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 March 31, 2008





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,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, a non-accelerated filer, or a smaller reporting company. See
the definitions of  “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):


Large
      accelerated filer £
            Accelerated
      filer £
            Non-accelerated
      filer £
            Smaller
      reporting company R(Do
      not check if a smaller reporting company)





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 May 1, 2008
was 104,243,082.





REGEN
BIOLOGICS, INC.





INDEX





Page No.PART
      I — FINANCIAL INFORMATIONItem
      1. Financial Statements.Condensed Consolidated Balance Sheets at March 31, 2008
      (unaudited) and December 31, 2007
            3Condensed Consolidated Statements of Operations for the Three
      Months Ended March 31, 2008 (unaudited) and 2007 (unaudited), and the
      Period from December 21, 1989 (inception) to March 31, 2008
      (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 March 31, 2008
      (unaudited)
            5Condensed Consolidated Statements of Cash Flows for the Three
      Months Ended March 31, 2008 (unaudited) and 2007 (unaudited) and the
      Period from December 21, 1989 (inception) to March 31, 2008
      (unaudited)
            12Notes to Condensed Consolidated Financial Statements
      (unaudited)
            13Item 2. Management’s Discussion and Analysis of Financial
      Condition and Results of Operations.
            22Item 3. Quantitative and Qualitative Disclosures about
      Market Risk.
            30Item 4. Controls and Procedures.
            30PART
      II — OTHER INFORMATIONItem 1. Legal Proceedings.
            31Item 1A. Risk Factors.
            31Item 2. Unregistered Sales of Equity Securities and Use of
      Proceeds.
            31Item 3. Defaults upon Senior Securities.
            31Item 4. Submission of Matters to a Vote of Security
      Holders.
            31Item 5. Other Information.
            31Item 6. Exhibits.
            32Signatures
            35Certification


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)





March 31, 2008
            
            
            December 31, 2007(unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            2,542
            
            
            $
            4,008Short-term
      investments
            
            
            —
            
            
            
            100Trade
      receivables, net of allowance for doubtful accounts of $0 and $3, as of
      March 31, 2008 and December 31, 2007, respectively
            
            
            261
            
            
            
            236Inventory
            
            
            279
            
            
            
            311Prepaid
      expenses and other current assets
            
            
            274
            
            
            
            336Total
      current assets
            
            
            3,356
            
            
            
            4,991Property
      and equipment, net
            
            
            376
            
            
            
            402Other
      assets
            
            
            107
            
            
            
            109Total
      assets
            
            $
            3,839
            
            
            $
            5,502LIABILITIES
      AND STOCKHOLDERS’ EQUITY (DEFICIT)Current
      liabilities:Accounts
      payable
            
            $
            305
            
            
            $
            220Accounts
      payable to related party
            
            
            2
            
            
            
            4Accrued
      expenses
            
            
            412
            
            
            
            352Other
      current liabilities
            
            
            43
            
            
            
            79Total
      current liabilities
            
            
            762
            
            
            
            655Other
      liabilities
            
            
            201
            
            
            
            204Long-term
      portion of capital leases
            
            
            19
            
            
            
            22Long-term
      portion of notes payable to related party, including accrued interest of
      $2,222 and $2,122 as of March 31, 2008 and December 31, 2007,
      respectively
            
            
            8,265
            
            
            
            8,165Total
      liabilities
            
            
            9,247
            
            
            
            9,046Series
      A redeemable convertible preferred stock, $.01 par value; 15,309,822
      shares authorized; issued and outstanding 2,483,116 shares at liquidation
      preference of $1,113 at March 31, 2008 and December 31,
    2007
            
            
            1,113
            
            
            
            1,113Series
      C redeemable convertible preferred stock, $.01 par value; 30,000,000
      shares authorized; issued and outstanding 6,583,348 shares at liquidation
      preference of $2,950 as of March 31, 2008 and December 31,
      2007
            
            
            2,774
            
            
            
            2,757Stockholders’
      equity (deficit):Series
      D contingently 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 March
      31, 2008 and December 31, 2007
            
            
            5,560
            
            
            
            5,560Series
      E contingently convertible preferred stock, $.01 par value; 500,000 shares
      authorized; issued and outstanding 3,750 shares at liquidation preference
      of $34 at March 31, 2008
            
            
            58
            
            
            
            —Common
      stock, $.01 par value; 165,000,000 shares authorized; issued 104,243,082
      shares at March 31, 2008, and 104,136,941 shares at December 31,
      2007
            
            
            1,044
            
            
            
            1,042Additional
      paid-in capital
            
            
            81,829
            
            
            
            81,440Deficit
      accumulated during development stage
            
            
            (97,786
            )
            
            
            (95,456
            )Total
      stockholders’ deficit
            
            
            (9,295
            )
            
            
            (7,414
            )Total
      liabilities and stockholders’ deficit
            
            $
            3,839
            
            
            $
            5,502


____________





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
      March 31,
            
            
            Period
      from
              December 21,
      1989
              (Inception)
      to2008
            
            
            2007
            
            
            March 31, 2008Revenue:Sales
            
            $
            334
            
            
            $
            169
            
            
            $
            5,189Royalties
            
            
            9
            
            
            
            12
            
            
            
            335Grant
      and other revenue
            
            
            —
            
            
            
            —
            
            
            
            433Total
      revenue
            
            
            343
            
            
            
            181
            
            
            
            5,957Expenses:Costs
      of goods sold
            
            
            143
            
            
            
            92
            
            
            
            5,028Research
      and development
            
            
            998
            
            
            
            1,063
            
            
            
            53,618Business
      development, general and administrative
            
            
            1,469
            
            
            
            1,694
            
            
            
            39,202Recognition
      of expense for the minimum pension liability upon termination of defined
      benefit pension plan
            
            
            —
            
            
            
            —
            
            
            
            58Total
      expenses
            
            
            2,610
            
            
            
            2,849
            
            
            
            97,906Operating
      loss
            
            
            (2,267
            )
            
            
            (2,668
            )
            
            
            (91,949
            )Merger
      cost
            
            
            —
            
            
            
            —
            
            
            
            (515
            )Interest
      and other income
            
            
            32
            
            
            
            91
            
            
            
            2,471Rental
      income
            
            
            —
            
            
            
            —
            
            
            
            2,547Rent
      expense
            
            
            —
            
            
            
            —
            
            
            
            (2,409
            )Interest
      and other expense
            
            
            (78
            )
            
            
            (114
            )
            
            
            (4,285
            )License
      fees
            
            
            —
            
            
            
            —
            
            
            
            2,050Net
      loss
            
            
            (2,313
            )
            
            
            (2,691
            )
            
            
            (92,090
            )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
            )
            
            
            (193
            )
            
            
            (5,696
            )Deemed
      dividend to stockholders for issuance of warrants and extension of
      options
            
            
            —
            
            
            
            —
            
            
            
            (115
            )Net
      loss attributable to common stockholders
            
            $
            (2,330
            )
            
            $
            (2,884
            )
            
            $
            (97,901
            )Basic
      and diluted net loss per share attributable to common
      stockholders
            
            $
            (0.02
            )
            
            $
            (0.03
            )
            
            $
            (3.22
            )Weighted
      average number of shares used for calculation of net loss per
      share
            
            
            104,173,485
            
            
            
            102,107,601
            
            
            
            30,393,636


____________





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 March 31, 2008 (unaudited)


(Dollars
in thousands, except per share data)






Series
      A
              
              Series
      C
              
              Stockholders’
      Equity (Deficit)Redeemable
              
              Redeemable
              
              Series
      A – F
              
              Series
      B, Series D and Series E
              
              
              
              
              
              
              
              
              
              
              
              DeficitConvertible
                Preferred
              
              Convertible
                Preferred
              
              Convertible
                Preferred
              
              Convertible
                Preferred
              
              
              
              
              
              
              
              Additional
              
              Deferred
              
              Accumulated
                During
              
              Accumulated
                Other
              
              Total
                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
              )


____________




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 March 31, 2008 (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, Series D
              and
      Series E
              Convertible
              Preferred
            
            
            
            
            Additional
            
            
            Deferred
            
            
            Deficit
              Accumulated
              During
            
            Accumulated
              Other
            
            Total
              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
            )


____________





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 March 31, 2008 (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, Series D
              and
      Series E
              Convertible
              Preferred
            
            
            
            
            Additional
            
            
            Deferred
            
            
            Deficit
              Accumulated
              During
            
            Accumulated
              Other
            
            Total
              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
            )


____________





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 March 31, 2008 (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, Series D
              and
      Series E
              Convertible
              Preferred
            
            
            
            
            
            Additional
            
            
            Deferred
            
            
            Deficit
              Accumulated
              During
            
            
            Accumulated
              Other
            
            
            Total
              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, 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 Stock:
            
            
            —
            
            
            
            —
            
            
            
            
            
            
            
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            
            
            
            
            —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 Series B Convertible Preferred 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 Series C Redeemable Convertible Preferred 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 March 31, 2008 (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, Series D and Series E
              Convertible
              Preferred
            
            
            
            
            
            Additional
            
            
            Deferred
            
            
            Deficit
              Accumulated
              During
            
            
            Accumulated
              Other
            
            
            Total
              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, 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 March 31, 2008 (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, Series D and Series E
              Convertible
              Preferred
            
            
            
            
            
            Additional
            
            
            Deferred
            
            
            Deficit
              Accumulated
              During
            
            
            Accumulated
              Other
            
            
            Total
              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, 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
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,262
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,262Accretion
      of Series C Stock issuance cost
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            245
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (245
            )
            
            
            —
            
            
            
            (245
            )Valuation
      of issuance of warrants and extension of options
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            115
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            115Deemed
      dividend to stockholders for issuance of warrants and extension of
      options
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (115
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (115
            )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
            
            
            
            5,560
            
            
            
            —
            
            
            
            —
            
            
            
            69
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            5,629Issuance
      of common stock - work completed
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            188,572
            
            
            
            2
            
            
            
            84
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            86Net
      loss and comprehensive loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (10,377
            )
            
            
            —
            
            
            
            (10,377
            )Balance
      at December 31, 2007
            
            
            2,483,116
            
            
            $
            1,113
            
            
            
            6,583,348
            
            
            $
            2,757
            
            
            
            —
            
            
            $
            —
            
            
            
            135,715
            
            
            $
            5,560
            
            
            
            104,076,415
            
            
            $
            1,042
            
            
            $
            81,440
            
            
            $
            —
            
            
            $
            (95,456
            )
            
            $
            —
            
            
            $
            (7,414
            )


____________





See
accompanying Notes to Condensed Consolidated Financial Statements.





10
 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 March 31, 2008 (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, Series D
              and
      Series E
              Convertible
              Preferred
            
            
            
            
            
            Additional
            
            
            Deferred
            
            
            Deficit
              Accumulated
              During
            
            
            Accumulated
              Other
            
            
            Total
              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, 2007 (brought forward)
            
            
            2,483,116
            
            
            $
            1,113
            
            
            
            6,583,348
            
            
            $
            2,757
            
            
            
            —
            
            
            $
            —
            
            
            
            135,715
            
            
            $
            5,560
            
            
            
            104,076,415
            
            
            $
            1,042
            
            
            $
            81,440
            
            
            $
            —
            
            
            $
            (95,456
            )
            
            $
            —
            
            
            $
            (7,414
            )Stock-based
      compensation expense
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            391
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            391Accretion
      of Series C Stock issuance cost
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            17
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (17
            )
            
            
            —
            
            
            
            (17
            )Issuance
      of common stock - work completed
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            166,667
            
            
            
            2
            
            
            
            (2)
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Issuance
      of Series E Preferred Stock - work completed
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            3,750
            
            
            
            58
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            58Net
      loss and comprehensive loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (2,313
            )
            
            
            —
            
            
            
            (2,313
            )Balance
      at March 31, 2008
            
            
            2,483,116
            
            
            $
            1,113
            
            
            
            6,583,348
            
            
            $
            2,774
            
            
            
            —
            
            
            $
            —
            
            
            
            139,465
            
            
            $
            5,618
            
            
            
            104,243,082
            
            
            $
            1,044
            
            
            $
            81,829
            
            
            $
            —
            
            
            $
            (97,
      786
            )
            
            $
            —
            
            
            $
            (9,295
            )


____________





See
accompanying Notes to Condensed Consolidated Financial Statements.





11
 Index





REGEN
BIOLOGICS, INC.


(A
Development Stage Company)


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


(Dollars
in thousands)


Three Months Ended
      March 31,
            
            
            Period
      from
              December 21,
      1989
              (Inception)
      to2008
            
            
            2007
            
            
            March 31, 2008Operating
      ActivitiesNet
      loss
            
            $
            (2,313
            )
            
            $
            (2,691
            )
            
            $
            (92,090
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Stock-based
      compensation
            
            
            435
            
            
            
            336
            
            
            
            10,907Amortization
      of debt discount for warrant and beneficial conversion
    feature
            
            
            —
            
            
            
            —
            
            
            
            1,500Depreciation
      and amortization
            
            
            26
            
            
            
            18
            
            
            
            2,400Loss
      on disposal of property and equipment
            
            
            —
            
            
            
            —
            
            
            
            9Recognition
      of expense for the minimum pension liability upon termination of defined
      benefit pension plan
            
            
            —
            
            
            
            —
            
            
            
            58Exchange
      (gain) loss
            
            
            (60
            )
            
            
            17
            
            
            
            15Changes
      in operating assets and liabilities:Other
      current assets and receivables
            
            
            51
            
            
            
            50
            
            
            
            (446
            )Inventory
            
            
            32
            
            
            
            (41
            )
            
            
            (279
            )Other
      assets
            
            
            2
            
            
            
            10
            
            
            
            (57
            )Accounts
      payable and accrued expenses
            
            
            243
            
            
            
            6
            
            
            
            2,823Other
      liabilities
            
            
            (39
            )
            
            
            (24
            )
            
            
            86Net
      cash used in operating activities
            
            
            (1,623
            )
            
            
            (2,319
            )
            
            
            (75,074
            )Investing
      ActivitiesPurchases
      of property and equipment
            
            
            —
            
            
            
            (8
            )
            
            
            (2,480
            )Changes
      in investments
            
            
            100
            
            
            
            (250
            )
            
            
            2,945Net
      cash provided by (used in ) investing activities
            
            
            100
            
            
            
            (258
            )
            
            
            465Financing
      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 and preferred stock options
      and warrants, net of issuance costs paid in cash
            
            
            —
            
            
            
            4,918
            
            
            
            39,781Proceeds
      from issuance of common stock and warrants
            
            
            —
            
            
            
            —
            
            
            
            28,487Repayment
      of capital lease obligations
            
            
            (3
            )
            
            
            (3
            )
            
            
            (166
            )Proceeds
      from notes payable
            
            
            —
            
            
            
            —
            
            
            
            11,410Payments
      on notes payable
            
            
            —
            
            
            
            —
            
            
            
            (2,323
            )Net
      cash (used in) provided by financing activities
            
            
            (3
            )
            
            
            4,915
            
            
            
            77,161Effect
      of exchange rate changes on cash
            
            
            60
            
            
            
            (17
            )
            
            
            (11
            )Net
      (decrease) increase in cash and cash equivalents
            
            
            (1,466
            )
            
            
            2,321
            
            
            
            2,541Cash
      and cash equivalents at beginning of period
            
            
            4,008
            
            
            
            7,268
            
            
            
            1Cash
      and cash equivalents at end of period
            
            $
            2,542
            
            
            $
            9,589
            
            
            $
            2,542Supplemental
      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
            
            
            —
            
            
            
            —
            
            
            
            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
            
            
            —
            
            
            
            —
            
            
            
            14Conversion
      of Series C Preferred Stock
            
            
            —
            
            
            
            2,000
            
            
            
            7,018Issuance
      of common stock for services rendered
            
            
            —
            
            
            
            29
            
            
            
            197Issuance
      of Series E Preferred Stock for services rendered
            
            
            58
            
            
            
            —
            
            
            
            58Cash
      disclosure:Cash
      paid for interest
            
            
            2
            
            
            
            1
            
            
            
            335


____________




See
accompanying Notes to Condensed Consolidated Financial Statements.





12
 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 BiologicsAG (“ReGen AG”).
Intercompany transactions and balances are eliminated in
consolidation.





The
consolidated financial statements have been prepared in accordance with the
instructions to Form 10-Q and 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
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 CMI® collagen meniscus implant
(“CMI”), and either product is available for sale in the U.S. and (b) the
Company begins to earn significant revenue from its principal
operations.





ReGen
currently operates an orthopedic products company that develops, manufactures,
and markets innovative tissue growth and repair products for U.S. and
global markets. As discussed below, neither the Collagen Scaffold device nor the
CMI, available for sale in certain markets outside the U.S. as the MenaflexTM
collagen meniscus implant (“Menaflex”) is available for sale in the
U.S. 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,
2007.





Risks
and Going Concern Uncertainties





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 products. Although Menaflex is marketed for sale and
distributed in certain markets outside the U.S., 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.





In
December 2005 the Company submitted a 510(k) premarket notification to the U.S.
Food and Drug Administration (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. During the third quarter of 2006, the FDA provided the Company with a
letter indicating the FDA’s initial determination that the device is not
substantially equivalent or NSE to existing class II devices already in
receipt of FDA clearance. The Company appealed the FDA’s NSE decision.
Subsequently, the FDA provided a letter upholding the NSE decision and
indicating that the Company may submit a new 510(k) for clearance of its
Collagen Scaffold device with modified indications for use in the meniscus, as
suggested by the Company, and supported by appropriate clinical
data.


13
 Index




In
December 2006 the Company submitted a revised 510(k) premarket notification to
the FDA for the Collagen Scaffold. In March 2007, the Company 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 the
Company responded to the FDA’s request and in the third quarter of 2007 the
Company received an NSE letter from the FDA regarding the revised 510(k)
submission. The Company is pursuing appeal of the NSE decision through FDA
administrative channels. 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 for the Collagen
Scaffold.





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 continues to take longer than expected
or the Collagen Scaffold device is not cleared, it will 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), the
Company still has the option of completing its submission to the FDA of the
premarket approval application, or PMA for the CMI, although the Company does
not foresee pursuing completion of the PMA at this time. 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 products.
While the Company is actively working to address these issues, there is no
guarantee that the Company will be able to effectively address these challenges
in any given time frame.





As
discussed in ReGen’s Annual Report on Form 10-K for the year ended December 31,
2007, all of the Company’s long-term debt (balance of $8,265 at March 31, 2008)
becomes due and payable on December 31, 2009, and the Company’s Series A and
Series C redeemable convertible preferred stock (liquidation preferences of
$1,113 and $2,950, respectively) become redeemable at the option of not less
than a majority of the holders in June 2009 and September 2010,
respectively.





The
Company will need to pursue additional financing in order to support ongoing
operations, including meeting its future debt service requirements, at least
until the date it receives either FDA clearance for the Collagen Scaffold or
premarketing 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 the first quarter of 2008, the Company incurred a
net loss of $2,313 and used $1,623 of cash in operating activities. Beginning in
the fourth quarter of 2007, the Company implemented 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 capital expenditures. At March 31, 2008, the Company had cash of
$2,542 and net working capital of $2,594. Based upon current cash balances and
planned spending rates for 2008, management believes that the Company has
adequate cash on hand to support ongoing operations through at least June 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) submission to the FDA; (iii)
decisions we make regarding our business objectives; and (iv) other developments
in our business.  The timing of the 510(k) appeal process is subject
to inherent uncertainty. Management anticipates that additional cash will be
required to support operations beyond June 2008. However, if unforeseen events
occur, it is possible that additional cash may be needed before June 2008 to
support operations. At this time we have received no commitments for additional
financing. The accompanying 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.


14
 Index




Adoption
of New Accounting Pronouncements


In
February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective
Date of FASB Statement No. 157.” FSP No. 157-2, was effective upon issuance and
delayed the effective date of SFAS No. 157 for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually),
to fiscal years beginning after November 15, 2008. A discussion of SFAS 157
follows.


Effective
January 1, 2008, the Company adopted 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.





There
were no gains or losses for the period ended March 31, 2008 included in earnings
that are attributable to the change in unrealized gains or losses relating to
those assets and liabilities still held at the reporting date. The Company’s
money market funds are classified within Level 1 of the fair value hierarchy
because they are valued using quoted market prices. Adoption of the provisions
of SFAS No. 157 did not have a material effect on the Company’s consolidated
financial statements.




Effective
January 1, 2008, the Company adopted 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 did not elect the fair value
option for any financial assets or liabilities and, therefore, adoption of the
provisions of SFAS No. 159 did not 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 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 $1,160 and $1,245, in a money market
account and $1,064 and $902 in a sweep account as of March 31, 2008 and December
31, 2007, respectively. The Company also held cash equivalents in commercial
paper of $0 and $955 at March 31, 2008 and December 31, 2007, respectively, and
in federal agency mortgage-backed securities of $0 and $495, at March 31, 2008
and December 31, 2007, respectively. At March 31, 2008 and December 31, 2007,
respectively, the Company held cash of $178 and $308 in a foreign
account.





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 December 31, 2007, the Company had invested $100 in commercial
paper. The Company did not have any material realized or unrealized gains or
losses at March 31, 2008 or December 31, 2007.





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 $3 at March 31, 2008 and December
31, 2007, 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.


15
 Index




Inventory
consists of the following:





March 31,
              2008
            
            
            December 31,
              2007(In
      thousands)Raw
      material
            
            $
            22
            
            
            $
            24Work
      in process
            
            
            79
            
            
            
            37Finished
      goods
            
            
            178
            
            
            
            250$
            279
            
            
            $
            311





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 may not be
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:





March 31,
              2008
            
            
            December 31,
              2007(In
      thousands)Accrued
      professional fees
            
            $
            233
            
            
            $
            238Accrued
      wages and vacation
            
            
            133
            
            
            
            89Accrued
      printing cost
            
            
            18
            
            
            
            15Other
      accrued cost
            
            
            28
            
            
            
            10$
            412
            
            
            $
            352





Foreign
Currency Transactions





The
Company has determined the functional currency of ReGen AG to be the U.S. dollar
(USD). ReGen AG’s has cash accounts denominated in Swiss francs (CHF), euros and
USD 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 the ReGen AG’s monetary assets and liabilities, are recognized
currently in results of operations. Foreign currency transaction (gains) or
losses included in the consolidated results of operations for the three months
ended March 31, 2008 and 2007 approximated $(24) and $17,
respectively.





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 operating loss position,
all options, warrants and contingently issuable shares are anti-dilutive.
Therefore, dilutive and basic net loss per share are the same.





Stock-Based
Compensation





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, usually the option vesting term of
four years. For grant awards with graded vesting, the Company recognizes the
estimated expense on an accelerated basis.


16
 Index




The
Company uses the Black-Scholes model to estimate grant date fair value. For
expected volatility, the Company uses its historical realized volatility,
calculated using historical stock prices of the Company since June 2002. To
estimate the expected term of options awarded after January 1, 2006, the Company
uses the “short cut” approach described in SAB 107, usually seven years, given
the customary contractual term of 10 years and vesting period of four 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.
For options issued in our Series E Stock, we value these options based upon the
equivalent fair value of options in common stock into which our Series E Stock
is contingently convertible. We believe the fair value of our Series E Stock is
equivalent to the fair value of our common stock on an as converted
basis.





During
the three months ended March 31, 2008, the Company did not grant any
options.  During the three months ended March 31, 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. Also during the three months ended March 31, 2007
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. Amortization of compensation costs recognized for the three
months ended March 31, 2008 and 2007, for grants awarded to employees and
directors approximated $373 and $292, respectively. Amortization of compensation
costs recognized for the three months ended March 31, 2008 and 2007 for grants
awarded to non-employee consultants approximated $3 and $14,
respectively.





In March
2008, for services rendered during 2008, the Company issued to a vendor 3,750
shares of Series E Stock. Related to this issuance the Company included the
estimated fair value of $58 in its results of operations for the first quarter
of 2008. In connection with services rendered during 2007, the Company issued to
a vendor 166,667 shares of restricted common stock in February 2008. Related to
this issuance, the Company included the estimated fair value of $15 in its 2007
results of operations.





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 stock. In consideration for such services, the
Company issued to Sanderling a warrant to purchase 2,000 shares of Series D
Stock (or 200,000 common shares if the warrant is exercised after mandatory
conversion of the Series D Stock into shares of the Company’s common stock) 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 shares of the Company’s
common stock). Using the Black-Scholes model, the Company has estimated the fair
value of the warrant to be approximately $69, which has been included as an
expense in its 2007 results of operations. The warrants were exercisable for
shares of Series D Stock upon issuance.





(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.





In
January 2008, the Company committed to salary and benefit continuation payments
through July 31, 2008 for its remaining U.S. non-officer employees, in the event
that the Company terminates employment without cause (with “cause” defined as a
material violation of Company policy as outlined in the Company’s employee
handbook). The aggregate estimated cost for the salaries and benefits for
January 1, 2008 through July 31, 2008 approximates $540. In addition the Company
has committed to pay each U.S. non-officer employee a retention bonus equal to
15% of their respective annualized salaries, provided the employee remains
actively employed through July 31, 2008. The retention bonus is forfeited if the
employee resigns or employment is terminated for cause before July 31, 2008.
However, if employment is terminated without cause before July 31, 2008, then
the Company is obligated to pay the retention bonus. Aggregate retention bonuses
under this program approximate $111, which the Company expects to pay in August
2008. The Company accrued $51 at March 31, 2008 related to the retention
bonus.





In March,
ReGen’s Board authorized management to establish an escrow account to provide
for payment of (i) the foregoing salary and benefit continuation payments and
retention bonuses to non-executive employees and (ii) for six months salary and
benefit continuation for three of the Company’s executive officers
(approximating $292). The executive salaries and benefits would be continued in
the event employment is terminated without cause (with “cause” defined as a
material violation of Company policy as outlined in the Company’s employee
handbook) or upon the insolvency of the Company.  To date, the escrow
account has not been established.





17
 Index




In the
fourth quarter of 2007 the Company responded to 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. In February
2008, the Company received follow-up inquiries from the IRS, to which it is in
the process of responding.





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 U.S. Securities and Exchange Commission (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 June
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 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. 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, enforcement actions, injunctions, criminal
prosecution, or other actions.





(3)
CONCENTRATIONS OF RISK





The
Company currently markets and sells two products. Our primary product, Menaflex
(also know as 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.





Our
products are marketed in the Europe Union (the “EU”), Switzerland, Turkey, and
the Republic of South Africa, through ReGen AG. Currently, the Company has
distributorship agreements with independent orthopedic device marketing
organizations for the distribution of our products in Italy, Spain, Andorra,
Poland, Turkey, the Republic of South Africa and the United Kingdom (the
“U.K.”). 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.





18
 Index




Concentrations
of receivables and revenue by geographic location as of and for the three month
periods ended March 31, 2008 and 2007 are as follows:





Three
      Months Ended
              March 31,2008
            
            
            2007Receivables:U.S.
      (Linvatec)
            
            
            10
            %
            
            
            28
            %Switzerland
      (various)
            
            
            3
            %
            
            
            2
            %Spain
      (Hoscenter, Polymedic)
            
            
            12
            %
            
            
            37
            %Italy
      (Xmedica)
            
            
            13
            %
            
            
            3
            %Germany
      (various)
            
            
            48
            %
            
            
            27
            %Belgium
      (various)
            
            
            0
            %
            
            
            3
            %South
      Africa (Grucox)
            
            
            2
            %
            
            
            0
            %Poland
      (Biocare)
            
            
            3
            %
            
            
            0
            %Austria
      (various)
            
            
            6
            %
            
            
            0
            %U.K.
      (Hospital Innovations)
            
            
            3
            %
            
            
            0
            %Sales
      revenue:U.S.
      (Linvatec)
            
            
            5
            %
            
            
            46
            %Switzerland
      (various)
            
            
            6
            %
            
            
            3
            %Spain
      (Hoscenter, Polymedic)
            
            
            9
            %
            
            
            0
            %Italy
      (Xmedica)
            
            
            9
            %
            
            
            23
            %Germany
      (various)
            
            
            56
            %
            
            
            28
            %Belgium
      (various)
            
            
            0
            %
            
            
            0
            %South
      Africa (Grucox)
            
            
            2
            %
            
            
            0
            %Poland
      (Biocare)
            
            
            3
            %
            
            
            0
            %Austria
      (various)
            
            
            7
            %
            
            
            0
            %U.K.
      (Hospital Innovations)
            
            
            3
            %
            
            
            0
            %Royalties:U.S.
      (Linvatec)
            
            
            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. In the first quarter of 2008, the Company
initiated a transition to a new vendor for assembly of a component of its
SharpShooter product, which has resulted in a shortage of supply for this
component. Management expects the supply shortage to continue until the
transition is complete and the component meets the Company’s
specifications.





At March
31, 2008 and December 31, 2007, 7% and 1%, respectively, of the Company’s cash
and cash equivalents balance was held in foreign currencies and 13% and 16%,
respectively, of current liabilities related to unsettled obligations
denominated in foreign currencies. For the three month periods ended March 31,
2008 and 2007, 19% and 18%, respectively, of the Company’s expenses resulted
from transactions denominated in foreign currencies.





(4)
RELATED PARTY TRANSACTIONS





Amounts
due to related parties, $2 and $4, at March 31, 2008 and December 31, 2007,
respectively, represent royalty payments due to an individual who is a
shareholder and director.





The
Company’s statements of operations include $2 and $7 for the three months ended
March 31, 2008 and 2007, respectively, representing royalties to an individual
who is a shareholder and director of the Company. The Company’s statement of
operations for the three months ended March 31, 2007, also includes $4
representing reimbursable expenses due to a clinic owned by the same individual.
The Company’s statement of operations for the three months ended March 31, 2008,
also includes $9 recognized in other income for website design services provided
to an affiliate of the Company’s CEO and $6 for a contribution to a private
foundation affiliated with the Company’s CEO.


19
 Index


(5) STOCKHOLDERS’ EQUITY AND REDEEMABLE
CONVERTIBLE PREFERRED STOCK





As of
March 31, 2008, the Company has 165,000,000 authorized shares of common stock,
of which 104,243,082 shares of common stock were outstanding. Also at March 31,
2008, the Company had reserved 9,066,464 shares of common stock for conversion
of outstanding Series A Redeemable Convertible Preferred Stock (“Series A
Stock”) and Series C Redeemable Convertible Preferred Stock (“Series C Stock”),
48,433,344 shares of common stock for the exercise of outstanding stock options
and warrants and 500,000 shares for issuance to vendors for services to be
rendered.





As of
March 31, 2008, the Company has 500,000 shares of authorized Series D
Convertible Preferred Stock (“Series D Stock”), of which 135,715 shares were
issued and 200,939 shares were reserved for exercise of options and warrants.
Each share of Series D 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. The
Series D Stock is contingently convertible and was not convertible at
March 31, 2008.





As of
March 31, 2008, the Company has 500,000 shares of authorized Series E Preferred
Stock (“Series E Stock”), of which 3,750 shares were issued, 354,750 shares were
reserved for exercise of options, and 11,250 shares were reserved for issuance
to vendors for services to be rendered. Each share of Series E Stock is
mandatorily convertible into 100 shares of common upon the occurrence of certain
events, such that a sufficient number of shares of common stock are available to
effect the conversion. The Series E Stock is contingently convertible and was
not convertible at March 31, 2008.





Redeemable
Convertible Preferred Stock





During
the first quarter of 2008 there were no conversions of 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. As a result of the Series C Stock conversions, $173 of unamortized
issuance cost associated with the Series C Stock was recognized in the three
months ended March 31, 2007 as deemed dividends to preferred stockholders for
purposes of determining net loss attributable to common
stockholders.





Contingently
Convertible Preferred Stock





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 Stock, resulting in aggregate proceeds net of issuance costs
approximating $5,600 (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
shares of common stock available to effect the conversion, in both situations
after taking into account all other shares of common stock outstanding or
required to be issued upon the conversion of any preferred stock of the Company
or the exercise of any options or warrants authorized by the
Company. Either of such corporate actions is subject to the approval of our
shareholders before they may be executed. 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. The aggregate fair value of the contingent beneficial
conversion feature on the dates of issue was approximately $1,480.








20
 Index





In
connection with the Series D financing the Company issued to the investors
warrants to purchase 40,714 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 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 initially expired 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 the
earliest of the 15th day after such public announcement, partial exercise of the
option, or December 31, 2008.





As of
March 31, 2008 and December 31, 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 stock. In consideration for such services, the
Company issued to Sanderling a warrant to purchase 2,000 shares of Series D
Stock (or 200,000 shares of common stock if the warrant is exercised after
mandatory conversion of the Series D Stock into shares of Company common stock)
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 shares of Company
common stock). Using the Black-Scholes model, the Company has estimated the fair
value of the warrant to be approximately $69, which has been included as an
expense in its 2007 results of operations.





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
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
shares of common stock available to effect the conversion, in both situations
after taking into account all other shares of common stock 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. Either of such
corporate actions is subject to the approval of our shareholders before they may
be executed. The holders of Series E Stock each have one vote for each full
share of common stock into which the shares of Series E Stock are convertible on
the record date for the vote. Holders of the Series E 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 E Stock are entitled to receive a liquidation preference of $9 per share,
plus any declared but unpaid dividends, and subject to adjustment for stock
splits, combinations, or similar events involving the Series E
Stock.





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. The Board
did not effect a reverse stock split within the approved six-month timeframe and
the Board was not obligated to effect a reverse stock split. Neither the Series
D Stock nor the Series E Stock was convertible at March 31, 2008.








21
 Index





(6)
SUBSEQUENT EVENTS





On April
5, 2008 the Company granted its non-employee directors, its employees, and
certain consultants options to purchase a total of 116,550 shares of Series E
Stock at an exercise price of $16 per share (or 11,655,000 shares of common
stock at $0.16 per share, which equaled the market price of the Company’s stock
on the grant date, if exercised after mandatory conversion of the Series E
Stock). For one of the grants, to a consultant for 2,000 shares of Series E
Stock (200,000 shares of common stock if exercised after mandatory conversion of
the Series E Stock), 500 shares of Series E Stock (50,000 shares of common stock
if exercised after mandatory conversion of the Series E Stock) were immediately
vested at the grant date; the remainder vest quarterly, subject to continued
service during each such quarter, on June 30, September 30, and December 31,
2008. Options to purchase 15,200 shares of Series E Stock (1,520,000 shares of
common stock if exercised after mandatory conversion of the Series E Stock) vest
ratably over four years from the grant date. Options to purchase 99,350 shares
of Series E Stock (9,935,000 shares of common stock if exercised after mandatory
conversion of the Series E Stock) vest ratably over four years beginning upon
FDA clearance of the Collagen Scaffold device. Upon grant of the options, the
Company reserved 116,550 shares of Series E Stock for issuance upon exercise of
the options.





Also on
April 5, 2008, the Company granted a consultant an option to purchase 100,000
shares of common stock at an exercise price of $0.16 per share, which equaled
the market price of the Company’s stock on the grant date. One-half of the
shares were immediately vested at the grant date and the remainder would vest
upon FDA clearance of the Collagen Scaffold device, provided such clearance is
received in 2008.





All of
the foregoing grants were made outside of the Company’s stock option plans. 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, the Company reserved 116,550 shares of
Series E Stock and 100,000 shares of common stock for issuance upon exercise of
the options.





Item 2.
Management’s Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in
thousands, except per unit and 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, 2007. 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.





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 MenaflexTM collagen meniscus implant device (also known as the
CMI®), which
is marketed for sale in the EU, Switzerland, Turkey, and the Republic of South
Africa, through ReGenAG.





We have
submitted a 510(k) premarket notification 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. The 510(k) filing is necessary to
obtain clearance to market the Collagen Scaffold as a medical device in the
United States. The FDA will clear marketing of a medical device through the
510(k) process if it is demonstrated that the new product is substantially
equivalent to other 510(k)-cleared products. The FDA has cleared for marketing,
via the 510(k) premarket notification process, several products that we believe
are similar in technology and intended use to the Collagen Scaffold and that are
used in multiple medical specialties, including general surgery and orthopedics,
for soft tissue reinforcement and repair. These devices have been cleared by the
FDA as class II devices. We believe that it is appropriate for the FDA to
regulate the Collagen Scaffold as a class II device subject to the 510(k)
pre-market notification process.


22
 Index




Accordingly,
relying in part on recently cleared similar devices as predicates, in December
2005 we submitted a 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. During the third quarter of 2006, the FDA provided the Company with a
letter indicating the FDA’s initial determination that the device is not
substantially equivalent, or NSE, to existing class II devices already in
receipt of FDA clearance. The Company appealed the FDA’s NSE decision.
Subsequently, the FDA provided a letter upholding the NSE decision and
indicating that the Company may submit a new 510(k) for clearance of its
Collagen Scaffold device with modified indications for use in the meniscus, as
suggested by the Company, and supported by appropriate clinical
data.





In
December 2006 we submitted a revised 510(k) premarket notification to the FDA
for the Collagen Scaffold. 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 and in the third quarter of 2007 we received an NSE letter from
the FDA regarding the revised 510(k) submission. The Company is pursuing appeal
of the NSE decision through FDA administrative channels. 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
for the Collagen Scaffold. We will continue to evaluate all levels of spending
throughout the organization to support our ability to operate as long as
possible, but it is likely that we will require additional financing before our
appeal efforts are completed. There is no assurance that we will be able to
raise such additional financing.





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, or MCT, and it is the subject of a modular
premarket 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 still have the option of
completing our submission of the PMA for the CMI, although we do not foresee
pursuing completion of the PMA at this time. We intend to continue to follow
patients in the MCT, which will provide valuable scientific data on long-term
patient outcomes in the meniscus.  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. 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, PMA 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 as a class II device through the
      510(k) process;





•
            Further
      develop our specialized distribution and marketing programs for the
      Menaflex 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 others to develop and market products in targeted therapeutic
areas. However, our ability to pursue this strategy is subject to the
constraints of our current liquidity position. See Liquidity and Capital
Resources.





To date,
sales of our products have been limited. Although Menaflex is marketed for sale
and distributed in certain markets outside the U.S., currently it is not cleared
for sale or marketed 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 Menaflex subject to relevant
regulatory clearance in each market. In 2005 we created a wholly-owned
subsidiary, ReGen AG to conduct our distribution activities outside the U.S.
through local market distributors and a limited number of employees to be hired
by the Company or ReGen AG. Currently, we have distributorship agreements with
independent orthopedic device marketing organizations for distribution of our
products in the U.K., Italy, Spain, Andorra, Poland, Turkey, and the Republic of
South Africa. During 2008 our international priorities are growing sales of our
products in current markets and evaluating distribution opportunities for our
products in select new markets.





23
 Index




We also
sell the SharpShooter®
Tissue Repair System, or SharpShooter, a suturing device used to facilitate the
surgical implantation of Menaflex, as well as to perform other similar
arthroscopic meniscus repair procedures. SharpShooter is currently marketed
through a worldwide non-exclusive distribution agreement with Linvatec
Corporation (Linvatec), a subsidiary of ConMed (NASDAQ: CNMD), and outside the
U.S., through ReGen AG. SharpShooter is cleared for sale and marketed in the
U.S., Europe, Canada, Australia, Chile, the Republic of South Africa, and
Japan.





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 complex 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, 2007.
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 three months ended March 31, 2008, 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,
2007, including our adoption effective January 1, 2008, of SFAS No. 157, Fair Value Measurements,and
SFAS No. 159,The Fair Value Option for Financial
Assets and Financial Liabilities,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, 2007.





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, 2007 the Company had a net operating loss carryforward of approximately
$75,400 and a research and development tax credit carryforward of approximately
$341. 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 2004 to 2007.
In addition, the Company’s net operating loss carryforwards that relate to 1991
and forward are subject to adjustment by these tax authorities. At March 31,
2008, the Company has no unrecognized tax benefits requiring disclosure under
FIN 48. The Company recognizes interest accrued related to unrecognized tax
benefits in interest expense and penalties in operating expenses. During the
three month periods ended March 31, 2008 and 2007, the Company did not have any
income tax related interest or penalties.





24
 Index





STOCK-BASED COMPENSATION
EXPENSE: We account for stock based compensation in accordance with the
fair value recognition provisions of SFAS No. 123R, Share Based Payment. 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.





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.





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 2007 is estimated to be seven years (there were
no new grants in the first quarter of 2008). 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.





For
options issued in our Series E Stock, we value these options based upon the
equivalent fair value of options in common stock into which our Series E Stock
is contingently convertible. We believe the fair value of our Series E Stock is
equivalent to the fair value of our common stock on an as converted
basis.





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. Moreover, the Black-Scholes model ignores
significant characteristics of compensatory options, such as their non-traded
nature and lack of transferability. If the model permitted consideration of such
unique characteristics the resulting estimate of fair value could be
different.





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 both March 31, 2008 and December 31, 2007, 1% 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.





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.





25
 Index





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, used for demonstration or training, or used in research and
development.





Results
of Operations





Three
Months Ended March 31, 2008 Compared to Three Months Ended March 31,
2007





REVENUE.Total revenue for
the first quarter of 2008 increased by $162 (90%) over the same period in 2007.
The Company’s revenue from sales of our products approximated $334 for the three
months ended March 31, 2008, compared with $169 for the same period in 2007. The
approximate net increase of $165 or 98% resulted from increased Menaflex sales
partially offset by a decrease in SharpShooter sales. 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 decreased approximately $3 (25%) for the three
months ended March 31, 2008 compared with the same period in 2007. 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 ended March 31, 2008, Menaflex sales approximated $307, compared to
approximately $73 for the same period in 2007, an increase of approximately
320%. Selling prices for the Menaflex ranged from $1,050 to $2,600 per unit.
Menaflex sales approximated 92% of total sales for the period ended March 31,
2008 compared with approximately 43% for the same period ended 2007. In the
first quarter of 2008 we sold 193 Menaflex units at an average selling price of
$1,566 each compared with 60 units sold in the first quarter of 2007 at an
average selling price of $1,220 each. Contributing to the increased revenue from
Menaflex sales were increased sales in Germany, which represented approximately
56% of Menaflex sales revenue in the first quarter of 2008, compared with
approximately 28% for the first quarter of 2007. Germany is a direct sales
market where we receive a higher average sales price per unit than for sales we
make to distributors. Recent increases in Menaflex sales may not be indicative
of a future trend.





SharpShooter
sales in the three months ended March 31, 2008, approximated $26, compared with
approximately $96 for the same period in 2007, representing a decrease of
approximately $70 (73%). Sales of SharpShooter to Linvatec accounted for
approximately 64% and 81% of total SharpShooter sales for the three months ended
March 31, 2008 and 2007, respectively. For the first quarter of 2008 compared
with the first quarter of 2007, sales to Linvatec decreased by approximately $60
(78%) while SharpShooter sales to ReGen AG customers decreased $9 (49%). In the
first quarter of 2008, the Company initiated a transition to a new vendor for
assembly of a component of its SharpShooter product, which has resulted in a
shortage of supply for this component. Management expects the supply shortage to
continue until the transition is complete and the component meets the Company’s
specifications.





COST OF GOODS SOLD.For the
three months ended March 31, 2008, cost of goods sold approximated $143 compared
with approximately $92 for the same period in 2007, representing an increase of
approximately $51 (55%). The increase primarily relates to a higher volume of
Menaflex sales at a higher average cost per unit. Menaflex cost of goods sold
for the first quarter of 2008 approximated $122 compared with approximately $21
for the first quarter of 2007, an increase of approximately $101 (481%). The
average per unit cost of Menaflex units sold in the first quarter of 2008
approximated $631 compared with approximately $349 for the first quarter of
2007. The higher average per unit cost in 2008 is due to varying production
volumes and manufacturing costs in the respective periods when the units were
produced. At March 31, 2008 and 2007 all Menaflex units in inventory, as well as
the Menaflex units sold during the first quarter of 2008 and 2007, were valued
at cost, which was lower than market.





For the
three months ended March 31, 2008, approximately $19 of cost of goods sold
related to SharpShooter units sold compared with approximately $67 for the same
period in 2007, representing a decrease of approximately $48 (72%). The decrease
is related to the lower volume of SharpShooter sales in the first quarter of
2008.





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 three months of 2008 may not be indicative of a future trend.








26
 Index





RESEARCH AND DEVELOPMENT.Research and development expenses for the three months ended March 31,
2008 approximated $998, compared with approximately $1,063, for the same period
in 2007. Significant factors contributing to the net decrease of $65 (6%) for
the comparative three month periods include: (i) approximately $45 decrease in
compensation expense resulting from staff reductions; (ii) approximately $65
decrease in production costs associated with research projects; partially offset
by (iii) approximately $45 increase in non-cash compensation expense related to
stock options granted to employees and non employees, .





Our
research and development spending is primarily for clinical and regulatory
activities and maintenance of patents and other intellectual property. During
2007, our research and development was focused largely on the conduct of our CMI
MCT and related activities in the U.S. However, we also made substantial
progress on several other new product development efforts. 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. Our first sales of the lateral configuration
occurred in the first quarter of 2007.





We have
developed a prototype of a new meniscus repair device. During 2007, we initiated
U.S. regulatory activities and during 2008 we expect to continue U.S. and
European regulatory activities that are required to clear the way for marketing
of the new device. 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.





We
believe that our proprietary collagen matrix technology has the potential to be
used for the treatment of various injuries and degeneration of other tissue
structures, as well as use as a carrier matrix for therapeutic agents for hard
and soft tissue repair and new tissue growth. These applications are in various
stages of development from proof of concept to preparation for submission to the
FDA. We plan to continue to use outside resources for product research. We may,
in the future, hire additional research and development employees. However,
resource limitations have significantly curtailed our ability to conduct
research and development in 2008 and we expect those activities will continue to
be limited or further impaired if we are not successful in obtaining sufficient
additional financing. See “Liquidity and Capital Resources.”





BUSINESS DEVELOPMENT, GENERAL AND
ADMINISTRATIVE.Business development, general and administrative expenses
for the three months ended March 31, 2008 approximated $1,469, compared with
approximately $1,694 for the same period in 2007. Significant factors
contributing to the approximately $225 (13%) decrease for the comparative three
month periods include: (i) approximately $227 decrease in costs associated with
our worldwide marketing and distribution initiatives, including consulting,
advertising and promotion; (ii) approximately $51 decrease in general and
administrative costs such as printing and travel as a result of controls over
discretionary costs; partially offset by (iii) approximately $53 increase in
non-cash compensation expense related to stock options granted to employees and
non employees. We expect to continue controls over discretionary costs to
conserve current cash.





NON-OPERATING INCOME (EXPENSE).Non-operating income (expense) consists of interest and other income and
interest and other expense. Interest and other income approximated $32 and $91
for the three months ended March 31, 2008 and March 31, 2007, respectively, a
decrease of approximately $59 (65%), primarily related to lower cash and cash
equivalent balances during the first quarter of 2008 compared to 2007. For the
periods ended March 31, 2008 and 2007 interest and other expense included
foreign currency transaction gains approximating $24 and losses approximating
$17, respectively. Interest expense approximated $102 for the three months ended
March 31, 2008 compared with approximately $97 for the same period in 2007.
Increased interest expense is due to higher interest rates and compounding of
interest on long-term notes payable to a related party.





Liquidity
and Capital Resources





Cash
and cash equivalents





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 money market accounts, a sweep account and investments
in commercial paper and federal agency mortgage-backed securities that meet our
classification criteria for cash and cash equivalents. During the first quarter
of 2007, the Company held investments in commercial paper and federal agency
mortgage-backed securities. All investments were commercial paper and federal
agency mortgage-backed securities classified as held to maturity, and,
accordingly, were carried at amortized cost, which approximates fair value. At
March 31, 2008 approximately 7% of our cash and cash equivalents balance is held
in foreign currencies. The effect on our 2008 condensed consolidated financial
statements of re-measurement of the accounts of our Swiss subsidiary is
immaterial.





27
 Index




Cash and
cash equivalents and investments approximated $2,542 as of March 31, 2008
compared with approximately $4,108 as of December 31, 2007. The net decrease in
cash and cash equivalents and investments is a result of cash used for
operations, for equipment purchases, and for repayment of capital lease
obligations.





Cash
flows





The
following table sets forth our sources and uses of cash for the quarters ended
March 31, 2008 and 2007.





March 31,2008
            
            
            2007(In
      thousands)Net
      cash used in operations
            
            $
            (1,623
            )
            
            $
            (2,319
            )Net
      cash provided by (used in) investing activities
            
            
            100
            
            
            
            (258
            )Net
      cash (used in) provided by financing activities
            
            
            (3
            )
            
            
            4,915Effect
      of exchange rate changes on cash
            
            
            60
            
            
            
            (17
            )Net
      (decrease) increase in cash and cash equivalents
            
            $
            (1,466
            )
            
            $
            2,321





Cash used
in operating activities during the three months ended March 31, 2008
approximated $1,623, which resulted from the net loss of $2,313, adjusted to
account for a net decrease in accounts receivable, inventory and other assets of
approximately $85, a net increase in accounts payable, accrued expenses and
other liabilities of $204, together with adjustments of $401 for non-cash items,
including depreciation, stock-based compensation and exchange loss related to
re-measurement of our Swiss subsidiary’s financial statements.





During
the three months ended March 31, 2008, we used investments in commercial paper
of approximately $100 and repaid approximately $3 of our capital lease
obligations.





Through
March 31, 2008, we have incurred cumulative inception to date net losses of
approximately $92,090 and used approximately $75,074 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 products. Although Menaflex is marketed for sale
and distributed in certain markets outside the U.S., 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 pursuing appeal of 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 continues to take longer than expected or the Collagen Scaffold
device is not cleared, it will 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 still have the option to
proceed with submission to the FDA of the PMA for the CMI, although we do not
foresee pursuing completion of the PMA at this time. 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 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.





As
discussed in our Annual Report on Form 10-K for the year ended December 31,
2007, all of the Company’s long-term debt (balance of $8,265 at March 31, 2008)
becomes due and payable on December 31, 2009, and the Company’s Series A and
Series C redeemable convertible preferred stock (liquidation preferences of
$1,113 and $2,950, respectively) become redeemable at the option of not less
than a majority of the holders in June 2009 and September 2010,
respectively.


28
 Index




We will
need to pursue additional financing in order to support ongoing operations,
including meeting our future debt service requirements, 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. Beginning in the
fourth quarter of 2007 we implemented 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. Based upon current cash balances and planned
spending rates for 2008 management believes that the Company has adequate cash
and investments on hand to support ongoing operations through at least June
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) submission to the FDA; (iii)
decisions we make regarding our business objectives; and (iv) other developments
in our business. The timing of the 510(k) appeal process is subject to inherent
uncertainty. We anticipate that additional cash will be required to support
operations beyond June 2008. However, if unforeseen events occur, it is possible
that additional cash may be needed before June 2008 to support operations. At
this time we have received no commitments for additional financing. The
accompanying 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, March 30, and April 5, 2007, we completed the private placement of
approximately 71,429 shares, 47,619 shares, and 16,667 shares, respectively, of
Series D Stock, $0.01 par value per share, resulting in aggregate proceeds net
of issuance costs approximating $5,600. 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
shares of common stock 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. The Board did not
effect a reverse stock split within the approved six-month timeframe and the
Board was 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. The
holders of Series D Stock are entitled to non-cumulative dividends if and when
such dividends are declared by the Board of Directors. No dividends have been
declared to date. In the event of any liquidation, dissolution, or winding up of
the Company, the holders of Series 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 Series
D Stock. Since 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 upon occurrence of the
triggering event.





In
connection with the Series D financing we issued to the investors warrants to
purchase 40,714 shares of Series D Stock at an initial exercise price of $63 per
share, or after mandatory conversion of the Series D Stock, 3,571,500 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, we issued to the investors options to
purchase up to 135,715 shares of Series D Stock, exercisable for cash at $42 per
share, or after mandatory conversion of the Series D Stock, 11,904,800 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 initially were to
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 the earliest of the 15th day
after such public announcement, partial exercise of the option, or December 31,
2008. On June 1, 2007 the Company registered with the SEC, the shares of common
stock into which the Series D Stock would be convertible, as well as the shares
of common stock that would be issuable upon exercise of the warrants and
options, after mandatory conversion of the Series D Stock has occurred. As of
March 31, 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.





29
 Index




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 stock. In consideration for such services, the
Company issued to Sanderling a warrant to purchase 2,000 shares of Series D
Stock (or 200,000 shares of the Company’s common stock if the warrant is
exercised after mandatory conversion of the Series D Stock into Company common
stock) with the warrant having a five-year term and an exercise price of $42 per
share (or $0.42 per share of common stock if the warrant is exercised for shares
of the Company’s common stock). Using the Black-Scholes model, the Company has
estimated the fair value of the warrant to be approximately $69, which was
expensed in its 2007 results of operations.





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.





Item 3. Quantitative and Qualitative Disclosures about Market
Risk.





Not
required.





Item 4T. 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.
 
 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 March 31, 2008, 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 ( as such term is defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) that occurred during the Company’s first
quarter of 2008 that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.


30
 Index




PART II– OTHER
INFORMATION.





Item 1. Legal Proceedings.





Respectively,
on October 23, 2007 and on November 2, 2007, the Company received information
requests from the United States Internal Revenue Service (the “IRS”) and the
state of California Franchise Tax Board regarding options granted where the
market price of the Company’s common stock was higher than the exercise price of
the options.  The Company responded to both inquiries in November
2007.  On February 11, 2008, the Company received a follow-up
information request from the IRS specifically regarding Section 162(m) of the
Internal Revenue Code and further inquiries regarding the option grants, to
which the Company is in the process of responding.





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





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, 2007.





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





On
February 8, 2008, we issued 166,667 shares of restricted common stock to a
vendor in consideration for services rendered in 2007.  The estimated
value of these services is $15. On March 31, 2008, we issued 3,750 shares of our
Series E Stock to a vendor in consideration for services rendered during
the first quarter of 2008. The estimated fair value of these services is $58.
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.




31
 Index





Item 6. Exhibits.





(a)
            Exhibits.





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





Number
            
            Description3.1
            
            Amended
      and Restated Certificate of Incorporation (as
  amended)(1)3.2
            
            Second
      Amended and Restated By-Laws (as adopted on September 21,
      2007)(2)4.1
            
            Specimen
      Common Stock Certificate(3)4.2
            
            Certificate
      of Designations, Preferences and Rights of Series A Convertible
      Preferred Stock of the Company(22)4.3
            
            Certificate
      of Designations, Preferences and Rights of Series C Convertible
      Preferred Stock of the Company(4)4.4
            
            Certificate
      of Designations, Preferences and Rights of Series D Convertible
      Preferred Stock of the Company(5)4.5
            
            Certificate
      of Designations, Preferences and Rights of Series E Convertible Preferred
      Stock of the Company (6)4.6*
            
            ReGen
      Biologics, Inc.
      Employee Stock Option Plan, Amended and Restated, effective April 1,
      2004(7)4.7*
            
            ReGen
      Biologics, Inc.
      Non-Employee Director Stock Option Plan, Amended and Restated, effective
      April 1, 2004(7)4.8*
            
            ReGen
      Biologics, Inc.
      Non-Employee Director Supplemental Stock Option Plan Amended and Restated,
      effective January 31, 2003(8)4.9*
            
            Form
      of Employee Incentive Stock Option Agreement for the Employee Stock Option
      Plan(1)4.10*
            
            Form
      of Nonqualified Employee, Non-Employee Director or Consultant Stock Option
      Agreement for the Employee Stock Option Plan(1)4.11*
            
            Form
      of Nonqualified Non-Employee Director Stock Option Agreement for the
      Non-Employee Director Stock Option Plan(1)4.12*
            
            Form
      of Nonqualified Non-Employee Director Stock Option Agreement for the
      Non-Employee Director Supplemental Stock Option Plan(1)4.13*
            
            Form
      of Nonqualified Employee or Consultant Stock Option
      Agreement(22)4.14*
            
            Form
      of Nonqualified Non-Employee Director Stock Option
      Agreement(22)4.15
            
            Second
      Amended and Restated Stockholders’ Agreement by and among the Company and
      the Stockholders named therein, dated as of August 23,
      2007(9)4.16
            
            Amended
      and Restated Registration Rights Agreement between the Company and the
      Investors listed therein(10)4.17
            
            Common
      Stock Registration Rights Agreement by and among the Company and the
      Stockholders named therein, dated as of April 19,
      2004(11)4.18
            
            Form
      of Subscription Agreement by and between the Company and the Investors
      named therein, dated as of November 30, 2006 and December 1,
      2006(12)4.19
            
            Form
      of Subscription Agreement by and between the Company and the Investors
      named therein, dated as of March 2, March 30, and April 5 2007(13),
      (14)4.20
            
            Form
      of Warrant Certificate by and between the Company and the Individuals
      named therein, dated as of July 14, 2005(15)4.21
            
            Form
      of Warrant Certificate by and between the Company and the Individuals
      named therein, dated as of November 30 and December 1,
      2006(12)4.22
            
            Form
      of Warrant Certificate by and between the Company and the Individuals
      named therein, dated as of March 2, March 30, and April 5,
      2007(13),(14)4.23
            
            Warrant
      Certificate by and between the Company and Sanderling Ventures Management
      VI, dated as of March 2, 2007(13)4.24
            
            Form
      of Warrant to Purchase Common Stock by and between the Company and
      Individual named therein, dated October 1,
  2003(22)




32
 Index




4.25
            
            Form
      of Placement Agent Warrant to Purchase Common Stock by and between the
      Company and Harris Nesbitt Gerard, Inc.(4)4.26
            
            Form
      of Placement Agent Warrant to Purchase Common Stock by and between the
      Company and Vail Securities Investment, Inc.(4)4.27
            
            Form
      of Warrant Certificate by and between the Company and the Individuals
      named therein, dated as of October 15, 2007(22)4.28
            
            Form
      of Warrant Certificate by and between the Company and the Individuals
      named therein, dated as of October 15, 2007(22)4.29
            
            Form
      of Option Agreement by and between the Company and the Individuals named
      therein, dated as of November 30, and December 1,
      2006(12)4.30
            
            Form
      of Option Agreement by and between the Company and the Individuals named
      therein, dated as of March 2, March 30, and April 5,
      2007(13),(14)10.1
            
            Form
      of Indemnification Agreement(16)10.2*
            
            First
      Amendment to Employment Agreement by and between Gerald E.
      Bisbee, Jr., Ph. D. and the Company, dated March 23,
      2004(17)10.3*
            
            Employment
      Agreement by and between Brion D. Umidi and the Company, dated
      March 23, 2004(18)10.4
            
            License
      Agreement by and between the Company and Linvatec Corporation, dated
      April 7, 2000(18)10.5
            
            Exclusive
      License Agreement by and between the Company and Dr. Shu-Tung Li,
      dated August 24, 1995(18)10.6*
            
            Assignment
      and Royalty Agreement by and among the Company, Modified Polymer
      Components, Inc. and Dr. J. Richard Steadman, dated April 9,
      1997(18)10.7
            
            Credit
      Agreement by and between the Company and Sulzer Medica USA Holding
      Company, dated November 30, 1998(19)10.8
            
            Credit
      Agreement by and between the Company and Sulzer Medica USA Holding
      Company, dated March 14, 2000(18)10.9
            
            Agreement
      by and among Sulzer Medica USA Holding Co., Sulzer Biologics Inc. Sulzer
      Orthopedics Ltd. and the Company, dated February 20,
      2001(18)10.10
            
            Letter
      Agreement by and between the Company and Sulzer Orthopedics AG, dated
      January 18, 2002(18)10.11
            
            Distributor
      Agreement by and between the Company and XMedica, effective as of
      October 24, 2005(20)10.12
            
            Agreement
      by and between the Company and MedWork AG ,dated as of January 1,
      2005(21)10.13
            
            Consulting
      Agreement by and between the Company and Sanderling Ventures Management
      VI, dated as of March 2, 2007(13)21.1
            
            Subsidiaries
      of the Registrant(22)31.1
            
            Section
      302 Certification from Gerald E. Bisbee, Jr., dated May 8,
      2008(23)31.2
            
            Section
      302 Certification from Brion Umidi, dated May 8,
  2008(23)32.1
            
            Section
      906 Certification from Gerald E. Bisbee, Jr., dated May 8,
      2008(23)32.2
            
            Section
      906 Certification from Brion Umidi, dated May 8,
  2008(23)


____________






(1)
            Incorporated
      herein by reference to the Company’s Report on Form 10-Q for the
      quarter ended June 30, 2005 (File
  No. 000-20805).




(2)
            Incorporated
      herein by reference to the Company’s Report on Form 8-K, filed on
      September 24, 2007 (File
No. 000-20805).




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




(4)
            Incorporated
      herein by reference to the Company’s Report on Form 8-K, filed on
      September 25, 2003 (File
  No. 000-20805).




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







33
 Index




(6)
            Incorporated
      herein by reference to the Company’s Report on Form 8-K, filed on
      October 19, 2007 (File
No. 000-20805).




(7)
            Incorporated
      herein by reference to the Company’s Proxy Statement on Schedule 14A,
      filed on April 29, 2004 (File
  No. 000-20805).




(8)
            Incorporated
      herein by reference to the Company’s Registration Statement on
      Form S-1/A, filed on January 14, 2004 (File
      No. 333-110605).




(9)
            Incorporated
      herein by reference to the Company’s Report on Form 8-K, filed on
      August 24, 2007 (File
No. 000-20805).




(10)
            Incorporated
      herein by reference to the Company’s Report on Form 8-K, filed on
      September 25, 2003 (File
  No. 000-20805).




(11)
            Incorporated
      herein by reference to the Company’s Registration Statement on
      Form S-1, filed on April 26, 2004 (File
      No. 333-114867).




(12)
            Incorporated
      herein by reference to the Company’s Report on Form 8-K, filed on
      December 6, 2006 (File
No. 000-20805).




(13)
            Incorporated
      herein by reference to the Company’s Report on Form 8-K, filed on
      March 8, 2007 (File
No. 000-20805).




(14)
            Incorporated
      herein by reference to the Company’s Report on Form 8-K, filed on
      April 5, 2007 (File
No. 000-20805).




(15)
            Incorporated
      herein by reference to the Company’s Report on Form 8-K, filed on
      July 18, 2005 (File
No. 000-20805).




(16)
            Incorporated
      herein by reference to the Company’s Report on Form 8-K, filed on
      March 17, 2004 (File
No. 000-20805).




(17)
            Incorporated
      herein by reference to the Company’s Report on Form 8-K/A, filed on
      September 4, 2002 (File
  No. 000-20805).




(18)
            Incorporated
      herein by reference to the Company’s Report on Form 10-K for the year
      ended December 31, 2003 (File
  No. 000-20805).




(19)
            Incorporated
      herein by reference to the Company’s Report on Form 10-Q for the
      quarter ended March 31, 2005 (File
    No. 000-20805).




(20)
            Incorporated
      herein by reference to the Company’s Report on Form 10-Q for the
      quarter ended September 30, 2005 (File
      No. 000-20805).




(21)
            Incorporated
      herein by reference to the Company’s Report on Form 10-K for the year
      ended December 31, 2004 (File
  No. 000-20805).




(22)
            Incorporated
      herein by reference to the Company’s Report on Form 10-K for the year
      ended December 31, 2007 (File
  No. 000-20805).




(23)
            Included
      with this filing.




*
            Management
      Contract or Compensatory Plan or
Arrangement




34
 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 May 8, 2008.





REGEN
      BIOLOGICS, INC.By:
            /s/ BRION D. UMIDIBrion
      D. UmidiSenior
      Vice President andChief
      Financial Officer






35