##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 Or
 o
    
    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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)509 Commerce Street,1st Floor, East Wing,Franklin Lakes, NJ
    
    07417(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code:
 (201) 651-5140
 Securities registered pursuant to Section 12(b) of the Act:
 None
 Securities registered pursuant to Section 12(g) of the Act:
 Title of Class
 Common Stock $.01 par value per share
 þ o
  o o þ
 o þ




---



##### 



REGEN BIOLOGICS, INC.
 INDEX
 Page No.PART I  Financial Information
    
    3Item 1. Financial Statements
    
    3Condensed Consolidated Balance Sheets at September 30, 2006 (unaudited) and December 31, 2005 (restated)
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2006
(unaudited) and 2005 (restated) (unaudited), the Nine months Ended September 30, 2006 (unaudited) and
2005 (restated) (unaudited) and the Period from December 21, 1989 (inception) to September 30, 2006
(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, 2006
(unaudited)
    
    5Condensed Consolidated Statements of Cash Flows for the Nine months Ended September 30, 2006
(unaudited) and 2005 (restated) (unaudited) and the Period from December 21, 1989 (inception) to
September 30, 2006 (unaudited)
    
    10Notes to Condensed Consolidated Financial Statements (unaudited)
    
    11Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    23Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    34Item 4. Controls and Procedures
    
    34PART II  Other Information
    
    35Item 1. Legal Proceedings
    
    35Item 1A. Risk Factors
    
    35Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    37Item 3. Defaults Upon Senior Securities
    
    37Item 4. Submission of Matters to a Vote of Security Holders
    
    37Item 5. Other Information
    
    37Item 6. Exhibits
    
    38Signatures
    
    41Certification
 2




---



##### 



PART I  Financial Information
 Item 1. Financial Statements
 REGEN BIOLOGICS, INC.   CONDENSED CONSOLIDATED BALANCE SHEET
 September 30,
    
    
    December 31,2006
    
    
    2005(unaudited)
    
    
    Restated (1)ASSETSCurrent assetsCash and cash equivalents
    
    $
    1,784
    
    
    $
    9,535Short-term investments
    
    
    1,947
    
    
    
    3,744Trade receivables, net of allowance for
doubtful accounts of $4 and $8, as of
September 30, 2006 and December 31, 2005,
respectively
    
    
    77
    
    
    
    50Inventory
    
    
    200
    
    
    
    368Prepaid expenses and other current assets
    
    
    246
    
    
    
    295Total current assets
    
    
    4,254
    
    
    
    13,992Property and equipment, net
    
    
    325
    
    
    
    205Investments
    
    
    
    
    
    
    251Other assets
    
    
    142
    
    
    
    95Total assets
    
    $
    4,721
    
    
    $
    14,543LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    367
    
    
    $
    984Accounts payable to related party
    
    
    2
    
    
    
    2Accrued expenses
    
    
    611
    
    
    
    1,466Pension liability
    
    
    191
    
    
    
    163Other current liabilities
    
    
    63
    
    
    
    30Total current liabilities
    
    
    1,234
    
    
    
    2,645Other liabilities
    
    
    49
    
    
    
    18Long-term portion of capital leases
    
    
    40
    
    
    
    51Long-term portion of notes payable to related
party, including accrued interest of $1,593
and $1,332 at September 30, 2006 and December
31, 2005, respectively
    
    
    7,636
    
    
    
    7,374Total liabilities
    
    
    8,959
    
    
    
    10,088Series A redeemable convertible preferred
stock, $.01 par value; 15,309,822 shares
authorized; issued and outstanding 13,260,025
shares at liquidation preference of $5,942 at
September 30, 2006 and December 31, 2005
    
    
    5,942
    
    
    
    5,942Series C redeemable convertible preferred
stock, $.01 par value; 30,000,000 shares
authorized; issued and outstanding 11,046,637
shares at liquidation preference of $4,950 at
September 30, 2006 and December 31, 2005
    
    
    4,483
    
    
    
    4,402Stockholders equity (deficit):Common stock, $.01 par value; 165,000,000
shares authorized; issued 69,893,333 shares
at September 30, 2006, and 69,173,678 shares
at December 31, 2005
    
    
    699
    
    
    
    691Additional paid-in capital
    
    
    66,512
    
    
    
    65,487Deficit accumulated during development stage
    
    
    (81,874
    )
    
    
    (72,067
    )Total stockholders deficit
    
    
    (14,663
    )
    
    
    (5,889
    )Total liabilities and stockholders deficit
    
    $
    4,721
    
    
    $
    14,543
 
   3




---



##### 



REGEN BIOLOGICS, INC.   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Period fromDecember 21, 1989Three Months Ended September 30,
    
    
    Nine Months Ended September 30,
    
    
    (Inception) to2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    September 30, 2006Restated (1)
    
    
    
    
    
    
    Restated (1)Revenue:Sales
    
    $
    135
    
    
    $
    94
    
    
    $
    394
    
    
    $
    409
    
    
    $
    3,770Royalties
    
    
    10
    
    
    
    9
    
    
    
    34
    
    
    
    40
    
    
    
    268Grant and other revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    433Total revenue
    
    
    145
    
    
    
    103
    
    
    
    428
    
    
    
    449
    
    
    
    4,471Expenses:Costs of goods sold
    
    
    122
    
    
    
    72
    
    
    
    362
    
    
    
    433
    
    
    
    4,277Research and development
    
    
    1,148
    
    
    
    1,982
    
    
    
    5,708
    
    
    
    4,254
    
    
    
    47,605Business development,
general and
administrative
    
    
    1,526
    
    
    
    1,040
    
    
    
    4,063
    
    
    
    3,115
    
    
    
    29,065Recognition of expense
for the minimum pension
liability upon
termination of defined
benefit pension plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    58Total expenses
    
    
    2,973
    
    
    
    3,094
    
    
    
    10,133
    
    
    
    7,860
    
    
    
    81,005Operating loss
    
    
    (2,651
    )
    
    
    (2,991
    )
    
    
    (9,705
    )
    
    
    (7,411
    )
    
    
    (76,534
    )Merger cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (515
    )Interest and other income
    
    
    56
    
    
    
    131
    
    
    
    261
    
    
    
    242
    
    
    
    2,022Rental income
    
    
    85
    
    
    
    89
    
    
    
    249
    
    
    
    252
    
    
    
    2,483Rent expense
    
    
    (90
    )
    
    
    (88
    )
    
    
    (238
    )
    
    
    (249
    )
    
    
    (2,330
    )Interest and other expense
    
    
    (97
    )
    
    
    (66
    )
    
    
    (293
    )
    
    
    (178
    )
    
    
    (3,645
    )License fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,050Net loss
    
    
    (2,697
    )
    
    
    (2,925
    )
    
    
    (9,726
    )
    
    
    (7,344
    )
    
    
    (76,469
    )Deemed dividend to Series C
Preferred Stockholders upon
issuance of Series C
Preferred Stock with a
beneficial conversion and
amortization of related
issuance costs
    
    
    (27
    )
    
    
    (27
    )
    
    
    (81
    )
    
    
    (192
    )
    
    
    (5,405
    )Net loss attributable to
common stockholders
    
    $
    (2,724
    )
    
    $
    (2,952
    )
    
    $
    (9,807
    )
    
    $
    (7,536
    )
    
    $
    (81,874
    )Basic and diluted net loss
per share attributable to
common stockholders
    
    $
    (0.04
    )
    
    $
    (0.04
    )
    
    $
    (0.14
    )
    
    $
    (0.13
    )
    
    $
    (3.38
    )Weighted average number of
shares used for calculation
of net loss per share
    
    
    69,832,807
    
    
    
    65,941,488
    
    
    
    69,608,380
    
    
    
    57,574,137
    
    
    
    24,250,068
 
   4




---



##### 



ReGen Biologics, Inc.
( )
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT) AND SERIES
A AND SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK
 Series A
    
    Series C
    
    Stockholders Equity (Deficit)Redeemable
    
    Redeemable
    
    Series A  F
    
    Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DeficitConvertible
    
    Convertible
    
    Convertible
    
    Convertible
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated
    
    Accumulated
    
    TotalPreferred
    
    Preferred
    
    Preferred
    
    Preferred
    
    
    
    
    
    
    
    
    
    Additional
    
    Deferred
    
    During
    
    Other
    
    StockholdersStock
    
    Stock
    
    Stock
    
    Stock
    
    Common Stock
    
    Paid In
    
    Stock
    
    Development
    
    Comprehensive
    
    EquityShares
    
    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 for cash
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
    )
  5




---



##### 



ReGen Biologics, Inc.
( )
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT) AND SERIES
A AND SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
 Series A
    
    Series C
    
    Stockholders Equity (Deficit)Redeemable
    
    Redeemable
    
    Series A  F
    
    Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DeficitConvertible
    
    Convertible
    
    Convertible
    
    Convertible
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated
    
    Accumulated
    
    TotalPreferred
    
    Preferred
    
    Preferred
    
    Preferred
    
    
    
    
    
    
    
    
    
    Additional
    
    Deferred
    
    During
    
    Other
    
    StockholdersStock
    
    Stock
    
    Stock
    
    Stock
    
    Common Stock
    
    Paid-In
    
    Stock
    
    Development
    
    Comprehensive
    
    EquityShares
    
    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
    )
  6




---



##### 



ReGen Biologics, Inc.
( )
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT) AND SERIES
A AND SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
 Series A
    
    Series C
    
    Stockholders Equity (Deficit)Redeemable
    
    Redeemable
    
    Series A  F
    
    Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DeficitConvertible
    
    Convertible
    
    Convertible
    
    Convertible
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated
    
    Accumulated
    
    TotalPreferred
    
    Preferred
    
    Preferred
    
    Preferred
    
    
    
    
    
    
    
    
    
    Additional
    
    Deferred
    
    During
    
    Other
    
    StockholdersStock
    
    Stock
    
    Stock
    
    Stock
    
    Common Stock
    
    Paid-In
    
    Stock
    
    Development
    
    Comprehensive
    
    EquityShares
    
    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
    )
  7




---



##### 



ReGen Biologics, Inc.
( )
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT) AND SERIES
A AND SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
 Series A
    
    Series C
    
    Stockholders Equity (Deficit)Redeemable
    
    Redeemable
    
    Series A  F
    
    Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DeficitConvertible
    
    Convertible
    
    Convertible
    
    Convertible
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated
    
    Accumulated
    
    TotalPreferred
    
    Preferred
    
    Preferred
    
    Preferred
    
    
    
    
    
    
    
    
    
    Additional
    
    Deferred
    
    During
    
    Other
    
    StockholdersStock
    
    Stock
    
    Stock
    
    Stock
    
    Common Stock
    
    Paid-In
    
    Stock
    
    Development
    
    Comprehensive
    
    EquityShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Compensation
    
    Stage
    
    Loss
    
    (Deficit)Restated (1)
    
    
    
    
    
    Restated (1)
    
    
    
    
    
    Restated (1)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
    )
 
   8




---



##### 



ReGen Biologics, Inc.
( )
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT) AND SERIES
A AND SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
 Series A
    
    
    Series C
    
    
    Stockholders Equity (Deficit)Redeemable
    
    
    Redeemable
    
    
    Series A  F
    
    
    Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DeficitConvertible
    
    
    Convertible
    
    
    Convertible
    
    
    Convertible
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated
    
    
    Accumulated
    
    
    TotalPreferred
    
    
    Preferred
    
    
    Preferred
    
    
    Preferred
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    Deferred
    
    
    During
    
    
    Other
    
    
    StockholdersStock
    
    
    Stock
    
    
    Stock
    
    
    Stock
    
    
    Common Stock
    
    
    Paid-In
    
    
    Stock
    
    
    Development
    
    
    Comprehensive
    
    
    EquityShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Stage
    
    
    Loss
    
    
    (Deficit)Restated (1)
    
    
    
    
    
    
    Restated (1)
    
    
    
    
    
    
    Restated (1)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
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    904
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    904Accretion of Series C Stock issuance cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81
    )
    
    
    
    
    
    
    (81
    )Issuance of Common Stock work completed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Issuance of Common Stockoptions exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    310,178
    
    
    
    4
    
    
    
    113
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117Issuance of Common Stockconversion of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    375,967
    
    
    
    4
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss and comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,726
    )
    
    
    
    
    
    
    (9,726
    )Balance at September 30, 2006 (unaudited)
    
    
    13,260,025
    
    
    $
    5,942
    
    
    
    11,046,637
    
    
    $
    4,483
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    69,832,807
    
    
    $
    699
    
    
    $
    66,512
    
    
    $
    
    
    
    $
    (81,874
    )
    
    $
    
    
    
    $
    (14,663
    )
 
   9




---



##### 



REGEN BIOLOGICS, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Period fromDecember 21, 1989Nine Months Ended September 30,
    
    
    (Inception) to2006
    
    
    2005
    
    
    September 30, 2006Restated (1)Operating ActivitiesNet loss
    
    $
    (9,726
    )
    
    $
    (7,344
    )
    
    $
    (76,469
    )Adjustments to reconcile net loss to net cash used in operating activities:Stock-based compensation
    
    
    904
    
    
    
    443
    
    
    
    8,758Amortization of debt discount for warrant and beneficial conversion feature
    
    
    
    
    
    
    
    
    
    
    1,500Depreciation and amortization
    
    
    47
    
    
    
    29
    
    
    
    2,266Loss on disposal of property and equipment
    
    
    
    
    
    
    
    
    
    
    9Recognition of expense for the minimum pension liability upon termination of defined
benefit pension plan
    
    
    
    
    
    
    58
    
    
    
    58Exchange loss
    
    
    27
    
    
    
    12
    
    
    
    41Changes in operating assets and liabilities:Other current assets and receivables
    
    
    35
    
    
    
    (34
    )
    
    
    (236
    )Inventory
    
    
    168
    
    
    
    (230
    )
    
    
    (200
    )Other assets
    
    
    (47
    )
    
    
    21
    
    
    
    (92
    )Accounts payable and accrued expenses
    
    
    (1,210
    )
    
    
    462
    
    
    
    2,455Other liabilities
    
    
    91
    
    
    
    
    
    
    
    145Net cash used in operating activities
    
    
    (9,711
    )
    
    
    (6,583
    )
    
    
    (61,765
    )Investing ActivitiesPurchases of property and equipment
    
    
    (168
    )
    
    
    (99
    )
    
    
    (2,295
    )Changes in investments
    
    
    2,048
    
    
    
    (2,470
    )
    
    
    998Net cash provided by (used in ) investing activities
    
    
    1,880
    
    
    
    (2,569
    )
    
    
    (1,297
    )Financing ActivitiesIssuance 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, net of offering costs paid in cash
    
    
    
    
    
    
    
    
    
    
    34,221Proceeds from issuance of common stock and warrants
    
    
    117
    
    
    
    11,210
    
    
    
    21,747Repayment of capital lease obligations
    
    
    (10
    )
    
    
    (8
    )
    
    
    (145
    )Proceeds from notes payable
    
    
    
    
    
    
    
    
    
    
    11,410Payments on notes payable
    
    
    
    
    
    
    
    
    
    
    (2,323
    )Net cash provided by financing activities
    
    
    107
    
    
    
    11,202
    
    
    
    64,882Effect of exchange rate changes on cash
    
    
    (27
    )
    
    
    (10
    )
    
    
    (37
    )Net (decrease) increase in cash and cash equivalents
    
    
    (7,751
    )
    
    
    2,040
    
    
    
    1,783Cash and cash equivalents at beginning of period
    
    
    9,535
    
    
    
    12,190
    
    
    
    1Cash and cash equivalents at end of period
    
    $
    1,784
    
    
    $
    14,230
    
    
    $
    1,784Supplemental Disclosure of Cash Flow InformationNon-cash disclosure:Issuance of Series B convertible preferred stock upon conversion of notes payable
    
    $
    
    
    
    $
    
    
    
    $
    300Equipment purchased pursuant to capital leases
    
    
    
    
    
    
    63
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    97Conversion of Series A Preferred Stock
    
    
    
    
    
    
    625
    
    
    
    913Warrants exercised, net share settled
    
    
    4
    
    
    
    
    
    
    
    14Conversion of Series C Preferred Stock
    
    
    
    
    
    
    850
    
    
    
    5,018Issuance of Common Stock for services rendered
    
    
    
    
    
    
    50
    
    
    
    93Non-employee options exercised, net-share settled
    
    
    1
    
    
    
    
    
    
    
    1Cash disclosure:Cash paid for interest
    
    
    4
    
    
    
    2
    
    
    
    324
 
   10




---



##### 



REGEN BIOLOGICS, INC.   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
 Biologics Biologics
  ®
 Disclosure about Segments of an
Enterprise and Related Information.
  Risks and Going Concern Considerations
   11




---



##### 



Adoption of New Accounting Pronouncements
 Share-Based Payment ), Accounting for Stock Issued to Employees
 12




---



##### 



Inventory Costs Inventory Pricing
 Accounting Changes and
Error Corrections Accounting Changes, Reporting Accounting Changes in Interim Financial Statements
 Accounting Pronouncements Issued But Not Yet Adopted
 Fair Value Measurements
 Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans Employers
Accounting for Pensions Employers Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits Employers Disclosures about Pensions and Other Postretirement Benefits
 Use of Estimates
  Cash and Cash Equivalents and Investments
  13




---



##### 



Inventories
   September 30,
    
    
    December 31,2006
    
    
    2005(In thousands)Raw material
    
    $
    26
    
    
    $
    24Work in process
    
    
    37
    
    
    
    67Finished goods
    
    
    137
    
    
    
    277$
    200
    
    
    $
    368
 Inventory Costs
 Accrued Expenses
  September 30,
    
    
    December 31,2006
    
    
    2005(In thousands)Accrued professional fees
    
    $
    407
    
    
    $
    1,125Accrued wages and vacation
    
    
    94
    
    
    
    240Accrued printing cost
    
    
    76
    
    
    
    56Other accrued cost
    
    
    34
    
    
    
    45$
    611
    
    
    $
    1,466
 Defined Benefit Plan
  14




---



##### 



Foreign Currency Transactions
  Rental Activities
  Basic and Diluted Loss per Share
  Stock-Based
Compensation
   15




---



##### 



Accounting for Stock Issued to
Employees,
 Accounting for Stock-Based
CompensationTransition and Disclosure
 Three months ended
    
    
    Nine months endedSeptember 30, 2005
    
    
    September 30, 2005(Dollars in thousands, except per share data)Restated (1)
    
    
    Restated (1)Net loss attributable to common stockholders, as reported
    
    $
    (2,952
    )
    
    $
    (7,536
    )Add: Total stock-based employee compensation expense as
reported under intrinsic value method (APB No 25) for all
awards, net of related tax effects
    
    
    119
    
    
    
    360Deduct: Total stock-based employee compensation expense
determined under fair value based method (SFAS No. 123) for
all awards, net of related tax effects
    
    
    (267
    )
    
    
    (801
    )Pro forma net loss attributable to common stockholders
    
    $
    (3,100
    )
    
    $
    (7,977
    )Net loss per share attributable to common stockholders:Basic and diluted  as reported
    
    $
    (0.04
    )
    
    $
    (0.13
    )Basic and diluted  pro forma
    
    $
    (0.05
    )
    
    $
    (0.14
    )Shares
    
    
    65,941,488
    
    
    
    57,574,137
 
   Three and Nine MonthsendedSeptember 30, 2005(Restated)
(1)Risk-free interest rate
    
    
    3.75  4.80
    %Dividend yield
    
    
    0
    %Expected lives
    
    10 yearsExpected volatility
    
    
    82.71  105.07
    %
 
    16




---



##### 



Three months Ended
    
    Nine Months EndedSeptember 30, 2006
    
    September 30, 2005
    
    September 30, 2006
    
    September 30, 2005Employee &
    
    Non-
    
    Employee &
    
    Non-
    
    Employee &
    
    Non-
    
    Employee &
    
    Non-Director
    
    Employee
    
    Director
    
    Employee
    
    Director
    
    Employee
    
    Director
    
    EmployeeWeighted average
fair value of grants
    
    
    0.27
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    0.63
    
    
    $
    0.72
    
    
    $
    0.77
    
    
    
    N/ARisk free interest rate
    
    
    4.67
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    4.67 - 4.75
    %
    
    
    4.79
    %
    
    
    4.21
    %
    
    
    N/ADividend yield
    
    
    0
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    0
    %
    
    
    0
    %
    
    
    N/AExpected lives
    
    7 years
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    7 years
    
    7 years
    
    10 years
    
    
    N/AExpected volatility
    
    
    74.20
    %
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    74.20% - 74.82
    %
    
    
    74.30
    %
    
    
    82.71
    %
    
    
    N/A
 Employee Stock Option Plan
  17




---



##### 



Non-Employee Director Option Plan
  Non-Employee Director Supplemental Stock Option Plan
  RBio Plans
  Non Plan Grants
   Options OutstandingWeighted-Number of
    
    
    
    
    
    
    Average PriceShares
    
    
    Price Per Share
    
    
    Per ShareBalance at December 31, 2005
    
    
    15,185,744
    
    
    $
    0.08$13.00
    
    
    $
    0.64Options granted
    
    
    962,500
    
    
    $
    0.37 $0.84
    
    
    $
    0.74Options exercised, forfeited, expired
    
    
    (559,927
    )
    
    $
    0.26 $13.00
    
    
    $
    3.75Balance at September 30, 2006
    
    
    15,588,317
    
    
    $
    0.08$12.00
    
    
    $
    0.52Vested and expected to vest at September 30, 2006
    
    
    15,588,317
    
    
    $
    0.08$12.00
    
    
    $
    0.52
 18




---



##### 



Options Outstanding
    
    Options ExercisableWeighted
    
    
    
    
    
    
    
    
    
    
    
    
    
    WeightedWeighted
    
    Average
    
    Aggregate
    
    
    
    
    
    Weighted
    
    Average
    
    AggregateAverage
    
    Remaining
    
    Intrinsic
    
    
    
    
    
    Average
    
    Remaining
    
    IntrinsicExercise
    
    Contractual
    
    Value
    
    
    
    
    
    Exercise
    
    Contractual
    
    ValueTotal Shares
    
    Price
    
    Life in Years
    
    (in thousands)
    
    Total Shares
    
    Price
    
    Life in Years
    
    (in thousands)15,588,317
    
    $
    0.52
    
    
    
    5.57
    
    
    $
    1,230
    
    
    
    13,143,875
    
    
    $
    0.51
    
    
    
    5.17
    
    
    $
    1,121
  NonvestedWeighted-AverageGrant Date FairNumber of Shares
    
    
    ValueBalance at December 31, 2005
    
    
    2,691,524
    
    
    $
    0.74Granted
    
    
    962,500
    
    
    $
    0.64Vested
    
    
    (1,209,582
    )
    
    $
    0.73Balance at September 30, 2006
    
    
    2,444,442
    
    
    $
    0.70
  (2) COMMITMENTS AND CONTINGENCIES
       (In thousands)2006
    
    $
    1112007
    
    
    4052008
    
    
    3782009
    
    
    3882010
    
    
    4012011 and thereafter
    
    
    875$
    2,558
 19




---



##### 



(In thousands)2006
    
    $
    43
    (3) CONCENTRATIONS OF RISK
 ®
     20




---



##### 



Three Months Ended September 30,
    
    Nine Months Ended September 30,2006
    
    2005
    
    2006
    
    2005Receivables:U.S (Linvatec)
    
    
    49
    %
    
    
    37
    %
    
    
    49
    %
    
    
    37
    %Switzerland (various)
    
    
    4
    %
    
    
    6
    %
    
    
    4
    %
    
    
    6
    %Italy (Xmedica)
    
    
    18
    %
    
    
    0
    %
    
    
    18
    %
    
    
    0
    %Germany (various)
    
    
    22
    %
    
    
    41
    %
    
    
    22
    %
    
    
    41
    %Belgium (various)
    
    
    7
    %
    
    
    16
    %
    
    
    7
    %
    
    
    16
    %Sales revenue:U.S. (Linvatec)
    
    
    60
    %
    
    
    67
    %
    
    
    52
    %
    
    
    84
    %SwitzerlandCenterpulse
    
    
    0
    %
    
    
    3
    %
    
    
    0
    %
    
    
    9
    %Other (various)
    
    
    3
    %
    
    
    3
    %
    
    
    5
    %
    
    
    1
    %Spain (Hoscenter, Polymedic)
    
    
    0
    %
    
    
    0
    %
    
    
    8
    %
    
    
    0
    %Italy (Xmedica)
    
    
    11
    %
    
    
    0
    %
    
    
    12
    %
    
    
    0
    %Germany (various)
    
    
    23
    %
    
    
    19
    %
    
    
    21
    %
    
    
    4
    %Belgium (various)
    
    
    3
    %
    
    
    8
    %
    
    
    2
    %
    
    
    2
    %Royalties:U.S. (Linvatec)
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    (4) RELATED PARTY TRANSACTIONS
  Three Months Ended September 30
    
    Nine Months Ended September 30,2006
    
    2005
    
    2006
    
    2005Royalties
    
    $
    2
    
    
    $
    1
    
    
    $
    7
    
    
    $
    19Honorarium
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Donations
    
    
    
    
    
    
    3
    
    
    
    8
    
    
    
    3Reimbursable expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
  21




---



##### 



(5) CAPITAL TRANSACTIONS
  (6) RESTATEMENT
    Additional Expense(In thousands)Three Months Ended September 30, 2005
    
    $
    85Nine Months Ended September 30, 2005
    
    $
    257
 Stock-Based
Compensation
   Three Months
    
    Nine MonthsEnded September 30, 2005
    
    Ended September 30, 2005(In thousands)Previously
    
    
    
    
    
    PreviouslyReported
    
    Restated
    
    Reported
    
    RestatedResearch and development
    
    $
    1,964
    
    
    $
    1,982
    
    
    $
    4,201
    
    
    $
    4,254Business development, general and administrative
    
    
    973
    
    
    
    1,040
    
    
    
    2,911
    
    
    
    3,115Total expenses
    
    
    3,009
    
    
    
    3,094
    
    
    
    7,603
    
    
    
    7,860Operating loss
    
    
    (2,906
    )
    
    
    (2,991
    )
    
    
    (7,154
    )
    
    
    (7,411
    )Net loss
    
    
    (2,840
    )
    
    
    (2,925
    )
    
    
    (7,087
    )
    
    
    (7,344
    )Net loss attributable to common stockholders
    
    
    (2,867
    )
    
    
    (2,952
    )
    
    
    (7,279
    )
    
    
    (7,536
    )
 22




---



##### 



December 31, 2005Previously Reported
    
    Restated(In thousands)Additional paid-in capital
    
    $
    64,465
    
    
    $
    65,487Deficit accumulated during development stage
    
    $
    (71,045
    )
    
    $
    (72,067
    )
 (7)
SUBSEQUENT EVENT
  Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Dollars in thousands, except per share data)
  Business
     23




---



##### 




    
    Obtaining FDA clearance of the collagen scaffold;
    
    Further developing our distribution and marketing programs for the CMI and other ReGen
products in Europe and certain other countries;
    
    Developing our distribution and marketing programs for the collagen scaffold and other ReGen products in the U.S.; and
    
    Conducting further research on selected product opportunities within our research and development pipeline.
    
    
    Reinforcement of the remaining meniscus;
    
    Facilitation of natural growth of new tissue;
    
    Minimized degenerative changes;
    
    Promotion of a return to pre-injury activity levels; and
    
    Maintenance of joint stability.
   24




---



##### 




 
 
 Figure 1  Re-operation Rate (Chronic Patients)
 
 
 
 25




---



##### 




    
    Single-handed operation, provided by a patented delivery handle, which allows a surgeon
complete control over targeting sutures;
    
    Better viewing and access to all areas of the meniscus, provided by cannulae options;
    
    Easier and safer passage of suture needles;
    
    Simple loading and pre-attached sutures reducing surgery time; and
    
    More accurate repair of meniscus tears by surgeons with less assistance in the operating room.
  Liquidity and Capital Resources
 26




---



##### 



Critical Accounting Policies
  Share Based Payment Inventory Costs
 STOCK-BASED COMPENSATION EXPENSE Accounting for Stock Issued to Employees
  27




---



##### 



INVENTORY VALUATION:
 Inventory Costs
  Recent Accounting Pronouncements
 Fair Value Measurements
 Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans Employers
Accounting for Pensions Employers Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits Employers Disclosures about Pensions and Other Postretirement Benefits
 Results of Operations
 Three and Nine Months Ended September 30, 2006 Compared to Three and Nine Months Ended September
30, 2005
 REVENUE.
 28




---



##### 



COST OF GOODS SOLD.
   29




---



##### 



RESEARCH AND DEVELOPMENT.
    30




---



##### 



BUSINESS DEVELOPMENT, GENERAL AND ADMINISTRATIVE.
 RECOGNITION OF EXPENSE FOR THE MINIMUM PENSION LIABILITY
 NON-OPERATING INCOME (EXPENSE).
 31




---



##### 



Liquidity and Capital Resources
     32




---



##### 



Cash flows
  September 30,2006
    
    
    2005(In thousands)Net cash used in operating activities
    
    $
    (9,711
    )
    
    $
    (6,583
    )Net cash provided by (used in) investing activities
    
    
    1,880
    
    
    
    (2,569
    )Net cash provided by financing activities
    
    
    107
    
    
    
    11,202Effect of exchange rate changes on cash
    
    
    (27
    )
    
    
    (10
    )Net (decrease) increase in cash and cash equivalents
    
    $
    (7,751
    )
    
    $
    2,040
   33




---



##### 



Recent Developments
  Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Item 4. Controls and Procedures
  Evaluation of Disclosure Controls and Procedures.
  34




---



##### 



Changes in Internal Control over Financial Reporting.
 PART II
 Item 1. Legal Proceedings
  Historical
Stock Option Practices Inquiry
  Item 1A. Risk Factors
  Product introductions or modifications may be delayed or canceled if we are unable to obtain FDA
clearance or approval and we are unable to sell the collagen scaffold or CMI in the U.S.
   35




---



##### 



36




---



##### 



As a result of our internal review of our historical stock option
granting and accounting practices and related restatement of
our financial statements, we have become subject to an informal SEC inquiry,
which may not be resolved favorably and will require significant
management time and attention and accounting and legal resources,
which could adversely affect our business, results of operations and cashflows.
  As a result of our internal review of our historical stock
option granting and accounting practices and related restatement of our
financial statements, there may be negative tax consequences to our
employees which could subject us to litigation or which may result in
additional cash or non-cash compensation expense to reimburse
employees for all or a portion of such loss.
  Our failure to have effective disclosure controls and procedures could hinder our ability to provide accurate financial and other information in our filings with the Securities and Exchange Commission, which could subject us to SEC investigation and private litigation, and could have an adverse effect on our business, results of operations or financial condition.
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (dollars in thousands, except
per share data)
  Item 3. Defaults upon Senior Securities
  Item 4. Submission of Matters to a Vote of Security Holders
  Item 5. Other Information
  37




---



##### 



Item 6. Exhibits
   Number
    
    Description2.1
    
    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 ReGen Biologics, Inc., 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 ReGen Biologics, Inc. and the Investors named therein dated as of July
14, 2005(21)4.16
    
    Form of Warrant Agreement by and between ReGen Biologics, Inc. and the Individuals named therein, dated as of
July 14, 2005(21)4.17*
    
    Form of Nonqualified Non-Employee Director Stock Option Agreement(22)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
    
    Amended and Restated Stockholders Agreement by and among the Company and the Stockholders named therein dated
as of September 21, 2005(23)4.21
    
    Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of the Company (28)4.22
    
    Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock of the Company (7)
 38




---



##### 



Number
    
    Description10.1*
    
    Employment agreement by and between Gerald E. Bisbee, Jr., Ph. D. and ReGen Biologics, Inc. dated September
22, 1998 and amended September 12, 2000(11)10.2
    
    Form of Indemnification Agreement(4)10.3*
    
    Employment Agreement by and between Brion D. Umidi and ReGen Biologics, Inc. dated March 23, 2004(15)10.4
    
    License Agreement by and between ReGen Biologics, Inc. and Linvatec Corporation dated April 7, 2000(15)10.5
    
    Credit Agreement by and between ReGen Biologics, Inc. 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 ReGen
Biologics, Inc. dated February 20, 2001(15)10.7*
    
    Assignment and Royalty Agreement by and among ReGen Biologics, Inc. Modified Polymer Components, Inc. and Dr.
J. Richard Steadman dated April 9, 1997(15)10.8
    
    Exclusive License Agreement by and between ReGen Biologics, Inc. 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 ReGen Biologics, Inc.
dated March 23, 2004(15)10.10
    
    Common Stock Purchase Agreement by and among ReGen Biologics, Inc., and the Individuals named therein, dated
as of April 19, 2004(17)10.11
    
    Agreement by and between ReGen Biologics, Inc. and MedWork AG dated as of January 1, 2005(19)10.12
    
    Credit Agreement by and between ReGen Biologics, Inc. and Sulzer Medica USA Holding Company dated November 30,
1998(20)10.13
    
    Distributor Agreement by and between ReGen Biologics, Inc. and XMedica effective as of October 24, 2005(24)21.1
    
    Subsidiaries of the Registrant(26)31.1
    
    Section 302 Certification from
Gerald E. Bisbee, Jr., dated November 20, 2006(31)31.2
    
    Section 302 Certification from
Brion Umidi, dated November 20, 2006(31)32.1
    
    Section 906 Certification from
Gerald E. Bisbee, Jr., dated November 20, 2006(31)32.2
    
    Section 906 Certification from
Brion Umidi, dated November 20, 2006(31)
 
 (1)
    
    Incorporated herein by reference to the Companys Report on Form 10-Q for the quarter ended
June 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 March 17, 2004
(File No. 000-20805).(5)
    
    Incorporated herein by reference to the Companys Report on Form 10-Q for the quarter ended
June 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).(9)
    
    Incorporated herein by reference to the Companys Report on Form 10-Q for the quarter ended
June 30, 2002 (File No. 000-20805). 39




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##### 



(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. 33-114867).(18)
    
    Incorporated herein by reference to the Companys Report on Form 10-Q for the quarter ended
March 31, 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
June 30, 2005 (File No. 000-20805).(23)
    
    Incorporated herein by reference to the Companys Report on Form 8-K, filed on September 22,
2005 (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 Registration Statement on Form S-1 filed on
July 22, 2005 (File No. 333-126835).(26)
    
    Incorporated herein by reference to the Companys Report on Form 10-K for the year ended
December 31, 2005 (File No. 000-20805).(27)
    
    Incorporated herein by reference to the Companys Report on Form 8-K, filed on September 25,
2003 (File No. 000-20805).(28)
    
    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).(29)
    
    Incorporated herein by reference to the Companys Report on Form 10-Q for the quarter ended
March 31, 2006 (File No. 000-20805).(30)
    
    Incorporated herein by reference to the Companys Report on Form 10-Q for the quarter ended
June 30, 2006 (File No. 000-20805).(31)
    
    Included with this filing.*
    
    Management Contract or Compensatory Plan or Arrangement 40




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SIGNATURES
  REGEN BIOLOGICS, INC.By:
    
    /s/ BRION D. UMIDIBrion D. UmidiSenior Vice President and Chief Financial Officer
 41