##### 



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2005
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission file number 000-20805
 ReGen Biologics, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of
incorporation or organization)
    
    23-2476415(I.R.S. Employer
Identification No.)509 Commerce Street,
1st Floor, East Wing,
Franklin Lakes, NJ(Address of principal executive offices)
    
    07417(Zip Code)
 Registrants telephone number, including area code:
 (201) 651-5140
 Securities registered pursuant to Section 12(b) of the Act:
None
 Securities registered pursuant to Section 12(g) of the Act:  Title of Class
 Common Stock $.01 par value per share
  þ o
 o þ




---



##### 



REGEN BIOLOGICS, INC.
 INDEX
 Page No.PART I  Financial Information
    3Item 1.
    
    Financial Statements
    3Condensed Consolidated Balance Sheets at June 30, 2005 (unaudited) and December 31, 2004
    3Condensed Consolidated Statements of Operations for the Three Months Ended
June 30, 2005 (unaudited) and 2004 (unaudited), the Six Months Ended June
30, 2005 (unaudited) and 2004 (unaudited) and the Period from December 21,
1989 (inception) to June 30, 2005 (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 June 30, 2005 (unaudited)
    5Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2005 (unaudited) and 2004 (unaudited) and the Period from
December 21, 1989 (inception) to June 30, 2005 (unaudited)
    10Notes to Condensed Consolidated Financial Statements (unaudited)
    12Item 2.
    
    Managements Discussion and Analysis of Financial Conditions and Results of Operations
    19Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    27Item 4.
    
    Controls and Procedures
    27PART II  Other Information
    29Item 1.
    
    Legal Proceedings
    29Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    29Item 3.
    
    Defaults upon Senior Securities
    29Item 4.
    
    Submission of Matters to a Vote of Security Holders
    29Item 5.
    
    Other Information
    30Item 6.
    
    Exhibits
    31Signatures
    
    
    35Certification
 2




---



##### 



PART I  Financial Information
 Item 1. Financial Statements
 REGEN BIOLOGICS, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30, 2005
    
    December 31, 2004(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    8,177
    
    
    $
    12,190Trade receivables
    
    
    106
    
    
    
    7Receivables from related party
    
    
    7
    
    
    
    37Inventory
    
    
    78
    
    
    
    76Prepaid expenses and other current assets
    
    
    292
    
    
    
    236Total current assets
    
    
    8,660
    
    
    
    12,546Property and equipment, net
    
    
    116
    
    
    
    55Other assets
    
    
    110
    
    
    
    123Total assets
    
    $
    8,886
    
    
    $
    12,724LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    441
    
    
    $
    378Due to related parties
    
    
    14
    
    
    
    8Accrued expenses
    
    
    667
    
    
    
    638Pension liability
    
    
    163
    
    
    
    163Current portion of capital leases
    
    
    15
    
    
    
    7Total current liabilities
    
    
    1,300
    
    
    
    1,194Other liabilities
    
    
    19
    
    
    
    19Long-term portion of capital leases
    
    
    54
    
    
    
    4Long-term portion of notes payable to related party,
including accrued interest of $1,195 and $1,094 as of
June 30, 2005 and December 31, 2004, respectively
    
    
    7,237
    
    
    
    7,136Total liabilities
    
    
    8,610
    
    
    
    8,353Series A redeemable convertible preferred stock, $.01
par value; 15,309,822 shares authorized; issued and
outstanding 14,632,958 shares at liquidation
preference of $6,557 as of June 30, 2005 and
14,655,628 shares at liquidation preference of $6,567
as of December 31, 2004
    
    
    6,557
    
    
    
    6,567Series C redeemable convertible preferred stock, $.01
par value; 30,000,000 shares authorized; issued and
outstanding 11,046,637 shares at liquidation
preference of $4,950 as of June 30, 2005 and
12,943,533 shares at liquidation preference of $5,800
as of December 31, 2004
    
    
    4,348
    
    
    
    5,033Stockholders equity (deficit):Common stock
    
    
    537
    
    
    
    517Accumulated other comprehensive loss
    
    
    (2
    )
    
    
    (58
    )Additional paid-in capital
    
    
    52,686
    
    
    
    51,750Deficit accumulated during development stage
    
    
    (63,850
    )
    
    
    (59,438
    )Total stockholders equity (deficit)
    
    
    (10,629
    )
    
    
    (7,229
    )Total liabilities and stockholders equity (deficit)
    
    $
    8,886
    
    
    $
    12,724
  3




---



##### 



REGEN BIOLOGICS, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Period fromDecember 21, 1989Three Months Ended June 30,
    
    Six Months Ended June 30,
    
    (Inception) to2005
    
    2004
    
    2005
    
    2004
    
    June 30, 2005(unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)Revenue:Sales
    
    $
    177
    
    
    $
    146
    
    
    $
    315
    
    
    $
    241
    
    
    $
    3,171Royalties
    
    
    14
    
    
    
    13
    
    
    
    31
    
    
    
    25
    
    
    
    215Grant and other revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    433Total revenue
    
    
    191
    
    
    
    159
    
    
    
    346
    
    
    
    266
    
    
    
    3,819Expenses:Costs of goods sold
    
    
    115
    
    
    
    122
    
    
    
    339
    
    
    
    181
    
    
    
    3,641Research and development
    
    
    1,324
    
    
    
    928
    
    
    
    2,237
    
    
    
    1,723
    
    
    
    36,450Business development, general and
administrative
    
    
    1,015
    
    
    
    842
    
    
    
    1,960
    
    
    
    1,758
    
    
    
    22,200Recognition of expense for the minimum
pension liability component of
accumulated
other comprehensive loss upon
termination
of defined benefit pension plan
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    58Total expenses
    
    
    2,454
    
    
    
    1,892
    
    
    
    4,594
    
    
    
    3,662
    
    
    
    62,349Operating loss
    
    
    (2,263
    )
    
    
    (1,733
    )
    
    
    (4,248
    )
    
    
    (3,396
    )
    
    
    (58,530
    )Merger cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (515
    )Interest and other income
    
    
    54
    
    
    
    30
    
    
    
    111
    
    
    
    39
    
    
    
    1,483Rental income
    
    
    85
    
    
    
    83
    
    
    
    163
    
    
    
    162
    
    
    
    2,061Rent expense
    
    
    (84
    )
    
    
    (83
    )
    
    
    (161
    )
    
    
    (161
    )
    
    
    (1,921
    )Interest and other expense
    
    
    (59
    )
    
    
    (31
    )
    
    
    (112
    )
    
    
    (60
    )
    
    
    (3,208
    )License fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,050Net loss
    
    $
    (2,267
    )
    
    $
    (1,734
    )
    
    $
    (4,247
    )
    
    $
    (3,416
    )
    
    $
    (58,580
    )Deemed dividend to Series C Preferred
Stockholders upon issuance of Series C
Preferred Stock with a beneficial
conversion and amortization of related
issuance costs
    
    
    (39
    )
    
    
    (444
    )
    
    
    (165
    )
    
    
    (496
    )
    
    
    (5,270
    )Net loss attributable to common
stockholders
    
    $
    (2,306
    )
    
    $
    (2,178
    )
    
    $
    (4,412
    )
    
    $
    (3,912
    )
    
    $
    (63,850
    )Basic and diluted net loss per share
attributable to common stockholders
    
    $
    (0.04
    )
    
    $
    (0.05
    )
    
    $
    (0.08
    )
    
    $
    (0.11
    )
    
    $
    (3.09
    )Weighted average number of shares used
for calculation of net loss per share
    
    
    53,411,887
    
    
    
    41,003,054
    
    
    
    53,321,120
    
    
    
    35,162,690
    
    
    
    20,660,625
  4




---



##### 



ReGen Biologics, Inc.
( )
 Consolidated Statement of Changes in Stockholders Equity (Deficit) and Series
A and Series C Redeemable Convertible Preferred Stock
 Series A
    
    Series C
    

 Stockholders Equity (Deficit)Redeemable
    
    Redeemable
    
    Series A - F
    
    Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DeficitConvertible
    
    Convertible
    
    Convertible
    
    Convertible
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated
    
    Accumulated
    
    TotalPreferred
    
    Preferred
    
    Preferred
    
    Preferred
    
    
    
    
    
    
    
    
    
    Additional
    
    Deferred
    
    During
    
    Other
    
    StockholdersStock
    
    Stock
    
    Stock
    
    Stock
    
    Common Stock
    
    Paid-In
    
    Stock
    
    Development
    
    Comprehensive
    
    EquityShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Compensation
    
    Stage
    
    Loss
    
    (Deficit)Issuance of common stock at
$0.03127 per share for net
assets contributed by
founders in May 1990
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    1,400,000
    
    
    $
    1
    
    
    $
    44
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    45Issuance of common stock at
$0.005 per share for cash
in November 1991
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    700,000
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Issuance of Series A
convertible preferred stock
at $1.00 per share for cash
in April 1991, net of
offering costs of $44
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    725,000
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    681
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    682Issuance of Series B
convertible preferred stock
at $3.00 per share for cash
and in exchange for notes
payable in January, March,
May, and July 1992, net of
offering costs of $29
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,226,338
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,650
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,650Net loss from inception
(December 21, 1989) through
December 31, 1992
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,476
    )
    
    
    
    
    
    
    (2,476
    )Balance at December 31, 1992
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,951,338
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2,100,000
    
    
    
    1
    
    
    
    4,378
    
    
    
    
    
    
    
    (2,476
    )
    
    
    
    
    
    
    1,904Issuance of Series C
convertible preferred stock
at $4.50 per share for cash
in December 1993, net of
offering costs of $29
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    550,552
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,448
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,448Exercise of common stock
options at $0.30 per share
for cash in February 1993
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Issuance of common stock at
$0.30 per share in 1993 in
exchange for services to a
consultant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,342
    )
    
    
    
    
    
    
    (1,342
    )Balance at December 31, 1993
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,501,890
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2,105,200
    
    
    
    1
    
    
    
    6,828
    
    
    
    
    
    
    
    (3,818
    )
    
    
    
    
    
    
    3,012Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,463
    )
    
    
    
    
    
    
    (1,463
    )Balance at December 31, 1994
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,501,890
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2,105,200
    
    
    
    1
    
    
    
    6,828
    
    
    
    
    
    
    
    (5,281
    )
    
    
    
    
    
    
    1,549Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,959
    )
    
    
    
    
    
    
    (1,959
    )Balance at December 31, 1995
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,501,890
    
    
    $
    1
    
    
    
    
    
    
    
    
    
    
    
    2,105,200
    
    
    $
    1
    
    
    $
    6,828
    
    
    
    
    
    
    $
    (7,240
    )
    
    
    
    
    
    $
    (410
    )
  5




---



##### 



ReGen Biologics, Inc.
( )
 Consolidated Statement of Changes in Stockholders Equity (Deficit) and Series
A and Series C Redeemable Convertible Preferred Stock
 Series A
    
    Series C
    
    Stockholders Equity (Deficit)Redeemable
    
    Redeemable
    
    Series A - F
    
    Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DeficitConvertible
    
    Convertible
    
    Convertible
    
    Convertible
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated
    
    Accumulated
    
    TotalPreferred
    
    Preferred
    
    Preferred
    
    Preferred
    
    
    
    
    
    
    
    
    
    Additional
    
    Deferred
    
    During
    
    Other
    
    StockholdersStock
    
    Stock
    
    Stock
    
    Stock
    
    Common Stock
    
    Paid-In
    
    Stock
    
    Development
    
    Comprehensive
    
    EquityShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Compensation
    
    Stage
    
    Loss
    
    (Deficit)Balance at December 31, 1995 (carried forward)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,501,890
    
    
    $
    1
    
    
    
    
    
    
    
    
    
    
    
    2,105,200
    
    
    $
    1
    
    
    $
    6,828
    
    
    $
    
    
    
    $
    (7,240
    )
    
    
    
    
    
    $
    (410
    )Issuance of Series D convertible preferred stock at
$7.25 per share for cash in March and April 1996, net
of offering costs of $536
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,191,321
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,101
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,101Exercise of common stock options at $0.10, $0.30, and
$0.45 per share in August and October 1996
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    163,333
    
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,931
    )
    
    
    
    
    
    
    (1,931
    )Balance at December 31, 1996
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,693,211
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2,268,533
    
    
    
    1
    
    
    
    14,972
    
    
    
    
    
    
    
    (9,171
    )
    
    
    
    
    
    
    5,803Issuance of Series E convertible preferred stock at
$7.25 per share for cash in August and September 1997,
net of offering costs of $53
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    335,314
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    
    2,378
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,378Exercise of common stock options at $0.10, $0.30, and
$0.45 per share in April, August, and September 1997
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,111
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,868
    )
    
    
    
    
    
    
    (3,868
    )Balance at December 31, 1997
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,028,525
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2,300,644
    
    
    
    1
    
    
    
    17,355
    
    
    
    
    
    
    
    (13,039
    )
    
    
    
    
    
    
    4,318Exercise of common stock options at $0.10, $0.20,
$1.27, and $1.45 per share in May, July, November and
December 1998, respectively
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159,879
    
    
    
    
    
    
    
    108
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108Compensation expense associated with stock option
modifications
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,815
    )
    
    
    
    
    
    
    (3,815
    )Balance at December 31, 1998
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,028,525
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2,460,523
    
    
    
    1
    
    
    
    17,519
    
    
    
    
    
    
    
    (16,854
    )
    
    
    
    
    
    
    667Exercise of common stock options at $.725 and $1.45 per
share in April, June and August 1999
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,396
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32Issuance of Series F convertible preferred stock at
$8.73 per share for cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    453,310
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,956
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,956Compensation expense associated with stock option grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,436
    
    
    
    (3,247
    )
    
    
    
    
    
    
    
    
    
    
    189Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,458
    )
    
    
    
    
    
    
    (5,458
    )Balance at December 31, 1999
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,481,835
    
    
    $
    1
    
    
    
    
    
    
    
    
    
    
    
    2,502,919
    
    
    $
    1
    
    
    $
    24,943
    
    
    $
    (3,247
    )
    
    $
    (22,312
    )
    
    
    
    
    
    $
    (614
    )
  6




---



##### 



ReGen Biologics, Inc.
( )
 Consolidated Statement of Changes in Stockholders Equity (Deficit) and Series
A and Series C Redeemable Convertible Preferred Stock
 Series A
    
    Series C
    

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




---



##### 



ReGen Biologics, Inc.
( )
 Consolidated Statement of Changes in Stockholders Equity (Deficit) and Series
A and Series C Redeemable Convertible Preferred Stock
 Series A
    
    Series C
    
    Stockholders Equity (Deficit)Redeemable
    
    Redeemable
    
    Series A - F
    
    Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DeficitConvertible
    
    Convertible
    
    Convertible
    
    Convertible
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated
    
    Accumulated
    
    TotalPreferred
    
    Preferred
    
    Preferred
    
    Preferred
    
    
    
    
    
    
    
    
    
    Additional
    
    Deferred
    
    During
    
    Other
    
    Stockholders'Stock
    
    Stock
    
    Stock
    
    Stock
    
    Common Stock
    
    Paid-In
    
    Stock
    
    Development
    
    Comprehensive
    
    EquityShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Compensation
    
    Stage
    
    Loss
    
    (Deficit)Balance at December 31, 2001 (brought forward)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,481,835
    
    
    $
    1
    
    
    
    
    
    
    
    
    
    
    
    2,528,044
    
    
    $
    1
    
    
    $
    27,058
    
    
    $
    (2,930
    )
    
    $
    (31,871
    )
    
    
    
    
    
    $
    (7,741
    )Issuance of Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    301,930
    
    
    
    1
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105Issuance of Convertible Preferred Stock for cash and
conversion of bridge financing net of issuance costs
of $138
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,564,047
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,716
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,717Deferred stock compensation associated with stock
option grants in 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    370
    
    
    
    (370
    )Compensation expense associated with stock options
outstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    452
    
    
    
    
    
    
    
    
    
    
    
    452Effect of reverse merger and recapitalization:Valuation of warrants associated with bridge financing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    657
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    657Valuation of beneficial conversion associated with
bridge financing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    843
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    843Compensation expense associated with stock options
outstanding recognized as a result of the reverse
merger
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,848
    
    
    
    
    
    
    
    
    
    
    
    2,848Conversion of convertible preferred shares to
Redeemable Convertible Preferred Series A at
liquidation / redemption value
    
    
    15,298,351
    
    
    $
    6,855
    
    
    
    
    
    
    
    
    
    
    
    (5,564,047
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,854
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,855
    )Conversion of convertible preferred shares to Common
Stock and Series B Preferred Shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,481,835
    )
    
    
    (1
    )
    
    
    12,025,656
    
    
    $
    120
    
    
    
    297,146
    
    
    
    3
    
    
    
    (122
    )Conversion of Subsidiary Common Stock into Company
Common Stock and Series B Preferred Shares:Elimination of Subsidiary Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,829,974
    )
    
    
    (1
    )
    
    
    1Issuance of Company Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,781,018
    
    
    
    78
    
    
    
    (78
    )Company Common Stock and related equity held by
existing shareholders (net of 18,115 shares held
treasury)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,966,966
    
    
    
    89
    
    
    
    2,678
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,767Conversion of Convertible Preferred Series B Stock to
Company Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,025,656
    )
    
    
    (120
    )
    
    
    12,025,656
    
    
    
    120Minimum 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    405
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    405Issuance of Redeemable Convertible Preferred Series C
Stock, net of issuance costs of $612, which include
the issuance of non-cash consideration in the form of
warrants
    
    
    
    
    
    
    
    
    
    
    22,246,153
    
    
    $
    9,357
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97Issuance of Common Stock warrants to Series C
Stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (969
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    969
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    969Valuation of beneficial conversion associated with
Series C Stock financing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,292
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,292
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,292Accretion of beneficial conversion associated with
Series C Stock financing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,292
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,292
    )
    
    
    
    
    
    
    (4,292
    )Issuance of Common Stock  warrants exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    230,000
    
    
    
    2
    
    
    
    113
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115Accretion of Series C Stock issuance cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (51
    )
    
    
    
    
    
    
    (51
    )Net loss and comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,730
    )
    
    
    
    
    
    
    (5,730
    )Balance at December 31, 2003
    
    
    15,298,351
    
    
    $
    6,855
    
    
    
    22,246,153
    
    
    $
    8,439
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    29,300,786
    
    
    $
    293
    
    
    $
    37,249
    
    
    $
    
    
    
    $
    (51,895
    )
    
    $
    (58
    )
    
    $
    (14,411
    )
  8




---



##### 



ReGen Biologics, Inc.
( )
 Consolidated Statement of Changes in Stockholders Equity (Deficit) and Series
A and Series C Redeemable Convertible Preferred Stock
 Series A
    
    Series C
    
    Stockholders Equity (Deficit)Redeemable
    
    Redeemable
    
    Series A - F
    
    Series B
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DeficitConvertible
    
    Convertible
    
    Convertible
    
    Convertible
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated
    
    Accumulated
    
    TotalPreferred
    
    Preferred
    
    Preferred
    
    Preferred
    
    
    
    
    
    
    
    
    
    Additional
    
    Deferred
    
    During
    
    Other
    
    StockholdersStock
    
    Stock
    
    Stock
    
    Stock
    
    Common Stock
    
    Paid-In
    
    Stock
    
    Development
    
    Comprehensive
    
    EquityShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Compensation
    
    Stage
    
    Loss
    
    (Deficit)Balance at December 31, 2003
(brought forward)
    
    
    15,298,351
    
    
    $
    6,855
    
    
    
    22,246,153
    
    
    $
    8,439
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    29,300,786
    
    
    $
    293
    
    
    $
    37,249
    
    
    $
    
    
    
    $
    (51,895
    )
    
    $
    (58
    )
    
    $
    (14,411
    )Compensation expense associated
with stock options outstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    264
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    264Accretion 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,781
    )
    
    
    
    
    
    
    (6,781
    )Balance at December 31, 2004
    
    
    14,655,628
    
    
    
    6,567
    
    
    
    12,943,533
    
    
    
    5,033
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,722,985
    
    
    
    517
    
    
    
    51,750
    
    
    
    
    
    
    
    (59,438
    )
    
    
    (58
    )
    
    
    (7,229
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46Accretion of Series C Stock
issuance cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55
    )
    
    
    
    
    
    
    (55
    )Recognition of Series C Stock
issuance cost upon conversion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (110
    )    
    
    
    
    
    
    (110
    )Conversion of Series A Preferred
Stock to Common Stock
    
    
    (22,670
    )
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,670
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10Conversion of Series C Preferred
Stock to Common Stock
    
    
    
    
    
    
    
    
    
    
    (1,896,896
    )
    
    
    (850
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,896,896
    
    
    
    19
    
    
    
    831
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    850Issuance of Common Stock work
completed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    1
    
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50Recognition of expense for the
minimum pension liability upon
termination of defined benefit
pension plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58Cumulative translation loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,247
    )Net loss and comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,191
    )Balance at June 30, 2005 (unaudited)
    
    
    14,632,958
    
    
    $
    6,557
    
    
    
    11,046,637
    
    
    $
    4,348
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    53,692,551
    
    
    $
    537
    
    
    $
    52,686
    
    
    $
    
    
    
    $
    (63,850
    )
    
    $
    (2
    )
    
    $
    (10,629
    )
  9




---



##### 



REGEN BIOLOGICS, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Period fromDecember 21, 1989Six Months Ended June 30,
    
    (Inception) to2005
    
    2004
    
    June 30, 2005(unaudited)
    
    (unaudited)
    
    (unaudited)Operating ActivitiesNet loss
    
    $
    (4,247
    )
    
    $
    (3,416
    )
    
    $
    (58,580
    )Adjustments to reconcile net loss to net cash used in
operating activities:Stock-based compensation
    
    
    127
    
    
    
    157
    
    
    
    6,713Amortization of debt discount for warrant and beneficial
conversion feature
    
    
    
    
    
    
    
    
    
    
    1,500Depreciation and amortization
    
    
    17
    
    
    
    40
    
    
    
    2,196Loss on disposal of property and equipment
    
    
    
    
    
    
    
    
    
    
    9Recognition of expense for the minimum pension liability
component of accumulated other comprehensive loss upon
termination of defined benefit pension plan
    
    
    58
    
    
    
    
    
    
    
    58Exchange loss
    
    
    7
    
    
    
    
    
    
    
    7Changes in operating assets and liabilities:Other current assets and receivables
    
    
    (156
    )
    
    
    (49
    )
    
    
    (320
    )Inventory
    
    
    (2
    )
    
    
    47
    
    
    
    (78
    )Other assets
    
    
    13
    
    
    
    15
    
    
    
    (60
    )Accounts payable and accrued expenses
    
    
    198
    
    
    
    180
    
    
    
    2,201Other liabilities
    
    
    
    
    
    
    14
    
    
    
    38Net cash used in operating activities
    
    
    (3,985
    )
    
    
    (3,012
    )
    
    
    (46,316
    )Investing ActivitiesPurchases of property and equipment
    
    
    (15
    )
    
    
    (10
    )
    
    
    (2,017
    )Changes in short-term investments
    
    
    
    
    
    
    
    
    
    
    2,945Net cash provided by (used in) investing activities
    
    
    (15
    )
    
    
    (10
    )
    
    
    928Financing ActivitiesIssuance of common stock to founders for contributed patents
    
    
    
    
    
    
    
    
    
    
    42Issuance of Series B preferred stock upon conversion of
interest payable
    
    
    
    
    
    
    
    
    
    
    6Reduction in payable to stockholder
    
    
    
    
    
    
    
    
    
    
    (76
    )Proceeds from issuance of convertible preferred stock, net
of offering costs paid in cash
    
    
    
    
    
    
    
    
    
    
    34,221Proceeds from issuance of common stock
    
    
    
    
    
    
    9,909
    
    
    
    10,420Repayment of capital lease obligations
    
    
    (4
    )
    
    
    (2
    )
    
    
    (127
    )Proceeds from notes payable
    
    
    
    
    
    
    
    
    
    
    11,410Payments on notes payable
    
    
    
    
    
    
    
    
    
    
    (2,323
    )Net cash provided by (used in) financing activities
    
    
    (4
    )
    
    
    9,907
    
    
    
    53,573Effect of exchange rate changes on cash
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Net increase (decrease) in cash and cash equivalents
    
    
    (4,013
    )
    
    
    6,885
    
    
    
    8,176Cash and cash equivalents at beginning of period
    
    
    12,190
    
    
    
    8,323
    
    
    
    1Cash and cash equivalents at end of period
    
    $
    8,177
    
    
    $
    15,208
    
    
    $
    8,177Supplemental Disclosure of Cash Flow Information
 10




---



##### 



Period fromDecember 21, 1989Six Months Ended June 30,
    
    (Inception) to2005
    
    2004
    
    June 30, 2005(unaudited)
    
    (unaudited)
    
    (unaudited)Non-cash disclosure:Issuance of Series B convertible preferred stock upon
conversion of notes payable
    
    $
    
    
    
    $
    
    
    
    $
    300Equipment purchased pursuant to capital leases
    
    
    63
    
    
    
    4
    
    
    
    196Cancellation of stock options associated with deferred
stock compensation
    
    
    
    
    
    
    
    
    
    
    1,250Net assets assumed in merger
    
    
    
    
    
    
    
    
    
    
    2,733Conversion of bridge financing to equity
    
    
    
    
    
    
    
    
    
    
    2,860Beneficial Conversion of Series C Stock
    
    
    
    
    
    
    
    
    
    
    4,292Warrants associated with Series C Stock
    
    
    
    
    
    
    
    
    
    
    969Warrants associated with Series C Stock private
placement agent fee
    
    
    
    
    
    
    
    
    
    
    97Conversion of Series A Preferred Stock
    
    
    10
    
    
    
    196
    
    
    
    298Warrants exercised, cashless transaction
    
    
    
    
    
    
    10
    
    
    
    10Conversion of Series C Preferred Stock
    
    
    850
    
    
    
    2,741
    
    
    
    5,018Cash disclosure:Cash paid for interest
    
    
    2
    
    
    
    1
    
    
    
    318
  11




---



##### 



REGEN BIOLOGICS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share data)
 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
     Disclosure about
Segments of an Enterprise and Related Information.
 Reclassifications
  Period fromThree Months
    
    Six Months
    
    December 21, 1989Ended June 30,
    
    Ended June 30,
    
    (Inception) to2004
    
    2004
    
    June 30, 2005(In thousands)Research and Development
    
    $
    9
    
    
    $
    19
    
    
    $
    3,108Business development, general and administrative
    
    
    29
    
    
    
    138
    
    
    
    3,553Total stock-based compensation expense 
reclassified
    
    $
    38
    
    
    $
    157
    
    
    $
    6,661
  12




---



##### 



Use of Estimates
  Cash and Cash Equivalents
  Inventories
   June 30,
    
    December 31,2005
    
    2004(In thousands)Raw material
    
    $
    23
    
    
    $
    29Work in process
    
    
    40
    
    
    
    10Finished goods
    
    
    15
    
    
    
    37$
    78
    
    
    $
    76
  Accrued Expenses
  June 30,
    
    December 31,2005
    
    2004(In thousands)Accrued professional fees
    
    $
    449
    
    
    $
    313Accrued wages and vacation
    
    
    55
    
    
    
    210Accrued printing cost
    
    
    85
    
    
    
    52Other accrued cost
    
    
    78
    
    
    
    63$
    667
    
    
    $
    638
 13




---



##### 



Defined Benefit Plan
   Foreign Currency Transactions
  Rental Activities
  Basic and Diluted Loss Per Share
  14




---



##### 



Stock Based Compensation
 Accounting for Stock Issued to Employees
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(Dollars in thousands, except per share data)Net loss attributable to common stockholders, as reported
    
    $
    (2,306
    )
    
    $
    (2,178
    )
    
    $
    (4,412
    )
    
    $
    (3,912
    )Add: Total stock-based employee compensation expense as
reported under intrinsic value method (APB No 25) for all
awards, net of related tax effects
    
    
    34
    
    
    
    32
    
    
    
    68
    
    
    
    145Deduct: Total stock-based employee compensation expense
determined under fair value based method (SFAS No. 123) for
all awards, net of related tax effects
    
    
    (188
    )
    
    
    (166
    )
    
    
    (379
    )
    
    
    (419
    )Pro forma net loss attributable to common stockholders
    
    $
    (2,460
    )
    
    $
    (2,312
    )
    
    $
    (4,723
    )
    
    $
    (4,186
    )Net loss per share attributable to common stockholders:Basic and diluted  as reported
    
    $
    (0.04
    )
    
    $
    (0.05
    )
    
    $
    (0.08
    )
    
    $
    (0.11
    )Basic and diluted  pro forma
    
    $
    (0.05
    )
    
    $
    (0.06
    )
    
    $
    (0.09
    )
    
    $
    (0.12
    )Shares
    
    
    53,411,887
    
    
    
    41,003,054
    
    
    
    53,321,120
    
    
    
    35,162,690
 Accounting Principles Issued But Not Yet Adopted
 Share-Based Payment Accounting for Stock-Based Compensation Accounting
for Stock Issued to Employees Statement of Cash Flows
  15




---



##### 



Inventory Costs Inventory Pricing
 (2) CONCENTRATIONS OF RISK
   16




---



##### 



Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Receivables:Trade (Linvatec)
    
    
    94
    %
    
    
    43
    %
    
    
    94
    %
    
    
    43
    %Related party
(Centerpulse)
    
    
    6
    %
    
    
    57
    %
    
    
    6
    %
    
    
    57
    %Sales revenues:Linvatec
    
    
    96
    %
    
    
    46
    %
    
    
    89
    %
    
    
    66
    %Centerpulse
    
    
    4
    %
    
    
    54
    %
    
    
    11
    %
    
    
    34
    %Royalties:Linvatec
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
   (3) RELATED PARTY TRANSACTIONS
  (4) CAPITAL TRANSACTIONS
  (5) COMMITMENTS AND CONTINGENCIES
   17




---



##### 



(6) SUBSEQUENT EVENTS
   18




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 (Dollars in thousands, except per share data)
  Business
      19




---



##### 



The preliminary observations presented above are for informational purposes only and should
not be construed as providing conclusive evidence regarding the results to be expected from the
clinical trials. We are continuing to analyze the data in order to more completely interpret the
preliminary observations. The preliminary observations presented above are not in any way
indicative of the likelihood for FDA approval of the CMI. The FDA has not yet approved the CMI and
there is no guarantee that we will obtain such approval.
    20




---



##### 




    
    Obtaining FDA approval of the CMI;
    
    Developing our distribution and marketing capabilities in the U.S., Europe and certain other countries;
    
    Conducting further research and development on select product opportunities within our
research and development pipeline.
  Recent Developments
    21




---



##### 



Critical Accounting Policies
  Results of Operations
 RECLASSIFICATION OF STOCK-BASED COMPENSATION EXPENSE.
 Period fromThree Months
    
    Six Months
    
    December 21, 1989Ended June 30,
    
    Ended June 30,
    
    (Inception) to2004
    
    2004
    
    June 30, 2005(unaudited)
    
    (unaudited)
    
    (unaudited)(In thousands)Research and Development
    
    $
    9
    
    
    $
    19
    
    
    $
    3,108Business development, general and administrative
    
    
    29
    
    
    
    138
    
    
    
    3,553Total stock-based compensation expense 
reclassified
    
    $
    38
    
    
    $
    157
    
    
    $
    6,661
 22




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##### 



Three and Six Months Ended June 30, 2005 Compared to Three and Six Months Ended June 30, 2004
 REVENUE.
      COST OF GOODS SOLD.
 23




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##### 



RESEARCH AND DEVELOPMENT.
 BUSINESS DEVELOPMENT, GENERAL AND ADMINISTRATIVE.
 RECOGNITION OF EXPENSE FOR THE MINIMUM PENSION LIABILITY
 24




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##### 



NON-OPERATING INCOME (EXPENSE).
 Liquidity and Capital Resources
      25




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##### 



SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
 Cautionary Note Regarding Forward-Looking Statements
  26




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##### 



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Item 4. Controls and Procedures
  27




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##### 



Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control Over Financial Reporting.
 28




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##### 



PART II
 Item 1. Legal Proceedings
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Item 3. Defaults upon Senior Securities
  Item 4. Submission of Matters to a Vote of Security Holders
    Number of
    
    Number ofName of Nominee
    
    Votes For
    
    Votes WithheldDr. Gerald E. Bisbee, Jr.
    
    
    61,233,838
    
    
    
    342,288Dr. Abhi Acharya
    
    
    61,233,838
    
    
    
    342,288Mr. Alan W. Baldwin
    
    
    61,233,838
    
    
    
    342,288Dr. Robert G. McNeil
    
    
    61,233,838
    
    
    
    342,288Dr. J. Richard Steadman
    
    
    61,233,838
    
    
    
    342,288Mr. William R. Timken
    
    
    61,233,838
    
    
    
    342,288
  Number ofNumber of
    
    Number of
    
    VotesVotes For
    
    Votes Against
    
    Abstaining61,269,932
    
    
    301,244
    
    
    
    4,950
  Number ofNumber of
    
    Number of
    
    VotesVotes For
    
    Votes Against
    
    Abstaining59,525,413
    
    
    2,031,616
    
    
    
    19,097
 29




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##### 



Number ofNumber of
    
    Number of
    
    VotesVotes For
    
    Votes Against
    
    Abstaining61,544,883
    
    
    10,366
    
    
    
    20,877
 Item 5. Other Information
  30




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##### 



Item 6. Exhibits
   Number
    
    Description2.1
    
    Agreement and Plan of Merger by and among ReGen Biologics, Inc., Aros Corporation and Aros
Acquisition Corporation dated as of June 7, 2002(1)2.2
    
    Agreement and Plan of Merger among the Company, NHA Acquisition Corporation, National Health
Advisors, Ltd., Scott A. Mason and Donald W. Seymour dated as of June 2, 1997(5)2.3
    
    Agreement and Plan of Merger among the Company and MetaContent, Inc. dated as of March 21,
2001(2)2.4
    
    Asset Purchase Agreement between Cerner Corporation and the Company dated as of April 7,
2001(3)2.5
    
    Amendment No. 1 to Asset Purchase Agreement by and between Cerner Corporation and the
Company dated as of June 11, 2001(3)3.1
    
    Amended and Restated Certificate of Incorporation (as amended)(27)3.2
    
    Amended and Restated By-Laws(4)4.1
    
    Specimen Common Stock Certificate(7)4.2
    
    Rights Agreement between the Company and First Chicago Trust Company of New York, dated as
of May 6, 1997(9)4.3*
    
    ReGen Biologics, Inc. Employee Stock Option Plan, Amended and Restated Effective January 31,
2003(12)4.4*
    
    ReGen Biologics, Inc. Non-Employee Director Stock Option Plan, Amended and Restated
Effective January 31, 2003(12)4.5
    
    Registration Rights Agreement between the Company and the Investors listed therein(8)4.6
    
    Registration Agreement between the Company and Certain Stockholders, dated December 28,
1995(18)4.7
    
    Amendment No. 1 to Rights Agreement between the Company and EquiServe Trust Company, N.A.
dated as of June 7, 2002(10)4.8
    
    Registration Agreement between the Company and each of Iowa Health Centers, P.C. d/b/a Iowa
Heart Center, P.C., Mercy Hospital Medical Center, Mark A. Tannenbaum, M.D. and Iowa Heart
Institute dated January 7, 1997(14)4.9
    
    Nonqualified Stock Option Agreements between the Company and each of Iowa Health Centers,
P.C. d/b/a Iowa Heart Center, P.C., Mercy Hospital Medical Center and Mark A. Tannenbaum,
M.D., dated January 7, 1997(19)4.10*
    
    Form of Employee Incentive Stock Option Agreement(27)4.11
    
    Stockholders Agreement by and among the several stockholders named therein, dated as of
June 21, 2002(15)4.12
    
    Amendment to Stockholders Agreement by and among Allen & Company Incorporated and the
several stockholders named therein, dated as of December 4, 2002(16)
 31




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Number
    
    Description4.13*
    
    ReGen Biologics, Inc. Non-Employee Director Supplemental Stock Option Plan Amended and
Restated Effective January 31, 2003(21)4.14
    
    Common Stock Registration Rights Agreement by and among ReGen Biologics, Inc., and the
stockholders named therein, dated as of April 19, 2004(22)4.15*
    
    Form of Incentive Stock Option Agreement(23)4.16*
    
    Form of Nonqualified Director Supplemental Stock Option Agreement(23)4.17
    
    Subscription Agreement by and between ReGen Biologics, Inc. and the Investors named therein
dated as of July 14, 2005(26)4.18
    
    Form of Warrant Agreement by and between ReGen Biologics, Inc. and the Individuals named
therein, dated as of July 14, 2005(26)4.19*
    
    Form of Nonqualified Non-Employee Director Stock Option Agreement(27)4.20*
    
    Form of Nonqualified Employee, Non-Employee Director or Consultant Stock Option Agreement(27)4.21*
    
    Form of Nonqualified Non-Employee Director Stock Option Agreement for the Supplemental Stock Option Plan(27)10.1*
    
    Employment agreement by and between Gerald E. Bisbee, Jr., Ph. D. and ReGen Biologics, Inc.
dated September 22, 1998 and amended September 12, 2000(13)10.2
    
    Form of Indemnification Agreement(4)10.3
    
    Distributorship Agreement by and between ReGen Biologics, Inc. and Sulzer Orthopedics AG
dated February 16, 1996(20)10.4*
    
    Employment Agreement by and between Brion D. Umidi and ReGen Biologics, Inc. dated March 23,
2004(20)10.5
    
    Amendment to Distributorship Agreement by and between ReGen Biologics, Inc. and Sulzer
Orthopedics AG dated January 18, 2002(20)10.6
    
    License Agreement by and between ReGen Biologics, Inc. and Linvatec Corporation dated April
7, 2000(20)10.7
    
    Credit Agreement by and between ReGen Biologics, Inc. and Sulzer Medica USA Holding Company
dated March 14, 2000(20)10.8
    
    Agreement by and among Sulzer Medica USA Holding Co., Sulzer Biologics Inc. Sulzer
Orthopedics Ltd. and ReGen Biologics, Inc. dated February 20, 2001(20)10.9*
    
    Assignment and Royalty Agreement by and among ReGen Biologics, Inc. Modified Polymer
Components, Inc. and Dr. J. Richard Steadman dated April 9, 1997(20)10.10
    
    Exclusive License Agreement by and between ReGen Biologics, Inc. and Dr. Shu-Tung Li dated
August 24, 1995(20)10.11*
    
    First Amendment to Employment Agreement by and between Gerald E. Bisbee, Jr., Ph. D. and
ReGen Biologics, Inc. dated March 23, 2004(20)10.12
    
    Common Stock Purchase Agreement by and among ReGen Biologics, Inc., and the Individuals
named therein, dated as of April 19, 2004(22)10.13
    
    Agreement by and between ReGen Biologics, Inc. and MedWork AG dated as of January 1, 2005(24)10.14
    
    Credit Agreement by and between ReGen Biologics, Inc. and Sulzer Medica USA Holding Company
dated November 30, 1998(25)21.1
    
    Subsidiaries of the Registrant(24)31.1
    
    Section 302 Certification from Gerald E. Bisbee, Jr., dated August 11, 2005(27)
 32




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##### 



Number
    
    Description31.2
    
    Section 302 Certification from Brion Umidi, dated August 11, 2005(27)32.1
    
    Section 906 Certification from Gerald E. Bisbee, Jr., dated August 11, 2005(27)32.2
    
    Section 906 Certification from Brion Umidi, dated August 11, 2005(27)
 
 (1)
    
    Incorporated herein by reference to the Companys Report on Form 10-Q for the quarter
ended June 30, 2002 (File No. 000-20805).(2)
    
    Incorporated herein by reference to the Companys Report on Form 10-Q/ A for the quarter
ended March 31, 2001 (File No. 000-20805).(3)
    
    Incorporated herein by reference to the Companys Report on Form 8-K filed on July 18, 2001
(File No. 000-20805).(4)
    
    Incorporated herein by reference to the Companys Report on Form 8-K filed on March 17, 2004
(File No. 000-20805).(5)
    
    Incorporated herein by reference to the Companys Report on Form 10-Q for the quarter ended
June 30, 1997 (File No. 000-20805).(6)
    
    Incorporated herein by reference to the Companys Report on Form 10-Q for the quarter ended
June 30, 2001 (File No. 000-20805).(7)
    
    Incorporated herein by reference to the Companys Registration Statement on Form S-3, filed
on November 19, 2003 (File No. 333-110605).(8)
    
    Incorporated herein by reference to the Companys Report on Form 8-K, filed on September 25,
2003 (File No. 000-20805).(9)
    
    Incorporated herein by reference to the Companys Report on Form 8-K filed on June 4, 1997
(File No. 000-20805).(10)
    
    Incorporated herein by reference to the Companys Report on Form 10-Q for the quarter ended
June 30, 2002 (File No. 000-20805).(11)
    
    [Reserved](12)
    
    Incorporated herein by reference to the Companys Proxy Statement on Schedule 14A filed on
April 14, 2003 (File No. 000-20805).(13)
    
    Incorporated herein by reference to the Companys Report on Form 8-K/A, filed on September 4,
2002 (File No. 000-20805).(14)
    
    Incorporated herein by reference to the Companys Current Report on Form 8-K filed on January
14, 1997 (File No. 000-20805).(15)
    
    Incorporated herein by reference to the Companys Report on Form SC 13D filed on March 24,
2003 (File No. 005-49089).(16)
    
    Incorporated herein by reference to the Companys Report on Form SC 13D/A filed on October 3,
2003 (File No. 005-49089).
 33




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##### 



(17)
    
    Incorporated herein by reference to the Companys Report on Form 8-K, filed on January 6,
2003 (File No. 000-20805).(18)
    
    Incorporated herein by reference to the Companys Registration Statement on Form S-1, filed
on June 4, 1996 (File No. 333-04106).(19)
    
    Incorporated herein by reference to the Companys Report on Form 10-Q for the quarter ended
March 31, 1997 (File No. 000-20805).(20)
    
    Incorporated herein by reference to the Companys Report on Form 10-K for the year ended
December 31, 2003 (File No. 000-20805)(21)
    
    Incorporated herein by reference to the Companys Registration Statement on Form S-1/A, filed
on January 14, 2004 (File No. 333-110605).(22)
    
    Incorporated herein by reference to the Companys Registration Statement on Form S-1, filed
on April 26, 2004 (File No. 33-114867).(23)
    
    Incorporated herein by reference to the Companys Report on Form 10-Q for the quarter ended
September 30, 2004 (File No. 000-20805).(24)
    
    Incorporated herein by reference to the Companys Report on Form 10-K for the year ended
December 31, 2004 (File No. 000-20805)(25)
    
    Incorporated herein by reference to the Companys Report on Form 10-Q for the
quarter ended March 31, 2005 (File No. 000-20805).(26)
    
    Incorporated herein by reference to the Companys Report on Form 8-K, filed on
July 18, 2005 (File No. 000-20805).(27)
    
    Included with
this filing.
 
 *
    
    Management Contract or Compensatory Plan or Arrangement 34




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##### 



SIGNATURES
  REGEN BIOLOGICS, INC.By:
    /s/ BRION D. UMIDIBrion D. UmidiSenior Vice President and
Chief Financial Officer 35