**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form
      10-Q**





(Mark
      One)





R
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES****EXCHANGE ACT OF
                1934**





**For
                the quarterly period ended September 30,
                2007**





**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**
            **23-2476415***(State
                or other jurisdiction of incorporation or
                organization)*
            *(I.R.S.
                Employer Identification No.)***411
                Hackensack Avenue,****10th
                Floor,****Hackensack,
                NJ**
            **07601***(Address
                of principal executive offices)*
            *(Zip
                Code)*





**Registrant’s
      telephone number, including area code:**


**(201)
      651-5140**





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 R No £





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




Large
                Accelerated Filer £
            Accelerated
                Filer £
            Non-accelerated
                Filer R





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





The
      number of outstanding shares of the registrant’s common stock as of November 2,
      2007 was 104,076,415.










**REGEN
      BIOLOGICS, INC.**





**INDEX**





**Page
                No.****PART
                I — Financial Information**Item
                1. Financial StatementsCondensed
                Consolidated Balance Sheets at September 30, 2007
                (unaudited) and December 31, 2006
            3Condensed
                Consolidated Statements of Operations for the
                Three Months Ended September 30, 2007 (unaudited) and 2006 (unaudited),
                the Nine Months Ended September 30, 2007 (unaudited) and 2006 (unaudited)
                and the Period from December 21, 1989 (inception) to September 30,
                2007
                (unaudited)
            4Consolidated
                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,
                2007 (unaudited)
            5Condensed
                Consolidated Statements of Cash Flows for the
                Nine Months Ended September 30, 2007 (unaudited) and 2006 (unaudited)
                and
                the Period from December 21, 1989 (inception) to September 30, 2007
                (unaudited)
            11Notes
                to Condensed Consolidated Financial Statements
                (unaudited)
            12Item
                2. Management’s Discussion and Analysis of Financial
                Condition and Results of Operations
            21Item
                3. Quantitative and Qualitative Disclosures about Market
                Risk
            30Item
                4. Controls and Procedures
            30**PART
                II — Other Information**Item
                1. Legal Proceedings
            31Item
                1A. Risk Factors
            31Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            32Item
                3. Defaults Upon Senior Securities
            32Item
                4. Submission of Matters to a Vote of Security
                Holders
            32Item
                5. Other Information
            32Item
                6. Exhibits
            33Signatures
            37Certification





2
 ***Index***





**PART
      I — Financial Information**





**Item
      1. Financial Statements**





**REGEN
      BIOLOGICS, INC.**


(A
      Development Stage Company)


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


(Dollars
      in thousands, except per share data)





**September 30, 2007**
            
            
            **December 31, 2006****(unaudited)****ASSETS****Current
                assets**Cash
                and cash equivalents
            
            $
            5,598
            
            
            $
            7,268Short-term
                investments
            
            
            511
            
            
            
            648Trade
                receivables, net of allowance for doubtful accounts of $0 and $8,
                as of
                September 30, 2007 and December 31, 2006, respectively
            
            
            146
            
            
            
            83Inventory
            
            
            365
            
            
            
            220Prepaid
                expenses and other current assets
            
            
            152
            
            
            
            350**Total
                current assets**
            
            
            6,772
            
            
            
            8,569Property
                and equipment, net
            
            
            424
            
            
            
            321Other
                assets
            
            
            111
            
            
            
            141**Total
                assets**
            
            $
            7,307
            
            
            $
            9,031**LIABILITIES
                AND STOCKHOLDERS’ EQUITY (DEFICIT)****Current
                liabilities**Accounts
                payable
            
            $
            397
            
            
            $
            438Accounts
                payable to related party
            
            
            2
            
            
            
            9Accrued
                expenses
            
            
            588
            
            
            
            825Other
                current liabilities
            
            
            13
            
            
            
            66**Total
                current liabilities**
            
            
            1,000
            
            
            
            1,338Other
                liabilities
            
            
            71
            
            
            
            57Long-term
                portion of capital leases
            
            
            26
            
            
            
            36Long-term
                portion of notes payable to related party, including accrued interest
                of
                $2,017 and $1,702 at September 30, 2007 and December 31, 2006,
                respectively
            
            
            8,059
            
            
            
            7,744**Total
                liabilities**
            
            
            9,156
            
            
            
            9,175Series
                A redeemable convertible preferred stock, $.01 par value; 15,309,822
                shares authorized; issued and outstanding 2,483,116 and 13,260,025
                shares
                at liquidation preference of $1,113 and $5,942 at September 30, 2007
                and
                December 31, 2006, respectively
            
            
            1,113
            
            
            
            5,942Series
                C redeemable convertible preferred stock, $.01 par value; 30,000,000
                shares authorized; issued and outstanding 6,583,348 and 11,046,637
                shares
                at liquidation preference of $2,950 and $4,950 as of September 30,
                2007
                and December 31, 2006, respectively
            
            
            2,740
            
            
            
            4,512**Stockholders’
                equity (deficit)**Series
                D convertible preferred stock, options and warrants; preferred stock
                ,
                $.01 par value; 500,000 shares authorized; issued and outstanding
                135,715
                shares at liquidation preference of $5,700 as of September 30,
                2007
            
            
            5,491
            
            
            
            —Common
                stock, $.01 par value; 165,000,000 shares authorized; issued 104,068,369
                shares at September 30, 2007, and 88,708,171 shares at December 31,
                2006
            
            
            1,041
            
            
            
            887Additional
                paid-in capital
            
            
            81,014
            
            
            
            73,349Deficit
                accumulated during development stage
            
            
            (93,248
            )
            
            
            (84,834
            )**Total
                stockholders’ deficit**
            
            
            (5,702
            )
            
            
            (10,598
            )**Total
                liabilities and stockholders’ deficit**
            
            $
            7,307
            
            
            $
            9,031





See
      accompanying Notes to Condensed Consolidated Financial
      Statements.





3
 ***Index***





**REGEN
      BIOLOGICS, INC.**


(A
      Development Stage Company)


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


(Unaudited)


(Dollars
      in thousands, except per share data)





**Three
                Months Ended September 30,**
            
            
            **Nine
                Months Ended September 30,**
            
            
            **Period
                from**
              **December
                21, 1989**
              **(Inception)
                to****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**
            
            
            **September 30, 2007**Revenue:Sales
            
            $
            249
            
            
            $
            135
            
            
            $
            577
            
            
            $
            394
            
            
            $
            4,491Royalties
            
            
            10
            
            
            
            10
            
            
            
            33
            
            
            
            34
            
            
            
            315Grant
                and other revenue
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            433Total
                revenue
            
            
            259
            
            
            
            145
            
            
            
            610
            
            
            
            428
            
            
            
            5,239Expenses:Costs
                of goods sold
            
            
            119
            
            
            
            122
            
            
            
            297
            
            
            
            362
            
            
            
            4,718Research
                and development
            
            
            890
            
            
            
            1,148
            
            
            
            3,146
            
            
            
            5,708
            
            
            
            51,801Business
                development, general and administrative
            
            
            1,592
            
            
            
            1,526
            
            
            
            5,313
            
            
            
            4,063
            
            
            
            36,189Recognition
                of expense for the minimum pension liability upon termination of
                defined
                benefit pension plan
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            58Total
                expenses
            
            
            2,601
            
            
            
            2,973
            
            
            
            8,756
            
            
            
            10,133
            
            
            
            92,766Operating
                loss
            
            
            (2,342
            )
            
            
            (2,651
            )
            
            
            (8,146
            )
            
            
            (9,705
            )
            
            
            (87,527
            )Merger
                cost
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (515
            )Interest
                and other income
            
            
            88
            
            
            
            56
            
            
            
            300
            
            
            
            261
            
            
            
            2,373Rental
                income
            
            
            —
            
            
            
            85
            
            
            
            —
            
            
            
            249
            
            
            
            2,547Rent
                expense
            
            
            —
            
            
            
            (90
            )
            
            
            —
            
            
            
            (238
            )
            
            
            (2,409
            )Interest
                and other expense
            
            
            (105
            )
            
            
            (97
            )
            
            
            (340
            )
            
            
            (293
            )
            
            
            (4,105
            )License
                fees
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,050Net
                loss
            
            
            (2,359
            )
            
            
            (2,697
            )
            
            
            (8,186
            )
            
            
            (9,726
            )
            
            
            (87,586
            )Deemed
                dividend to Series C Preferred Stockholders upon issuance of Series
                C
                Preferred Stock with a beneficial conversion and amortization of
                related
                issuance costs
            
            
            (17
            )
            
            
            (27
            )
            
            
            (228
            )
            
            
            (81
            )
            
            
            (5,662
            )Net
                loss attributable to common stockholders
            
            $
            (2,376
            )
            
            $
            (2,724
            )
            
            $
            (8,414
            )
            
            $
            (9,807
            )
            
            $
            (93,248
            )Basic
                and diluted net loss per share attributable to common
                stockholders
            
            $
            (0.02
            )
            
            $
            (0.04
            )
            
            $
            (0.08
            )
            
            $
            (0.14
            )
            
            $
            (3.29
            )Weighted
                average number of shares used for calculation of net loss per
                share
            
            
            104,007,843
            
            
            
            69,832,807
            
            
            
            103,342,270
            
            
            
            69,608,380
            
            
            
            28,314,646





See
      accompanying Notes to Condensed Consolidated Financial Statements.





4
 ***Index***




**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, 2007
      (unaudited)


(Dollars
      in thousands, except per share data)


**Series
                  A**
              
              
              **Series
                  C**
              
              
              **Stockholders
                  Equity (Deficit)****Redeemable**
                **Convertible**
                **Preferred**
                **Stock**
              
              
              **Redeemable**
                **Convertible**
                **Preferred**
                **Stock**
              
              
              **Series
                  A – F**
                **Convertible**
                **Preferred**
                **Stock**
              
              
              **Series
                  B and Series D Convertible**
                **Preferred**
                **Stock**
              
              
              **Common
                  Stock**
              
              
              **Additional**
                **Paid-In**
              
              
              **Deferred**
                **Stock**
              
              
              **Deficit
                  Accumulated During**
                **Development**
              
              
              **Accumulated
                  Other Comprehensive**
              
              
              **Total
                  Stockholders' Equity****Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Capital**
              
              
              **Compensation**
              
              
              **Stage**
              
              
              **Loss**
              
              
              **(Deficit)**Issuance
                  of common stock at $0.03127 per share for net assets contributed
                  by
                  founders in May 1990
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              $
              —
              
              
              
              
              
              
              
              
              
              
              
              1,400,000
              
              
              $
              1
              
              
              $
              44
              
              
              
              
              
              
              $
              —
              
              
              
              
              
              
              $
              45Issuance
                  of common stock at $0.005 per share for cash in November
                  1991
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              700,000
              
              
              
              —
              
              
              
              3
              
              
              
              
              
              
              
              —
              
              
              
              
              
              
              
              3Issuance
                  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
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              681
              
              
              
              
              
              
              
              —
              
              
              
              
              
              
              
              682Issuance
                  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 $29
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,226,338
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              3,650
              
              
              
              
              
              
              
              —
              
              
              
              
              
              
              
              3,650Net
                  loss from inception (December 21, 1989) through December 31,
                  1992
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              (2,476
              )
              
              
              
              
              
              
              (2,476
              )Balance
                  at December 31, 1992
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,951,338
              
              
              
              1
              
              
              
              
              
              
              
              
              
              
              
              2,100,000
              
              
              
              1
              
              
              
              4,378
              
              
              
              
              
              
              
              (2,476
              )
              
              
              
              
              
              
              1,904Issuance
                  of Series C convertible preferred stock at $4.50 per share
                  forcash
                  in December 1993, net of offering costs of $29
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              550,552
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              2,448
              
              
              
              
              
              
              
              —
              
              
              
              
              
              
              
              2,448Exercise
                  of common stock options at $0.30 per share for cash in February
                  1993
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              200
              
              
              
              —
              
              
              
              1
              
              
              
              
              
              
              
              —
              
              
              
              
              
              
              
              1Issuance
                  of common stock at $0.30 per share in 1993 in exchange for services
                  to a
                  consultant
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              5,000
              
              
              
              —
              
              
              
              1
              
              
              
              
              
              
              
              —
              
              
              
              
              
              
              
              1Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              (1,342
              )
              
              
              
              
              
              
              (1,342
              )Balance
                  at December 31, 1993
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,501,890
              
              
              
              1
              
              
              
              
              
              
              
              
              
              
              
              2,105,200
              
              
              
              1
              
              
              
              6,828
              
              
              
              
              
              
              
              (3,818
              )
              
              
              
              
              
              
              3,012Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              (1,463
              )
              
              
              
              
              
              
              (1,463
              )Balance
                  at December 31, 1994
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,501,890
              
              
              
              1
              
              
              
              
              
              
              
              
              
              
              
              2,105,200
              
              
              
              1
              
              
              
              6,828
              
              
              
              
              
              
              
              (5,281
              )
              
              
              
              
              
              
              1,549Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              (1,959
              )
              
              
              
              
              
              
              (1,959
              )Balance
                  at December 31, 1995
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,501,890
              
              
              $
              1
              
              
              
              
              
              
              
              
              
              
              
              2,105,200
              
              
              $
              1
              
              
              $
              6,828
              
              
              
              
              
              
              $
              (7,240
              )
              
              
              
              
              
              $
              (410
              )


See
      accompanying Notes to Condensed Consolidated Financial Statements





5
 ***Index***


**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
      (CONTINUED)**


Period
      from December 21, 1989 (inception) to September 30, 2007
      (unaudited)


(Dollars
      in thousands, except per share data)




**Series
                      A**
                  
                  
                  **Series
                      C**
                  
                  
                  **Stockholders
                      Equity (Deficit)****Redeemable**
                    **Convertible**
                    **Preferred**
                  
                  
                  **Redeemable**
                    **Convertible**
                    **Preferred**
                  
                  
                  **Series
                      A - F**
                    **Convertible**
                    **Preferred**
                  
                  
                  **Series
                      B and Series D**
                    **Convertible**
                    **Preferred**
                  
                  
                  
                  
                  
                  **Additional**
                  
                  
                  **Deferred**
                  
                  
                  **Deficit**
                    **Accumulated**
                    **During**
                  
                  
                  **Accumulated**
                    **Other**
                  
                  
                  **Total**
                    **Stockholders'****Stock**
                  
                  
                  **Stock**
                  
                  
                  **Stock**
                  
                  
                  **Stock**
                  
                  
                  **Common
                      Stock**
                  
                  
                  **Paid-In**
                  
                  
                  **Stock**
                  
                  
                  **Development**
                  
                  
                  **Comprehensive**
                  
                  
                  **Equity****Shares**
                  
                  
                  **Amount**
                  
                  
                  **Shares**
                  
                  
                  **Amount**
                  
                  
                  **Shares**
                  
                  
                  **Amount**
                  
                  
                  **Shares**
                  
                  
                  **Amount**
                  
                  
                  **Shares**
                  
                  
                  **Amount**
                  
                  
                  **Capital**
                  
                  
                  **Compensation**
                  
                  
                  **Stage**
                  
                  
                  **Loss**
                  
                  
                  **(Deficit)**Balance
                      at December 31, 1995 (brought forward)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,501,890
                  
                  
                  $
                  1
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,105,200
                  
                  
                  $
                  1
                  
                  
                  $
                  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
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,191,321
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  8,101
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  8,101Exercise
                      of common stock options at $0.10, $0.30, and $0.45 per share
                      in August and
                      October 1996
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  163,333
                  
                  
                  
                  —
                  
                  
                  
                  43
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  43Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (1,931
                  )
                  
                  
                  
                  
                  
                  
                  (1,931
                  )Balance
                      at December 31, 1996
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,693,211
                  
                  
                  
                  1
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,268,533
                  
                  
                  
                  1
                  
                  
                  
                  14,972
                  
                  
                  
                  —
                  
                  
                  
                  (9,171
                  )
                  
                  
                  
                  
                  
                  
                  5,803Issuance
                      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
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,378
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  2,378Exercise
                      of common stock options at $0.10, $0.30, and $0.45 per share
                      in April,
                      August, and September 1997
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  32,111
                  
                  
                  
                  —
                  
                  
                  
                  5
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  5Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (3,868
                  )
                  
                  
                  
                  
                  
                  
                  (3,868
                  )Balance
                      at December 31, 1997
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  4,028,525
                  
                  
                  
                  1
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,300,644
                  
                  
                  
                  1
                  
                  
                  
                  17,355
                  
                  
                  
                  —
                  
                  
                  
                  (13,039
                  )
                  
                  
                  
                  
                  
                  
                  4,318Exercise
                      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
                  
                  
                  
                  —
                  
                  
                  
                  108
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  108Compensation
                      expense associated with stock option modifications
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  56
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  56Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (3,815
                  )
                  
                  
                  
                  
                  
                  
                  (3,815
                  )Balance
                      at December 31, 1998
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  4,028,525
                  
                  
                  
                  1
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,460,523
                  
                  
                  
                  1
                  
                  
                  
                  17,519
                  
                  
                  
                  —
                  
                  
                  
                  (16,854
                  )
                  
                  
                  
                  
                  
                  
                  667Exercise
                      of common stock options at $.725 and $1.45 per share in April,
                      June and
                      August 1999
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  42,396
                  
                  
                  
                  —
                  
                  
                  
                  32
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  32Issuance
                      of Series F convertible preferred stock at $8.73 per share
                      for
                      cash
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  453,310
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  3,956
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  3,956Compensation
                      expense associated with stock option grants
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  3,436
                  
                  
                  
                  (3,247
                  )
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  189Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (5,458
                  )
                  
                  
                  
                  
                  
                  
                  (5,458
                  )Balance
                      at December 31, 1999
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  4,481,835
                  
                  
                  $
                  1
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,502,919
                  
                  
                  $
                  1
                  
                  
                  $
                  24,943
                  
                  
                  $
                  (3,247
                  )
                  
                  $
                  (22,312
                  )
                  
                  
                  
                  
                  
                  $
                  (614
                  )


See
      accompanying Notes to Condensed Consolidated Financial Statements





6
 ***Index***





**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
      (CONTINUED)**


Period
      from December 21, 1989 (inception) to September 30, 2007
      (unaudited)


(Dollars
      in thousands, except per share data)




**Series
                    A**
                
                
                **Series
                    C**
                
                
                **Stockholders
                    Equity (Deficit)****Redeemable**
                  **Convertible**
                  **Preferred**
                
                
                **Redeemable**
                  **Convertible**
                  **Preferred**
                
                
                **Series
                    A - F**
                  **Convertible**
                  **Preferred**
                
                
                **Series
                    B and Series D**
                  **Convertible**
                  **Preferred**
                
                
                
                
                
                **Additional**
                
                
                **Deferred**
                
                
                **Deficit**
                  **Accumulated**
                  **During**
                
                
                **Accumulated**
                  **Other**
                
                
                **Total**
                  **Stockholders'****Stock**
                
                
                **Stock**
                
                
                **Stock**
                
                
                **Stock**
                
                
                **Common
                    Stock**
                
                
                **Paid-In**
                
                
                **Stock**
                
                
                **Development**
                
                
                **Comprehensive**
                
                
                **Equity****Shares**
                
                
                **Amount**
                
                
                **Shares**
                
                
                **Amount**
                
                
                **Shares**
                
                
                **Amount**
                
                
                **Shares**
                
                
                **Amount**
                
                
                **Shares**
                
                
                **Amount**
                
                
                **Capital**
                
                
                **Compensation**
                
                
                **Stage**
                
                
                **Loss**
                
                
                **(Deficit)**Balance
                    at December 31, 1999 (brought forward)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                4,481,835
                
                
                $
                1
                
                
                
                
                
                
                
                
                
                
                
                2,502,919
                
                
                $
                1
                
                
                $
                24,943
                
                
                $
                (3,247
                )
                
                $
                (22,312
                )
                
                
                
                
                
                $
                (614
                )Compensation
                    expense associated with stock option grants in prior year
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                738
                
                
                
                —
                
                
                
                
                
                
                
                738Compensation
                    expense associated with stock option grants in current
                    year
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                2,124
                
                
                
                (1,642
                )
                
                
                —
                
                
                
                
                
                
                
                482Stock
                    options cancelled during 2000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                (1,089
                )
                
                
                1,089
                
                
                
                —
                
                
                
                
                
                
                
                —Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (5,229
                )
                
                
                
                
                
                
                (5,229
                )Balance
                    at December 31, 2000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                4,481,835
                
                
                
                1
                
                
                
                
                
                
                
                
                
                
                
                2,502,919
                
                
                
                1
                
                
                
                25,978
                
                
                
                (3,062
                )
                
                
                (27,541
                )
                
                
                
                
                
                
                (4,623
                )Exercise
                    of common stock options at $.10 per share in 2001
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                
                
                
                
                25,000
                
                
                
                —
                
                
                
                3
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                3Exercise
                    of common stock options at $1.45 per share in 2001
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                
                
                
                
                125
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                —Compensation
                    expense associated with stock option grants in prior years
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                935
                
                
                
                —
                
                
                
                
                
                
                
                935Compensation
                    expense associated with stock option grants in current
                    year
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                1,010
                
                
                
                (833
                )
                
                
                —
                
                
                
                
                
                
                
                177Stock
                    options cancelled during 2001
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                (161
                )
                
                
                161
                
                
                
                —
                
                
                
                
                
                
                
                —Deferred
                    stock compensation associated with stock option grants to non-employees
                    in
                    2001
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                228
                
                
                
                (131
                )
                
                
                —
                
                
                
                
                
                
                
                97Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (4,330
                )
                
                
                
                
                
                
                (4,330
                )Balance
                    at December 31, 2001
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                4,481,835
                
                
                $
                1
                
                
                
                
                
                
                
                
                
                
                
                2,528,044
                
                
                $
                1
                
                
                $
                27,058
                
                
                $
                (2,930
                )
                
                $
                (31,871
                )
                
                
                
                
                
                $
                (7,741
                )


See
      accompanying Notes to Condensed Consolidated Financial Statements





7
 ***Index***


**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
      (CONTINUED)**


Period
      from December 21, 1989 (inception) to September 30, 2007
      (unaudited)


(Dollars
      in thousands, except per share data)




**Series
                  A**
              
              
              **Series
                  C**
              
              
              **Stockholders
                  Equity (Deficit)****Redeemable**
                **Convertible**
                **Preferred**
                **Stock**
              
              
              **Redeemable**
                **Convertible**
                **Preferred**
                **Stock**
              
              
              **Series
                  A - F**
                **Convertible**
                **Preferred**
                **Stock**
              
              
              **Series
                  B and Series D**
                **Convertible**
                **Preferred**
                **Stock**
              
              
              **Common
                  Stock**
              
              
              **Additional**
                **Paid-In**
              
              
              **Deferred**
                **Stock**
              
              
              **Deficit**
                **Accumulated**
                **During**
                **Development**
              
              
              **Accumulated**
                **Other**
                **Comprehensive**
              
              
              **Total**
                **Stockholders'**
                **Equity****Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Capital**
              
              
              **Compensation**
              
              
              **Stage**
              
              
              **Loss**
              
              
              **(Deficit)**Balance
                  at December 31, 2001 (brought forward)
              
              
              —
              
              
              $
              —
              
              
              
              —
              
              
              $
              —
              
              
              
              4,481,835
              
              
              $
              1
              
              
              
              —
              
              
              $
              —
              
              
              
              2,528,044
              
              
              $
              1
              
              
              $
              27,058
              
              
              $
              (2,930
              )
              
              $
              (31,871
              )
              
              $
              —
              
              
              $
              (7,741
              )Issuance
                  of Common Stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              301,930
              
              
              
              1
              
              
              
              104
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              105Issuance
                  of Convertible Preferred Stock for cash and conversion of bridge
                  financing
                  net of issuance costs of $138
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,564,047
              
              
              
              1
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              6,716
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              6,717Deferred
                  stock compensation associated with stock option grants in
                  2002
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              370
              
              
              
              (370
              )
              
              
              —
              
              
              
              
              
              
              
              —Compensation
                  expense associated with stock options outstanding
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              452
              
              
              
              —
              
              
              
              
              
              
              
              452Effect
                  of reverse merger and recapitalization:
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              —Valuation
                  of warrants associated with bridge financing
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              657
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              657Valuation
                  of beneficial conversion associated with bridge financing
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              843
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              843Compensation
                  expense associated with stock options outstanding recognized as
                  a result
                  of the reverse merger
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              2,848
              
              
              
              —
              
              
              
              
              
              
              
              2,848Conversion
                  of convertible preferred shares to Redeemable Convertible Preferred
                  Series
                  A at liquidation / redemption value
              
              
              15,298,351
              
              
              
              6,855
              
              
              
              
              
              
              
              
              
              
              
              (5,564,047
              )
              
              
              (1
              )
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              (6,854
              )
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              (6,855
              )Conversion
                  of convertible preferred shares to Common Stock and Series B Preferred
                  Shares
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              (4,481,835
              )
              
              
              (1
              )
              
              
              12,025,656
              
              
              
              120
              
              
              
              297,146
              
              
              
              3
              
              
              
              (122
              )
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              —Conversion
                  of Subsidiary Common Stock into Company Common Stock and Series
                  B
                  Preferred Shares:
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              —Elimination
                  of Subsidiary Common Stock
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (2,829,974
              )
              
              
              (1
              )
              
              
              1
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              —Issuance
                  of Company Common Stock
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              7,781,018
              
              
              
              78
              
              
              
              (78
              )
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              —Company
                  Common Stock and related equity held by existing shareholders (net
                  of
                  18,115 shares held treasury)
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              8,966,966
              
              
              
              89
              
              
              
              2,678
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              2,767Conversion
                  of Convertible Preferred Series B Stock to Company Common
                  Stock
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              (12,025,656
              )
              
              
              (120
              )
              
              
              12,025,656
              
              
              
              120
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              —Minimum
                  Pension Liability Adjustment
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (58
              )
              
              
              —Net
                  loss
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (9,951
              )
              
              
              —
              
              
              
              —Net
                  loss and comprehensive loss
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (10,009
              )Balance
                  at December 31, 2002
              
              
              15,298,351
              
              
              
              6,855
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              29,070,786
              
              
              
              291
              
              
              
              31,373
              
              
              
              —
              
              
              
              (41,822
              )
              
              
              (58
              )
              
              
              (10,216
              )Compensation
                  expense associated with stock options outstanding
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              664
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              664Issuance
                  of Redeemable Convertible Preferred Series C Stock, net of issuance
                  costs
                  of $612, which include the issuance of non-cash consideration in
                  the form
                  of warrants
              
              
              —
              
              
              
              —
              
              
              
              22,246,153
              
              
              
              9,357
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              97
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              97Issuance
                  of Common Stock warrants to Series C Stockholders
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (969
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              969
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              969Valuation
                  of beneficial conversion associated with Series C Stock
                  financing
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (4,292
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              4,292
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              4,292Accretion
                  of beneficial conversion associated with Series C Stock
                  financing
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              4,292
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              
              
              
              
              —
              
              
              
              (4,292
              )
              
              
              —
              
              
              
              (4,292
              )Issuance
                  of Common Stock - warrants exercised
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              230,000
              
              
              
              2
              
              
              
              113
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              115Accretion
                  of Series C Stock issuance cost
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              51
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (51
              )
              
              
              —
              
              
              
              (51
              )Net
                  loss and comprehensive loss
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (5,989
              )
              
              
              —
              
              
              
              (5,989
              )Balance
                  at December 31, 2003
              
              
              15,298,351
              
              
              $
              6,855
              
              
              
              22,246,153
              
              
              $
              8,439
              
              
              
              —
              
              
              $
              —
              
              
              
              —
              
              
              $
              —
              
              
              
              29,300,786
              
              
              $
              293
              
              
              $
              37,508
              
              
              $
              —
              
              
              $
              (52,154
              )
              
              $
              (58
              )
              
              $
              (14,411
              )




See
      accompanying Notes to Condensed Consolidated Financial Statements





8
 ***Index***




**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
      (CONTINUED)**


Period
      from December 21, 1989 (inception) to September 30, 2007
      (unaudited)


(Dollars
      in thousands, except per share data)




**Series
                A**
            
            
            **Series
                C**
            
            
            **Stockholders
                Equity (Deficit)****Redeemable**
              **Convertible**
              **Preferred**
              **Stock**
            
            
            **Redeemable**
              **Convertible**
              **Preferred**
              **Stock**
            
            
            **Series
                A – F**
              **Convertible**
              **Preferred**
              **Stock**
            
            
            **Series
                B and Series D**
              **Convertible**
              **Preferred**
              **Stock**
            
            
            **Common
                Stock**
            
            
            **Additional**
              **Paid-In**
            
            
            **Deferred**
              **Stock**
            
            
            **Deficit**
              **Accumulated**
              **During**
              **Development**
            
            
            **Accumulated**
              **Other**
              **Comprehensive**
            
            
            **Total**
              **Stockholders'**
              **Equity****Shares**
            
            
            **Amount**
            
            
            **Shares**
            
            
            **Amount**
            
            
            **Shares**
            
            
            **Amount**
            
            
            **Shares**
            
            
            **Amount**
            
            
            **Shares**
            
            
            **Amount**
            
            
            **Capital**
            
            
            **Compensation**
            
            
            **Stage**
            
            
            **Loss**
            
            
            **(Deficit)**Balance
                at December 31, 2003 (brought forward)
            
            
            15,298,351
            
            
            $
            6,855
            
            
            
            22,246,153
            
            
            $
            8,439
            
            
            
            —
            
            
            $
            —
            
            
            
            —
            
            
            $
            —
            
            
            
            29,300,786
            
            
            $
            293
            
            
            $
            37,508
            
            
            $
            —
            
            
            $
            (52,154
            )
            
            $
            (58
            )
            
            $
            (14,411
            )Compensation
                expense associated with stock options outstanding
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            684
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            684Accretion
                of Series C Stock issuance cost
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            173
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (173
            )
            
            
            —
            
            
            
            (173
            )Recognition
                of Series C Stock issuance cost upon conversion
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            589
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (589
            )
            
            
            —
            
            
            
            (589
            )Issuance
                of Common Stock - warrants exercised net of 8,901 shares held
                treasury
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            141,152
            
            
            
            1
            
            
            
            58
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            59Issuance
                of Common Stock - options exercised
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            261,109
            
            
            
            3
            
            
            
            77
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            80Issuance
                of Common Stock - common stock offering
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            12,074,595
            
            
            
            121
            
            
            
            9,745
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            9,866Conversion
                of Series A Stock to Common Stock
            
            
            (642,723
            )
            
            
            (288
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            642,723
            
            
            
            6
            
            
            
            282
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            288Conversion
                of Series C Stock to Common Stock
            
            
            —
            
            
            
            —
            
            
            
            (9,302,620
            )
            
            
            (4,168
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            9,302,620
            
            
            
            93
            
            
            
            4,075
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            4,168Net
                loss and comprehensive loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (7,201
            )
            
            
            —
            
            
            
            (7,201
            )Balance
                at December 31, 2004
            
            
            14,655,628
            
            
            
            6,567
            
            
            
            12,943,533
            
            
            
            5,033
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            51,722,985
            
            
            
            517
            
            
            
            52,429
            
            
            
            —
            
            
            
            (60,117
            )
            
            
            (58
            )
            
            
            (7,229
            )Stock-based
                compensation expense
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            454
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            454Accretion
                of Series C Stock issuance cost
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            109
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (109
            )
            
            
            —
            
            
            
            (109
            )Recognition
                of Series C Stock issuance cost upon conversion
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            110
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (110
            )
            
            
            —
            
            
            
            (110
            )Conversion
                of Series A Preferred Stock to Common Stock
            
            
            (1,395,603
            )
            
            
            (625
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,395,603
            
            
            
            14
            
            
            
            611
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            625Conversion
                of Series C Preferred Stock to Common Stock
            
            
            —
            
            
            
            —
            
            
            
            (1,896,896
            )
            
            
            (850
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,896,896
            
            
            
            19
            
            
            
            831
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            850Issuance
                of Common Stock - work completed
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            100,000
            
            
            
            1
            
            
            
            92
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            93Issuance
                of Common Stock - options exercised
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            20,000
            
            
            
            —
            
            
            
            3
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            3Issuance
                of Common Stock and warrants - common stock offering
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            14,011,178
            
            
            
            140
            
            
            
            11,067
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            11,207Recognition
                of expense for the minimum pension liability upon termination of
                defined
                benefit pension plan
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            58
            
            
            
            —Net
                loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (11,731
            )
            
            
            —
            
            
            
            —Net
                loss and comprehensive loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (11,673
            )Balance
                at December 31, 2005
            
            
            13,260,025
            
            
            $
            5,942
            
            
            
            11,046,637
            
            
            $
            4,402
            
            
            
            —
            
            
            $
            —
            
            
            
            —
            
            
            $
            —
            
            
            
            69,146,662
            
            
            $
            691
            
            
            $
            65,487
            
            
            $
            —
            
            
            $
            (72,067
            )
            
            $
            —
            
            
            $
            (5,889
            )





See
      accompanying Notes to Condensed Consolidated Financial Statements





9
 ***Index***




**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
      (CONTINUED)**


Period
      from December 21, 1989 (inception) to September 30, 2007
      (unaudited)


(Dollars
      in thousands, except per share data)





**Series
                A**
            
            
            **Series
                C**
            
            
            **Stockholders
                Equity (Deficit)****Redeemable**
              **Convertible**
              **Preferred**
              **Stock**
            
            
            **Redeemable**
              **Convertible**
              **Preferred**
              **Stock**
            
            
            **Series
                A – F**
              **Convertible**
              **Preferred**
              **Stock**
            
            
            **Series
                B and Series D**
              **Convertible**
              **Preferred**
              **Stock**
            
            
            **Common
                Stock**
            
            
            **Additional**
              **Paid-In**
            
            
            **Deferred**
              **Stock**
            
            
            **Deficit**
              **Accumulated**
              **During**
              **Development**
            
            
            **Accumulated**
              **Other**
              **Comprehensive**
            
            
            **Total**
              **Stockholders'**
              **Equity****Shares**
            
            
            **Amount**
            
            
            **Shares**
            
            
            **Amount**
            
            
            **Shares**
            
            
            **Amount**
            
            
            **Shares**
            
            
            **Amount**
            
            
            **Shares**
            
            
            **Amount**
            
            
            **Capital**
            
            
            **Compensation**
            
            
            **Stage**
            
            
            **Loss**
            
            
            **(Deficit)**Balance
                at December 31, 2005 (brought forward)
            
            
            13,260,025
            
            
            $
            5,942
            
            
            
            11,046,637
            
            
            $
            4,402
            
            
            
            —
            
            
            $
            —
            
            
            
            —
            
            
            $
            —
            
            
            
            69,146,662
            
            
            $
            691
            
            
            $
            65,487
            
            
            $
            —
            
            
            $
            (72,067
            )
            
            $
            —
            
            
            $
            (5,889
            )Stock-based
                compensation expense
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,183
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,183Accretion
                of Series C Stock issuance cost
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            110
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (110
            )
            
            
            —
            
            
            
            (110
            )Issuance
                of Common Stock- services rendered
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            40,000
            
            
            
            —
            
            
            
            18
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            18Issuance
                of Common Stock - options exercised
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            310,178
            
            
            
            4
            
            
            
            113
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            117Issuance
                of Common Stock-conversion of warrants
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            375,967
            
            
            
            4
            
            
            
            (4
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Issuance
                of Common Stock and warrants - common stock offering
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            18,774,838
            
            
            
            188
            
            
            
            6,552
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            6,740Net
                loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (12,657
            )
            
            
            —
            
            
            
            —Net
                loss and comprehensive loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (12,657
            )Balance
                at December 31, 2006
            
            
            13,260,025
            
            
            
            5,942
            
            
            
            11,046,637
            
            
            
            4,512
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            88,647,645
            
            
            
            887
            
            
            
            73,349
            
            
            
            —
            
            
            
            (84,834
            )
            
            
            —
            
            
            
            (10,598
            )Stock-based
                compensation expense
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            866
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            866Accretion
                of Series C Stock issuance cost
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            228
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (228
            )
            
            
            —
            
            
            
            (228
            )Conversion
                of Series A preferred stock
            
            
            (10,776,909
            )
            
            
            (4,829
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            10,776,909
            
            
            
            108
            
            
            
            4,721
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            4,829Conversion
                of Series C preferred stock
            
            
            —
            
            
            
            —
            
            
            
            (4,463,289
            )
            
            
            (2,000
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            4,463,289
            
            
            
            45
            
            
            
            1,955
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,000Issuance
                of Series D preferred stock and preferred stock options and warrants,
                net
                of issuance costs
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            135,715
            
            
            
            5,491
            
            
            
            —
            
            
            
            —
            
            
            
            69
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            5,560Issuance
                of Common Stock- work completed
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            120,000
            
            
            
            1
            
            
            
            54
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            55Net
                loss and comprehensive loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (8,186
            )
            
            
            —
            
            
            
            (8,186
            )Balance
                at September 30, 2007 (unaudited)
            
            
            2,483,116
            
            
            $
            1,113
            
            
            
            6,583,348
            
            
            $
            2,740
            
            
            
            —
            
            
            $
            —
            
            
            
            135,715
            
            
            $
            5,491
            
            
            
            104,007,843
            
            
            $
            1,041
            
            
            $
            81,014
            
            
            $
            —
            
            
            $
            (93,248
            )
            
            $
            —
            
            
            $
            (5,702
            )





See
      accompanying Notes to Condensed Consolidated Financial Statements




10
 ***Index***





**REGEN
      BIOLOGICS, INC.**


**(A
      Development Stage Company)**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH
      FLOWS**


(Unaudited)


(Dollars
      in thousands)




**Nine
                Months Ended September 30,**
            
            
            **Period
                from**
              **December
                21,**
              **1989****2007**
            
            
            **2006**
            
            
            **(Inception)
                to**
              **September 30, 2007****Operating
                Activities**Net
                loss
            
            $
            (8,186
            )
            
            $
            (9,726
            )
            
            $
            (87,586
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Stock-based
                compensation
            
            
            955
            
            
            
            904
            
            
            
            9,991Amortization
                of debt discount for warrant and beneficial conversion
                feature
            
            
            —
            
            
            
            —
            
            
            
            1,500Depreciation
                and amortization
            
            
            64
            
            
            
            47
            
            
            
            2,348Loss
                on disposal of property and equipment
            
            
            —
            
            
            
            —
            
            
            
            9Recognition
                of expense for the minimum pension liability upon termination of
                defined
                benefit pension plan
            
            
            —
            
            
            
            —
            
            
            
            58Exchange
                loss
            
            
            19
            
            
            
            27
            
            
            
            69Changes
                in operating assets and liabilities:Other
                current assets and receivables
            
            
            101
            
            
            
            35
            
            
            
            (238
            )Inventory
            
            
            (145
            )
            
            
            168
            
            
            
            (365
            )Other
                assets
            
            
            30
            
            
            
            (47
            )
            
            
            (61
            )Accounts
                payable and accrued expenses
            
            
            30
            
            
            
            (1,210
            )
            
            
            2,885Other
                liabilities
            
            
            (38
            )
            
            
            91
            
            
            
            (73
            )Net
                cash used in operating activities
            
            
            (7,170
            )
            
            
            (9,711
            )
            
            
            (71,463
            )**Investing
                Activities**Purchases
                of property and equipment
            
            
            (167
            )
            
            
            (168
            )
            
            
            (2,476
            )Changes
                in investments
            
            
            137
            
            
            
            2,048
            
            
            
            2,434Net
                cash (used in) provided by investing activities
            
            
            (30
            )
            
            
            1,880
            
            
            
            (42
            )**Financing
                Activities**Issuance
                of common stock to founders for contributed patents
            
            
            —
            
            
            
            —
            
            
            
            42Issuance
                of Series B preferred stock upon conversion of interest
                payable
            
            
            —
            
            
            
            —
            
            
            
            6Reduction
                in payable to stockholder
            
            
            —
            
            
            
            —
            
            
            
            (76
            )Proceeds
                from issuance of convertible preferred stock and preferred stock
                options
                and warrants, net of issuance costs paid in cash
            
            
            5,560
            
            
            
            —
            
            
            
            39,781Proceeds
                from issuance of common stock and warrants
            
            
            —
            
            
            
            117
            
            
            
            28,487Repayment
                of capital lease obligations
            
            
            (11
            )
            
            
            (10
            )
            
            
            (160
            )Proceeds
                from notes payable
            
            
            —
            
            
            
            —
            
            
            
            11,410Payments
                on notes payable
            
            
            —
            
            
            
            —
            
            
            
            (2,323
            )Net
                cash provided by financing activities
            
            
            5,549
            
            
            
            107
            
            
            
            77,167Effect
                of exchange rate changes on cash
            
            
            (19
            )
            
            
            (27
            )
            
            
            (65
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            (1,670
            )
            
            
            (7,751
            )
            
            
            5,597Cash
                and cash equivalents at beginning of period
            
            
            7,268
            
            
            
            9,535
            
            
            
            1Cash
                and cash equivalents at end of period
            
            $
            5,598
            
            
            $
            1,784
            
            
            $
            5,998**Supplemental
                Disclosure of****Cash
                Flow Information**Non-cash
                disclosure: Issuance of Series B convertible preferred stock upon
                conversion of notes payable
            
            $
            —
            
            
            $
            —
            
            
            $
            300Equipment
                purchased pursuant to capital leases
            
            
            —
            
            
            
            —
            
            
            
            198Cancellation
                of stock options associated with deferred stock
                compensation
            
            
            —
            
            
            
            —
            
            
            
            1,250Net
                assets assumed in merger
            
            
            —
            
            
            
            —
            
            
            
            2,733Conversion
                of bridge financing to equity
            
            
            —
            
            
            
            —
            
            
            
            2,860Beneficial
                Conversion of Series C Stock
            
            
            —
            
            
            
            —
            
            
            
            4,292Warrants
                associated with Series C Stock
            
            
            —
            
            
            
            —
            
            
            
            969Warrants
                associated with Series C Stock private placement agent fee
            
            
            —
            
            
            
            —
            
            
            
            97Warrants
                associated with consulting services
            
            
            69
            
            
            
            
            
            
            
            69Conversion
                of Series A Preferred Stock
            
            
            4,829
            
            
            
            —
            
            
            
            5,742Issuance
                of Common Stock-conversion of warrants
            
            
            —
            
            
            
            4
            
            
            
            14Conversion
                of Series C Preferred Stock
            
            
            2,000
            
            
            
            —
            
            
            
            7,018Issuance
                of Common Stock for services rendered
            
            
            47
            
            
            
            —
            
            
            
            158Non-employee
                options exercised, net-share settled
            
            
            —
            
            
            
            1
            
            
            
            1Cash
                disclosure: Cash paid for interest
            
            
            6
            
            
            
            4
            
            
            
            330




See
      accompanying Notes to Condensed Consolidated Financial Statements.





11
 ***Index***




**REGEN
      BIOLOGICS, INC.**


(A
      Development Stage Company)


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**


**(Dollars
      in thousands, except per unit and per share data)**





**(1)
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Principles
      of Consolidation and Basis of Presentation**





The
      consolidated financial statements of ReGen Biologics, Inc. (“ReGen” or the
“Company”) include accounts of the Company and its wholly-owned subsidiaries,
      RBio, Inc. (“RBio”) and ReGen Biologics AG (“ReGen AG”). Intercompany
      transactions and balances are eliminated in consolidation.





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 adjustments) necessary to
      present fairly the financial position and the results of operations for the
      periods presented.





To
      date,
      sales of the Company’s products have been limited. 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 would emerge from the development stage when (a) the Company
      obtains either FDA clearance of the Collagen Scaffold device or premarket
      approval for the CMITM, and either product is available for sale in the U.S. and
      (b) the Company begins to earn significant revenue from its principal
      operations. As discussed below, neither the Collagen Scaffold device nor the
      CMI
      product is available for sale in the U.S.





ReGen
      currently operates an orthopedic products company that develops, manufactures,
      and markets innovative tissue growth and repair products for U.S. and global
      markets. 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*.





For
      further information, refer to the consolidated financial statements and notes
      included in ReGen’s Annual Report on Form 10-K for the year ended December 31,
      2006.





**Risks
      and Going Concern Considerations**





The
      future operating results of the Company may be affected by a number of risks
      and
      certain other factors. The Company’s future operating results are highly
      dependent upon its ability to obtain and maintain regulatory clearance and
      approvals for its Collagen Scaffold device, CMI and other products. Although
      the
      CMI is cleared for sale and distributed in Europe and certain other markets,
      it
      is not approved for sale in the U.S., and the Company makes no claim regarding
      its safety, effectiveness or its potential for FDA approval. The Company has
      made a 510(k) premarket notification submission to the FDA for market clearance
      in the U.S. of the Collagen Scaffold, which includes an application for the
      reinforcement and repair of meniscus defects. The process of obtaining
      regulatory clearances or approvals to market a medical device, particularly
      from
      the FDA, can be costly and time-consuming. There can be no assurance that such
      clearances or approvals will be granted on a timely basis, if at all. If the
      510(k) process takes longer than expected or the Collagen Scaffold device is
      not
      cleared, it might substantially delay our ability to commercialize the Collagen
      Scaffold and negatively impact our business.





In
      September 2007, the Company received a not substantially equivalent (NSE) letter
      from the FDA regarding the 510(k) submission for the Collagen Scaffold device,
      indicating that the device is not substantially equivalent to existing Class
      II
      devices already in receipt of FDA clearance. The Company is appealing the NSE
      decision through FDA administrative channels. If the Collagen Scaffold device
      is
      not cleared through the 510(k) process, we may proceed with submission to the
      FDA of the Premarket Approval, or PMA, for the CMI. The PMA process is typically
      more costly, lengthy and uncertain than the 510(k) clearance process, and the
      Company may not have access to adequate capital to undertake the PMA
      process.





12
 ***Index***




In
      addition to regulatory related hurdles, in order to approach a position of
      positive operating earnings and cash flow, the Company will need to effectively
      address other operating issues, including, for example, establishing
      distribution channels and identifying third party reimbursement provisions
      for
      the surgeons and facilities that would be responsible for implanting the
      Company’s Collagen Scaffold, the CMI, or other future products. While the
      Company is actively working to address these issues, there is no guarantee
      that
      the Company will be successful or able to effectively address these challenges
      in any given time frame.





The
      Company will continue pursuing additional permanent equity capital in order
      to
      support ongoing operations at least until the date it receives either FDA
      clearance for the Collagen Scaffold or premarket approval for the CMI in the
      U.S. While the Company has been successful in the past in obtaining the
      necessary capital to support its operations, there is no assurance that the
      Company will be able to obtain additional equity capital or other financing
      under commercially reasonable terms and conditions, or at all. In 2006 and
      the
      first nine months of 2007, respectively, the Company incurred a net loss of
      $12,657 and $8,186 and used $12,239 and $7,170 of cash in operating activities.
      At September 30, 2007, the Company had cash and short-term investments of $6,109
      and net working capital of $5,772.





Based
      upon current cash and investment balances and planned spending rates, management
      believes the Company has adequate cash and investments on hand to support
      ongoing operations through at least April 1, 2008. The Company intends to reduce
      planned spending so that current cash and investments are sufficient to support
      operations through the anticipated 510(k) appeal process. However,
      the timing of the 510(k) appeal process is subject to inherent uncertainty.
      Beginning in the fourth quarter of 2007 management expects to implement
      measures to control costs that are within management’s discretion, including
      (but not limited to) costs such as consulting, advertising and promotion,
      personnel, other administrative costs and/or capital expenditures. The Company
      anticipates that additional equity capital will be required beyond April 2008
      to
      support operations. However, if unforeseen events occur, it is possible that
      additional cash may be needed before April 2008 to support operations. The
      accompanying condensed consolidated financial statements have been prepared
      assuming that the Company will continue as a going concern. However, if
      additional capital is not obtained, the Company will not be able to continue
      as
      a going concern. The Company’s financial statements do not include any
      adjustments relating to the recoverability or classification of assets or the
      amounts or classification of liabilities that might result from the outcome
      of
      this uncertainty.





**Adoption
      of New Accounting Pronouncements**





Effective
      January 1, 2007, the Company adopted Financial Accounting Standards Board (FASB)
      Interpretation No. 48 (FIN 48), *Accounting for**Uncertainty in Income
      Taxes*, which clarifies the accounting for uncertainty in income taxes by
      prescribing the recognition threshold a tax position is required to meet before
      being recognized in the financial statements. FIN 48 also provides guidance
      on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. Adoption of FIN 48 did not have a
      significant impact on the Company’s consolidated financial statements. The
      Company files income tax returns in the U.S. federal jurisdiction, and various
      states and foreign jurisdictions. The Company is subject to U.S. federal, state
      and local, or non-U.S. income tax examinations by tax authorities for the years
      2003 to 2006. In addition, the Company’s net operating loss carryforwards that
      relate to 1991 and forward are subject to adjustment by these tax authorities.
      At September 30, 2007, the Company has no unrecognized tax benefits requiring
      disclosure under FIN 48. The Company recognizes accrued interest related to
      unrecognized tax benefits in interest expense and penalties in operating
      expenses. During the nine month periods ended September 30, 2007 and 2006,
      the
      Company did not have any income tax related interest or penalties.





**Accounting
      Principles Issued But Not Yet Adopted**





In
      September 2006 the FASB issued SFAS No. 157, *Fair Value Measurements.*
      The standard provides enhanced guidance for using fair value to measure assets
      and liabilities. The standard also responds to investors’ requests for expanded
      information about the extent to which companies measure assets and liabilities
      at fair value, the information used to measure fair value, and the effect of
      fair value measurements on earnings. The standard applies whenever other
      standards require (or permit) assets or liabilities to be measured at fair
      value. The standard does not expand the use of fair value in any new
      circumstances. The guidance in SFAS No. 157 is effective for fiscal years
      beginning after November 15, 2007. The Company is currently evaluating what
      effects, if any, adoption of the provisions of SFAS No. 157 will have on its
      consolidated financial statements.





In
      February 2007 the FASB issued SFAS No. 159, *The Fair Value Option
      for**Financial Assets and Financial Liabilities.*The standard allows
      entities to voluntarily choose, at specified election dates, to measure many
      financial assets and financial liabilities (as well as certain non-financial
      instruments that are similar to financial instruments) at fair value (the “fair
      value option”). The guidance in SFAS No. 159 is effective as of the beginning of
      an entity’s first fiscal year that begins after November 15, 2007. The Company
      is currently evaluating what effects, if any, adoption of the provisions of
      SFAS
      No. 159 will have on its consolidated financial statements.





13
 ***Index***





In
      June
      2007, the FASB issued EITF No. 07-3, *Accounting for Nonrefundable Advance
      Payments for Goods or Services Received for use in Future Research and
      Development Activities* (“EITF No. 07-3”).  EITF No. 07-3 states that
      nonrefundable advance payments for goods or services that will be used or
      rendered for future research and development activities should be deferred
      and
      capitalized.  Such amounts should be recognized as an expense as the
      related goods are delivered or the related services are performed.
 Entities should continue to evaluate whether they expect the goods to be
      delivered or services to be rendered.  If an entity does not expect the
      goods to be delivered or services to be rendered, the capitalized advance
      payment should be charged to expense.  The provisions of EITF No. 07-3 are
      effective for fiscal years beginning after December 15, 2007.  The Company
      does not expect adoption of EITF No. 07-3 to have a material effect on its
      consolidated financial statements.





**Use
      of Estimates**





The
      preparation of financial statements in conformity with U.S. generally accepted
      accounting principles requires the use of estimates and assumptions that affect
      the reported amounts of assets and liabilities at the date of the financial
      statements, the reported amounts of revenues and expenses during the reporting
      period and related disclosures. The Company’s condensed consolidated financial
      statements include amounts that are based on management’s best estimates and
      judgments. Actual results could differ from those estimates.





**Cash
      and Cash Equivalents and Investments**





The
      Company considers all highly liquid investments purchased with a maturity of
      90
      days or less to be cash equivalents and as such has classified as cash
      equivalents cash held in a money market account, cash held in a sweep account,
      and investments in commercial paper and federal agency mortgage-backed
      securities that meet the Company’s classification criteria for cash equivalents.
      The Company held cash equivalents of $2,958 and $1,126 in a money market account
      and $574 and $534 in a sweep account as of September 30, 2007 and December
      31,
      2006, respectively. The Company also held cash equivalents in commercial paper
      of $1,054 and $2,380 at September 30, 2007 and December 31, 2006, respectively,
      and in federal agency mortgage-backed securities of $494 and $3,065, at
      September 30, 2007 and December 31, 2006, respectively. At September 30, 2007
      and December 31, 2006, respectively, the Company held cash of $457 and $17
      in
      foreign accounts.





All
      investments are debt securities classified as held to maturity, and,
      accordingly, are carried at amortized cost, which approximates fair value.
      The
      cost of securities sold is based on the specific identification method, when
      applicable. At September 30, 2007 and December 31, 2006, the Company had
      invested $511 and $648, respectively, in federal agency mortgage-backed
      securities. The Company did not have any material realized or unrealized gains
      or losses at September 30, 2007 or December 31, 2006.





**Accounts
      Receivable**





Accounts
      receivable are carried at estimated net realizable value. The Company records
      an
      allowance for doubtful accounts for all trade receivables that are not expected
      to be collected, usually those that are over 90 days past the invoice due date.
      The allowance for doubtful accounts was $0 and $8 at September 30, 2007 and
      December 31, 2006, respectively.





**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.





Inventory
      consists of the following:





**September 30,**
              **2007**
            
            
            **December 31,**
              **2006****(In
                thousands)**Raw
                material
            
            $
            43
            
            
            $
            33Work
                in process
            
            
            58
            
            
            
            11Finished
                goods
            
            
            264
            
            
            
            176$
            365
            
            
            $
            220




14
 ***Index***





Inventory
      was adjusted down $0 and $7 during the first nine months of 2007 and the year
      ended December 31, 2006, respectively, to reflect values at the lower of cost
      or
      market. At September 30, 2007, and December 31, 2006, 1% and 7%, respectively,
      of total inventory is valued at below the Company’s cost. The Company estimates
      market value of inventory based upon sales activity within its various
      distribution channels. The Company’s production process has a high degree of
      fixed costs and due to the early stage of market acceptance for its products,
      sales and production volumes may vary significantly from one period to another.
      Consequently, in some periods sales and production volumes are not adequate
      to
      provide for per unit costs that are lower than the current market price for
      the
      Company’s products.





**Accrued
      Expenses**





Accrued
      expenses consist of the following:





**September 30,**
              **2007**
            
            
            **December 31,**
              **2006****(In
                thousands)**Accrued
                professional fees
            
            $
            381
            
            
            $
            351Accrued
                wages and vacation
            
            
            93
            
            
            
            378Accrued
                printing cost
            
            
            61
            
            
            
            65Other
                accrued cost
            
            
            53
            
            
            
            31$
            588
            
            
            $
            825





**Foreign
      Currency Transactions**





The
      Company has determined the functional currency of ReGen AG to be the U.S. dollar
      (USD). ReGen AG has cash accounts that are held in Swiss francs (CHF), Euros,
      (EUR) and U.S. dollars and its books and records are maintained in CHF. The
      Company remeasures ReGen AG’s nonmonetary assets and liabilities and related
      revenue and expenses using historical rates, other statement of operations
      accounts using average rates for the period, and monetary assets and liabilities
      using rates in effect at the balance sheet date. Foreign currency transaction
      gains or losses for the change in exchange rates between the USD and the foreign
      currency in which a transaction is denominated, including exchange gains and
      losses from remeasurement of ReGen AG’s monetary assets and liabilities, are
      recognized currently in results of operations. The impact of foreign currency
      transactions included in the consolidated results of operations for the three
      month and nine month periods ended September 30, 2007 approximated a gain of
      $3
      and a loss of $19, respectively, and losses of $0 and $27, respectively, for
      the
      same periods in 2006.





**Rental
      Activities**





In
      2006,
      the Company subleased space in one of its facilities to an unrelated third
      party. Rental income and expense associated with this sublease were presented
      below operating loss in the consolidated statements of operations. Rental
      expense included an allocation of building related expenses based on the ratio
      of subleased space to total space. The sublease expired in December
      2006.





**Basic
      and Diluted Loss Per Share**





Basic
      net
      loss attributable to common stockholders is calculated by dividing net loss
      attributable to common stockholders by the weighted average number of common
      shares outstanding during the period. Shares that would be issued upon
      conversion of preferred stock or debt instruments are not included in the
      calculation of weighted average number of common shares outstanding during
      the
      period due to the Company’s net operating loss position. Dividends on preferred
      stock are not added to the net loss attributable to common stockholders until
      such dividends are declared. Due to the Company’s net loss position, all
      options, warrants and contingently issuable shares are anti-dilutive. Therefore,
      diluted and basic net loss per share are the same.





15
 ***Index***





**Stock-Based
      Compensation**





On
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      SFAS No. 123R, *Share Based Payment*, using the modified prospective
      transition method. Under the modified prospective transition method adopted
      by
      the Company, stock-based compensation expense for 2007 and 2006 includes
      compensation expense for all share-based awards granted (i) prior to, but not
      yet vested, as of January 1, 2006, based on grant date fair value and related
      service period estimated in accordance with the original provisions of SFAS
      No
      123 and (ii) beginning January 1, 2006, based on the grant date fair value
      and
      related service period estimated in accordance with the provisions of SFAS
      No.
      123R. The Company recognizes these compensation costs only for those shares
      expected to vest over the requisite service period of the awards, generally,
      the
      option vesting term of four years. For grant awards with graded vesting, the
      Company recognizes the estimated expense on an accelerated basis.





The
      Company uses the Black-Scholes model to estimate grant date fair value. As
      part
      of its SFAS No. 123R adoption the Company evaluated the model input assumptions
      used in estimating grant date fair value. The Company concluded that its
      historical realized volatility, calculated using historical stock prices of
      the
      Company since June 2002, is an appropriate measure of expected volatility.
      In
      addition, the Company also examined its historical pattern of option exercises
      in an effort to identify a discernable pattern and concluded that there was
      not
      sufficient data on which to base an estimate of expected term. Consequently
      the
      Company has decided to use the “short cut” approach described in SAB 107 to
      estimate the expected term for options awarded after January 1, 2006. Given
      the
      contractual term of 10 years and vesting period of four years, the expected
      term
      for options awarded in 2007 and 2006 is estimated to be seven years. The
      interest rate used in the pricing model is based on the U.S. Treasury yield
      curve in effect at the time of the grant on issues with remaining terms equal
      to
      the estimated expected term used in the model. In addition, the Company has
      estimated a forfeiture rate based on historical data and current
      assumptions.





During
      the three month period ended September 30, 2007 the Company did not grant any
      new options.  During the nine month period ended September 30, 2007
      the Company granted options to employees, officers and directors to purchase
      an
      aggregate of 4,375,642 shares of the Company’s common stock, with a per share
      weighted average fair value of $0.33. For the three and nine month periods
      ended
      September 30, 2006, the Company granted employees and directors options to
      purchase 212,500 and 812,500 shares, respectively, of the Company’s common
      stock, with weighted average per share fair values of $0.27 and $0.63,
      respectively, at the grant dates. Also during the first quarters of 2007 and
      2006, the Company granted options to non-employee consultants to purchase
      100,000 shares of the Company’s common stock with a per share fair value of
      $0.36 at the measurement date and 150,000 shares with a per share fair value
      of
      $0.72 at the measurement date, respectively. Amortization of compensation costs
      recognized for the three months ended September 30, 2007 and 2006, for grants
      awarded to employees and directors approximated $277 and $289, respectively.
      Amortization of compensation costs recognized for the nine months ended
      September 30, 2007 and 2006, for grants awarded to employees and directors
      approximated $868 and $875, respectively. Amortization of compensation costs
      recognized for the three months ended September 30, 2007 and 2006 for grants
      awarded to non-employee consultants approximated $9 and $6, respectively.
      Amortization of compensation costs recognized for the nine months ended
      September 30, 2007 and 2006 for grants awarded to non-employee consultants
      approximated $87 and $29, respectively.





The
      fair
      values of option awards granted in the first quarter of 2007 and 2006 were
      estimated using the Black-Scholes option pricing model with the following
      assumptions and weighted average fair values:





**Three
                Months Ended**
            
            **Nine
                Months Ended****September
                30, 2007**
            
            **September
                30, 2006**
            
            **September
                30, 2007**
            
            
            **September
                30, 2006****Employee
                &**
              **Director**
            **Non-**
              **Employee**
            
            **Employee
                &**
              **Director**
            
            **Non-**
              **Employee**
            
            **Employee
                &**
              **Director**
            
            
            **Non-**
              **Employee**
            
            
            **Employee
                &**
              **Director**
            
            
            **Non-**
              **Employee**Weighted
                average fair value of grants
            N/A
            N/A
            
            $
            0.27
            
            N/A
            
            $
            0.33
            
            
            $
            0.36
            
            
            $
            0.63
            
            
            $
            0.72Risk
                free interest rate
            N/A
            N/A
            
            
            4.67
            %
            N/A
            
            
            4.48-4.70
            %
            
            
            4.54
            %
            
            
            4.67-4.75
            %
            
            
            4.79
            %Dividend
                yield
            N/A
            N/A
            
            
            0
            %
            N/A
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %Expected
                lives
            N/A
            N/A
            
            7
                years
            
            N/A
            
            7
                years
            
            
            7
                years
            
            
            7
                years
            
            
            7
                yearsExpected
                volatility
            N/A
            N/A
            
            
            74.20
            %
            N/A
            
            
            73.89
              74.48
            -
              %
            
            
            72.80
            %
            
            
            74.20
              74.82
            %-
              %
            
            
            74.30
            %




16
 ***Index***





**(2)
      COMMITMENTS AND CONTINGENCIES**





From
      time
      to time the Company may be a defendant in lawsuits incidental to the Company’s
      business. Further, the nature of the Company’s operations subjects it to the
      inherent business risk of financial exposure to product liability claims.
      Currently, the Company is not a party to any material legal
      proceedings.





On
      November 16, 2006, following our announcement that our management voluntarily
      initiated and conducted, and the Audit Committee of the Board of Directors
      oversaw, a review of the Company’s historical stock option granting and
      accounting practices, we received a letter from the Division of Enforcement
      of
      the SEC requesting that the Company preserve all documents concerning its
      granting of stock options to any of our executives or employees from January
      2002 through the present and stating that the SEC intends to request production
      of such documents in the future. Subsequently, on November 20, 2006, the Company
      amended its quarterly and annual reports to include restated consolidated
      financial statements for the years ended December 31, 2005, 2004, 2003, the
      period from December 21, 1989 (inception) to December 31, 2005, and the quarters
      ended March 31, 2006 and September 30, 2006. At this time, while we intend
      to
      cooperate with the SEC inquiry, we cannot predict what consequences the SEC
      inquiry will have on the Company. The Company may be subject to regulatory
      fines
      or penalties or other contingent liabilities at the conclusion of the SEC’s
      inquiry.





The
      Company’s operations are subject to rigorous regulation by the U.S. Food and
      Drug Administration (FDA) and numerous other federal, state, and foreign
      governmental authorities. Our manufacturing facility and our products are
      subject to continual review and periodic inspection by regulatory agencies.
      In
      the first quarter of 2007, the FDA initiated a re-inspection of the Company’s
      records relating to the CMI clinical trial and issued a Form 483 notice listing
      the investigators’ observations. The inspection resulted in one observation
      regarding the monitoring of the clinical trial and timely notification of FDA.
      Prior to the close of the inspection, the Company initiated corrective action
      on
      specific items identified and, subsequently, has provided a complete written
      response to the observation in the Form 483. Failure to comply with FDA or
      other
      governmental regulations can result in fines, unanticipated compliance
      expenditures, recall or seizure of products, total or partial suspension of
      production and/or distribution, suspension of the FDA’s review of our PMA for
      the CMI, enforcement actions, injunctions, and criminal
      prosecution.





**(3)
      CONCENTRATIONS OF RISK**





The
      Company currently markets and sells two products. Our primary product, the
      CMI,
      is a type I collagen implant designed to facilitate growth of new tissue to
      reinforce the existing meniscus tissue remaining after a partial meniscectomy
      procedure in the human knee. We also sell the SharpShooter Tissue Repair System
      (“SharpShooter”), a suturing device used to facilitate the surgical implantation
      of the Company’s collagen matrix products, as well as to perform other similar
      arthroscopic meniscal repair procedures.





Both
      the
      CMI and SharpShooter are marketed in Europe through ReGen AG and, in Italy,
      Spain, Andorra, and South Africa through non-exclusive distribution agreements
      with independent orthopedic marketing companies in those territories. The
      SharpShooter also is marketed through a worldwide non-exclusive distribution
      agreement with Linvatec Corporation (Linvatec), a subsidiary of ConMed (NASDAQ:
      CNMD).





The
      Company is subject to inherent risks associated with international sales, such
      as changes in the economic, political, legal and business environments in the
      foreign countries in which we do business. The Company does not require
      collateral from its customers.





17
 ***Index***





Concentrations
      of receivables and revenue by geographic location as of and for the three and
      nine month periods ended September 30, 2007 and 2006 are as
      follows:





**Three
                Months Ended September 30,**
            
            
            **Nine
                Months Ended September 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****Receivables:**U.S
                (Linvatec)
            
            
            22
            %
            
            
            47
            %
            
            
            22
            %
            
            
            47
            %Switzerland
                (various)
            
            
            4
            %
            
            
            4
            %
            
            
            4
            %
            
            
            4
            %Spain
                (Hoscenter, Polymedic)
            
            
            1
            %
            
            
            0
            %
            
            
            1
            %
            
            
            0
            %Italy
                (Xmedica)
            
            
            15
            %
            
            
            17
            %
            
            
            15
            %
            
            
            17
            %Germany
                (various)
            
            
            52
            %
            
            
            21
            %
            
            
            52
            %
            
            
            21
            %Belgium
                (various)
            
            
            2
            %
            
            
            11
            %
            
            
            2
            %
            
            
            11
            %Austria
                (various)
            
            
            4
            %
            
            
            0
            %
            
            
            4
            %
            
            
            0
            %**Sales
                revenue:**U.S.
                (Linvatec)
            
            
            35
            %
            
            
            60
            %
            
            
            43
            %
            
            
            52
            %Switzerland
                (various)
            
            
            3
            %
            
            
            3
            %
            
            
            2
            %
            
            
            5
            %Spain
                (Hoscenter, Polymedic)
            
            
            0
            %
            
            
            0
            %
            
            
            4
            %
            
            
            8
            %Italy
                (Xmedica)
            
            
            9
            %
            
            
            11
            %
            
            
            10
            %
            
            
            12
            %Germany
                (various)
            
            
            50
            %
            
            
            23
            %
            
            
            39
            %
            
            
            21
            %Belgium
                (various)
            
            
            1
            %
            
            
            3
            %
            
            
            1
            %
            
            
            2
            %Austria
                (various)
            
            
            2
            %
            
            
            0
            %
            
            
            1
            %
            
            
            0
            %**Royalties:**U.S.
                (Linvatec)
            
            
            100
            %
            
            
            100
            %
            
            
            100
            %
            
            
            100
            %





In
      several cases the Company relies on a single vendor to supply critical materials
      or components. Currently, all of these materials and components can be obtained
      by alternative suppliers, subject to the time and other resources required
      to
      initiate new vendor relationships.





At
      both
      September 30, 2007 and December 31, 2006, less than 1% of the Company’s cash and
      cash equivalents balance was held in foreign currencies and 14% and 8%,
      respectively, of current liabilities related to unsettled obligations
      denominated in foreign currencies. For the three and nine month periods ended
      September 30, 2007, 20% and 19%, respectively, of the Company’s expenses
      resulted from transactions denominated in foreign currencies. For the three
      and
      nine month periods ended September 30, 2006, 14% and 9%, respectively, of the
      Company’s expenses resulted from transactions denominated in foreign
      currencies.





**(4)
      RELATED PARTY TRANSACTIONS**





Amounts
      due to related parties, $2 and $9, at September 30, 2007 and December 31, 2006,
      respectively, represent amounts due to certain shareholders and an affiliate
      of
      a shareholder for reimbursable expenses, royalties, and fees for services
      provided to the Company. The Company’s statements of operations include the
      following amounts paid to this same individual or to his
      affiliates:





**Three
                Months Ended September 30**
            
            
            **Nine
                Months Ended September 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****(in
                thousands)****Royalties**
            
            **$**
            **2**
            
            
            **$**
            **2**
            
            
            **$**
            **8**
            
            
            **$**
            **7****Donations**
            
            ****
            **8**
            
            
            ****
            **—**
            
            
            ****
            **8**
            
            
            ****
            **8****Reimbursable
                expenses**
            
            ****
            **4**
            
            
            ****
            **6**
            
            
            ****
            **8**
            
            
            ****
            **6**





**(5)** **STOCKHOLDERS’
      EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK**





As
      of
      September 30, 2007 the Company has 165,000,000 authorized shares of common
      stock, of which 104,007,843 shares of common stock were outstanding. Also at
      September 30, 2007, the Company had reserved 9,066,464 shares of common stock
      for conversion of outstanding Series A and Series C Preferred Stock, 1,068,572
      shares of common stock for issuance of restricted shares to vendors for
      services, and 48,383,344 shares of common stock for the exercise of outstanding
      stock options and warrants. At September 30, 2007, the Company had 500,000
      authorized shares of Series D Preferred Stock, of which 135,715 shares were
      outstanding and 178,430 shares were reserved for exercise of outstanding options
      and warrants. Each share of Series D Preferred Stock is mandatorily convertible
      into 100 shares of common stock upon the occurrence of certain events, such
      that
      a sufficient number of shares of common stock are available to effect the
      conversion.





18
 ***Index***





**Redeemable
      Convertible Preferred Stock**





During
      the first quarter of 2007, holders of 10,776,909 and 4,463,289 shares of Series
      A Stock and Series C Stock, respectively, exercised their right to convert
      their
      shares to an equal number of shares of common stock. During 2006 there were
      no
      conversions of Preferred Stock. As a result of the Series C Stock conversions,
      $173 of unamortized issuance costs associated with the Series C Stock was
      recognized in the three months ended March 31, 2007 as a deemed dividend to
      preferred stockholders for purposes of determining net loss attributable to
      common stockholders. There were no conversions of Preferred Stock in the second
      or third quarters of 2007.





**Financings
      and Capital Transactions**





On
      March
      2, 2007, March 30, 2007 and April 5, 2007, the Company completed the private
      placement of 71,429 shares, 47,619 shares, and 16,667 shares, respectively,
      of
      Series D convertible preferred stock, par value $0.01 per share (Series D
      Stock), resulting in aggregate proceeds net of issuance costs approximating
      $5,500 (the Series D financing). Each share of Series D Stock is mandatorily
      convertible into 100 shares of the Company’s common stock, subject to adjustment
      for splits or other changes to the Company’s common stock, immediately upon
      either (i) amendment of the Company’s certificate of incorporation to increase
      the number of authorized shares of common stock sufficient to effect the
      conversion or (ii) the effectiveness of a reverse stock split of the Company’s
      common stock such that there are a sufficient number of common shares available
      to effect the conversion. Either of such corporate actions is subject to the
      approval of our shareholders before they may be executed. At the 2007 annual
      meeting the Company’s shareholders approved an amendment to the Company’s
      Amended and Restated Certificate of Incorporation to effect a one-for-ten,
      one-for-twelve, one-for-fourteen or one-for-sixteen reverse stock split, subject
      to the discretion of the Company’s Board of Directors. To date, the Board has
      not effected a reverse stock split and the Board is not obligated to effect
      a
      reverse stock split. The holders of Series D 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. Holders of the Series D Stock
      do
      not have a contractual obligation to share in the losses of the Company. In
      the
      event of any liquidation, dissolution, or winding up of the Company, the holders
      of Series D Stock are entitled to receive a liquidation preference of $42 per
      share, plus any declared but unpaid dividends, and subject to adjustment for
      stock splits, combinations, or similar events involving the Series D Stock.
      Since the Series D stock is mandatorily convertible upon the occurrence of
      certain corporate actions, the Series D Stock was issued with a contingent
      beneficial conversion feature that will be recognized as a reduction of net
      income attributable to common stockholders upon occurrence of the triggering
      event.





In
      connection with the Series D financing the Company issued to the investors
      warrants to purchase 40,715 shares of the Company’s Series D Stock at an initial
      exercise price of $63 per share, or after mandatory conversion of the Series
      D
      Stock, 4,071,500 shares of the Company’s common stock at an initial exercise
      price of $0.63 per share. The warrants expire five years after issuance. The
      number of shares of Series D Stock or common stock to be issued upon exercise
      and the respective exercise prices are subject to adjustment for changes in
      the
      Series D Stock or common stock, such as stock dividends, stock splits, and
      similar changes. Also in connection with the Series D Financing, the Company
      issued to the investors options to purchase up to 135,715 shares of the
      Company’s Series D Stock, exercisable for cash at $42 per share, or after
      mandatory conversion of the Series D Stock, 13,571,500 shares of the Company’s
      common stock at $0.42 per share. The respective exercise prices are subject
      to
      adjustment for stock splits and similar events. The options are exercisable
      for
      15 days following public announcement of FDA clearance of the Company’s Collagen
      Scaffold device as a class II device and expire at the earliest of the 15th
      day
      after such public announcement, partial exercise of the option, or December
      31,
      2007 (see Note 6, Subsequent Events). On June 1, 2007, the Company registered
      with the SEC, the common shares into which the Series D Stock would be
      convertible, as well as the common shares that would be issuable upon exercise
      of the warrants and options, after mandatory conversion of the Series D Stock
      has occurred. As of September 30, 2007, both the options and warrants meet
      the
      criteria of EITF No. 00-19, *Accounting for Derivative Financial Instruments
      Indexed to, and Potentially**Settled in, a Company’s Own Stock*, for
      classification as equity in the Company’s consolidated balance
      sheet.





Effective
      March 2, 2007, the Company entered into a one year consulting agreement to
      retain the financial advisory services of Sanderling Ventures Management VI
      (Sanderling), affiliates of whom together beneficially own in excess of five
      percent of the Company’s common shares. In consideration for such services, the
      Company issued to Sanderling a warrant to purchase 2,000 Series D preferred
      shares (or 200,000 common shares if the warrant is exercised after mandatory
      conversion of the preferred shares into common shares) with the warrant having
      a
      five-year term and an exercise price of $42 per share (or $0.42 per common
      share
      if the warrant is exercised for common shares). Using the Black Scholes model,
      the Company has estimated the fair value of the warrant to be approximately
      $69.





19
 ***Index***





**Stockholders’
      Agreement**





On
      August
      23, 2007, the Company entered into the Second Amended and Restated Stockholders’
Agreement (the “Agreement”) with the following stockholders of the
      Company:  J. Richard Steadman, Gerald E. Bisbee, Jr., William R.
      Timken, The Timken Living Trust U/A/D 9/14/99, Robert G. McNeil, Sanderling
      Venture Partners IV Co-Investment Fund, L.P., Sanderling IV Biomedical
      Co-Investment Fund, L.P., Sanderling IV Venture Management, Sanderling Venture
      Partners V Co-Investment Fund, L.P., Sanderling V Biomedical Co-Investment
      Fund,
      L.P., Sanderling V Limited Partnership, Sanderling V Beteiligungs GmbH & Co.
      KG, Sanderling Ventures Management V, Sanderling Venture Partners II, L.P.,
      Sanderling Ventures Limited, L.P., Sanderling Ventures Management VI, Sanderling
      Venture Partners VI Co-Investment Fund L.P., Sanderling VI Limited Partnership
      and Sanderling VI Beteiligungs GmbH & Co. KG (collectively, the
“Stockholders”). The Agreement amends and restates that certain Amended and
      Restated Stockholders’ Agreement, by and among the Company and the Stockholders
      dated as of September 21, 2005, in order to extend the Agreement’s termination
      date to the earliest of (i) June 30, 2008, (ii) a change of control of the
      Company (as defined in the Agreement) or (iii) the listing of the Company’s
      common stock, par value $0.01 per share, on a national securities
      exchange.





Of
      the
      parties to the agreement, Dr. Bisbee is the President, Chief Executive Officer
      and Chairman of the Board of the Company. Drs. Steadman, Bisbee and McNeil
      are
      directors of the Company, as is Mr. Timken, who is the trustee of The Timken
      Living Trust U/A/D 9/14/99. The Sanderling entities and Dr. McNeil own, together
      with their affiliates, in excess of five percent of the outstanding shares
      of
      the Company. In addition, Sanderling Ventures Management VI has been engaged
      as
      a consultant of the Company pursuant to that certain Consulting Agreement by
      and
      between the Company and Sanderling Ventures Management VI, dated as of March
      2,
      2007.





**(6)** **SUBSEQUENT
      EVENTS**





On
      October 3, 2007, the Company issued 68,572 shares of restricted common stock
      to
      a vendor for services rendered. The estimated value of the services is
      $24.





In
      connection with a consulting agreement, on October 8, 2007, the Company granted
      a vendor an option to purchase 50,000 shares of common stock at $0.09 per share.
      The option was fully vested on the grant date and is exercisable until September
      30, 2012. The Company has reserved 50,000 shares of its common stock for
      exercise of this option.





On
      October 15, 2007, the Company extended the expiration dates of options to
      purchase 18,774,838 shares of the Company’s common stock for cash at $0.37 per
      share and options to purchase 135,715 shares of the Company’s Series D Stock for
      cash at $42 per share (or 13,571,500 shares of common stock at $0.42 per share
      if exercised after mandatory conversion of the Series D Stock). The options
      were
      issued in connection with financing transactions in 2006 and 2007, and are
      exercisable for 15 days following public announcement of FDA clearance of the
      Company’s Collagen Scaffold device as a class II device and were to expire,
      originally, at the earliest of the 15th day after such public announcement,
      partial exercise of the option, or December 31, 2007.  The amended
      options expire at the earliest of the 15th day after such public announcement,
      partial exercise of the option, or December 31, 2008. The change in the
      estimated fair value of the options as a result of the expiration date extension
      will be recognized as a deemed dividend to stockholders for the purpose of
      determining net loss attributable to common stockholders.





On
      October 15, 2007, the Company issued warrants to purchase 20,209 shares of
      Series D Stock at $45 per share (or 2,020,900 shares of common stock at $0.45
      per share if exercised after mandatory conversion of the Series D Stock) and
      warrants to purchase 2,301 shares of Series D Stock at $53 per share (or 230,100
      shares of common stock at $0.53 per share if exercised after mandatory
      conversion of the Series D Stock). The warrants were issued to replace warrants
      to purchase 2,021,117 shares of common stock at $0.42 per share that expired
      on
      June 21, 2007 and warrants to purchase 229,983 shares of common stock at $0.53
      per share that expired on August 29, 2007. The new warrants expire five years
      after the respective expiration dates of the original warrants. The estimated
      fair value of the warrant, will be recognized as a deemed dividend to
      stockholders for the purpose of determining net loss attributable to common
      stockholders. Upon issuance of the warrants the Company has reserved 22,510
      shares of Series D Stock for the exercise of the warrants.





20
 ***Index***





On
      October 18, 2007, the Company’s Board of Directors authorized the filing of a
      Certificate of Designations, Preferences and Rights of Series E Convertible
      Preferred Stock of the Company (the “Certificate”) with the Secretary of State
      of the State of Delaware to designate and establish 500,000 shares of Series
      E
      Convertible Preferred Stock, par value $0.01 per share (“Series E Stock”). The
      Certificate was filed on October 19, 2007 and was effective upon filing. The
      Certificate provides, among other things, that each share of Series E Stock
      is
      mandatorily convertible into 100 shares of common stock of the Company, par
      value $0.01 per share (i) at such time as the Company’s certificate of
      incorporation is amended to increase the number of authorized common shares
      of
      the Company sufficient to permit the issuance of that number of common shares
      into which all issued and outstanding shares Series E Stock are convertible,
      after taking into account all other common shares outstanding or required to
      be
      issued upon the conversion of any preferred stock of the Company or exercise
      of
      any options or warrants authorized by the Company, or (ii) upon the
      effectiveness of a reverse stock split of the currently issued and outstanding
      common shares of the Company in accordance with a Certificate of Amendment
      of
      the Amended and Restated Certificate of Incorporation of the Company, as
      amended, in the form to be prepared, presented to and approved by the
      Stockholders of the Corporation in accordance with the Delaware General
      Corporation Law (the “Reverse Split”) such that, upon the effectiveness of the
      Reverse Split there are sufficient common shares outstanding to permit the
      issuance of that number of common shares into which all issued and outstanding
      shares of Series E Stock are convertible, after taking into account all other
      common shares outstanding or required to be issued upon the conversion of any
      preferred stock of the Company or exercise of any options or warrants authorized
      by the Company.





On
      October 18, 2007 the Company granted its non-employee directors and certain
      of
      its employees options to purchase a total of 350,500 shares of Series E Stock
      at
      an exercise price of $9.00 per share (or 35,050,000 shares of common stock
      at
      $0.09 per share after mandatory conversion of the Series E Stock). The options,
      which were granted outside of the Company’s stock option plans, vest over four
      years from the date of grant and have contractual terms of 10 years. The Company
      will estimate the fair value of the options, using the Black-Scholes model
      with
      inputs similar to those disclosed in Note (1) under the heading, Stock-Based
      Compensation. Upon grant of the options, the Company has reserved 350,500 shares
      of Series E Stock for exercise of the options.





Also
      on
      October 18, 2007, the Company cancelled options to purchase 834,233 shares
      of
      common stock at exercises prices ranging between $0.19 per share and $0.92
      per
      share and replaced them with options to purchase an equivalent number of common
      shares at an exercise price of $0.09 per share. The options had been granted
      to
      certain consultants and employees of the Company between July 2002 and January
      2006. As previously disclosed, in the third quarter of 2006, the Company
      determined that incorrect measurement dates had been used when accounting for
      certain of its stock options granted between July 2002 and January 2006. In
      each
      case where a change of measurement date was required, the market price of the
      Company’s stock on the new measurement date was higher than the original
      exercise price of the options. Due to the provisions of IRC §409A, which become
      effective December 31, 2007, for non-qualified options granted to individuals
      who are not directors or officers, any deferred income related to non-qualified
      stock options issued with an exercise price less than the market value of the
      underlying stock on the grant date is taxable as ordinary income over the period
      the options vest. As a result of the required changes in measurement dates,
      the
      replaced options would be subject to the requirements of §409A. As a result, the
      Company’s Board decided to cancel the affected options and replace them with
      options to purchase an equivalent number of shares at an exercise price equal
      to
      the market price of the Company’s stock on the replacement grant date. For each
      of the replacement options, all other terms (e.g., vesting, termination date,
      etc.) remained the same as in the respective original grants. In addition,
      the
      Company modified options to purchase 46,250 shares of common stock at prices
      ranging between $0.09 and $0.48 per share to extend the exercise period of
      the
      options from three months after termination of employment to twelve months
      after
      termination of employment. This modification was effective October 19, 2007.
      The
      estimated incremental cost associated with these modifications was approximately
      $13, estimated using the Black Scholes model with inputs similar to those
      disclosed in Note (1) under the heading, Stock-Based Compensation. There were
      ten employees and three consultants affected by these
      modifications.




In
        October 2007 the Company received inquiries from the IRS and the state of
        California pertaining to options granted where the market price of the Company's
        stock was higher than the exercise price of the options. The Company is in
        the
        process of responding to these inquiries.





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





The
      following discussion and analysis should be read in conjunction with the
      condensed consolidated financial statements and related notes included elsewhere
      in this Form 10-Q and the more detailed information contained in our Annual
      Report on Form 10-K for the year ended December 31, 2006. 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.





21
 ***Index***





***Business***





We
      are a
      development stage orthopedic products company that develops, manufactures and
      markets innovative tissue growth and repair products for U.S. and global
      markets. Our proprietary collagen matrix technology includes applications in
      orthopedics, general surgery, spine, cardiovascular and drug delivery. Some
      of
      these applications are marketable currently while others are in various stages
      of development. The Company’s first approved product using its collagen matrix
      technology is the CMITM, a meniscus implant cleared for sale in the European
      Union (“EU”) and marketed through the Company’s European subsidiary, ReGen
*Biologics*AG. We have made a 510(k) premarket notification submission
      to the FDA for market clearance in the U.S. of the Collagen Scaffold device,
      which includes an application for the reinforcement and repair of meniscus
      defects.





In
      December 2006 we submitted a revised 510(k) premarket notification to the FDA
      for the ReGen® Collagen Scaffold for use in general surgical procedures for the
      reinforcement and repair of soft tissue where weakness exists, including, but
      not limited to, general soft tissue defects, hernias, and meniscus defects.
      The
      Collagen Scaffold reinforces soft tissue and provides a resorbable scaffold
      that
      is replaced by the patient’s own tissue. In March 2007, we received a letter
      from the FDA requesting additional information, which the FDA stated was
      necessary to complete its review of the 510(k) application. In June 2007 we
      responded to the FDA’s request. On September 25, 2007 we received a not
      substantially equivalent (NSE) letter from the FDA regarding the 510(k)
      submission. The FDA indicated the device is not substantially equivalent to
      existing Class II devices already in receipt of FDA clearance. The Company
      is
      appealing the NSE decision through FDA administrative channels. We will continue
      to evaluate all levels of spending throughout the organization to support our
      ability to operate through the anticipated appeal process.





The
      510(k) submission is necessary to obtain clearance to market the Collagen
      Scaffold as a medical device in the United States. Prior to the filing of a
      510(k) premarket notification for the Collagen Scaffold, which includes a
      meniscus application, we were pursuing premarket approval for the CMI in the
      U.S. The CMI has been the subject of a controlled, randomized, pivotal
      multicenter clinical trial (MCT) and it is the subject of a modular pre-market
      approval application, or PMA.





Our
      current regulatory priority is to obtain FDA clearance for the Collagen Scaffold
      as a class II device through the 510(k) process. If we are not successful in
      gaining clearance for the Collagen Scaffold through the 510(k) process, we
      may
      complete our submission of the PMA for the CMI. We will likely not pursue
      completion of the PMA for the CMI product unless the regulatory efforts with
      respect to the 510(k) for the Collagen Scaffold are unsuccessful. We intend
      to
      continue to follow patients in the MCT, which will provide valuable scientific
      data on long-term patient outcomes in the meniscus. For background and
      additional information regarding our MCT for the CMI, please refer to the
      discussion contained in our 2006 Annual Report on Form 10-K.





If
      FDA
      clearance is obtained, we may make the Collagen Scaffold available in a flat
      sheet configuration, as well as in a semi-lunar shape designed for use in the
      meniscus, and potentially other configurations specifically designed to
      facilitate the reinforcement and repair of soft tissue in various sites within
      the body.





If
      the
      revised 510(k) is unsuccessful, the Company intends to work diligently to pursue
      all alternatives available to it which would result in a class II designation.
      There can be no assurance as to the outcome of our overall efforts to obtain
      either the FDA’s clearance of the Collagen Scaffold or, if we choose to pursue
      it, premarketing approval of the CMI for sale in the U.S.





Our
      current strategy is to focus on the following initiatives:





**•**
            Obtain
                FDA clearance of the Collagen
                Scaffold;





**•**
            Further
                develop our specialized distribution and marketing programs for the
                CMI
                and other ReGen products in Europe and certain other
                countries;





**•**
            Develop
                our specialized distribution, marketing, and training programs for
                the
                Collagen Scaffold and other ReGen products in the U.S.;
                and





**•**
            Conduct
                further research on selected product opportunities within our research
                and
                development pipeline.





Our
      long-term strategy is to capitalize on our proven collagen matrix 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 targeted
      therapeutic areas.





22
 ***Index***





Our
      current principal product offerings are the CMI and the SharpShooter® Tissue
      Repair System (SharpShooter). The CMI is intended to facilitate growth of new
      tissue to reinforce the remaining meniscus, and to provide certain clinical
      benefits. Meniscus tissue loss typically occurs through an arthroscopic partial
      meniscectomy procedure performed to address meniscus tears or other irreparable
      damage resulting from acute injury or long-term wear. The surgeon sutures the
      CMI to the rim of the meniscus remaining after partial meniscectomy. Once
      implanted, the CMI’s highly porous matrix guides the growth of new tissue from
      the patient’s own cells. By providing a scaffold for growth of new meniscus-like
      tissue, the CMI procedure provides the potential for certain clinical benefits,
      including the restoration of patient activity.





As
      our
      research and development program generates new core products, we may develop
      supportive products that facilitate surgery. The first example of these
      supportive products is the SharpShooter Tissue Repair System, or SharpShooter,
      a
      needle-advancing instrument that allows surgeons to accurately place needles
      in
      hard-to-reach locations. Although initially designed for use in suturing the
      meniscus applications of our collagen matrix products, the SharpShooter is
      also
      suited for use in a portion of the industry-estimated 250,000 meniscus repair
      procedures performed worldwide in 2006.





To
      date,
      sales of our products have been limited. Although the CMI is cleared for sale
      and distributed in Europe, it is not approved for sale in the U.S., and ReGen
      is
      making no claim regarding its safety, effectiveness or its potential for
      premarketing approval by the FDA. ReGen has exclusive worldwide rights to market
      the CMI subject to relevant regulatory clearance in each market. Our Swiss
      subsidiary, ReGen AG conducts our European distribution activities through
      local
      market distributors and a limited number of employees. Currently, we have
      distributorship agreements with independent orthopedic device marketing
      organizations for distribution of our products in Italy, Spain, Andorra, and
      South Africa. In Germany we have received an OPS code for third-party
      reimbursement of the CMI and we are currently awaiting assignment of the
      reimbursement amount associated with the code. If it is obtained, we expect
      assignment of the OPS code and reimbursement amount to facilitate market
      penetration in that country. The SharpShooter is cleared for sale in the U.S.,
      Europe, Canada, Australia, Chile and Japan. Currently, we market the
      SharpShooter through a worldwide non-exclusive distribution agreement with
      Linvatec Corporation (Linvatec), a subsidiary of ConMed (NASDAQ: CNMD), and
      in
      Europe through ReGen AG, including Italy, Spain, Andorra, and South Africa
      through independent medical device marketing companies in those markets. We
      continue to evaluate new markets for potential expansion of our distribution
      efforts.





***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. For example, when we value work in process inventory we use
      estimates to determine, among other factors, the number of units that will
      be
      successfully converted to finished goods. This and other estimates we make
      are
      often based on judgments, probabilities and assumptions that we believe to
      be
      reasonable, but that are inherently uncertain and unpredictable. Assumptions
      may
      be incomplete or inaccurate and unanticipated events and circumstances may
      occur. It is also possible that other professionals, applying reasonable
      judgments to the same facts and circumstances, could develop and support a
      range
      of alternative estimated amounts. We also are subject to risks and uncertainties
      that may cause actual results to differ from estimated amounts, such as changes
      in the healthcare environment, competition, foreign exchange, litigation,
      legislation and regulation. These and other risks and uncertainties are
      discussed in the section entitled “Item 1A. Risk Factors” in the Company’s
      Annual Report on Form 10-K for the year ended December 31, 2006. All of these
      could significantly and adversely affect our business, prospects, financial
      condition or results of operations.





An
      accounting policy is deemed to be critical if it requires an accounting estimate
      to be made based on assumptions about matters that are highly uncertain at
      the
      time the estimate is made, if different estimates reasonably could have been
      used, or if changes in the estimate that are reasonably likely to occur could
      materially impact the financial statements. Management believes that there
      have
      been no significant changes during the Nine Months ended September 30, 2007,
      to
      the items that we disclosed as our critical accounting policies and estimates
      in
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations in our Annual Report on Form 10-K for the year ended December 31,
      2006, including our adoption effective January 1, 2007, of FASB Interpretation
      No. 48, *Accounting for Uncertainty in Income Taxes,*which did not have
      a material effect on our consolidated financial statements. For further
      discussion of our accounting policies see Note 3 “Summary of Significant
      Accounting Policies” of the Notes to Condensed Consolidated Financial Statements
      (Unaudited) and Note 3 “Summary of Significant Accounting Policies” of the Notes
      to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K
      for the year ended December 31, 2006.





23
 ***Index***





*INCOME
      TAXES*: We provide for income taxes in accordance with the asset and
      liability method, prescribed by SFAS No. 109, *Accounting for Income
      Taxes*. Under this method, deferred tax assets and liabilities are
      determined based on differences between the financial reporting and tax basis
      of
      assets and liabilities and are measured using the enacted tax rates and laws
      that will be in effect when the differences are expected to reverse. At December
      31, 2006 the Company had a net operating loss carryforward of approximately
      $67.4 million and a research and development tax credit carryforward of
      approximately $390. These carryforwards began to expire in 2005 and 2006,
      respectively. The utilization of net operating loss carryforwards may be limited
      due to changes in the ownership of the Company and its subsidiaries, and the
      effect of the reverse merger and recapitalization completed on June 21, 2002.
      A
      valuation allowance is required when it is more likely than not that a deferred
      tax asset will not be realized.





As
      a
      result of evaluating all positive and negative evidence, we have established
      a
      full valuation allowance for the Company’s net deferred tax assets. Effective
      January 1, 2007, we adopted FASB Interpretation No. 48 (FIN 48), *Accounting
      for Uncertainty in Income Taxes*. Adoption of FIN 48 did not have a
      significant impact on the Company’s consolidated financial statements. The
      Company files income tax returns in the U.S. federal jurisdiction and various
      states and foreign jurisdictions. The Company is subject to U.S. federal, state
      and local, or non-U.S. income tax examinations by tax authorities for the years
      2003 to 2006. In addition, the Company’s net operating loss carryforwards that
      relate to 1991 and forward are subject to adjustment by these tax authorities.
      At September 30, 2007, the Company has no unrecognized tax benefits requiring
      disclosure under FIN 48. The Company recognizes accrued interest related to
      unrecognized tax benefits in interest expense and penalties in operating
      expenses. During the three and nine month periods ended September 30, 2007
      and
      2006, the Company did not have any income tax related interest or
      penalties.





*STOCK-BASED
      COMPENSATION EXPENSE*: Effective January 1, 2006, we adopted the fair value
      recognition provisions of SFAS No. 123R, *Share Based Payment*, using the
      modified prospective transition method, and therefore have not restated prior
      periods’ results in connection with the transition. Under this transition method
      we recognize compensation expense for all share-based payments granted to
      employees (i) on or after January 1, 2006, based on the grant date fair value
      estimated in accordance with the provisions of SFAS No. 123R and (ii) prior
      to
      but not yet vested as of January 1, 2006, based on the grant date fair value
      estimated in accordance with the original provisions SFAS No. 123. Under the
      fair value recognition provisions of SFAS No. 123R, we recognize stock-based
      compensation net of an estimated forfeiture rate and only recognize compensation
      cost for those shares expected to vest, generally on a straight-line basis
      over
      the requisite service period of the award. Prior to SFAS No. 123R adoption,
      we
      accounted for share-based payments to employees under Accounting Principles
      Board Opinion No. 25, *Accounting for Stock Issued**to Employees*(APB 25) and accordingly, generally recognized compensation
      expense only
      when we granted options with an exercise price which was less than the fair
      value of our common stock on the date of grant.





For
      stock
      issued to vendors for services, we recognize expense based on our stock price
      at
      the earlier of the date at which a performance commitment by the vendor exists
      or the date at which the vendor’s performance is complete. Expense recognized
      for non-employee options and for warrants issued in connection with equity
      transactions is measured based on management’s estimate of fair value and
      recognized on an accelerated basis over the respective vesting
      period.





Determining
      the appropriate fair value model and calculating the fair value of share-based
      payment awards require the input of highly subjective assumptions, including
      the
      expected life of the share-based payment awards and stock price volatility.
      Management determined that historical realized volatility calculated since
      the
      reverse merger is a reasonable indicator of expected volatility and future
      stock
      price trends. The assumptions used in calculating the fair value of share-based
      payment awards represent management’s best estimates, but these estimates
      involve inherent uncertainties and the application of management’s judgment. As
      a result, if factors change and we use different assumptions, our stock-based
      compensation expense could be materially different in the future. In addition,
      we are required to estimate the expected forfeiture rate and only recognize
      expense for those shares expected to vest. If our actual forfeiture rate is
      materially different from our estimate, the stock-based compensation expense
      could be significantly different from what we have recorded in the current
      period.





24
 ***Index***





We
      estimate fair value using the Black-Scholes model and the resulting values
      depend upon the assumptions we input into the model, including the risk-free
      interest rate, dividend yield, expected lives and expected volatility. We
      estimate the foregoing factors at the respective measurement dates of the
      grants. Upon examination of our historical pattern of option exercises in an
      effort to identify a discernable pattern, we concluded that there was not
      sufficient data on which to base an estimate of expected term. Consequently
      we
      decided to use the “short cut” approach described in SAB 107 to estimate the
      expected term for options awarded after January 1, 2006. Given the contractual
      term of 10 years and vesting period of four years, the expected term for options
      awarded in the first quarters of 2006 and 2007 is estimated to be seven years.
      Prior to adoption of SFAS No. 123R, we had used the grant term as the expected
      life, which was our best estimate of future exercise patterns. The interest
      rate
      used in the pricing model is based on the U.S. Treasury yield curve in effect
      at
      the time of the grant on issues with remaining terms equal to the estimated
      expected term used in the model. In addition, the Company has estimated a
      forfeiture rate based on historical data and current assumptions. For grants
      made after the Company’s merger with RBio, we estimate volatility using
      historical weekly closing prices of our stock since the merger through the
      closest date before the respective grant date.





We
      believe it is difficult to accurately measure the value of an employee stock
      option (see “Use of Estimates” above). The key factors used in the Black-Scholes
      model rely on assumptions we make of future uncertain events. Actual events
      may
      differ from our assumptions.





*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. At September 30, 2007 and December 31, 2006, 1% and 7%,
      respectively, of our inventory was 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 and for research and
      development.





Effective
      January 1, 2006, we adopted Statement of Financial Accounting Standards (SFAS)
      No. 151, *Inventory Costs*, which clarifies that abnormal amounts of idle
      facility expense, freight, handling costs, and spoilage should be recognized
      as
      current-period charges and requires that allocation of fixed production
      overheads to the costs of conversion be based on the normal capacity of the
      production facilities. Adoption of SFAS No. 151 did not have a material effect
      on our consolidated financial statements.





To
      date
      commercial sales of our products have been inconsistent and our production
      efforts have been directed primarily toward development. Given the inconsistent
      and generally low volumes of commercial production to date, estimates and
      assumptions related to factors such as labor inputs and yields are based on
      a
      limited amount of historical data. Actual results may differ significantly
      from
      our estimates. We continually review the assumptions and estimates we use to
      value inventory and expect that our judgments regarding these estimates may
      change as commercial production volumes increase and additional data are
      available.





Certain
      components of inventory have limited shelf lives. Our inventory control policies
      include procedures to identify, evaluate, segregate and dispose of any
      nonconforming inventory, including materials or components that have passed
      specified expiration dates. Nonconforming inventory may be either scrapped
      for
      immediate disposal or used in research and development.





***Recent
      Accounting Pronouncements***





In
      September 2006 the FASB issued SFAS No. 157, *Fair Value Measurement,*
      which provides enhanced guidance for using fair value to measure assets and
      liabilities. SFAS No. 157 also responds to investors’ requests for expanded
      information about the extent to which companies measure assets and liabilities
      at fair value, the information used to measure fair value, and the effect of
      fair value measurements on earnings. SFAS No. 157 applies whenever other
      standards require (or permit) assets or liabilities to be measured at fair
      value
      but does not expand the use of fair value in any new circumstances. SFAS No.
      157
      is effective for fiscal years beginning after November 15, 2007. We are
      currently evaluating what effects, if any, adoption of the provisions of SFAS
      157 will have on our consolidated financial statements.





In
      February 2007 the FASB issued SFAS No. 159, *The Fair Value Option
      for**Financial Assets and Financial Liabilities,*which allows
      entities to voluntarily choose, at specified election dates, to measure many
      financial assets and financial liabilities (as well as certain non-financial
      instruments that are similar to financial instruments) at fair value (the “fair
      value option”). The guidance in SFAS No. 159 is effective as of the beginning of
      an entity’s first fiscal year that begins after November 15, 2007. We are
      currently evaluating what effects, if any, adoption of the provisions of SFAS
      No. 159 will have on our consolidated financial statements.





25
 ***Index***





In
      June
      2007, the FASB issued EITF No. 07-3, *Accounting for Nonrefundable Advance
      Payments for Goods or Services Received for use in Future Research and
      Development Activities* (“EITF No. 07-3”).  EITF No. 07-3 states that
      nonrefundable advance payments for goods or services that will be used or
      rendered for future research and development activities should be deferred
      and
      capitalized.  Such amounts should be recognized as an expense as the
      related goods are delivered or the related services are performed.
 Entities should continue to evaluate whether they expect the goods to be
      delivered or services to be rendered.  If an entity does not expect the
      goods to be delivered or services to be rendered, the capitalized advance
      payment should be charged to expense.  The provisions of EITF No. 07-3 are
      effective for fiscal years beginning after December 15, 2007.  The Company
      does not expect adoption of EITF No. 07-3 to have a material effect on its
      consolidated financial statements.





***Results
      of Operations***





***Three
      and Nine Months Ended September 30, 2007 Compared to Three and Nine Months
      Ended******September 30, 2006***





*REVENUE.*The Company’s revenue from sales of our products approximated $249 and $577
      for the three months and nine months ended September 30, 2007, respectively,
      compared with $135 and $394, respectively, for the same periods in 2006. The
      approximate increases of $114 (84%) and $183 (46%), respectively, resulted
      from
      increased sales of both our CMI and SharpShooter products. The remainder of
      our
      revenue is derived from royalties, which generally are due under a license
      agreement when our distributor, Linvatec, sells the SharpShooter product to
      a
      third party. Royalty revenue was the same for the three months ended September
      30, 2007 compared with the same period in 2006 and decreased approximately
      $1
      (3%) for the nine months ended September 30, 2007 as compared to the same period
      in 2006. Historically, shipments of our products, and therefore our revenue,
      have been inconsistent for a number of reasons, including the supply
      requirements of our distributors and their anticipated rate of sales. Title
      of
      product passes to our customers FOB origin and our customers do not have a
      right
      to return the product other than for product defect issues.





For
      the
      three months and nine months ended September 30, 2007, CMI sales by ReGen AG
      approximated $147 and $297, compared to $46 and $158 for each of the respective
      periods in 2006. ReGen AG’s selling price for the CMI ranges from $1,050 to
      $2,300 per unit. CMI sales approximated 59% and 51% of total sales for the
      three
      and nine month periods ended September 30, 2007 compared with 34% and 40% for
      the same periods ended 2006. We believe the increase in CMI sales is the result
      of surgeon training programs and other marketing and distribution initiatives;
      however, the increase may not be indicative of a future trend.





SharpShooter
      sales in the three and nine month periods ended September 30, 2007, approximated
      $102 and $280 respectively, compared with $89 and $236, respectively, for the
      same periods in 2006, representing increases of $13 and $44 (15% and 19%),
      respectively. For the three month and nine month periods ended September 30,
      2007, SharpShooter sales to Linvatec, our primary distributor for the
      SharpShooter, approximated $89 and $246, respectively, compared to $81 and
      $204,
      respectively, for the same periods in 2006, representing increases of $8 (10%)
      and $42 (21%), respectively. SharpShooter sales to ReGen AG customers for the
      three and nine month periods ended September 30, 2007 approximated $13 and
      $34,
      respectively, compared to $8 and $32, for the same periods in 2006, representing
      increases of $5 (63%) and $2 (6%), respectively.





*COST
      OF GOODS SOLD.*For the three and nine month periods ended September 30,
      2007, cost of goods sold approximated $119 and $297, respectively, compared
      with
      $122 and $362, respectively, for the same periods in 2006, representing
      decreases of $3 and $65 (2% and 18%), respectively. The decreases resulted,
      primarily, from a lower per unit cost for CMI units sold due to varying
      production volumes in the respective periods when the units were produced.
      At
      September 30, 2007 all CMI units in inventory, as well as all of the CMI units
      sold during the three and nine month periods ended September 30, 2007, were
      valued at cost, which was lower than market. By comparison, at September 30,
      2006, 24% of CMI units in finished goods inventory, as well as 68% and 78%
      of
      the CMI units sold during the three and nine month periods ended September
      30,
      2006, respectively, were valued at market, which was lower than
      cost.





For
      the
      three and nine months ended September 30, 2007, approximately $72 and $200,
      respectively, of cost of goods sold related to SharpShooter units sold compared
      with $66 and $171, respectively, for the same periods in 2006, representing
      increases of $6 (9%) and $29 (17%), respectively. For the three months and
      nine
      months ended September 30, 2007, approximately $45 and $88, respectively, of
      cost of goods sold related to CMI units sold compared with $53 and $182,
      respectively, for CMI units in the same periods in 2006, representing decreases
      of $8 (15%) and $94 (52%), respectively.





Due
      to a
      high degree of fixed costs in the production process, the early stage of market
      acceptance for our products, and the variability of commercial production
      volumes between periods, sales and commercial production volumes in a given
      period may not be adequate to provide for per unit costs that are lower than
      the
      current market price for our products. The positive gross margin achieved in
      the
      first nine months of 2007 may not be indicative of a future trend.





26
 ***Index***





*RESEARCH
      AND DEVELOPMENT.*Research and development expenses for the three and nine
      month periods ended September 30, 2007 approximated $890 and $3,146,
      respectively, compared with $1,148 and $5,708, respectively, for the same
      periods in 2006. Significant factors contributing to the $258 (22%) net decrease
      for the comparative three month periods include: (i) $320 decrease in
      consulting, legal, and other professional fees and related costs associated
      with
      our PMA and 510(k) submissions to the FDA, as well as costs associated with
      development projects such as the ongoing refinement of our collagen scaffold
      manufacturing processes; partially offset by (ii) $62 increase in rent and
      other
      facility costs related to the termination of the sublease arrangement for our
      Redwood City facility. Significant factors contributing to the $2,562 (45%)
      net
      decrease for the comparative nine month periods include: (i) $2,701 decrease
      in
      consulting, legal, and other professional fees and related costs associated
      with
      our PMA and 510(k) submissions to the FDA, including costs associated with
      our
      undertaking to audit, analyze, and tabulate clinical data from the CMI clinical
      trial, which concluded in the second quarter of 2006, as well as costs
      associated with development projects such as the ongoing refinement of our
      collagen scaffold manufacturing processes; (ii) $56 decrease in compensation
      costs related to staff reductions; (iii) $26 decrease in clinical costs
      associated with our MCT for the CMI; partially offset by (iv) $208 increase
      in
      rent and other facility costs related to the termination of the sublease
      arrangement for our Redwood City facility; and (v) $13 increase in costs related
      to training and other activities associated with our lateral CMI study in
      Europe.





During
      2006 we completed development of a CMI for the lateral meniscus and European
      regulatory authorities accepted an expanded CE mark for the CMI to include
      both
      the medial and lateral configurations. In 2007 we are continuing a small
      European post-market surveillance that we initiated in 2006. This study is
      designed to validate safety and surgical technique and to add important lateral
      experience to our clinical database on the meniscus. We have developed a
      prototype of a substantial new addition to our SharpShooter Tissue Repair
      products and during 2007, we intend to complete the U.S. and European regulatory
      activities required to clear the way for marketing of the new SharpShooter
      product. Additionally, we have made substantial progress in the ongoing
      refinement of our collagen matrix manufacturing processes focused on the
      increase in production yields and capacity. Lastly, we have conducted early
      research on potential extended applications of our collagen matrix
      technology.





*BUSINESS
      DEVELOPMENT, GENERAL AND ADMINISTRATIVE.*Business development, general and
      administrative expenses for the three and nine month periods ended September
      30,
      2007 approximated $1,592 and $5,313, respectively, compared with approximately
      $1,526 and $4,063, respectively, for the same periods in 2006. Significant
      factors contributing to the $66 (4%) net increase for the comparative three
      month periods include: (i) $293 increase in costs associated with our worldwide
      marketing and distribution initiatives, including compensation, consulting,
      advertising and promotion; partially offset by (ii) $186 decrease in legal,
      accounting and other professional fees, primarily associated with 2006
      restatement of previously issued financial statements; and (iii) $41 decrease
      in
      compensation expense related to staff reductions. The $1,250 (31%) increase
      for
      the comparative nine month periods results primarily from the increase in costs
      associated with our worldwide marketing and distribution initiatives, including
      compensation, consulting, advertising and promotion. During the remainder of
      2007 we expect to incur additional costs such as consulting fees, education,
      promotional activities, and similar costs in connection with development of
      marketing and distribution capabilities and other activities.





*NON-OPERATING
      INCOME (EXPENSE).*Non-operating income (expense) consists of interest and
      other income, rental income, rental expense, and interest and other expense.
      Interest and other income approximated $88 and $300 for the three and nine
      month
      periods ended September 30, 2007, respectively, compared with $56 and $261,
      respectively, for the same periods in 2006. The approximate increases of $32
      (57%) and $39 (15%), respectively, related primarily to higher interest rates
      and higher cash and cash equivalents and investment balances in 2007 compared
      with 2006. Net rental income, which is sub-lease rental revenue less rent and
      operating expenses related to the sub-leased portion of the Company’s Redwood
      City, CA facility, approximated $0 for three months and nine months ended
      September 30, 2007, respectively, compared with $(5) and $11, respectively
      for
      the same periods in 2006. The sub-lease was terminated December 2006. Interest
      and other expense approximated $105 and $340 for the three and nine months
      ended
      September 30, 2007, respectively, compared with $97 and $293, respectively,
      for
      the same periods in 2006, due to higher interest rates and compounding of
      interest.





27
 ***Index***





***Liquidity
      and Capital Resources***





**Cash
      and cash equivalents**





Cash
      and
      cash equivalents and investments approximated $6,109 as of September 30, 2007
      compared with approximately $7,916 as of December 31, 2006. The net decrease
      in
      cash and cash equivalents and investments is a result of cash used for
      operations, for property and equipment purchases, and for repayment of capital
      lease obligations, net of the net proceeds of the Series D financings closed
      in
      March and April 2007.





During
      the nine months ended September 30, 2007, the Company held investments in
      commercial paper and federal agency mortgage-backed securities. The Company
      considers all highly liquid investments purchased with a maturity of 90 days
      or
      less to be cash equivalents and as such has classified as cash equivalents
      cash
      held in a money market account, a sweep account and investments in commercial
      paper and federal agency mortgage-backed securities that meet our classification
      criteria for cash and cash equivalents. All investments are commercial paper
      and
      federal agency mortgage-backed securities classified as held to maturity, and,
      accordingly, are carried at amortized cost, which approximates fair value.
      At
      September 30, 2007 approximately 1% of our cash and cash equivalents balance
      is
      held in foreign currencies. The effect on our 2007 condensed consolidated
      financial statements of re-measurement of the accounts of our Swiss subsidiary
      is immaterial.





**Cash
      flows**





The
      following table sets forth our sources and uses of cash for the quarters ended
      September 30, 2007 and 2006.





**September
                30,****2007**
            
            
            **2006****(In
                thousands)**Net
                cash used in operations
            
            $
            (7,170
            )
            
            $
            (9,711
            )Net
                cash (used in) provided by investing activities
            
            
            (30
            )
            
            
            1,880Net
                cash provided by financing activities
            
            
            5,549
            
            
            
            107Effect
                of exchange rate changes on cash
            
            
            (19
            )
            
            
            (27
            )Net
                increase (decrease) in cash and cash equivalents
            
            $
            (1,670
            )
            
            $
            (7,751
            )





Cash
      used
      in operating activities during the nine months ended September 30, 2007
      approximated $7,170, which resulted from the net loss of $8,186, adjusted to
      account for a net increase in accounts receivable, inventory and other assets
      of
      approximately $14, a net decrease in accounts payable, accrued expenses and
      other liabilities of $8, together with adjustments of $1,038 for non-cash items,
      including depreciation, stock-based compensation and exchange loss related
      to
      re-measurement of our Swiss subsidiary’s financial statements. Approximately
      $1.6 million of operating expenses incurred in the first half of 2006 represents
      costs associated with the undertaking to audit, analyze, and tabulate the CMI
      multicenter clinical trial (“MCT”) data. This data project was substantially
      completed during the second quarter of 2006. We believe our investment in the
      clinical data represents a valuable source of data on long term patient outcomes
      that may be useful as (i) a potential source of safety and efficacy information
      for regulatory clearance or approval of the ReGen collagen scaffold or CMI;
      and
      (ii) the basis for scientific publications and further research that could
      lead
      to important new improvements in the treatment of meniscus injury.





During
      the nine months ended September 30, 2007, we used approximately $137 from our
      investments to fund operations, invested approximately $167 in property and
      equipment, and repaid approximately $11 of our capital lease
      obligations.





28
 ***Index***





Through
      September 30, 2007, we have incurred cumulative inception to date net losses
      of
      approximately $87,586 and used approximately $71,463 in cash for operating
      activities. The future operating results of the Company may be affected by
      a
      number of risks and certain other factors. The Company’s future operating
      results are highly dependent upon its ability to obtain and maintain regulatory
      clearance and approvals for its Collagen Scaffold device, CMI and other
      products. Although the CMI is cleared for sale and distributed in Europe, it
      is
      not approved for sale in the U.S., and the Company makes no claim regarding
      its
      safety, effectiveness or its potential for FDA approval. The Company is
      appealing an NSE decision related to its 510(k) submission to the FDA for market
      clearance in the U.S. of the Collagen Scaffold, which includes an application
      for the reinforcement and repair of meniscus defects. The process of obtaining
      regulatory clearances or approvals to market a medical device, particularly
      from
      the FDA, can be costly and time-consuming. There can be no assurance that such
      clearances or approvals will be granted on a timely basis, if at all. If the
      510(k) process takes longer than expected or the Collagen Scaffold device is
      not
      cleared, it might substantially delay our ability to commercialize the Collagen
      Scaffold and negatively impact our business. If the Collagen Scaffold device
      is
      not cleared through the 510(k), we may proceed with submission to the FDA of
      the
      PMA for the CMI. The PMA process is typically more costly, lengthy and uncertain
      than the 510(k) clearance process.





In
      addition to regulatory related hurdles, in order to approach a position of
      positive operating earnings and cash flow, the Company will need to effectively
      address other operating issues, including for example, establishing distribution
      channels and identifying third party reimbursement provisions for the surgeons
      and facilities that would be responsible for implanting the Company’s Collagen
      Scaffold, the CMI, or other future products. While the Company is actively
      working to address these issues, there is no guarantee that the Company will
      be
      successful or able to effectively address these challenges in any given time
      frame.





We
      will
      continue pursuing additional permanent equity capital in order to support
      ongoing operations at least until the date we receive either FDA clearance
      for
      the Collagen Scaffold or premarketing approval for the CMI in the U.S. While
      we
      have been successful in the past in obtaining the necessary capital to support
      our operations, there is no assurance that we will be able to obtain additional
      equity capital or other financing under commercially reasonable terms and
      conditions, or at all. Based upon current cash and investment balances and
      planned spending rates for 2007 management believes that the Company has
      adequate cash and investments on hand to support ongoing operations through
      at
      least April 1, 2008. Our estimate may change, however, if actual results differ
      significantly from our expectations. Key assumptions that may affect our
      estimate include (i) actual sales that may vary significantly from our
      expectations; (ii) the actual timeline of events with respect to the CMI MCT
      and
      our 510(k) and PMA submissions to the FDA; (iii) decisions we make regarding
      our
      business objectives; and (iv) other developments in our business. We intend
      to
      reduce planned spending so that current cash and investments are sufficient
      to
      support operations through the anticipated 510(k) appeal process. However,
      the
      timing of the 510(k) appeal process is subjct to inherent uncertainty. Beginning
      in the fourth quarter of 2007 we expect to implement measures to control costs
      that are within management’s discretion, including (but not limited to) costs
      such as consulting, advertising and promotion, personnel, other administrative
      costs and/or capital expenditures. We anticipate that additional equity capital
      will be required beyond April 2008 to support operations. However, if unforeseen
      events occur, it is possible that additional cash may be needed before April
      2008 to support operations. The accompanying condensed consolidated financial
      statements have been prepared assuming that the Company will continue as a
      going
      concern. However, if additional capital is not obtained, the Company will not
      be
      able to continue as a going concern. The Company’s financial statements do not
      include any adjustments relating to the recoverability or classification of
      assets or the amounts or classification of liabilities that might result from
      the outcome of this uncertainty.





**Equity
      Financing**





On
      March 2, 2007, March 30, 2007 and April 5, 2007, the Company
      completed the private placement of 71,429 shares, 47,619 shares, and 16,667
      shares, respectively, of Series D convertible preferred stock, par value $0.01
      per share (Series D Stock), resulting in aggregate proceeds net of issuance
      costs approximating $5,500 (the Series D financing). Each share of Series D
      Stock is mandatorily convertible into 100 shares of the Company’s common stock,
      subject to adjustment for splits or other changes to the Company’s common stock,
      immediately upon either (i) amendment of the Company’s certificate of
      incorporation to increase the number of authorized shares of common stock
      sufficient to effect the conversion or (ii) the effectiveness of a reverse
      stock
      split of the Company’s common stock such that there are a sufficient number of
      common shares available to effect the conversion. Either of such corporate
      actions is subject to the approval of our shareholders before they may be
      executed. At the 2007 annual meeting our shareholders approved an amendment
      to
      the Company’s Amended and Restated Certificate of Incorporation to effect a
      one-for-ten, one-for-twelve, one-for-fourteen or one-for-sixteen reverse stock
      split, subject to the discretion of our Board of Directors. To date, the Board
      has not effected a reverse stock split and the Board is not obligated to effect
      a reverse stock split. The holders of Series D 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. Holders of the Series D Stock
      do
      not have a contractual obligation to share in the losses of the Company. In
      the
      event of any liquidation, dissolution, or winding up of the Company, the holders
      of Series D Stock are entitled to receive a liquidation preference of $42 per
      share, plus any declared but unpaid dividends, and subject to adjustment for
      stock splits, combinations, or similar events involving the Series D Stock.
      Since the Series D Stock is mandatorily convertible upon the occurrence of
      certain corporate actions, the Series D Stock was issued with a contingent
      beneficial conversion feature that will be recognized as a reduction of net
      income attributable to common stockholders upon occurrence of the triggering
      event.





29
 ***Index***





In
      connection with the Series D financing the Company issued to the investors
      warrants to purchase 40,715 shares of the Company’s Series D Stock at an initial
      exercise price of $63 per share, or after mandatory conversion of the Series
      D
      Stock, 4,071,500 shares of the Company’s common stock at an initial exercise
      price of $0.63 per share. The warrants expire five years after issuance. The
      number of shares of Series D Stock or common stock to be issued upon exercise
      and the respective exercise prices are subject to adjustment for changes in
      the
      Series D Stock or common stock, such as stock dividends, stock splits, and
      similar changes. Also in connection with the Series D Financing, the Company
      issued to the investors options to purchase up to 135,715 shares of the
      Company’s Series D Stock, exercisable for cash at $42 per share, or after
      mandatory conversion of the Series D Stock, 13,571,500 shares of the Company’s
      common stock at $0.42 per share. The respective exercise prices are subject
      to
      adjustment for stock splits and similar events. The options are exercisable
      for
      15 days following public announcement of FDA clearance of the Company’s Collagen
      Scaffold device as a class II device and expire at the earliest of the 15th
      day
      after such public announcement, partial exercise of the option, or December
      31,
      2007. In October 2007 the Company extended the expiration date of the options
      to
      December 31, 2008. On June 1, 2007, the Company registered with the SEC, the
      common shares into which the Series D Stock would be convertible, as well as
      the
      common shares that would be issuable upon exercise of the warrants and options,
      after mandatory conversion of the Series D Stock has occurred. As of September
      30, 2007, both the options and warrants meet the criteria of EITF No. 00-19,
      *Accounting for Derivative Financial Instruments Indexed to, and
      Potentially**Settled in, a Company’s Own Stock*, for classification
      as equity in the Company’s consolidated balance sheet.





Vail
      Securities Investments, Inc. acted as a placement agent (the “Placement Agent”)
      for certain of the sales. In connection with those sales, the Company paid
      the
      Placement Agent approximately $28 as compensation for services
      rendered.





Effective
      March 2, 2007, the Company entered into a one year consulting agreement to
      retain the financial advisory services of Sanderling Ventures Management VI
      (Sanderling), affiliates of whom together beneficially own in excess of five
      percent of the Company’s common shares. In consideration for such services, the
      Company issued to Sanderling a warrant to purchase 2,000 Series D preferred
      shares (or 200,000 common shares if the warrant is exercised after mandatory
      conversion of the preferred shares into common shares) with the warrant having
      a
      five-year term and an exercise price of $42 per share (or $0.42 per common
      share
      if the warrant is exercised for common shares). Using the Black Scholes model,
      the Company has estimated the fair value of the warrant to be approximately
      $69.





During
      the first quarter of 2007, holders of 10,776,909 and 4,463,289 shares of Series
      A Stock and Series C Stock, respectively, exercised their right to convert
      their
      shares to an equal number of shares of common stock. There were no Series A
      Stock or Series C Stock conversions during 2006.





**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 for the year ended December 31, 2006. Except as
      described in 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,
      2006.





**Item
      4. Controls and Procedures**





We
      maintain “disclosure controls and procedures” within the meaning of Rule
      13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange
      Act. Our disclosure controls and procedures are designed to provide reasonable
      assurance that information required to be disclosed by the Company in the
      reports filed under the Exchange Act, such as in this Quarterly Report on Form
      10-Q, is recorded, processed, summarized and reported within the time periods
      specified in the U.S. Securities and Exchange Commission’s rules and forms. Our
      disclosure controls and procedures include controls and procedures designed
      to
      provide reasonable assurance that such information is accumulated and
      communicated to our management, including our Chief Executive Officer and Chief
      Financial Officer, as appropriate, to allow for timely decisions regarding
      required disclosure. In designing and evaluating our disclosure controls and
      procedures, management recognized that any controls and procedures, no matter
      how well designed and operated, can provide only reasonable assurance of
      achieving the desired control objectives, and management necessarily was
      required to apply its judgment in evaluating and implementing possible controls
      and procedures.





30
 ***Index***





*Evaluation
      of Disclosure Controls and Procedures.*As of the end of the period covered
      by this Quarterly Report on the Form 10-Q, we evaluated the effectiveness of
      the
      design and operation of the Company’s disclosure controls and procedures, which
      was done under the supervision and with the participation of our management,
      including our Chief Executive Officer and our Chief Financial Officer. Included
      as Exhibits 32.1 and 32.2 to this Quarterly Report on Form 10-Q are
      certifications of our Chief Executive Officer and Chief Financial Officer,
      which
      are required in accordance with Rule 13a-14 of the Exchange Act. This Controls
      and Procedures section includes the information concerning the controls
      evaluation referred to in the certifications and it should be read in
      conjunction with the certifications for a more complete understanding of the
      topics presented. Based on the controls evaluation, our Chief Executive Officer
      and Chief Financial Officer have concluded that, as of September 30, 2007,
      our
      disclosure controls and procedures were effective.





*Changes
      in Internal Control over Financial Reporting.*There has been no change in
      the Company’s internal control over financial reporting that occurred during the
      Company’s third fiscal quarter of 2007 that has materially affected, or is
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.





**PART
      II**





**Item
      1. Legal Proceedings**





We
      are a
      defendant from time to time in lawsuits incidental to our business. We are
      not
      currently subject to any material legal proceedings.





***Historical
      Stock Option Practices Inquiry***





On
      November 16, 2006, following our announcement that our management voluntarily
      initiated and conducted, and the Audit Committee of the Board of Directors
      oversaw, a review of the Company’s historical stock option granting and
      accounting practices, we received a letter from the Division of Enforcement
      of
      the SEC requesting that the Company preserve all documents concerning its
      granting of stock options to any of our executives or employees from January
      2002 through the present and stating that the SEC intends to request production
      of such documents in the future. Subsequently, on November 20, 2006, the Company
      amended its quarterly and annual reports to include restated consolidated
      financial statements for the years ended December 31, 2005, 2004, 2003, the
      period from December 21, 1989 (inception) to December 31, 2005, and the quarters
      ended March 31, 2006 and September 30, 2006. At this time, while we intend
      to
      cooperate with the SEC inquiry, we cannot predict what consequences the SEC
      inquiry will have on the Company. The Company may be subject to regulatory
      fines
      or penalties or other contingent liabilities at the conclusion of the SEC’s
      inquiry.





**Item
      1A. Risk Factors**





There
      have been no material changes in the risk factors previously disclosed in Item
      1a. Risk Factors of our Annual Report on Form 10-K for the year ended December
      31, 2006, except for the following update to one of those risk factors, which
      should be read in conjunction with Item 1a. Risk Factors of our Annual Report
      on
      Form 10-K for the year ended December 31, 2006:





***We
        have a history of losses, and we expect to continue to incur losses and may
        not
        achieve or maintain profitability. If we continue to incur losses and are
        unable
        to access sufficient working capital from our operations or through external
        financings, we will be unable to fund future operations and operate as a
        going
        concern.***




The
        extent of our future losses and the timing of profitability are highly
        uncertain, and we may never achieve profitable operations. As of
        December 31, 2006, we had an inception to date net loss of approximately
        $79.4 million, and total stockholders’ deficit of approximately
        $10.6 million. Historically, our net sales have varied significantly. We
        may need to generate additional revenue to achieve profitability in the future.
        The Company likely will not achieve profitability, if at all, unless we receive
        clearance from the FDA of our 510(k) application relating to the Collagen
        Scaffold or the CMI is approved by the FDA and becomes commercially available
        in
        the U.S, neither of which can be assured. We submitted an initial 510(k)
        application to the FDA in December 2005 and a submitted a revised 510(k)
        application with modified indications for use in the meniscus in December
        2006.
        On September 25, 2007 we received a not substantially equivalent (NSE) letter
        from the FDA regarding the 510(k) submission. The FDA indicated the device
        is
        not substantially equivalent to existing Class II devices already in receipt
        of
        FDA clearance. We are appealing the NSE decision through FDA administrative
        channels.





31
 ***Index***





The
        510(k) clearance process usually takes from three to nine months, but has
        lasted
        and could continue to last longer. We will likely not pursue completion of
        the
        PMA for the CMI unless the regulatory efforts with respect to the Collagen
        Scaffold are unsuccessful. Should the FDA provide clearance for our 510(k)
        application relating to the Collagen Scaffold or approve the CMI for sale
        in the
        U.S., sales of the Collagen Scaffold or the CMI, respectively, in the
        U.S. are not expected to occur until, at the earliest, the second half of
        2008. If we are unable to achieve profitability, or to maintain profitability
        if
        achieved, it may have a material adverse effect on our business and stock
        price
        and we may be unable to continue to operate as a going concern, if at all.
        The
        Company cannot assure that it will generate additional revenues or achieve
        profitability.







Based
        upon current cash and investment balances and planned spending rates, management
        estimates that the Company has adequate cash and investments on hand to support
        ongoing operations through at least April 1, 2008. Our estimate may change,
        however, if actual results differ significantly from our expectations. Key
        assumptions that may affect our estimate include (i) actual sales that may
        vary significantly from our expectations; (ii) the actual timeline of
        events with respect to our 510(k) and PMA submissions to the FDA;
        (iii) decisions we make regarding our business objectives; and
        (iv) other developments in our business. The Company intends to reduce
        planned spending so that current cash and investments are sufficient to support
        operations through the anticipated 510(k) appeal process. However, the timing
        of
        the 510(k) appeal process is subject to inherent uncertainty. Beginning in
        the
        fourth quarter of 2007 management expects to implement measures to control
        costs
        that are within management’s discretion, including (but not limited to) costs
        such as consulting, advertising and promotion, personnel, other administrative
        costs and/or capital expenditures. The Company anticipates that additional
        equity capital will be required beyond April 2008 to support operations.
        However, if unforeseen events occur, it is possible that additional cash
        may be
        needed before April 2008 to support operations. If we are unable to access
        sufficient working capital from our operations or through external financings,
        we will be unable to fund future operations and operate as a going
        concern.





**Item
      2. Unregistered Sales of Equity Securities and Use of Proceeds
      (dollars in****thousands, except per share
      data)**





On
      October 3, 2007, we issued 68,572 shares of our restricted common stock to
      Cameron Associates in consideration for investor relations services rendered
      by
      Cameron Associates. The estimated value of these services is $24. The issuance
      of the foregoing securities was not registered in reliance on Section 4(2)
      of
      the Securities Act of 1933, as amended.





**Item
      3. Defaults upon Senior Securities**





None.





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





None.





**Item
      5. Other Information**





None.





32
 ***Index***


**Item
      6. Exhibits**





(a)
            Exhibits.





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





**Number**
              
              **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(1)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 (as
                  amended)(22)3.2
              
              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(8)4.3*
              
              ReGen
                  *Biologics*, Inc. Employee Stock Option Plan, Amended and Restated
                  Effective January 31, 2003(10)4.4*
              
              ReGen
                  *Biologics*, Inc. Non-Employee Director Stock Option Plan, Amended
                  and Restated Effective January 31, 2003(10)4.5
              
              Registration
                  Rights Agreement between the Company and the Investors listed
                  therein(7)4.6
              
              Registration
                  Agreement between the Company and Certain Stockholders, dated December
                  28,
                  1995(13)4.7
              
              Amendment
                  No. 1 to Rights Agreement between the Company and EquiServe Trust
                  Company,
                  N.A. dated as of June 7, 2002(9)4.8
              
              Registration
                  Agreement between the Company and each of Iowa Health Centers,
                  P.C. d/b/a
                  Iowa Heart Center, P.C., Mercy Hospital Medical Center, Mark A.
                  Tannenbaum, M.D. and Iowa Heart Institute dated January 7,
                  1997(12)4.9
              
              Nonqualified
                  Stock Option Agreements between the Company and each of Iowa Health
                  Centers, P.C. d/b/a Iowa Heart Center, P.C., Mercy Hospital Medical
                  Center
                  and Mark A. Tannenbaum, M.D., dated January 7, 1997(14)4.10*
              
              Form
                  of Employee Incentive Stock Option Agreement(22)4.11*
              
              ReGen
                  *Biologics*, Inc. Non-Employee Director Supplemental Stock Option
                  Plan Amended and Restated Effective January 31,
                  2003(16)4.12
              
              Common
                  Stock Registration Rights Agreement by and among the Company and
                  the
                  stockholders named therein, dated as of April 19,
                  2004(17)4.13*
              
              Form
                  of Incentive Stock Option Agreement(18)4.14*
              
              Form
                  of Nonqualified Director Supplemental Stock Option
                  Agreement(18)4.15
              
              Subscription
                  Agreement by and between the Company and the Investors named therein
                  dated
                  as of July 14, 2005(21)4.16
              
              Form
                  of Warrant Agreement by and between the Company and the Individuals
                  named
                  therein, dated as of July 14, 2005(21)4.17*
              
              Form
                  of Nonqualified Non-Employee Director Stock Option
                  Agreement(22)
  33
 ***Index***
  4.18*
              
              Form
                  of Nonqualified Employee, Non-Employee Director or Consultant Stock
                  Option
                  Agreement(22)4.19*
              
              Form
                  of Nonqualified Non-Employee Director Stock Option Agreement for
                  the
                  Supplemental Stock Option Plan(22)4.20
              
              Second
                  Amended and Restated Stockholders’ Agreement by and among the Company and
                  the Stockholders named therein dated as of August 23,
                  2007(23)4.21
              
              Certificate
                  of Designations, Preferences and Rights of Series A Convertible
                  Preferred
                  Stock of the Company(26)
 4.22
              
              Certificate
                  of Designations, Preferences and Rights of Series C Convertible
                  Preferred
                  Stock of the Company(25)4.23
              
              Certificate
                  of Designations, Preferences and Rights of Series D Convertible
                  Preferred
                  Stock of the Company(28)4.24
              
              Subscription
                  Agreement by and between the Company and the Investors named therein,
                  dated as of November 30, 2006(27)4.25
              
              Subscription
                  Agreement by and between the Company and the Investors named therein,
                  dated as of December 1, 2006(27)4.26
              
              Form
                  of Warrant Agreement by and between the Company and the Individuals
                  named
                  therein, dated as of November 30, 2006(27)4.27
              
              Form
                  of Warrant Agreement by and between the Company and the Individuals
                  named
                  therein, dated as of December 1, 2006(27)4.28
              
              Form
                  of Option Agreement by and between the Company and the Individuals
                  named
                  therein dated as of November 30, 2006(27)4.29
              
              Form
                  of Option Agreement by and between the Company and the Individuals
                  named
                  therein dated as of December 1, 2006(27)4.30
              
              Form
                  of Subscription Agreement by and between ReGen Biologics, Inc.
                  and the
                  Investors named therein dated as of March 2, 2007(28)4.31
              
              Form
                  of Warrant Certificate by and between ReGen Biologics, Inc. and
                  the
                  Individuals named therein, dated as of March 2,
                  2007(28)4.32
              
              Form
                  of Option Agreement by and between ReGen Biologics, Inc. and the
                  Individuals named therein dated as of March 2, 2007(28)4.33
              
              Consulting
                  Agreement by and between ReGen Biologics, Inc. and Sanderling Ventures
                  Management VI, dated as of March 2, 2007(28)4.34
              
              Form
                  of Warrant Certificate by and between ReGen Biologics, Inc. and
                  Sanderling
                  Ventures Management VI, dated as of March 2, 2007(28)4.35
              
              Subscription
                  Agreement by and between ReGen Biologics, Inc. and Ivy Healthcare
                  Capital
                  II, L.P., dated as of March 30, 2007(29)4.36
              
              Warrant
                  Certificate by and between ReGen Biologics, Inc. and Ivy Healthcare
                  Capital II, L.P., dated as of March 30, 2007(29)4.37
              
              Option
                  Agreement by and between ReGen Biologics, Inc. and Ivy Healthcare
                  Capital
                  II, L.P., dated as of March 30, 2007(29)4.38
              
              Form
                  of Subscription Agreement by and between ReGen Biologics, Inc.
                  and the
                  Investors named therein dated as of April 5, 2007(29)4.39
              
              Form
                  of Warrant Certificate by and between ReGen Biologics, Inc. and
                  the
                  Individuals named therein, dated as of April 5,
                  2007(29)4.40
              
              Form
                  of Option Agreement by and between ReGen Biologics, Inc. and the
                  Individuals named therein dated as of April 5,
                  2007(29)
  34
 ***Index***
  4.41
              
              Certificate
                  of Designations, Preferences and Rights of Series E Convertible
                  Preferred
                  Stock of the Company (31)10.1*
              
              Employment
                  agreement by and between Gerald E. Bisbee, Jr., Ph. D. and the
                  Company
                  dated September 22, 1998 and amended September 12,
                  2000(11)10.2
              
              Form
                  of Indemnification Agreement(30)10.3*
              
              Employment
                  Agreement by and between Brion D. Umidi and the Company dated March
                  23,
                  2004(15)10.4
              
              License
                  Agreement by and between the Company and Linvatec Corporation dated
                  April
                  7, 2000(15)10.5
              
              Credit
                  Agreement by and between the Company and Sulzer Medica USA Holding
                  Company
                  dated March 14, 2000(15)10.6
              
              Agreement
                  by and among Sulzer Medica USA Holding Co., Sulzer Biologics Inc.
                  Sulzer
                  Orthopedics Ltd. and the Company dated February 20,
                  2001(15)
  10.7*
              
              Assignment
                  and Royalty Agreement by and among the Company, Modified Polymer
                  Components, Inc. and Dr. J. Richard Steadman dated April 9,
                  1997(15)10.8
              
              Exclusive
                  License Agreement by and between the Company and Dr. Shu-Tung Li
                  dated
                  August 24, 1995(15)10.9*
              
              First
                  Amendment to Employment Agreement by and between Gerald E. Bisbee,
                  Jr.,
                  Ph. D. and the Company dated March 23, 2004(15)10.10
              
              Common
                  Stock Purchase Agreement by and among the Company and the Individuals
                  named therein, dated as of April 19, 2004(17)10.11
              
              Agreement
                  by and between the Company and MedWork AG dated as of January 1,
                  2005(19)10.12
              
              Credit
                  Agreement by and between the Company and Sulzer Medica USA Holding
                  Company
                  dated November 30, 1998(20)10.13
              
              Distributor
                  Agreement by and between the Company and XMedica effective as of
                  October
                  24, 2005(24)21.1
              
              Subsidiaries
                  of the Registrant(29)31.1
              
              Section
                  302 Certification from Gerald E. Bisbee, Jr., dated November 7,
                  2007(32)31.2
              
              Section
                  302 Certification from Brion Umidi, dated November 7,
                  2007(32)32.1
              
              Section
                  906 Certification from Gerald E. Bisbee, Jr., dated November 7,
                  2007(32)32.2
              
              Section
                  906 Certification from Brion Umidi, dated November 7,
                  2007(32)


____________


(1)
            Incorporated
                herein by reference to the Company’s Report on Form 10-Q for the quarter
                ended September 30, 2002 (File No.
                000-20805).





(2)
            Incorporated
                herein by reference to the Company’s Report on Form 10-Q/A for the quarter
                ended March 31, 2001 (File No.
                000-20805).





(3)
            Incorporated
                herein by reference to the Company’s Report on Form 8-K, filed on July 18,
                2001 (File No. 000-20805).





(4)
            Incorporated
                herein by reference to the Company’s Report on Form 8-K, filed on
                September 24, 2007 (File No.
                000-20805).





(5)
            Incorporated
                herein by reference to the Company’s Report on Form 10-Q for the quarter
                ended September 30, 1997 (File No.
                000-20805).





(6)
            Incorporated
                herein by reference to the Company’s Registration Statement on Form S-3,
                filed on November 19, 2003 (File No.
                333-110605).





(7)
            Incorporated
                herein by reference to the Company’s Report on Form 8-K, filed on
                September 25, 2003 (File No.
                000-20805).





(8)
            Incorporated
                herein by reference to the Company’s Report on Form 8-K, filed on June 4,
                1997 (File No. 000-20805).




35
 ***Index***




(9)
            Incorporated
                herein by reference to the Company’s Report on Form 10-Q for the quarter
                ended September 30, 2002 (File No.
                000-20805).





(10)
            Incorporated
                herein by reference to the Company’s Proxy Statement on Schedule 14A,
                filed on April 14, 2003 (File No.
                000-20805).





(11)
            Incorporated
                herein by reference to the Company’s Report on Form 8-K/A, filed on
                September 4, 2002 (File No.
                000-20805).





(12)
            Incorporated
                herein by reference to the Company’s Current Report on Form 8-K filed on
                January 14, 1997 (File No.
                000-20805).





(13)
            Incorporated
                herein by reference to the Company’s Registration Statement on Form S-1,
                filed on June 4, 1996 (File No.
                333-04106).





(14)
            Incorporated
                herein by reference to the Company’s Report on Form 10-Q for the quarter
                ended March 31, 1997 (File No.
                000-20805).





(15)
            Incorporated
                herein by reference to the Company’s Report on Form 10-K for the year
                ended December 31, 2003 (File No.
                000-20805).





(16)
            Incorporated
                herein by reference to the Company’s Registration Statement on Form S-1/A,
                filed on January 14, 2004 (File No.
                333-110605).





(17)
            Incorporated
                herein by reference to the Company’s Registration Statement on Form S-1,
                filed on April 26, 2004 (File No.
                333-114867).





(18)
            Incorporated
                herein by reference to the Company’s Report on Form 10-Q for the quarter
                ended September 30, 2004 (File No.
                000-20805).





(19)
            Incorporated
                herein by reference to the Company’s Report on Form 10-K for the year
                ended December 31, 2004 (File No.
                000-20805).





(20)
            Incorporated
                herein by reference to the Company’s Report on Form 10-Q for the quarter
                ended March 31, 2005 (File No.
                000-20805).





(21)
            Incorporated
                herein by reference to the Company’s Report on Form 8-K, filed on July 19,
                2005 (File No. 000-20805).





(22)
            Incorporated
                herein by reference to the Company’s Report on Form 10-Q for the quarter
                ended September 30, 2005 (File No.
                000-20805).





(23)
            Incorporated
                herein by reference to the Company’s Report on Form 8-K, filed on August
                24, 2007 (File No. 000-20805).





(24)
            Incorporated
                herein by reference to the Company’s Report on Form 10-Q for the quarter
                ended September 30, 2005 (File No.
                000-20805).





(25)
            Incorporated
                herein by reference to the Company’s Report on Form 8-K, filed on
                September 25, 2003 (File No.
                000-20805).





(26)
            Incorporated
                herein by reference to the Company’s Post-Effective Amendment No. 1 to
                Registration Statement on Form S-1, filed on April 28, 2006 (File
                No.
                333-126835).





(27)
            Incorporated
                herein by reference to the Company’s Report on Form 8-K, filed on December
                6, 2006 (File No. 000-20805).





(28)
            Incorporated
                herein by reference to the Company’s Report on Form 8-K, filed on March 8,
                2007 (File No. 000-20805).





(29)
            Incorporated
                herein by reference to the Company’s Report on Form 8-K, filed on April 5,
                2007 (File No. 000-20805).





(30)
            Incorporated
                herein by reference to the Company’s Report on Form 8-K, filed on March
                17, 2004 (File No. 000-20805).





(31)
            Incorporated
                herein by reference to the Company’s Report on Form 8-K, filed on October
                19, 2007 (File No. 000-20805).





(32)
            Included
                with this filing.





*
            Management
                Contract or Compensatory Plan or
                Arrangement





36
 ***Index***


**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 7, 2007.





**REGEN
                BIOLOGICS, INC.**By:
            /s/
                BRION D. UMIDIBrion
                D. Umidi*Senior
                Vice President and Chief Financial
                Officer*






37