a sweep account which
is classified as a cash equivalent, and ReGen purchased $20 of property and
equipment and paid down $4 of capital lease obligations.

ReGen anticipates that it will continue to incur net losses that will
require additional financing until, at the earliest, ReGen receives FDA
approval for its CMI product and is able to market the CMI product in the
United States. In the fourth quarter of 2002 ReGen completed the required
enrollment and related surgical procedures for its CMI clinical trial in the
U.S. All patients are expected to complete two years of follow-up prior to
ReGens submission of the results in its Pre-market Approval Application, or
PMA, to the FDA. ReGen expects the last of these two-year clinical follow-up
exams will be completed in the fourth quarter of 2004, with submission of the
completed PMA to the FDA shortly thereafter. The process of review by the FDA
is uncertain, but ReGen expects that the FDA will issue its ruling in the
second half of 2005. Should the FDA approve the CMI for sale in the U.S., sales
of the CMI in the U.S. will not occur until, at the earliest, late in 2005.

Although the CMI is approved and distributed in Europe, Australia and
Chile, it is not approved for sale in the U.S., and ReGen is making no claim
regarding its safety, effectiveness or its potential for FDA approval.

In addition to regulatory related hurdles, in order to achieve positive
operating earnings and cash flow, ReGen will need to effectively address
various other operating issues, including, but not limited to special
reimbursement provisions for the surgeons and facilities that will be
responsible for implanting ReGens CMI or other future products. While ReGen is
actively working to address these issues, there is no guarantee that ReGen will
be able to obtain special reimbursement provisions, or obtain them in any given
time frame.

On September 23 and September 30, 2003, ReGen completed the private
placement of approximately 17,113 and 5,133, respectively, shares of Series C redeemable
convertible preferred stock (Series C Stock), resulting in proceeds, net of
issuance costs including cash and non-cash consideration, of
approximately $9,394. At the option of the holder, the
Series C Stock is convertible into common stock on a one-for-one basis, subject
to adjustment for stock splits and similar adjustments of the Series C Stock,
and will automatically convert into common stock concurrent with the closing of
a firm commitment underwritten public offering of common stock under the
Securities Act of 1933 in which the Company receives at least $10,000 in gross
proceeds at a valuation of at least $50,000. The holders of Series C Stock
each have one vote for each full share of common stock into which their shares
of preferred stock are convertible on the record date for the vote.

The Series C Stock and Series A Stock are subject to Registration Rights
Agreements entered into as of September 23, 2003 and September 30, 2003 whereby
the holders of such shares have, in certain circumstances, the right to require
the Company to register the common shares into which the Series C Stock is
convertible. ReGen has received notice from certain holders of the Series C
Stock and Series A Stock, representing approximately 32,401 shares, requesting
that ReGen register such shares pursuant to the terms of the Registration
Rights Agreements. The Company plans to file for registration of the shares on
Form S-3 immediately after the filing of this quarterly report.

The
Series C Stock was issued with a beneficial conversion option.  The
value attributable to the beneficial conversion option of $4,292 was recognized
and measured by allocating a portion of the proceeds equal to the
intrinsic value to additional paid-in capital.  The intrinsic value
was calculated as the difference between the conversion price and the
fair value of the underlying common stock at the issuance date and
multiplied by the number of shares into which the Series C Stock is convertible.  Series C Stock was
convertible at the issuance date and as such the total value of the
beneficial conversion option was accreted immediately through a
charge to retained earnings.

In
connection with the Series C Stock financing, ReGen issued to the
purchasers of the Series C Stock warrants to purchase an aggregate of
up to 2,080 shares of its Common Stock.  The warrants have a term of
five years subject to a subsequent equity financing and an  exercise
price of $0.4481.  The number of warrants, if any, that become
exercisable is dependent upon the price per share of any subsequent equity
financing occurring within eighteen months of the warrant issue
date.  In order for the warrants to become exercisable, there must be
a subsequent equity financing at a price equal to or greater than
$0.25 and less than $0.4881 per share. All of the warrants become
exercisable if the subsequent equity financing price per share is
greater than $0.25 and less than $0.40 and 50% of the warrants become
exercisable if the subsequent equity financing price per share is
equal to or greater than $0.40 but less than $0.4481.  The warrants
expire if a triggering event does not occur.  A value of
approximately $969 has been assigned to these warrants as of the
closing dates of the Series C Stock, using the Black-Scholes
valuation model, and assuming they become fully exercisable within
the prescribed 18 month time frame.  The values of these warrants are
being carried in additional paid-in capital and as a reduction to the
Series C Stock.

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The holders of Series C Stock are entitled to non-cumulative dividends if
and when such dividends are declared by the Board of Directors. No dividends
have been declared to date. In the event of any liquidation, dissolution, or
winding up of the Company, the holders of Series C Stock are entitled to
receive an amount per share equal to the liquidation preference, which is equal
to the purchase price of Series C Stock, plus any declared but unpaid dividends
and subject to adjustment for stock splits and similar adjustments.

Beginning in September 2010, the Series C Stock shall be subject to
redemption at the option of not less than a majority of the holders of the
Series C Stock at a per share redemption price equal to the liquidation value
of the Series C Stock at the time of redemption. The liquidation value will
equal the purchase price of the Series C Stock plus any declared, but unpaid
dividends and taking into account any stock splits or similar adjustments to
the Series C Stock. If a request for redemption at the option of
the Series C Stockholders is made, the Company shall redeem not less than all of the Series C
Stock at the Redemption Price, pro-rata among all of the holders of the Series
C Stock, in one-third (1/3) increments on each of the 7th, 8th and 9th
anniversaries of the issuance and delivery of the Series C Stock.

In connection with the private placement of its Series C Stock, the
Company agreed to provide compensation in the form of cash and warrants for the
Companys Common Stock to placement agents who assisted the Company in
identifying purchasers of its Series C Stock (the Placement Fee). The
Placement Fee included approximately $421 in cash and warrants to
purchase 200 shares of Common Stock, exercisable through September 23, 2009 at
$0.4481 per share, which was the issuance price of the Series C Stock. The warrants issued to the placement agents were valued at
$97 using the Black-Scholes valuation model.  The total issuance costs,
which include the Placement Fee, of approximately $575 have been
recorded as a reduction to the Series C stock.

The
Series C Stock has been recorded outside of permanent equity in the
accompanying balance sheet, net of the issuance costs of approximately $575 and
warrants issued to Series C Stockholders valued at $969. The Series C Stock
will be accreted to the redemption value through a charge to retained earnings
over a period of 7 years using the effective interest method.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

We caution you that certain statements contained in or incorporated by
reference into this Form 10-Q, or which are otherwise made by us or on our
behalf are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements include
statements that are predictive in nature, which depend upon or refer to future
events or conditions, which include words such as believe, plan,
anticipate, estimate, expect, intend, seek or similar expressions. In
addition, any statements concerning future financial performance, ongoing
business strategies or prospects, and possible future actions, which may be
provided by our management, are also forward-looking statements.
Forward-looking statements are based on current expectations and projections
about future events and are subject to risks, uncertainties, and assumptions
about our company, economic and market factors and the industry in which we do
business, among other things. These statements are not guarantees of future
performance and we undertake no obligation to publicly update any
forward-looking statements, whether as a result of new information, future
events or otherwise.

Actual events and results may differ materially from those expressed or
forecasted in forward-looking statements due to a number of factors. Important
factors that could cause actual results to differ materially include, but are
not limited to, our ability to complete the CMI clinical trial and obtain FDA
approval, our ability to obtain additional financing, the ability of our
distribution partners to effectively market and sell our products, our ability
to procure product components and effectively produce products for resale, our
ability to control production quantities and inventory in order to avoid
unanticipated costs such as outdated inventory, the timely collection of our
accounts receivable, our ability to attract and retain key employees, our
ability to timely develop new products and enhance existing products, the
occurrence of certain operating hazards and uninsured risks, our ability to
protect proprietary information and to obtain necessary licenses on
commercially reasonable terms, the impact of governmental regulations, changes
in technology, marketing risks, other unforeseen events that may impact our
business and our ability to adapt to economic, political and regulatory
conditions affecting the healthcare industry.

Our filings with the SEC are available to the public from commercial
document retrieval services and at the Web site maintained by the SEC at
http://www.sec.gov.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For information regarding ReGens exposure to certain market risks, see
Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in the
Companys Annual Report on Form 10-K/A for the year ended
December 31, 2002. During the third quarter, ReGen changed its
investment portfolio from short-term investments invested in U.S. and
foreign government agency and corporate securities to a money market
account and a sweep account which is classified as a cash equivalent.
Except as described in this paragraph and the Managements Discussion and Analysis of Financial
Condition and Results of Operations, there have been no significant changes in
our financial instrument portfolio or market risk exposure since December 31,
2002.

Item 4. Controls and Procedures

We have established and maintain disclosure controls and procedures that
are designed to ensure that material information required to be disclosed by
ReGen in the reports that it files under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commissions rules and forms, and that such
information is

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accumulated and communicated to the Companys management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.

As of the end of the period covered by this report, under the supervision
and with the participation of ReGens Chief Executive Officer and Chief
Financial Officer, our management carried out an evaluation of the
effectiveness of the design and operation of disclosure controls and
procedures. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are
effective as of the date of such evaluation in time to alert them to material
information relating to ReGen (including its consolidated subsidiaries)
required to be included in ReGens periodic SEC filings.

There have been no significant changes to our internal controls or in
other factors that have materially affected, or are reasonably likely to
materially affect internal controls subsequent to the date we carried out our
evaluation.

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PART II

Item 1. Legal Proceedings

None.

Item 2. Changes in Securities and Use of Proceeds(in thousands, except per share data)

On
September 23 and September 30, 2003, ReGen
completed the private placement of approximately 17,113 and 5,133,
respectively, shares of Series C redeemable
convertible preferred stock (Series C Stock), resulting in proceeds, net of issuance
costs, including cash and non-cash consideration, of approximately $9,394. The shares were issued in a private offering
to each of the holders of the Series C Stock who entered into
the Registration Rights Agreements dated as of September 23, 2003 and
September 30, 2003 with the Company. In addition, ReGen issued to the
purchasers warrants to purchase an aggregate of 2,080 shares of its Common
Stock at a price of $0.4481 per share. The warrants are exercisable only upon
the occurrence of a subsequent equity financing within a certain period at a
price less than $0.4481 per share. The number of warrants that become
exercisable, if any, varies according to the purchase price per share of the
subsequent equity financing. All of these shares were issued in reliance upon
an exemption from the registration requirements of the federal securities laws
pursuant to Section 4(2) of the Securities Act of 1933 because the shares were
only offered to accredited investors. The shares are subject to the
Registration Rights Agreements entered into as of September 23 and
September 30, 2003 whereby the holders of such shares have, in certain
circumstances, the right to require the Company to register such shares. ReGen
has received notice from certain holders of such Series C Stock and
the holders of certain Series A Stock requesting that ReGen register
such shares pursuant to the terms of the Registration Rights
Agreements. The Company plans to file for registration of the shares
on Form S-3 immediately after filing this quarterly report.

Item 3. Defaults upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

RISK FACTORS

Our business faces significant risks. The risks and uncertainties
described below may not be the only risks we face. Additional risks that we do
not yet know of or that we currently think are immaterial may also impair our
business operations. Any of the risks described below could significantly and
aversely affect our business, prospects, financial condition or results of
operations. You should carefully consider and evaluate the risks and
uncertainties listed below, as well as the other information set forth in this
Quarterly Report on Form 10-Q.

Product introductions or modifications may be delayed or canceled as a result
of the FDA regulatory process, which could cause our sales to decline.

The medical devices we manufacture and market are subject to rigorous
regulation by the FDA and numerous other federal, state and foreign
governmental authorities. Our failure to comply with such regulations could
lead to the imposition of injunctions, suspensions or loss of regulatory
approvals, product recalls, termination of distribution, or product seizures.
In the most egregious cases, criminal sanctions or closure of our manufacturing
facility are possible. The process of obtaining regulatory approvals to market
a medical device, particularly from the FDA, can be costly and time-consuming,
and there can be no assurance that such approvals will be granted on a timely
basis, if at all. In particular, the CMI has not yet been approved by the FDA
and there is no guarantee that such approval will be obtained. Should the FDA
approve the CMI for sale in the U.S., sales will not occur until, at the
earliest, late 2005.

The regulatory process may delay the marketing of new products for lengthy
periods and impose substantial additional costs or it may prevent the
introduction of new products altogether. In particular, the FDA permits
commercial distribution of a new medical device only after it has met the
established regulatory compliance guidelines. The FDA will clear marketing of
a medical device through the 510k process if it is demonstrated that the new
product is substantially equivalent to other 510k-cleared products. The

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PMA approval process is more costly, lengthy and uncertain than the 510k
pre-market notification process. There can be no assurance that any new
products we develop will be subject to the shorter 510k clearance process and
therefore significant delays in the introduction of any new products that we
develop may occur. If we choose to go through the PMA approval process, there
will be significant costs and delays in the introduction of our new products,
if they are approved at all.

Moreover, foreign governmental authorities have become increasingly
stringent and we may be subject to more rigorous regulation by foreign
governmental authorities in the future. Any inability or failure of our
foreign independent distributors to comply with the varying regulations or the
imposition of new regulations could restrict such distributors ability to sell
our products internationally and thereby adversely affect our business. All
products and manufacturing facilities are subject to continual review and
periodic inspection by regulatory agencies. The discovery of previously
unknown problems with our company or our products or facilities may result in
product labeling restrictions, recall, or withdrawal of the products from the
market. In addition, the FDA actively enforces regulations prohibiting the
promotion of medical devices for unapproved indications. If the FDA determines
that we have marketed our products for off-label use, we could be subject to
fines, injunctions or other penalties.

Sales of our products are largely dependent upon third party reimbursement and
our performance may be harmed by health care cost containment initiatives.

In the U.S. and other markets, health care providers, such as hospitals
and physicians, that purchase health care products, such as our products,
generally rely on third party payers, including Medicare, Medicaid and other
health insurance and managed care plans, to reimburse all or part of the cost
of the health care product. Reimbursement by third party payers may depend on
a number of factors, including the payers determination that the use of our
products is clinically useful and cost-effective, medically necessary and not
experimental or investigational. Also, third party payers are increasingly
challenging the prices charged for medical products and services. Since
reimbursement approval is required from each payer individually, seeking such
approvals can be a time consuming and costly process which, in the future,
could require us or our marketing partners to provide supporting scientific,
clinical and cost-effectiveness data for the use of our products to each payer
separately. Significant uncertainty exists as to the reimbursement status of
newly approved health care products, and third party payers are increasingly
attempting to contain the costs of health care products and services by
limiting both coverage and the level of reimbursement for new therapeutic
products and by refusing, in some cases, to provide coverage for uses of
approved products for disease indications for which the FDA has not granted
marketing approval. There can be no assurance that third party reimbursement
coverage will be available or adequate for any products or services developed
by us.

We may be subject to product liability claims and our limited product liability
insurance may not be sufficient to cover the claims, or we may be required to
recall our products.

We manufacture medical devices that are used on patients in surgical
procedures and we may be subject to product liability claims. During 2002 we
instituted a recall of certain components of the SharpShooter that were later
identified to have the potential to become non-sterile. There is no guarantee
that we will not be subject to other product recalls in the future. The
medical device industry has been historically litigious and we face an inherent
business risk of financial exposure to product liability claims. Since our
products are often implanted in the human body, manufacturing errors, design
defects or packaging defects could result in injury or death to the patient,
and could result in a recall of our products and substantial monetary damages.
Any product liability claim brought against us, with or without merit, could
result in diversion of our resources, an increase to our product liability
insurance premiums and/or our inability to secure coverage in the future. We
would also have to pay any amount awarded by a court in excess of our policy
limits. In addition, any recall of our products, whether initiated by us or by
a regulatory agency, may result in adverse publicity for us that could have a
material adverse effect on our business, financial condition and results of
operations. Our product liability insurance policies have various exclusions,
and we may be subject to a product liability claim or recall for which we have
no insurance coverage, in which case we may have to pay the entire amount of
the award or costs of the recall. Finally, product liability insurance is
expensive and may not be available in the future on acceptable terms, or at
all.

We are a development stage company and have no significant operating history
with which investors can evaluate our business and prospects.

We are a development stage company and have no significant operating
history and are operating in a new, specialized and highly competitive field.
Our ability to successfully provide the guidance and management needed to
continue and grow the business on an ongoing basis has not yet been established
and cannot be assured. Our business is subject to all of the risks inherent in
our business, including, but not limited to potential delays in the development
of products, the need for regulatory approvals of certain of its

22



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products and devices, uncertainties of the healthcare marketplace and
reimbursement levels of insurers and similar governmental programs,
unanticipated costs and other uncertain market conditions.

To be commercially successful, we will have to convince physicians that using
our products to repair damaged menisci is an effective alternative to existing
therapies and treatments.

We believe that physicians will not widely adopt our products unless they
determine, based on experience, clinical data and published peer reviewed
journal articles, that the use of the CMI, the Sharpshooter or any future
products provides an effective alternative to conventional means of treating a
damaged meniscus or other injury. To date, we have completed only limited
clinical studies of the CMI and the Sharpshooter. Clinical experience may not
indicate that treatment with our products provides patients with sustained
benefits. In addition, we believe that continued recommendations and support
for the use of the CMI and the Sharpshooter by influential physicians are
essential for widespread market acceptance of these products. If our products
do not continue to receive support from these physicians or from long-term
data, surgeons may not use, and the facilities may not purchase, our products.
Moreover, our competitors may develop and successfully commercialize medical
devices that directly or indirectly accomplish what our products are designed
to accomplish in a superior and less expensive manner. If our competitors
products prove to be more successful than ours, our products could be rendered
obsolete. As a result, we may not be able to produce sufficient sales to
obtain or maintain profitability.

We are dependent on a few products.

We anticipate that most of our revenue growth in the future, if any, will
come from our tissue re-growth technology products including the Collagen
Meniscus Implant, or CMI, and other supporting products, including the
SharpShooter. There can be no assurance that we will be successful in
increasing sales of our current product offering. Additionally, there can be
no assurance that our efforts to develop new products, including enhancements
to our existing products, will be successful. If our development efforts are
successful, there can be no assurance that we will be successful in marketing
and selling our new products.

We will need to obtain financing in the future, which may be difficult.

In the future, we will need to raise additional funds through equity or
debt financing, collaborative relationships or otherwise. Our future capital
requirements depend upon many factors, including:



| |  |  | Our ability to increase revenues, which primarily relies upon the ability of our distribution
partners to increase sales of our products;         
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Our ability to complete the CMI clinical trial and obtain FDA approval;                                                                           
|
| |  |  | Our ability to effectively produce our products, and to adequately control the cost of production;                                                
|
| |  |  | The extent to which we allocate resources toward development of our existing or new products;                                                     
|
| |  |  | The timing of, and extent to which, we are faced with, unanticipated marketing or medical
challenges or competitive pressures;                    
|
| |  |  | Our ability to successfully transfer liability for or restructure long-term facility leases for
facilities that exceed our present capacity needs;
|
| |  |  | The amount and timing of leasehold improvements and capital equipment purchases; and                                                              
|
| |  |  | The response of competitors to our products.                                                                                                      

Moreover, because of our potential long-term capital requirements, we may
access the public or private equity markets whenever conditions appear to us to
be favorable, even if we do not have an immediate need for additional capital
at that time. There can be no assurance that any such additional funding will
be available when needed or on terms favorable to us, if at all.

23



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We may face challenges to our patents and proprietary rights.

Our ability to develop and maintain proprietary aspects of our business is
critical for our future success. We rely on a combination of confidentiality
protections, contractual requirements, trade secret protections, patents,
trademarks and copyrights to protect our proprietary intellectual property.
Our patent positions and those of other medical device companies are uncertain
and involve complex and evolving legal and factual questions. There can be no
assurance that pending patent applications will result in issued patents, that
patents issued to or licensed by us will not be challenged or circumvented by
competitors or that such patents will be found to be valid or sufficiently
broad to protect our technology or to provide us with any competitive
advantage. Any future litigation, regardless of the outcome, could result in
substantial expense and significant diversion of the efforts of our technical
and management personnel.

While we attempt to ensure that our products do not infringe other
parties patents and proprietary rights, our competitors may assert that our
products or the methods they employ may be covered by patents held by them.
Furthermore, third parties could obtain patents that may require licensing for
the conduct of our business, and there can be no assurance that the required
licenses would be available. We also rely on nondisclosure agreements with
certain employees, consultants and other parties to protect, in part, trade
secrets and other proprietary technology. Litigation may be necessary to
enforce our patents and license agreements, to protect our trade secrets or
know-how or to determine the enforceability, scope and validity of the
proprietary rights of others. An adverse determination in any such proceeding
could subject us to significant liabilities to third parties, or require us to
seek licenses from third parties or pay royalties that may be substantial.
Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent us from
manufacturing or selling certain of our products which in turn would have a
material adverse effect on our business, financial condition and results of
operations.

We are dependent on our suppliers and the loss of any of these suppliers could adversely affect our business.

We rely upon our vendors for the supply of raw materials and product
components used in the manufacture of our CMI and Sharpshooter products.
Furthermore, in several cases we rely on a single vendor to supply critical
materials or components. In the event that we are unable to obtain components
for any of our products, or obtain such components on commercially reasonable
terms, we may not be able to manufacture or distribute our products on a timely
and competitive basis, or at all. Any delays in product availability or costs
incurred in locating alternative suppliers could have a material adverse effect
on our operations.

Our reliance on third parties to distribute our products may increase our operating costs and reduce our operating margins.

We rely on third parties to distribute our products. The inability or
lack of desire of any of these third parties to deliver or perform for us in a
timely or cost-effective manner could cause our operating costs to rise and our
margins to fall. We are subject to the risk that outside factors may prevent
such third parties from meeting our distribution needs. In March 2003 the
Boards of Smith & Nephew PLC and Centerpulse announced an agreement to combine
their businesses, and in April 2003 Smith & Nephew made a formal offer to
acquire Centerpulse. In May 2003, Zimmer pre-announced an unsolicited offer,
and in June 2003 Zimmer published a formal offer to acquire Centerpulse. In
August 2003, Centerpulse agreed to accept the Zimmer offer and on October 2,
2003 Zimmer announced the completion of its exchange offers, which resulted in
Zimmer beneficially owning 98.7% of the issued Centerpulse shares. These
distributors have in the past, and may in the future, fail to distribute our
products. We do not have a distributor for the CMI in the U.S. and there is no
guarantee that we will be able to find a suitable third party to effectively
distribute the CMI in the U.S. If we are unable to obtain a satisfactory
distributor, we may distribute the CMI ourselves, which would force us to
invest in sales and marketing personnel. Failure to distribute products to our
customers in a timely and cost effective manner would cause our operating costs
to increase and our margins to fall.

Disruption of our manufacturing could adversely affect our business, financial
condition and results of operations.

Our results of operations are dependent upon the continued operation of
our manufacturing facility in Redwood City, California. The operation of
biomedical manufacturing plants involves many risks, including the risks of
breakdown, failure or substandard performance of equipment, the occurrence of
natural and other disasters, and the need to comply with the requirements of
directives of government agencies, including the FDA. The occurrence of
material operational problems could have a material adverse effect on our
business, financial condition, and results of operations during the period of
such operational difficulties.

Our success depends upon our ability to recruit and retain key personnel.

Our success depends, in part, upon our ability to attract and retain
qualified operating personnel. Competition for skilled personnel in the areas
of research and development, manufacturing, marketing and other areas is highly
competitive. In addition, we believe that our success will depend on the
continued employment of our Chairman, President and CEO, Dr. Gerald Bisbee with
whom we have

24



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entered into an employment agreement, and our Senior Vice President, Clinical
and Regulatory Affairs, John Dichiara with whom we have no formal employment
agreement. To the extent we are unable to recruit or retain qualified
personnel, our business may be adversely affected.

Our business could be materially adversely impacted by risks inherent in
international markets.

In 2002, approximately 73% of our sales were generated outside the U.S.
We expect that such sales will continue to account for a significant portion of
our revenue in the future, at least until we are able to market the CMI (or
other new products) in the U.S. Our international sales subject us to other
inherent risks related to changes in the economic, political, legal and
business environments in the foreign countries in which we do business,
including the following:



| |  |  | Fluctuations in currency exchange rates;                                           
| | - |  | -----------------------------------------------------------------------------------
|
| |  |  | Regulatory, product approval and reimbursement requirements;                       
|
| |  |  | Tariffs and other trade barriers;                                                  
|
| |  |  | Greater difficulty in accounts receivable collection and longer collection periods;
|
| |  |  | Difficulties and costs of managing foreign distributors;                           
|
| |  |  | Reduced protection for intellectual property rights in some countries;             
|
| |  |  | Burdens of complying with a wide variety of foreign laws;                          
|
| |  |  | The impact of recessions in economies outside the U.S.; and                        
|
| |  |  | Political and economic instability.                                                

If we fail to successfully market and sell our products in international
markets, our business, financial condition, results of operations, and cash
flows could be materially and adversely affected.

Future acquisitions could adversely affect our operations or financial results.

From time to time, we consider the acquisition of technology product lines
or businesses to supplement our current product offering. Any such future
acquisitions involve risks such as the following:



| |  |  | We may be exposed to unknown liabilities of acquired companies;                                                                                                                             
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Our acquisition and integration costs may be higher than we
anticipated and may cause our quarterly and annual operating results to
fluctuate;                                              
|
| |  |  | We may experience difficulty and expense in assimilating the
operations and personnel of the acquired businesses, disrupting our
business and diverting managements time and attention; and
|
| |  |  | Our relationships with key customers of acquired businesses may be
impaired, due to changes in management and ownership of the acquired
businesses.                                         

25



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The lack of an independent audit committee may affect our ability to be listed
on a national securities exchange or quotation system.

We are not subject to the listing requirements of any national securities
exchange or quotation system. Currently, only one member of our audit
committee meets the definition of an independent director as defined by the
Sarbanes-Oxley Act of 2002 or as defined by the NYSE or Nasdaq corporate
governance proposals. There is no guarantee that we will be able to appoint
directors that will satisfy these requirements. If we are unable to appoint
independent directors to the audit committee we will be precluded from listing
any of our capital stock on a national securities exchange or quotation system.

Unanticipated fluctuations in quarterly operating results could affect our
stock price.

Our quarterly revenues and operating results have varied significantly in
the past and are likely to vary from quarter to quarter in the future.
Quarterly revenues and operating results may fluctuate as a result of a variety
of factors, including the ability of our distribution partners to market and
sell our products, variable customer demand for our products and services, our
investments in research and development or other corporate resources, our
ability to effectively and consistently manufacture our products and avoid
costs associated with the recall of defective or potentially defective
products, the ability of our vendors to effectively and timely deliver
necessary materials and product components, acquisitions of other companies or
assets, the timing of new product introductions, changes in distribution
channels, sales and marketing promotional activities and trade shows and
general economic conditions. Further, due to the relatively fixed nature of
most of our costs, which primarily include personnel costs as well as
facilities costs, any unanticipated shortfall in revenue in any fiscal quarter
would have an adverse effect on our results of operations in that quarter.
Accordingly, our operating results for any particular quarterly period may not
necessarily be indicative of results for future periods and should not be
relied upon as an indication of its future performance. These fluctuations
could cause the trading price of our stock to be negatively affected. Our
quarterly operating results have varied substantially in the past and may vary
substantially in the future. In addition, the stock market has been very
volatile, particularly on the OTC Bulletin Board, where our stock is quoted.
This volatility is often not related to the operating performance of companies
listed thereon and will probably continue in the foreseeable future.

Ownership of our stock is concentrated and this small group of stockholders may
exercise substantial control over our actions.

Based on shares outstanding as of September 30, 2003, the following
entities own five percent or more of the outstanding common stock on an as
converted basis: Sanderling Ventures owns approximately 31%, Centerpulse USA
Holding Co. owns approximately 8% and L-R Global Partners LP and L-R Partners
Global Fund LTD own approximately 5% and 1.7%, respectively. These
stockholders, if acting together, have the ability to exert substantial influence over the outcome of corporate actions requiring stockholder approval. This
concentration of ownership may also have the effect of delaying or preventing a
change in our control. Additionally, the holders of approximately 42% of our
issued and outstanding capital stock are parties to a stockholders agreement by
which these stockholders agreed to vote their shares in favor of certain
matters.

A substantial number of shares of our common stock are eligible for sale in the
near future, which could cause our common stock price to decline significantly.

All of the shares of common stock issued in connection with the merger of
Aros Corporation and ReGen Biologics became eligible for sale pursuant to Rule
144 on June 21, 2003. Additionally, certain holders of Series A Preferred and
Series C Preferred shares have requested that the Company convert their shares
to common stock and register those shares pursuant to the rights afforded by
registration rights agreement with the Company. If our stockholders sell, or
the market perceives that our stockholders intend to sell, substantial amounts
of our common stock in the public market, the market price of our common stock
could decline significantly. These sales may also make it more difficult for us
to sell equity or equity-related securities in the future at a time and price
that we deem appropriate. As restrictions on resale end and as certain shares
of preferred stock are converted to common stock and registered pursuant to the
registration rights agreements, the market price of our common stock could drop
significantly if the holders of such shares sell them or are perceived by the
market as intending to sell them.

We have established several anti-takeover measures which could delay or prevent
a change of our control.

Under the terms of our amended and restated certificate of incorporation,
the board of directors will be authorized, without any need for action by our
stockholders, but subject to any limitations prescribed by law, to issue shares
of our preferred stock in one or more series. Each series may consist of such
number of shares and have the rights, preferences, privileges and restrictions,
such as dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the right
to increase or decrease the number of shares of any series, as the board of
directors shall determine. The board of directors may issue preferred stock
with voting or conversion rights that may have the effect of delaying,
deferring or preventing a change in

26



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control of our company and that could adversely affect the market price of the
common stock and the voting and other rights of the holders of common stock.
Additionally, our board of directors adopted a stockholder rights plan and
declared a dividend distribution of one right for each outstanding share of our
common stock. Each right, when exercisable, entitles the registered holder to
purchase securities at a specified purchase price, subject to adjustment. The
rights plan may have the anti-takeover effect of causing substantial dilution
to the person or group that attempts to acquire our company on terms not
approved by the board of directors. The existence of the rights plan could
limit the price that certain investors might be willing to pay in the future
for shares of our capital stock and could delay, defer or prevent a merger or
acquisition of our company that stockholders may consider favorable.

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits.

The following Exhibits are filed herewith and made a part hereof:

|            |  |                                                                                                                                                                              
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                  
|2.1         |  | Agreement and Plan of Merger by and among ReGen Biologics, Inc., Aros Corporation and Aros Acquisition
Corporation dated as of June 7, 2002(12)                              
|2.2         |  | Agreement and Plan of Merger among the Company, NHA Acquisition Corporation, National Health Advisors,
Ltd., Scott A. Mason and Donald W. Seymour dated as of June 2, 1997(5)
|2.3         |  | Agreement and Plan of Merger among the Company and MetaContent, Inc. dated as of March 21, 2001(2)                                                                           
|2.4         |  | Asset Purchase Agreement between Cerner Corporation and the Company dated as of April 7, 2001(3)                                                                             
|2.5         |  | Amendment No. 1 to Asset Purchase Agreement by and between Cerner Corporation and the Company dated as of
June 11, 2001(3)                                                   
|3.1         |  | Amended and Restated Certificate of Incorporation(1)                                                                                                                         
|3.2         |  | Certificate of Amendment to the Certificate of Incorporation(5)                                                                                                              
|3.3         |  | Certificate of Ownership and Merger(13)                                                                                                                                      
|3.4         |  | Certificate of Amendment to the Certificate of Incorporation(13)                                                                                                             
|3.5         |  | Amended and Restated By-Laws(4)                                                                                                                                              
|4.1         |  | Specimen Common Stock Certificate(6)                                                                                                                                         
|4.2         |  | Rights Agreement between the Company and First Chicago Trust Company of New York, dated as of May 6, 1997(7)                                                                 
|4.3         |  | ReGen Biologics, Inc. Non-Employee Director Option Plan(1)                                                                                                                   
|4.4         |  | ReGen Biologics, Inc. Non-Employee Director Supplemental Stock Option Plan Amended and Restated Effective
December 9, 2000(4)                                                
|4.5         |  | Registration Agreement between the Company and Certain Stockholders, dated December 28, 1995(6)                                                                              
|4.6         |  | Amendment No. 1 to Rights Agreement between the Company and Equiserve Trust Company, N.A., dated as of June
7, 2002(12)                                                      
|4.7         |  | Form of Nonqualified Director Stock Option Agreement(11)                                                                                                                     
|4.8         |  | ReGen Biologics, Inc. Employee Stock Option Plan, Amended and Restated Effective January 31, 2003                                                                            
|4.9         |  | ReGen Biologics, Inc. Non-Employee Director Stock Option Plan, Amended January 31, 2003                                                                                      
|4.10        |  | Registration Rights Agreement between the Company and the Investors listed therein, dated as of September
23, 2003(16)                                                       
|4.11        |  | Registration Rights Agreement between the Company and the Investors listed therein, dated as of September
30, 2003(17)                                                       
|10.1        |  | Employment Agreement by and between Gerald E. Bisbee, Jr., Ph. D. and ReGen Biologics, Inc. dated September
22, 1998 and amended on September 12, 2000(15)                   
|31.1        |  | Rule 13(a)  14(a) Certification of Chief Executive Officer                                                                                                                  
|31.2        |  | Rule 13(a)  14(a) Certification of Chief Financial Officer                                                                                                                  
|32.1        |  | Section 1350 Certification of Chief Executive Officer                                                                                                                        
|32.2        |  | Section 1350 Certification of Chief Financial Officer                                                                                                                        



|(1) |  | Incorporated herein by reference to the Companys Report on Form 10-Q for the quarter ended June 30, 1997
(File No. 0-20805)   
|--- |  | -------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Incorporated herein by reference
to the Companys Report on Form 10-Q/A for the quarter ended March 31,
2001 (File No. 0-20805)
|   
|(3) |  | Incorporated herein by reference to the Companys Report on Form 8-K dated April 12, 2001 (File No. 0-20805)                   

27



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|(4)  |  | Incorporated herein by reference to the Companys Report on Form 10-K for the year ended December 31, 2000
(File No. 0-20805)                                                                                                                                                                                     
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(5)  |  | Incorporated herein by reference to the Companys Report on Form 10-Q for the quarter ended June 30, 2001
(File No. 000-20805)                                                                                                                                                                                    
|    
|(6)  |  | Incorporated herein by reference to the Companys Registration Statement on Form S-1 (File No. 333-04106)                                                                                                                                                                                                         
|    
|(7)  |  | Incorporated herein by reference to the Companys Current Report on Form 8-K filed on June 4, 1997 (File
No. 0-20805)                                                                                                                                                                                             
|    
|(8)  |  | Incorporated herein by reference to the Companys Report on Form 10-Q for the quarter ended March 31, 1999
(File No. 0-20805)                                                                                                                                                                                     
|    
|(9)  |  | Incorporated herein by reference to the Companys Current Report on Form 8-K filed on January 14, 1997
(File No. 0-20805)                                                                                                                                                                                         
|    
|(10) |  | Incorporated herein by reference to the Companys Report on Form 10-Q for the quarter ended March 31, 1997
(File No. 0-20805)                                                                                                                                                                                     
|    
|(11) |  | Incorporated herein by reference to the Companys Report on Form 10-K for the year ended December 31, 1997
(File No. 0-20805)                                                                                                                                                                                     
|    
|(12) |  | Incorporated herein by reference to the Companys Report on Form 10-Q/A for the quarter ended June 30, 2002
(File No. 0-20805)                                                                                                                                                                                    
|    
|(13) |  | Incorporated herein by reference to the Companys Current Report on Form 8-K filed on January 6, 2003
setting forth the Certificate of Ownership and Merger, Certificate of Amendment of the Amended and Restated
Certificate of Incorporation and letter to Shareholders dated January 6, 2003 (File No. 0-20805)
|    
|(14) |  | Incorporated herein by reference to the Companys Report on Form 10-K/A for the year ended December 31,
2002 (File No. 0-20805)                                                                                                                                                                                   
|    
|(15) |  | Incorporated herein by reference to the Companys Current Report on Form 8-K filed on September 4, 2002
(File No. 000-20805)                                                                                                                                                                                      
|    
|(16) |  | Incorporated herein by reference to the Companys Current Report on Form 8-K filed on September 25, 2003
(File No. 000-20805)                                                                                                                                                                                     
|    
|(15) |  | Incorporated herein by reference to the Companys Current Report on Form 8-K filed on October 6, 2003 (File
No. 000-20805)                                                                                                                                                                                        

(b)  Reports on Form 8-K.

A Current Report on Form 8-K was filed on October 6, 2003 to announce the
closing on September 30, 2003 of a private placement of 5,133,451 shares of its
Series C Convertible Preferred Stock.

A Current Report on Form 8-K was filed on September 25, 2003 to announce
the closing on September 23, 2003 of a private placement of 17,112,702 shares
of its Series C Convertible Preferred Stock.

A Current Report on Form 8-K was filed on July 3, 2003 in order to update
the Companys disclosure regarding its business pursuant to Regulation FD.

28



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 on November 14,
2003.

| |  |                                                  
| |  | -------------------------------------------------
| |  | REGEN BIOLOGICS, INC                             
| |  |                                                  
| |  | By: /s/ BRION D. UMIDI                           
| |  | Brion D. Umidi                                   
| |  | Senior Vice President and
Chief Financial Officer

29