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, 2009





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 has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


Yes £ 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 4, 2009
was 9,774,252







1




REGEN
BIOLOGICS, INC.





INDEX





Page
      No.PART I — FINANCIAL INFORMATION
                  3Item 1. Financial Statements.
                  3Condensed Consolidated Balance
      Sheets at March 31, 2009 (unaudited) and December 31,
      2008
                  3Condensed Consolidated Statements
      of Operations for the Three Months Ended March 31, 2009 (unaudited) and
      2008 (unaudited)
                  4Consolidated Statements of
      Changes in Stockholders’ Equity (Deficit) and Series A & Series C
      Redeemable Convertible Preferred Stock for the Three Months Ended
      March 31, 2009 (unaudited)
                  5Condensed Consolidated Statements
      of Cash Flows for the Three Months Ended March 31, 2009 (unaudited) and
      2008 (unaudited)
                  6Notes to Condensed Consolidated
      Financial Statements (unaudited)
                  7Item 2. Management’s Discussion and
      Analysis of Financial Condition and Results of
      Operations.
                  17Item 3. Quantitative and Qualitative
      Disclosures about Market Risk.
                  24Item 4T. Controls and
      Procedures.
                  24PART II — OTHER INFORMATION
                  24Item 1. Legal
      Proceedings.
                  24Item 1A. Risk
      Factors.
                  25Item 2. Unregistered Sales of
      Equity Securities and Use of Proceeds.
                  25Item 3. Defaults Upon Senior
      Securities.
                  25Item 4. Submission of Matters to a
      Vote of Security Holders.
                  25Item 5. Other
      Information.
                  25Item 6.
      Exhibits.
                  25Signatures
                  29Certification




2
 Index




PART
I — FINANCIAL INFORMATION





Item
1. Financial Statements.





REGEN BIOLOGICS, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Dollars
in thousands, except per share data)





March 31, 2009
                  
                  
                  December 31, 2008(unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
                  
                  $
                  6,115
                  
                  
                  $
                  250Trade
      receivables, net of allowance for doubtful accounts of $40 and $20, at
      March 31, 2009 and December 31, 2008, respectively
                  
                  
                  181
                  
                  
                  
                  233Inventory
                  
                  
                  464
                  
                  
                  
                  400Prepaid
      expenses and other current assets
                  
                  
                  736
                  
                  
                  
                  895Deferred
      financing costs
                  
                  
                  2
                  
                  
                  
                  82Total
      current assets
                  
                  
                  7,498
                  
                  
                  
                  1,860Property
      and equipment, net
                  
                  
                  347
                  
                  
                  
                  328Other
      assets
                  
                  
                  103
                  
                  
                  
                  103Total
      assets
                  
                  $
                  7,948
                  
                  
                  $
                  2,291LIABILITIES
      AND STOCKHOLDERS’ EQUITY (DEFICIT)Current
      liabilities:Accounts
      payable
                  
                  $
                  878
                  
                  
                  $
                  720Accounts
      payable to related party
                  
                  
                  28
                  
                  
                  
                  9Accrued
      expenses
                  
                  
                  724
                  
                  
                  
                  731Other
      current liabilities
                  
                  
                  15
                  
                  
                  
                  15Convertible
      notes payable, face value $171, less unamortized discount of $31, and
      including accrued interest of $2 at March 31, 2009; face value $3,039,
      less unamortized discount of $1,125, and including accrued interest of $92
      at December 31, 2008
                  
                  
                  142
                  
                  
                  
                  2,006Current
      portion of notes payable to related party, including accrued interest of
      $2,547 and $2,479 as of March 31, 2009 and December 31, 2008,
      respectively
                  
                  
                  8,590
                  
                  
                  
                  8,522Total
      current liabilities
                  
                  
                  10,377
                  
                  
                  
                  12,003Other
      liabilities
                  
                  
                  257
                  
                  
                  
                  189Long-term
      portion of capital leases
                  
                  
                  3
                  
                  
                  
                  7Total
      liabilities
                  
                  
                  10,637
                  
                  
                  
                  12,199Series
      A redeemable convertible preferred stock, $.01 par value; 15,309,822
      shares authorized; issued and outstanding 1,990,331 shares at liquidation
      preference of $892 at March 31, 2009 and December 31, 2008
                  
                  
                  892
                  
                  
                  
                  892Series
      C redeemable convertible preferred stock, $.01 par value; 30,000,000
      shares authorized; issued and outstanding 1,381,881 shares at
      liquidation preference of $619 at March 31, 2009, and
      6,025,437 shares at liquidation preference of $2,700 at
      December 31, 2008
                  
                  
                  597
                  
                  
                  
                  2,586Stockholders’
      equity (deficit):Common
      stock, $.01 par value; 165,000,000 shares authorized; issued and
      outstanding 9,774,252 shares at March 31, 2009, and 6,018,152 shares at
      December 31, 2008
                  
                  
                  98
                  
                  
                  
                  59Additional
      paid-in capital
                  
                  
                  106,676
                  
                  
                  
                  92,041Accumulated
      deficit
                  
                  
                  (110,952
                  )
                  
                  
                  (105,486
                  )Total
      stockholders’ deficit
                  
                  
                  (4,178
                  )
                  
                  
                  (13,386
                  )Total
      liabilities and stockholders’ deficit
                  
                  $
                  7,948
                  
                  
                  $
                  2,291


____________





See
accompanying Notes to Condensed Consolidated Financial Statements.





3
 Index




REGEN BIOLOGICS, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


(Dollars
in thousands, except per share data)




Three
      Months Ended March 31,2009
                
                
                2008Revenue:Sales
                
                $
                288
                
                
                $
                334Royalties
                
                
                9
                
                
                
                9Total
      revenue
                
                
                297
                
                
                
                343Expenses:Costs
      of goods sold
                
                
                135
                
                
                
                143Research
      and development
                
                
                1,403
                
                
                
                998Business
      development, general and administrative
                
                
                2,877
                
                
                
                1,469Total
      expenses
                
                
                4,415
                
                
                
                2,610Operating
      loss
                
                
                (4,118
                )
                
                
                (2,267
                )Interest
      and other income
                
                
                7
                
                
                
                32Interest
      and other expense
                
                
                (1,263
                )
                
                
                (78
                )Net
      loss
                
                
                (5,374
                )
                
                
                (2,313
                )Accretion
      of issuance costs on Series C Preferred Stock
                
                
                (92
                )
                
                
                (17
                )Net
      loss attributable to common stockholders
                
                $
                (5,466
                )
                
                $
                (2,330
                )Basic
      and diluted net loss per share attributable to common
      stockholders
                
                $
                (0.64
                )
                
                $
                (0.45
                )Weighted
      average number of shares used for calculation of net loss per
      share
                
                
                8,556,600
                
                
                
                5,208,562


____________





See
accompanying Notes to Condensed Consolidated Financial Statements.





4
 Index




ReGen
Biologics, Inc.


CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
AND SERIES


A
AND SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK


(Unaudited)


(Dollars
in thousands, except per share data)





Series
      A
                                  
                                  
                                  Series
      C
                                  
                                  
                                  Stockholders
      Equity (Deficit)Redeemable
                                    Convertible
                                    Preferred
                                    Stock
                                  
                                  
                                  Redeemable
                                    Convertible
                                    Preferred
                                    Stock
                                  
                                  
                                  Common
      Stock
                                  
                                  
                                  Additional
                                    Paid-In
                                  
                                  
                                  Accumulated
                                  
                                  
                                  Total
                                    Stockholders'
                                    EquityShares
                                  
                                  
                                  Amount
                                  
                                  
                                  Shares
                                  
                                  
                                  Amount
                                  
                                  
                                  Shares
                                  
                                  
                                  Amount
                                  
                                  
                                  Capital
                                  
                                  
                                  Deficit
                                  
                                  
                                  (Deficit)Balance
      at December 31, 2008
                                  
                                  
                                  1,990,331
                                  
                                  
                                  $
                                  892
                                  
                                  
                                  
                                  6,025,437
                                  
                                  
                                  $
                                  2,586
                                  
                                  
                                  
                                  6,018,152
                                  
                                  
                                  $
                                  59
                                  
                                  
                                  $
                                  92,041
                                  
                                  
                                  $
                                  (105,486
                                  )
                                  
                                  $
                                  (13,386
                                  )Stock-based
      compensation expense
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  903
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  903Accretion
      of Series C Stock issuance cost
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  92
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (92
                                  )
                                  
                                  
                                  (92
                                  )Issuance
      of Common Stock-- work completed
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  4,688
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  12
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  12Issuance
      of common stock - common stock offering
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,509,673
                                  
                                  
                                  
                                  26
                                  
                                  
                                  
                                  8,648
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  8,674Issuance
      of common stock - conversion of debt
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  988,597
                                  
                                  
                                  
                                  10
                                  
                                  
                                  
                                  2,956
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,966Issuance
      of common stock - options exercised
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  20,962
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  38
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  38Conversion
      of Series C Preferred Stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (4,643,556
                                  )
                                  
                                  
                                  (2,081
                                  )
                                  
                                  
                                  232,180
                                  
                                  
                                  
                                  3
                                  
                                  
                                  
                                  2,078
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,081Net
      loss and comprehensive loss
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (5,374
                                  )
                                  
                                  
                                  (5,374
                                  )Balance
      at March 31, 2009
                                  
                                  
                                  1,990,331
                                  
                                  
                                  $
                                  892
                                  
                                  
                                  
                                  1,381,881
                                  
                                  
                                  $
                                  597
                                  
                                  
                                  
                                  9,774,252
                                  
                                  
                                  $
                                  98
                                  
                                  
                                  $
                                  106,676
                                  
                                  
                                  $
                                  (110,952
                                  )
                                  
                                  $
                                  (4,178
                                  )





See
accompanying Notes to Consolidated Financial Statements.





5
 Index




REGEN BIOLOGICS, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


(Dollars
in thousands)




Three
      Months Ended March 31,2009
                
                
                2008Operating
      ActivitiesNet
      loss
                
                $
                (5,374
                )
                
                $
                (2,313
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Stock-based
      compensation
                
                
                1,052
                
                
                
                435Amortization
      of debt discount for warrants and beneficial conversion
      feature
                
                
                1,168
                
                
                
                —Depreciation
      and amortization
                
                
                23
                
                
                
                26Exchange
      loss (gain)
                
                
                14
                
                
                
                (60)Changes
      in operating assets and liabilities:Other
      current assets and receivables
                
                
                75
                
                
                
                51Inventory
                
                
                (64
                )
                
                
                32Other
      assets
                
                
                —
                
                
                
                2Accounts
      payable and accrued expenses
                
                
                251
                
                
                
                243Other
      liabilities
                
                
                68
                
                
                
                (39
                )Net
      cash used in operating activities
                
                
                (2,787
                )
                
                
                (1,623
                )Investing
      ActivitiesPurchases
      of property and equipment
                
                
                (42
                )
                
                
                —Changes
      in investments
                
                
                —
                
                
                
                100Net
      cash (used in) provided by investing activities
                
                
                (42
                )
                
                
                100Financing
      ActivitiesProceeds
      from issuance of common stock
                
                
                8,712
                
                
                
                —Repayment
      of capital lease obligations
                
                
                (4
                )
                
                
                (3
                )Net
      cash  provided by (used in) financing activities
                
                
                8,708
                
                
                
                (3
                )Effect
      of exchange rate changes on cash
                
                
                (14
                )
                
                
                60Net
      increase (decrease) in cash and cash equivalents
                
                
                5,865
                
                
                
                (1,466
                )Cash
      and cash equivalents at beginning of period
                
                
                250
                
                
                
                4,008Cash
      and cash equivalents at end of period
                
                $
                6,115
                
                
                $
                2,542Supplemental
      Disclosure of Cash Flow InformationNon-cash
      disclosure:Conversion
      of bridge notes to equity
                
                $
                2,966
                
                
                $
                —Conversion
      of Series C Preferred Stock
                
                
                2,081
                
                
                
                —Issuance
      of stock for services rendered
                
                
                12
                
                
                
                58Cash
      disclosure:Cash
      paid for interest
                
                
                0
                
                
                
                2


____________




See
accompanying Notes to Condensed Consolidated Financial Statements.





6
 Index




REGEN BIOLOGICS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





(1)
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Principles
of Consolidation and Basis of Presentation





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





The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form10-Q and, as permitted by
such instructions, do not include all the information and notes required by
accounting principles generally accepted in the United States for complete
financial statements. In the opinion of management, the accompanying condensed
consolidated financial statements contain all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the financial position and
the results of operations for the periods presented.





To date
the Company has not generated a positive internal cash flow and until revenues
increase from the sale of its products, the Company will be dependent upon the
availability of future debt and equity funding. 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. See “Risks and Going
Concern Uncertainties” below, for further information.





ReGen
currently operates as an orthopedic products company that develops,
manufactures, and markets innovative tissue growth and repair products for
U.S. and global markets. ReGen is managed and operated as one business
segment. Accordingly, ReGen does not prepare financial information for separate
product areas and does not have separate reportable segments as defined by
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosure about Segments of
an Enterprise and
Related Information.





For
further information, refer to the audited consolidated financial statements and
notes included in ReGen’s Annual Report on Form 10-K for the year ended December
31, 2008.





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. In December 2008, we received U.S. Food and Drug
Administration, or FDA, clearance to market the MenaflexTM
collagen meniscus implant in the U.S. The Menaflex device was determined to be
substantially equivalent to existing Class II devices through the 510(k)
premarket notification process and is indicated for use in surgical procedures
for the reinforcement and repair of soft tissue injuries of the medial meniscus.
In the first quarter of 2009 we initiated U.S. marketing of our Menaflex product
for the medial meniscus indication. We market the Menaflex product in the
European Union (the “EU”) and the Republic of South Africa for both the medial
and lateral meniscus indications. We plan to seek expansion of the indication
for use in the lateral meniscus through a new 510(k) application to be submitted
to the FDA during the second quarter of 2009. There can be no assurance as to
the outcome of our efforts to expand the indication for use in the lateral
meniscus or the time frame to complete the 510(k) process.





In March
2009, the Company received a letter from the office of Senator Charles E.
Grassley, a member of the Senate Committee on Finance, regarding the approval
process of the Menaflex in the context of his examination of the relationship
between the FDA and product manufacturers.  The letter requested us to
provide responses and information in connection with the 510(k) approval
process. The Company is cooperating fully with this inquiry. However, the
Company has no indication what the outcome of this inquiry will be or if it will
continue.





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 assisting in establishment of third party
reimbursement for the surgeons and facilities that would be responsible for
implanting the Menaflex device. Management has developed a U.S. launch plan
which leverages the Company’s experience in marketing the Menaflex product in
the EU.  The Company has initiated recruitment of independent sports
medicine focused distributors and has begun to implement reimbursement support
strategies. While the Company is actively working to address distribution,
third-party reimbursement, and other operational issues, there is no guarantee
that the Company will be successful or able to effectively address these
challenges in any given time frame.  On April 15, 2009, the first
commercial surgery in the U.S. utilizing the Menaflex was completed, and as of
March 31, 2009, the Company has trained 45 sports medicine surgeons and over 30
sales representatives in the use of the Menaflex.




7
 Index




All of
the Company’s notes payable to a related party (balance of $8,590 at March 31,
2009) become due and payable on December 31, 2009, and the Company’s Series A
and Series C redeemable convertible preferred stock (liquidation preference at
March 31, 2009, of $892 and $619, respectively) become redeemable in one-third
annual increments at the option of not less than a majority of the holders in
June 2009 and September 2010, respectively. In addition, the Company's
convertible notes, with aggregate face value plus accrued interest of $173 at
March 31, 2009, will be come due July 24, 2009, if not converted at the options
of the holders.





The
Company will need to pursue additional financing in order to support ongoing
operations, including U.S. launch of the Menaflex product and meeting future
debt service and preferred stock redemption requirements. 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 three months ended March 31, 2009, the Company
incurred a net loss of $5,374 and used $2,787 of cash in operating activities.
At March 31, 2009, the Company had cash, cash equivalents and short-term
investments of $6,115 and net working capital of $(2,879). In January and
February 2009, the Company completed a two-staged common stock financing for
aggregate proceeds of $8,674 (see Note 6 for further information). Based
upon current cash and investment balances, including proceeds from financings in
the first quarter of 2009, and planned spending rates for 2009, management
believes that the Company has adequate cash and investments on hand to support
ongoing operations through June 2009. Our estimate may change, however, if
actual results differ significantly from our expectations. Key assumptions that
may affect our estimate include (but are not limited to) (i) actual sales
that may vary significantly from our expectations; (ii) the actual timeline
of events with respect to our new 510(k) submission to the FDA; (iii) the
actual pace of spending associated with commercialization of the Menaflex
product; (iv) costs associated with other business objectives; (v) costs
associated with responding to regulatory or legal inquiries; and (vi) other
developments in our business.  Management anticipates that additional cash
will be required to support operations beyond June 2009. However, if unforeseen
events occur, it is possible that additional cash may be needed before June 2009
to support operations. The Company continues to seek financing opportunities in
order to support operations and continue as a going concern. We have received no
commitments for additional financing. The consolidated financial statements have
been prepared assuming that the Company will continue as a going concern.
However, if additional capital is not obtained, the Company will not be able to
continue as a going concern. The Company’s financial statements do not include
any adjustments relating to the recoverability or classification of assets or
the amounts or classification of liabilities that might result from the outcome
of this uncertainty.





Adoption
of New Accounting Pronouncements




Effective
January 1, 2009, the Company adopted FSP No. APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (FSP No. APB 14-1), which clarifies that convertible debt
instruments that may be settled in cash upon conversion (including partial cash
settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants. Additionally, FSP No. APB 14-1
specifies that issuers of such instruments should separately account for the
liability and equity components in a manner that will reflect the entity’s
nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. FSP No. APB 14-1 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. The Company’s convertible debt instruments cannot be
settled in cash upon conversion. The adoption of FSP No. APB 14-1 did not
have a material effect on its consolidated financial statements.





Effective
January 1, 2009, the Company adopted Statement of Financial Accounting Standards
No. 161 (SFAS No. 161), Disclosures about Derivative
Instruments and Hedging Activities an amendment of FASB Statement No.
133, which provides disclosure requirements for derivative instruments
and hedging activities and applies to all derivative instruments, including
bifurcated derivative instruments(and
nonderivative instruments that are designated and qualify as hedging
instruments) and related hedged items accounted for under Statement No. 133. It
amends and expands the previous disclosure requirements of Statement 133.
SFAS No.161 is effective for interim periods beginning after November 15,
2008. The adoption of the provisions of SFAS No. 161 did not have a
material effect on the Company’s consolidated financial statements.





Effective
January 1, 2009, the Company adopted FASB Statement No. 141(R), Business Combinations (SFAS
No. 141(R)), and Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51 (SFAS No.
160). These new standards significantly changed the financial accounting and
reporting of business combinations and noncontrolling (or minority) interests in
consolidated financial statements. SFAS No. 141(R) is required to be adopted
concurrently with SFAS No. 160 and, with limited exceptions for certain income
tax accounting changes, is effective for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The adoption of SFAS No.
141(R) and SFAS No. 160 did not have a material effect on the Company’s
consolidated financial statements.





Effective
January 1, 2009, the Company adopted FASB Staff Position (FSP) No. FAS 141(R)-1
(FSP FAS 141(R)-1), Accounting
for Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies, which amends and clarifies SFAS No. 141 (revised
2007), Business
Combinations, to address application issues raised by preparers,
auditors, and members of the legal profession on initial recognition and
measurement, subsequent measurement and accounting, and disclosure of assets and
liabilities arising from contingencies in a business combination. FSP FAS 141
(R)-1 has the same effective date as SFAS No. 141(R). The adoption of FSP FAS
141 (R)-1 did not have a material effect on the Company’s consolidated financial
statements.




8
 Index




Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities Earnings per Share.




Effective
January 1, 2009, the Company adopted EITF 07-5, Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity's Own Stock
(EITF 07-5), which provides guidance in assessing whether an equity-linked
financial instrument (or embedded feature) is indexed to an entity's own stock
for purposes of determining whether the appropriate accounting treatment falls
under the scope of SFAS 133, Accounting For Derivative
Instruments and Hedging Activities, and/or EITF 00-19, Accounting For Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock. EITF 07-5 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within
those years. The adoption of EITF 07-5 did not have a material effect on
the Company’s consolidated financial statements.





In
February 2008, the FASB issued FSP No. FAS 157-2, Effective Date of FASB Statement
No. 157 (FSP FAS 157-2), which was effective upon issuance and which
delayed the effectiveness of SFAS No. 157, Fair Value Measurements (SFAS
No. 157), for all non-financial assets and non-financial 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 and interim periods within those fiscal years. The
Company adopted SFAS No. 157 as it applies to its financial instruments,
effective January 1, 2008, and adopted FSP FAS 157-2 as it applies to its
non-financial assets and liabilities, effective January 1, 2009. There were
no gains or losses for the three month period ended March 31, 2009 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 and FSP FAS 157-2 did not have a material effect on
the Company’s consolidated financial statements.





Accounting
Principles Issued But Not Yet Adopted





In April
2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly (FSP FAS
157-4), which provides additional guidance for estimating fair value in
accordance with SFAS No. 157, Fair Value Measurements, when
the volume and level of activity for the asset or liability have significantly
decreased. FSP FAS 157-4 also includes guidance on identifying circumstances
that indicate a transaction is not orderly and emphasizes that even if there has
been a significant decrease in the volume and level of activity for the asset or
liability and regardless of the valuation technique(s) used, the objective of a
fair value measurement remains the same. Fair value is the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction (that is, not a forced liquidation or distressed sale) between
market participants at the measurement date under current market conditions. FSP
FAS 157-4 is effective for interim and annual reporting periods ending after
June 15, 2009, and shall be applied prospectively. Early adoption is permitted
for periods ending after March 15, 2009. Earlier adoption for periods ending
before March 15, 2009, is not permitted. The Company has not yet determined
what, if any, effect adoption of FSP FAS 157-4 will have on its results of
operations or financial condition.





In April
2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments(FSP FAS 115-2 and FAS 124-2),which amends the
other-than-temporary impairment guidance in U.S. GAAP for debt securities to
make the guidance more operational and to improve the presentation and
disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements. FSP FAS 115-2 and FAS 124-2 does not amend existing
recognition and measurement guidance related to other-than-temporary impairments
of equity securities. FSP FAS 115-2 and FAS 124-2 is effective for interim and
annual reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. Earlier adoption for periods
ending before March 15, 2009, is not permitted. The Company has not yet
determined what, if any, effect adoption of FSP FAS 115-2 and FAS 124-2 will
have on its results of operations or financial condition.





In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments(FSP FAS 107-1 and APB 28-1), which amends FASB Statement
No. 107, Disclosures about
Fair Value of Financial Instruments, to require disclosures about fair
value of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. This FSP also amends APB
Opinion No. 28,Interim
Financial Reporting, to require those disclosures in summarized financial
information at interim reporting periods. FSP FAS 107-1 and APB 28-1 is
effective for interim reporting periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009. An entity may early
adopt FSP FAS 107-1 and APB 28-1 only if it also elects to early adopt FSP FAS
157-4and FSP FAS
115-2 and FAS 124-2. The Company has not yet determined what, if any, effect
adoption of FSP FAS 107-1 and APB 28-1 will have on its results of operations or
financial condition.




In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. This Statement identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy). The Statement is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. The Company
does not expect adoption of SFAS No. 162 to have a significant impact on its
consolidated financial statements.





9
 Index





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 $5,653 and $182, in a money market account
and $256 and $10 in a sweep account as of March 31, 2009 and December 31, 2008,
respectively. At March 31, 2009 and December 31, 2008, respectively, the Company
held cash of $65 and $28 in a foreign account.





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 $40 and $20 at March 31, 2009 and
December 31, 2008, 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.
Abnormal amounts of idle facility expense, freight, handling costs, and spoilage
are recognized as current-period charges and allocation of fixed production
overhead to the costs of conversion is based on management’s estimate of the
normal capacity of the Company’s production facility.




Inventory
consists of the following:





March 31,
                  2009
                
                
                December 31,
                  2008(In
      thousands)Raw
      material
                
                $
                39
                
                
                $
                31Work
      in process
                
                
                137
                
                
                
                41Finished
      goods
                
                
                288
                
                
                
                328$
                464
                
                
                $
                400





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.





Prepaid
Expenses and Other Current Assets





Prepaid
expenses and other current assets consist of the following:





March 31,
                  2009
                
                
                December 31,
                  2008(In
      thousands)Prepaid
      expenses
                
                $
                375
                
                
                $
                553Escrow
      deposit
                
                
                304
                
                
                
                304Interest
      and other receivables
                
                
                52
                
                
                
                33Security
      deposit
                
                
                5
                
                
                
                5$
                736
                
                
                $
                895




10
 Index




The
escrow deposit was established to provide for payment of up to six months salary
and benefits and related payroll taxes for three of the Company’s executive
officers under certain termination scenarios. In accordance with the escrow
agreement, any escrow funds not disbursed by December 31, 2009 will revert to
the Company. The escrow deposits also include amounts to cover estimated escrow
administration fees. See Note 2 for further information about the escrow
arrangement and related commitments.





Accrued
Expenses





Accrued
expenses consist of the following:





March 31,
                  2009
                
                
                December 31,
                  2008(In
      thousands)Accrued
      professional fees
                
                $
                603
                
                
                $
                278Accrued
      wages and vacation
                
                
                95
                
                
                
                375Accrued
      printing cost
                
                
                16
                
                
                
                29Other
      accrued cost
                
                
                10
                
                
                
                49$
                724
                
                
                $
                731





Foreign
Currency Transactions





The
Company has determined the functional currency of ReGen AG to be the U.S. dollar
(USD). ReGen AG has cash accounts 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, 2009 and 2008 approximated $13 and $(24),
respectively.





Basic
and Diluted Net Loss Per Share





Basic net
loss per share 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 performance-based awards, the Company recognizes the estimated
expense based on the accelerated attribution method. For all awards for which
vesting is based only on service conditions, the expense is recorded based on
the straight-line attribution method.




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. 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.





During
the three months ended March 31, 2009, the Company granted options to two
employees to purchase an aggregate of 185,000 shares of its common stock, with
an estimated weighted average grant date fair value of $2.56 per
share. During the three months ended March 31, 2008, the Company did not
grant any options





In March
2009, for services rendered during 2009, the Company issued to a vendor 4,688
shares of its restricted common stock. Related to this issuance the Company
included the estimated fair value of $12 in its results of operations for the
first quarter of 2009.





11
 Index




In March
2008, for services rendered during 2008, the Company issued to a vendor 3,750
shares of Series E Stock (18,750 shares of common stock as a result of the
reverse stock split and mandatory conversion of the Series E Stock that was
effective November 29, 2008). Related to this issuance the Company included the
estimated fair value of $58 in its results of operations for the first quarter
of 2008.





(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.





Effective
June 27, 2008, management entered into an escrow arrangement to provide for
payment of up to six months salary and benefit continuation and related payroll
taxes for three of the Company’s executive officers (approximately $300). In
accordance with the escrow agreement, any funds not disbursed by December 31,
2009, will revert to the Company. The executive salaries and benefits will be
continued in the event employment is terminated without cause or upon the
failure of the Company to pay in full the regularly scheduled salary,
withholding taxes and benefits of the designated executives as services are
rendered by such executives. For purposes of the escrow agreement “cause” is
defined as the employee’s (i) commission of an action having a material adverse
effect on ReGen which constitutes an act of fraud, dishonesty, or moral
turpitude, or which, if proven in a court of law, would constitute a violation
of a criminal code or other law; (ii) divulging ReGen’s confidential information
in a manner that has a material adverse effect on it; or (ii) material breach of
any material duty or obligation imposed upon the employee by ReGen.





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, 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.





In April
2009, the Company entered into an employment agreement with an officer of the
Company providing for minimum aggregate annual compensation of approximately
$230, a signing bonus of $40, an initial stock option grant of 110,000 shares of
the Company’s common stock and a grant of 20,000 restricted shares of the
Company’s common stock. The signing bonus was paid upon commencement of the
officer’s employment with the Company, which occurred in February 2009, and the
stock option grant was made in the first quarter of 2009 (see Stock Based
Compensation for further information). The grant of restricted stock is expected
to be made in the second quarter of 2009. The officer is also eligible for an
annual performance bonus of up to 25% of his annual base salary. The employment
agreement provides for consecutive one year terms of employment which may be
terminated by either party upon ninety days prior written notice. The officer is
entitled to certain benefits if his employment is terminated without cause or
due to a change in control (with “cause” and change in control both as defined
in the agreement). Also in April, the Company entered into an indemnification
agreement (the “Indemnification Agreement”) with this officer, pursuant to
which, the officer will be indemnified by the Company to the fullest extent
permissible under applicable law for the expenses and liabilities described in
such Indemnification Agreement. The terms of this Indemnification Agreement are
the same as those of similar agreements between the Company and its directors
and other senior officers.





(3)
CONCENTRATIONS OF RISK





The
Company currently markets and sells two products. Our primary product, the
Menaflex collagen meniscus implant, 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, a suturing device used to facilitate the surgical implantation
of the Company’s collagen matrix products, as well as to perform other similar
arthroscopic meniscal repair procedures.





Both the
Menaflex and SharpShooter products are marketed in the EU and the Republic of
South Africa through non-exclusive distribution agreements with independent
orthopedic marketing companies in those territories. The SharpShooter also is
marketed through a worldwide non-exclusive distribution agreement with Linvatec
Corporation (Linvatec), a subsidiary of ConMed (NASDAQ: CNMD). The SharpShooter
is cleared for sale in the U.S., the EU, Canada, Chile, the Republic of South
Africa and Japan.




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. Concentrations of receivables and revenue by
geographic location as of and for the three month periods ended March 31, 2009
and 2008 are as follows:





12
 Index




Three
      Months Ended
                  March
      31,2009
                
                
                2008Receivables:U.S.
      (Linvatec)
                
                
                6
                %
                
                
                10
                %Krankenhaus
      Norderney (direct, Germany)
                
                
                11
                %
                
                
                —Germany
      (direct, various other)
                
                
                34
                %
                
                
                48
                %Hospital
      Innovations, Ltd. (distributor, U.K.)
                
                
                15
                %
                
                
                3
                %Italy
      (one distributor)
                
                
                0
                %
                
                
                13
                %Spain
      (two distributors)
                
                
                0
                %
                
                
                12
                %Austria
      (direct, various)
                
                
                12
                %
                
                
                6
                %Poland
      (one distributor)
                
                
                2
                %
                
                
                3
                %Republic
      of South Africa (one distributor)
                
                
                7
                %
                
                
                2
                %Switzerland
      (direct, various)
                
                
                7
                %
                
                
                3
                %Belgium
      (direct, various)
                
                
                6
                %
                
                
                0
                %Sales
      revenue:U.S.
      (Linvatec)
                
                
                24
                %
                
                
                5
                %Krankenhaus
      Norderney (direct, Germany)
                
                
                4
                %
                
                
                —Germany
      (direct, various other)
                
                
                39
                %
                
                
                56
                %Hospital
      Innovations, Ltd. (distributor, U.K.)
                
                
                11
                %
                
                
                3
                %Italy
      (one distributor)
                
                
                4
                %
                
                
                9
                %Spain
      (two distributors)
                
                
                0
                %
                
                
                9
                %Austria
      (direct, various)
                
                
                7
                %
                
                
                7
                %Poland
      (one distributor)
                
                
                0
                %
                
                
                3
                %Republic
      of South Africa (one distributor)
                
                
                4
                %
                
                
                2
                %Switzerland
      (direct, various)
                
                
                6
                %
                
                
                6
                %Belgium
      (direct, various)
                
                
                1
                %
                
                
                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
from alternative suppliers, subject to the time and other resources required to
establish new vendor relationships.





At March
31, 2009 and December 31, 2008, 1% and 10%, respectively, of the Company’s cash
and cash equivalents balance was held in foreign currencies and 2% and 1%,
respectively, of current liabilities related to unsettled obligations
denominated in foreign currencies. For the three month periods ended March 31,
2009 and 2008, 15% and 19%, respectively, of the Company’s expenses resulted
from transactions denominated in foreign currencies.





(4)
RELATED PARTY TRANSACTIONS





The
Company’s consolidated balance sheets include the following amounts due to
related parties:





March 31,
                  2009
                
                
                December 31,
                  2008(In
      thousands)Surgeon
      training
                
                $
                25
                
                
                $
                —Royalties
                
                
                3
                
                
                
                9$
                28
                
                
                $
                9





The
Company’s condensed consolidated statements of operations include the following
amounts paid to or on behalf of related parties:





Three
      Months Ended March 31,2009
                
                
                2008(In
      thousands)Surgeon
      training
                
                $
                72
                
                
                $
                —Royalties
                
                
                3
                
                
                
                2$
                75
                
                
                $
                2




13
 Index




Royalties
are paid to an individual who is a shareholder and director of the
Company.  Surgeon training has been provided by a clinic owned by the
same individual who is a shareholder and director of the Company ($19 due at
March 31, 2009 and included in results of operations for the quarter ended March
31, 2009) and by a private foundation affiliated with the Company’s CEO ($6 due
at March 31, 2009 and $53 included in results of operations for the quarter
ended March 31, 2009).





(5)
CONVERTIBLE NOTES PAYABLE





On July
24, 2008, the Company completed the private placement of $2,539 aggregate
principal amount of the Company’s unsecured convertible notes (the “July 2008
Notes”), which accrue interest at an annual rate of 8% and become due and
payable on July 24, 2009.  At the option of the holders, the July 2008
Notes may be converted into common stock at an initial conversion price of $3.00
per share. If exercised, the conversion must be settled fully in shares of
the Company’s common stock. In connection with the financing, the Company
issued warrants to purchase 211,615 shares of common stock at a price of $0.20
per share. The warrants were immediately exercisable and expire five years
after the issuance date. Participants in the financing included certain
officers and directors of the Company and certain beneficial owners of more than
10% of the Company’s voting stock.





The July
2008 Notes were issued with a beneficial conversion feature, having an estimated
intrinsic value of approximately $457. The intrinsic value of the
beneficial conversion feature was determined under EITF No. 00-27, Application of Issue No. 98-5 to
Certain Convertible Instruments, by comparing the effective conversion
price of the July 2008 Notes to the estimated fair value of the Series F Stock,
into which the notes were initially convertible at July 24, 2008 (prior to the
one-for-twenty reverse stock split of the Company’s common stock that was
effective November 29, 2008, and the resulting mandatory conversion of the
Series F Stock into common stock).  The effective conversion price of
the July 2008 Notes was determined by assigning the proceeds of the offering
between the July 2008 Notes and the warrants on a relative fair value
basis.





The July
2008 Notes were recorded net of a discount of $1,037 related to the estimated
relative fair value of the warrants ($580) and the intrinsic value of the
beneficial conversion feature associated with the July 2008 Notes ($457). The
total discount is being amortized as additional interest over the term of the
July 2008 Notes.  The balance of the unamortized discount was $668 at
December 31, 2008. As a result of the conversions concurrent with the January
16, 2009 offering (see below), $555 of the discount was recognized as additional
interest expense in the Company’s results of operations for the three months
ended March 31, 2009. Total amortization of the discount was $650 for the
three months ended March 31, 2009.





On
December 4, 2008, the Company completed the private placement of $499 aggregate
principal amount of unsecured convertible notes (the “December 2008 Notes”),
which accrue interest at an annual rate of 8% and become due and payable on July
24, 2009. At the option of the holders, the December 2008 Notes may be converted
into the Company’s common stock at a price of $3.00 per share. If exercised, the
conversion must be settled fully in shares of the Company’s common stock. In
connection with the financing, the Company issued warrants to purchase 41,628
shares of common stock at an exercise price of $0.20 per share. The warrants
were immediately exercisable and expire five years after the issuance date.
Participants in the financing included certain officers and directors of the
Company and certain beneficial owners of more than 10% of the Company’s voting
stock.





The
December 2008 Notes were issued with a beneficial conversion feature, having an
estimated intrinsic value of approximately $307. The intrinsic value of the
beneficial conversion feature was determined under EITF No. 00-27, Application of Issue No. 98-5 to
Certain Convertible Instruments, by comparing the effective conversion
price of the December 2008 Notes to the estimated fair value of the common stock
at December 4, 2008.  The effective conversion price of the December
2008 Notes was determined by assigning the proceeds of the offering between the
December 2008 Notes and the warrants on a relative fair value
basis.





The
December 2008 Notes were recorded net of a discount of $464 related to the
estimated relative fair value of the warrants ($157) and the intrinsic value of
the beneficial conversion feature associated with the December 2008 Notes
($307). The total discount is being amortized as additional interest over the
term of the December 2008 Notes. The balance of the discount was $450 at
December 31, 2008. As a result of the conversions concurrent with the January
16, 2009 offering (see below), $416 of the discount was recognized as additional
interest expense in the Company’s results of operations for the three months
ended March 31, 2009. Total amortization of the discount was $438 for the
three months ended March 31, 2009.





The terms
of the offering that closed on January 16, 2009 (See Note 6) effectively
terminated all rights of first offer held by investors who held or who continue
to hold July 2008 Notes.  In addition, the investors in the January
16, 2009 offering converted an aggregate face value of approximately $3 million
of July 2008 and December 2008 Notes held by such investors into approximately
989,000 shares of the Company’s common stock in accordance with the terms of
such Notes.





(6)
STOCKHOLDERS’ EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK





As of
March 31, 2009, the Company has 165,000,000 authorized shares of common
stock, of which 9,774,255 shares of common stock were outstanding, 168,612
shares of common stock were reserved for conversion of outstanding Series A
Redeemable Convertible Preferred Stock (“Series A Stock”) and Series C
Redeemable Convertible Preferred Stock (“Series C Stock”); 5,621,351 shares
of common stock were reserved for exercise of stock options and warrants; 60,213
shares of common stock were reserved for conversion of convertible notes; and
64,062 shares of common stock were reserved for issuance to vendors for
services.





14
 Index




Equity
Financings





On
January 16, 2009 and February 13, 2009, the Company closed the private
placements of approximately 2,015,000 and 495,000 shares, respectively, of the
Company’s common stock at $3.50 per share, for aggregate gross proceeds of
approximately $8,770.  The investors in these offerings have certain
terminable anti-dilution rights if the Company consummates a subsequent
financing below $3.20 per share of common stock.  In connection with
the offerings, the Company issued an aggregate of 376,474 warrants to investors
to purchase additional shares of common stock at an exercise price of $1.20 per
share. The warrants were immediately exercisable and expire five years
after the date of issuance.  The Company has agreed to use
commercially reasonable efforts to register the common stock sold in the private
placements as well as the common stock issuable upon exercise of the warrants on
a registration statement to be filed with the Securities and Exchange
Commission. There are no liquidated damages for a failed registration and the
warrants may be settled in unregistered shares. The January 16, 2009 offering
effectively terminated all rights of first offer granted to investors who held
or who continue to hold July 2008 Notes (see Note 5). In addition, the investors
in the January 16, 2009 offering converted an aggregate face value of
approximately $3,000 of July 2008 and December 2008 Notes (see Note 5) held by
such investors into approximately 989,000 shares of the Company’s common stock
in accordance with the terms of such Notes.




Redeemable
Convertible Preferred Stock





During
the first quarter of 2009, holders of 4,643,556 shares of Series C Stock
exercised their right to convert their shares into 232,180 shares of common
stock. As a result of the Series C Stock conversions, $80 of unamortized
issuance cost associated with the Series C Stock was recognized in the three
months ended March 31, 2009 as deemed dividends to preferred stockholders for
purposes of determining net loss attributable to common stockholders. During the
first quarter of 2008 there were no conversions of Preferred
Stock.





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, 2008. 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 an
orthopedic products company that develops, manufactures and markets innovative
tissue growth and repair products for U.S. and global markets. ReGen’s
Menaflex collagen meniscus implant employs proprietary biological collagen
scaffold technology to facilitate tissue growth, thereby reinforcing and
repairing the damaged meniscus of the knee.Our
Menaflex device (also known as the CMI®) is marketed for sale in the
U.S., European Union (the “EU”), and the Republic of South Africa. We aim to
improve the standard of surgical care through the use of our unique collagen
scaffold technology and strong commitment to evidence-based medicine and surgeon
training.





In
December 2008, we received U.S. Food and Drug Administration, or FDA, clearance
to market our collagen scaffold device, the Menaflex collagen meniscus implant,
in the U.S. The Menaflex device was determined to be substantially equivalent to
existing Class II devices through the 510(k) premarket notification process and
is indicated for use in surgical procedures for the reinforcement and repair of
soft tissue injuries of the medial meniscus. In the first quarter of 2009 we
initiated U.S. marketing of the Menaflex product for the medial indication. We
market the Menaflex product in the EU and the Republic of South Africa for both
the medial and lateral indications. We plan to seek expansion of the indication
for use in the lateral meniscus through a new 510(k) application to be submitted
to the FDA during the second quarter of 2009. There can be no assurance as to
the outcome of our efforts to expand the indication for use in the lateral
meniscus or the time frame to complete the 510(k) process.





On March
6, 2009, we received a letter from the office of Senator Charles E. Grassley, a
member of the Senate Committee on Finance, regarding the approval process of the
Menaflex device in the context of his examination of the relationship between
the FDA and product manufacturers. The letter requested us to provide responses
and information in connection with the approval process. We are cooperating
fully with this inquiry; however, we have no indication what the outcome of this
inquiry will be and if it will continue.





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





15
 Index




Our
current strategic priorities are to: (i) effectively commercialize the Menaflex
product through development of specialized distribution, marketing, and training
programs in the U.S. and other markets and (ii) further advance selected product
development opportunities. 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 these
strategic priorities is subject to the constraints of our current liquidity
position. See Liquidity and Capital Resources.





ReGen has
exclusive worldwide rights to market the Menaflex device subject to relevant
regulatory clearance in each market. Our wholly-owned subsidiary, ReGen AG,
conducts our distribution activities outside the U.S. through local market
distributors and a limited number of employees. Currently, we have
distributorship agreements with independent orthopedic device marketing
organizations for distribution of our products in Italy, Spain, Andorra, Poland,
Turkey, the United Kingdom (U.K.), and the Republic of South
Africa.





During
2008, our international priority was market penetration in Italy, Spain, and
Germany and opening new markets in other countries, such as the U.K. In the
first quarter of 2009 we began to implement our U.S. launch plan to market our
Menaflex and other products in the U.S. During the first quarter of 2009, we
trained 45 sports medicine surgeons in the use of our Menaflex device and over
30 sales representatives. Training programs have been held in New York City,
Minneapolis, San Diego, and Vail, Colorado. Trainers include the Company’s own
research team, along with experienced surgeons from Europe and the
U.S.  Surgeons trained include key thought leaders and sports medicine
surgeons from across the U.S., including surgeons who cover professional and
prominent university sports teams and those who were investigators in the
original multi-center clinical trial for the Menaflex device. We have also
trained seven sports medicine fellows who will begin their practices later this
year. The sales representatives who were trained will provide ongoing sales and
customer support functions as part of the Company’s independent U.S. product
distribution network.  Limited U.S. sales of the Menaflex product have
begun in the second quarter of 2009.





Critical
Accounting Policies





The
preparation of financial statements in conformity with accounting principles
generally accepted in the U.S. 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, 2008.
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, 2009, 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,
2008. For further discussion of our accounting policies see Note 1
“Organization and 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, 2008.





STOCK-BASED COMPENSATION
EXPENSE: 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 performance-based awards, the Company
recognizes the estimated expense based on the accelerated attribution method.
For all awards for which vesting is based only on service conditions,
the expense is recorded based on the straight-line attribution
method.





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 is measured based on management’s estimate of fair
value and recognized over the respective service period.





16
 Index





Determining
the appropriate fair value model and calculating the fair value of share-based
payment awards requires 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.





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. The expected term of
options granted after January 1, 2006, is generally estimated to be seven years,
given the contractual term of ten 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.





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 March 31, 2009 and December 31, 2008, 8% and 10%, of our inventory
was carried at market, respectively. 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.





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.





Significant
New Accounting Pronouncements





Effective
January 1, 2009, the Company adopted FSP No. APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (FSP No. APB 14-1), which clarifies that convertible debt
instruments that may be settled in cash upon conversion (including partial cash
settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants. Additionally, FSP No. APB 14-1
specifies that issuers of such instruments should separately account for the
liability and equity components in a manner that will reflect the entity’s
nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. FSP No. APB 14-1 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. The Company’s convertible debt instruments cannot be
settled in cash upon conversion. The adoption of FSP No. APB 14-1 did not have a
material effect on its consolidated financial statements.





In April
2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly (FSP FAS
157-4), which provides additional guidance for estimating fair value in
accordance with SFAS No. 157, Fair Value Measurements, when
the volume and level of activity for the asset or liability have significantly
decreased. FSP FAS 157-4 also includes guidance on identifying circumstances
that indicate a transaction is not orderly and emphasizes that even if there has
been a significant decrease in the volume and level of activity for the asset or
liability and regardless of the valuation technique(s) used, the objective of a
fair value measurement remains the same. Fair value is the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction (that is, not a forced liquidation or distressed sale) between
market participants at the measurement date under current market conditions. FSP
FAS 157-4 is effective for interim and annual reporting periods ending after
June 15, 2009, and is applied prospectively. Early adoption is permitted for
periods ending after March 15, 2009. Earlier adoption for periods ending before
March 15, 2009, is not permitted. The Company has not yet determined what, if
any, effect adoption of FSP FAS 157-4 will have on its results of operations or
financial condition.





17
 Index





In April
2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments(FSP FAS 115-2 and FAS 124-2),which amends the
other-than-temporary impairment guidance in U.S. GAAP for debt securities to
make the guidance more operational and to improve the presentation and
disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements. FSP FAS 115-2 and FAS 124-2 does not amend existing
recognition and measurement guidance related to other-than-temporary impairments
of equity securities. FSP FAS 115-2 and FAS 124-2 is effective for interim and
annual reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. Earlier adoption for periods
ending before March 15, 2009, is not permitted. The Company has not yet
determined what, if any, effect adoption of FSP FAS 115-2 and FAS 124-2 will
have on its results of operations or financial condition.





In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments(FSP FAS 107-1 and APB 28-1), which amends SFAS No. 107,
Disclosures about Fair Value
of Financial Instruments, to require disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. This FSP also amends APB Opinion No.
28,Interim Financial
Reporting, to require those disclosures in summarized financial
information at interim reporting periods. FSP FAS 107-1 and APB 28-1 is
effective for interim reporting periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009. An entity may early
adopt FSP FAS 107-1 and APB 28-1only if it also elects to early adopt FSP FAS
157-4and FSP FAS
115-2 and FAS 124-2. The Company has not yet determined what, if any, effect
adoption of FSP FAS 107-1 and APB 28-1 will have on its results of operations or
financial condition.





In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles, which identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy). The Statement is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. The Company
does not expect adoption of SFAS No. 162 to have a significant impact on its
consolidated financial statements.





Results
of Operations





Three
Months Ended March 31, 2009 Compared to Three Months Ended March 31,
2008





REVENUE.Total revenue for
the first quarter of 2009 decreased by $46 (13%) over the same period in 2008.
The Company’s revenue from sales of our products approximated $288 for the three
months ended March 31, 2009, compared with $342 for the same period in 2008. The
approximate net decrease of $55 or 16% resulted from decreased sales of our
Menaflex product, partially offset by increased sales of our SharpShooter
products. The remainder of our revenue is derived from royalties, which
generally are due under a license agreement when our distributor, Linvatec,
sells the SharpShooter product to a third party. Royalty revenue for the three
months ended March 31, 2009 was consistent with revenue for the same period in
2008. 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. For some of our
distributors, title of our product passes to the distributors FOB destination.
For the remainder of our distributors and all of our direct customers outside
the U.S., title of our product passes to our customers FOB origin. We expect
that, for U.S. direct customers, title of our product will pass to those
customers FOB destination. Our customers do not have a right to return the
product other than for product defect issues.





For the
three months ended March 31, 2009, Menaflex sales approximated $193, compared to
approximately $307 for the same period in 2008, a decrease of approximately $114
(37%). Selling prices for the Menaflex ranged from $1,050 to $2,600 per unit.
Menaflex sales approximated 67% of total sales for the period ended March 31,
2009 compared with approximately 92% for the same period ended 2008. In the
first quarter of 2009 we sold 125 Menaflex units at an average selling price of
$1,523 each compared with 193 units sold in the first quarter of 2008 at an
average selling price of $1,566 each. Menaflex sales to both distributors and
direct customers were lower in the first quarter of 2009, compared with the
first quarter of 2008.





SharpShooter
sales in the three months ended March 31, 2009, approximated $95, compared with
approximately $26 for the same period in 2008, representing an increase of
approximately $69 (265%). Sales of SharpShooter to Linvatec accounted for
approximately 74% and 64% of total SharpShooter sales for the three months ended
March 31, 2009 and 2008, respectively. For the first quarter of 2009 compared
with the first quarter of 2008, sales to Linvatec increased by approximately $53
(317%) while SharpShooter sales to ReGen AG customers increased $16 (167%). 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 resulted in a
shortage of supply for this component and negatively affected sales in the first
quarter of 2008.





As noted
above, historically, sales of our products have been inconsistent and, given the
relatively low volume of sales, the timing of orders can have a significant
impact on quarterly results. The stocking of our products by our distributors
and certain larger direct sales customers can have a significant impact on
comparative quarterly sales. We expect that sales of our Menaflex and other
products will increase throughout 2009 due to the introduction of these products
to the U.S. market and longer-term trends in the EU and other markets. Resource
constraints in 2008 and earlier years have limited our ability to significantly
grow sales. In addition, we continue to support efforts outside the U.S. that
are directed toward the evaluation and assignment of adequate levels of
reimburstment for the Menaflex product.





18
 Index




COST OF GOODS SOLD.For the
three months ended March 31, 2009, cost of goods sold approximated $135 compared
with approximately $143 for the same period in 2008, representing a decrease of
approximately $8 (6%). The decrease primarily relates to lower shipping costs as
a result of lower sales volumes for our Menaflex product. Menaflex cost of goods
sold for the first quarter of 2009 approximated $91 compared with approximately
$122 for the first quarter of 2008, a decrease of approximately $30 (25%). The
average per unit cost of Menaflex units sold in the first quarter of 2009
approximated $732 compared with approximately $509 for the first quarter of
2008. The higher average per unit cost in 2009 is due to varying production
volumes and manufacturing costs in the respective periods when the units were
produced. At March 31, 2009 and 2008 all Menaflex units in inventory, as well as
the Menaflex units sold during the first quarter of 2009 and 2008, were valued
at cost, which was lower than market.





For the
three months ended March 31, 2009, approximately $40 of cost of goods sold
related to SharpShooter units sold compared with approximately $20 for the same
period in 2008, representing an increase of approximately $20 (105%). The
increase is related to the higher volume of SharpShooter sales in the first
quarter of 2009.





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 2009 may not be indicative of a future trend.





RESEARCH AND DEVELOPMENT.Research and development expenses for the three months ended March 31,
2009 approximated $1,403, compared with approximately $998, for the same period
in 2008. Significant factors contributing to the net increase of $405 (41%) for
the comparative three month periods include: (i) approximately $236 increase in
fees for professional services related to clinical and regulatory matters,
including maintenance of patents and other intellectual property, preparation of
our 510(k) application to expand the indication of use for the Menaflex device
in the lateral meniscus, and responses to Senator Grassley’s inquiry; (ii)
approximately $167 increase in non-cash compensation expense related to stock
options granted to employees and non employees; (iii) approximately $60 increase
in compensation expense related to new hires and planned salary increases;
partially offset by (iv) approximately $58 decrease in costs associated with
development projects, including the cost of conducting our European post-market
study of the lateral Menaflex device.





Our
research and development spending is primarily for clinical and regulatory
activities and maintenance of patents and other intellectual property. During
2008, our research and development was focused largely on obtaining U.S.
regulatory clearance for the Menaflex device, the conduct of our CMI Multicenter
Clinical Trial in the U.S., and conduct of our European post-market study of the
lateral Menaflex device. In December 2008, we obtained FDA clearance of the
Menaflex collagen meniscus implant, which is indicated for use in surgical
procedures for the reinforcement and repair of soft tissue injuries of the
medial meniscus. In 2009 we expect to seek expansion of the indication for use
in the lateral meniscus through a new 510(k) application to be submitted to the
FDA during the second quarter of 2009 and to conduct other limited product
development activities. There is no assurance that the expanded indication for
use in the lateral meniscus will be received. We continue to conduct early
research on potential extended applications of our collagen matrix technology.
Lastly, we continue to make substantial progress in our collagen matrix
manufacturing, focused on the increase in capacity to meet additional market
demands.





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 concept development 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. Our
ability to continue our research and development activities is subject to the
constraints posed by our liquidity position and need for outside financing. See
“Liquidity and Capital Resources.”





BUSINESS DEVELOPMENT, GENERAL AND
ADMINISTRATIVE.Business development, general and administrative expenses
for the three months ended March 31, 2009 approximated $2,877, compared with
approximately $1,469 for the same period in 2008. Significant factors
contributing to the approximately $1,408 (96%) increase for the comparative
three month periods include: (i) approximately $765 increase in costs associated
with our worldwide marketing and distribution initiatives, including consulting,
advertising and promotion, and costs associated with programs to train surgeons
and sales representatives, primarily in connection with U.S. launch of our
Menaflex device; (ii) approximately $448 increase in non-cash compensation
expense related to stock options granted to employees and non employees and
restricted stock issued to a vendor; (iii) approximately $195 increase in other
general and administrative costs associated with development of a marketing and
business management infrastructure to support the U.S. launch of our Menaflex
device (such costs include professional service fees, compensation, and travel).
While we expect to continue controls over discretionary costs to conserve
current cash, we expect spending in this category to increase as a result of
U.S. launch of our Menaflex product and costs associated with development of the
marketing and business management infrastructure needed to support U.S.
launch.





NON-OPERATING INCOME (EXPENSE).Non-operating income (expense) consists of interest and other income and
interest and other expense. Interest and other income approximated $7 and $32
for the three months ended March 31, 2009 and March 31, 2008, respectively, a
decrease of approximately $25 (78%), primarily related to lower cash and cash
equivalent balances during the first quarter of 2009 compared to 2008. For the
periods ended March 31, 2009 and 2008 interest and other expense included
foreign currency transaction losses approximating $13 and gains approximating
$24, respectively. Interest expense approximated $1,250 for the three months
ended March 31, 2009 compared with approximately $102 for the same period in
2008. Increased interest expense is due to issuance of convertible notes in July
and December 2008 (including subsequent conversion of approximately 95% of such
notes in January 2009) and higher interest rates and compounding of interest on
notes payable to a related party.





19
 Index




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 and a sweep account. At March 31,
2009 approximately 1% of our cash and cash equivalents balance is held in
foreign currencies. The effect on our 2009 condensed consolidated financial
statements of re-measurement of the accounts of our Swiss subsidiary is
immaterial.




Cash and
cash equivalents and investments approximated $6,115 as of March 31, 2009
compared with approximately $250 as of December 31, 2008. The net increase in
cash and cash equivalents and investments is a result of the January and
February equity financings (further discussed below), partially offset by 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, 2009 and 2008.





March
      31,2009
                  
                  
                  2008(In
      thousands)Net
      cash used in operations
                  
                  $
                  (2,787)
                  
                  
                  $
                  (1,623)Net
      cash (used in) provided by investing activities
                  
                  
                  (42)
                  
                  
                  
                  100Net
      cash provided by (used in) financing activities
                  
                  
                  8,708
                  
                  
                  
                  (3)Effect
      of exchange rate changes on cash
                  
                  
                  (14)
                  
                  
                  
                  60Net
      increase (decrease) in cash and cash equivalents
                  
                  $
                  5,865
                  
                  
                  $
                  (1,466)





Cash used
in operating activities during the three months ended March 31, 2009
approximated $2,787, which resulted from the net loss of $5,374, adjusted to
account for a net decrease in accounts receivable, inventory and other assets of
approximately $11, a net increase in accounts payable, accrued expenses and
other liabilities of $319, together with adjustments of $2,257 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, 2009, we invested $42 in property and
equipment, and repaid approximately $4 of our capital lease
obligations.





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. In December 2008 we received FDA clearance to market
the Menaflex collagen meniscus implant in the U.S. The Menaflex device was
cleared through the 510(k) premarket notification process and is indicated for
use in surgical procedures for the reinforcement and repair of soft tissue
injuries of the medial meniscus. In the first quarter of 2009 we initiated U.S.
marketing of our Menaflex product for the medial meniscus indication. Limited
sales of the Menaflex product in the U.S. have begun in the second quarter of
2009. We plan to seek expansion of the indication for use in the lateral
meniscus through a new 510(k) application to be submitted to the FDA in the
second quarter of 2009. There can be no assurance that such clearance will be
granted on a timely basis, if at all. We market the Menaflex device for sale and
distribution in the EU and the Republic of South Africa for both medial and
lateral meniscus indications.





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 assisting in establishment of third party reimbursement for the
surgeons and facilities that would be responsible for implanting the Menaflex
device. Management has developed a U.S. launch plan which leverages the
Company’s experience in marketing the Menaflex product in the EU.  The
Company has initiated recruitment of independent sports medicine focused
distributors and has begun to implement reimbursement support strategies. While
the Company is actively working to address distribution, third-party
reimbursement, and other operational issues, there is no guarantee that the
Company will be successful or able to effectively address these challenges in
any given time frame.





20
 Index




All of
the Company’s notes payable to a related party (balance of approximately $8,590
at March 31, 2009) become due and payable on December 31, 2009. Also, the
Company’s Series A and C redeemable convertible Preferred Stock (liquidation
preference of $892 and $619, respectively) become redeemable in one-third annual
increments at the option of not less than a majority of the holders beginning in
June 2009 and September 2010, respectively. In addition, the Company’s
convertible notes, with aggregate face value plus accrued interest of $173 at
March 31, 2009, will become due July 24, 2009, if not converted at the option of
the holders.





We will
need to pursue additional financing in order to support ongoing operations,
including launching sales of the Menaflex device in the U.S. and meeting our
future debt service requirements. 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. In January and
February 2009, the Company completed a two-staged common stock financing for
aggregate proceeds of approximately $8,760 (see Equity Financings
below for further information). Based upon current cash and cash equivalent
balances, including proceeds from financings in the first quarter of 2009, and
planned spending rates for the remainder of 2009 management believes that the
Company has adequate cash and cash equivalents on hand to support ongoing
operations through at least June 2009. 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 new 510(k) submission to the FDA; (iii) the
actual pace of spending associated with commercialization of the Menaflex
product; (iv) costs associated with other business objectives; (v) costs
associated with responding to regulatory or legal inquiries; and (vi) other
developments in our business. The timing of the 510(k) process is subject to
inherent uncertainty. We anticipate that additional cash will be required to
support operations beyond June 2009. However, if unforeseen events occur, it is
possible that additional cash may be needed before June 2009 to support
operations. The Company continues to seek financing in order to support
operations and continue as a going concern. 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
and Debt Financings




On
January 16, 2009 and February 13, 2009, we closed the private placements of
approximately 2,015,000 and 495,000 shares, respectively, of the Company’s
common stock at $3.50 per share, for aggregate gross proceeds of approximately
$8,760.  The investors in these offerings have certain terminable
anti-dilution rights if the Company consummates a subsequent financing below
$3.20 per share of common stock.  In connection with the offerings,
the Company issued an aggregate of 376,474 warrants to investors to purchase
additional shares of common stock at an exercise price of $1.20 per share. The
warrants were immediately exercisable and expire five years after the date
of issuance.  The Company has agreed to use commercially reasonable
efforts to register the common stock sold in the private placements as well as
the common stock issuable upon exercise of the warrants on a registration
statement to be filed with the Securities and Exchange Commission. There are no
liquidated damages for a failed registration and the warrants may be settled in
unregistered shares.





On July
24, 2008 we completed the private placement of $2,520 aggregate principal amount
of unsecured convertible notes (the “July 2008 Notes”). The July 2008 Notes
accrue interest at an annual rate of 8% and become due and payable on July 24,
2009. At the option of the holders, the Notes are convertible into shares of the
Company’s common stock at an initial conversion price of $3.00 per
share.  In connection with this financing, the Company issued
detachable warrants that initially were exercisable for 211,615 shares of common
stock, at a price of $0.20 per share. The warrants were immediately exercisable
and expire five years from the date of issuance. The conversion rate of the July
2008 Notes is subject to the anti-dilution rights of the holders of
each.  The Company has agreed to use commercially reasonable efforts
to register the common stock into which the July 2008 Notes and the warrants
will convert on one or more registration statements to be filed with the
Securities and Exchange Commission upon request by the investors. There are no
liquidated damages for a failed registration and the warrants may be settled in
unregistered shares.





21
 Index





On
December 4, 2008 the Company completed the private placement of $499 aggregate
principal amount of unsecured convertible notes (the “December 2008 Notes”). The
December 2008 Notes accrue interest at an annual rate of 8% and become due and
payable on July 24, 2009. At the option of the holders, the December 2008 Notes
may be converted into the Company’s common stock at a price of $3.00 per share.
In connection with the financing, the Company issued detachable warrants to
purchase 41,628 shares of common stock, exercisable at a price of $0.20 per
share. The warrants were immediately exercisable and expire five years after
issuance. The conversion rate of the December 2008 Notes is subject to the
anti-dilution rights of the holders. The Company has agreed to use commercially
reasonable efforts to register the Common Stock into which the December 2008
Notes and the warrants will convert on one or more registration statements to be
filed with the Securities and Exchange Commission upon request by the investors.
There are no liquidated damages for a failed registration and the warrants may
be settled in unregistered shares.





The
January 16, 2009 offering effectively terminated all rights of first offer held
by those investors who held or continue to hold July 2008
Notes.  In addition, the investors in the January 16, 2009 offering
converted an aggregate face value of approximately $3,000 of July 2008 and
December 2008 Notes held by such investors into approximately 989,000 shares of
the Company’s common stock in accordance with the terms of such
Notes.





During
the first quarter of 2009, holders of 4,643,556 shares of Series C Stock
exercised their right to convert their shares into 232,180 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, 2009, 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 2009 that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.




PART II – OTHER
INFORMATION.





Item
1. Legal Proceedings.





On
November 16, 2006, following our announcement that our management
voluntarily initiated and conducted, and the Audit Committee of the Board of
Directors oversaw, a review of the Company’s historical stock option granting
and accounting practices, we received a letter from the Division of Enforcement
of the SEC requesting that the Company preserve all documents concerning its
granting of stock options to any of our executives or employees from January
2002 through the present and stating that the SEC intends to request production
of such documents in the future. Subsequently, on November 20, 2006, the
Company amended its quarterly and annual reports to include restated
consolidated financial statements for the years ended December 31, 2005,
2004, 2003, the period from December 21, 1989 (inception) to
December 31, 2005, and the quarters ended March 31, 2006 and
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.





22
 Index




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, 2008.





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





On March
31, 2009, we issued 4,688 shares of our restricted common stock to a vendor
in consideration for services rendered during the first quarter of 2009. The
estimated fair value of these services is $12. 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.





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)(25)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(21)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
                  
                  Certificate
      of Designations, Preferences and Rights of Series F Convertible Preferred
      Stock of the Company (7)4.7*
                  
                  ReGen
      Biologics, Inc. Employee Stock Option Plan, Amended and Restated Effective
      April 1, 2004(8)4.8*
                  
                  ReGen
      Biologics, Inc. Non-Employee Director Stock Option Plan, Amended and
      Restated Effective April 1, 2004(8)4.9*
                  
                  ReGen
      Biologics, Inc. Non-Employee Director Supplemental Stock Option Plan
      Amended and Restated Effective January 31, 2003(9)4.10*
                  
                  Form
      of Employee Incentive Stock Option Agreement for the Employee Stock Option
      Plan(1)4.11*
                  
                  Form
      of Nonqualified Employee, Non-Employee Director or Consultant Stock Option
      Agreement for the Employee Stock Option
Plan(1)




23
 Index




4.12*
                    
                    Form
      of Nonqualified Non-Employee Director Stock Option Agreement for the
      Non-Employee Director Stock Option Plan(1)4.13*
                    
                    Form
      of Nonqualified Non-Employee Director Stock Option Agreement for the
      Non-Employee Director Supplemental Stock Option Plan(1)4.14*
                    
                    Form
      of Nonqualified Employee or Consultant Stock Option
      Agreement(21)4.15*
                    
                    Form
      of Nonqualified Non-Employee Director Stock Option
      Agreement(21)4.16
                    
                    Second
      Amended and Restated Stockholders’ Agreement by and among the Company and
      the Stockholders named therein dated as of August 23,
      2007(10)4.17
                    
                    Amended
      and Restated Registration Rights Agreement between the Company and the
      Investors listed therein(4)4.18
                    
                    Common
      Stock Registration Rights Agreement by and among the Company and the
      stockholders named therein, dated as of April 19,
      2004(11)4.19
                    
                    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)4.20
                    
                    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(5),(13)4.21
                    
                    Form
      of Subscription Agreement by and among the Company and the Investors named
      therein, dated as of July 24, 2008 (7)4.22
                    
                    Form
      of Subscription Agreement by and among the Company and the Investors named
      therein, dated as of December 4, 2008 (22)4.23
                    
                    Form
      of Subscription Agreement by and among the Company and the Investors named
      therein, dated as of January 16, 2009(23)4.24
                    
                    Form
      of Subscription Agreement by and among the Company and the Investors named
      therein, dated as of February 13, 2009(24)4.25
                    
                    Form
      of Warrant Certificate by and between the Company and the Individuals
      named therein, dated as of July 14, 2005(14)4.26
                    
                    Form
      of Warrant Certificate by and between the Company and the Individuals
      named therein, dated as of November 30 and December 1,
      2006(12)4.27
                    
                    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(5),(13)4.28
                    
                    Warrant
      Certificate by and between the Company and Sanderling Ventures Management
      VI, dated as of March 2, 2007(13)4.29
                    
                    Form
      of Warrant to Purchase Common Stock by and between the Company and
      Individual named therein, dated October 1, 2003(21)4.30
                    
                    Form
      of Placement Agent Warrant to Purchase Common Stock by and between the
      Company and Harris Nesbitt Gerard, Inc.(4)4.31
                    
                    Form
      of Placement Agent Warrant to Purchase Common Stock by and between the
      Company and Vail Securities Investment, Inc.(4)4.32
                    
                    Form
      of Warrant Certificate by and between the Company and the Individuals
      named therein, dated as of October 15, 2007(21)4.33
                    
                    Form
      of Warrant Certificate by and between the Company and the Individuals
      named therein, dated as of October 15,
2007(21)




24
 Index




4.34
                          
                          Form
      of Warrant Certificate by and between the Company and the Individuals
      named therein, dated as of July 24, 2008 (7)4.35
                          
                          Form
      of Warrant Certificate by and between the Company and the Individuals
      named therein, dated December 4, 2008 (22)4.36
                          
                          Form
      of Warrant Certificate by and between the Company and the Individuals
      named therein, dated January 21, 2009(23)4.37
                          
                          Form
      of Warrant Certificate by and between the Company and the Individuals
      named therein, dated February 13, 2009 (24)10.1
                          
                          Form
      of Indemnification Agreement(15)10.2*
                          
                          First
      Amendment to Employment Agreement by and between Gerald E.
      Bisbee, Jr., Ph. D. and the Company dated March 23,
      2004(16)10.3*
                          
                          Second
      Amendment to Employment Agreement by and between Gerald E.
      Bisbee, Jr., Ph. D. and the Company dated November 28,
      2008(25)10.4*
                          
                          Employment
      Agreement by and between Brion D. Umidi and the Company dated
      March 23, 2004(17)10.5*
                          
                          First
      Amendment to Employment Agreement by and between Brion D. Umidi and the
      Company dated November 28, 2008(25)10.6*
                          
                          Employment
      Agreement by and between James Flounlacker and the Company dated April 30,
      2009(26)10.7
                          
                          License
      Agreement by and between the Company and Linvatec Corporation dated
      April 7, 2000(17)10.8
                          
                          Exclusive
      License Agreement by and between the Company and Dr. Shu-Tung Li
      dated August 24, 1995(17)10.9*
                          
                          Assignment
      and Royalty Agreement by and among the Company, Modified Polymer
      Components, Inc. and Dr. J. Richard Steadman dated April 9,
      1997(17)10.10
                          
                          Credit
      Agreement by and between the Company and Sulzer Medica USA Holding Company
      dated November 30, 1998(18)10.11
                          
                          Credit
      Agreement by and between the Company and Sulzer Medica USA Holding Company
      dated March 14, 2000(17)10.12
                          
                          Agreement
      by and among Sulzer Medica USA Holding Co., Sulzer Biologics Inc. Sulzer
      Orthopedics Ltd. and the Company dated February 20,
      2001(17)10.13
                          
                          Letter
      Agreement by and between the Company and Sulzer Orthopedics AG, dated
      January 18, 2002(17)10.14
                          
                          Distributor
      Agreement by and between the Company and XMedica effective as of
      October 24, 2005(19)10.15
                          
                          Agreement
      by and between the Company and MedWork AG dated as of January 1,
      2005(20)10.16
                          
                          Consulting
      Agreement by and between ReGen Biologics, Inc. and Sanderling Ventures
      Management VI, dated as of March 2, 2007(13)21.1
                          
                          Subsidiaries
      of the Registrant(25)31.1
                          
                          Section
      302 Certification from Gerald E. Bisbee, Jr., dated May 11,
      2009(26)31.2
                          
                          Section
      302 Certification from Brion D. Umidi, dated May 11,
    2009(26)32.1
                          
                          Section
      906 Certification from Gerald E. Bisbee, Jr., dated May 11,
      2009(26)32.2
                          
                          Section
      906 Certification from Brion D. Umidi, dated May 11,
    2009(26)


____________





25
 Index




(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).(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 Report on Form 8-K, filed on
      July 30, 2008 (File No. 000-20805).(8)
                Incorporated
      herein by reference to the Company’s Proxy Statement on Schedule 14A,
      filed on April 29, 2004 (File No. 000-20805).(9)
                Incorporated
      herein by reference to the Company’s Registration Statement on
      Form S-1/A, filed on January 14, 2004 (File
      No. 333-110605).(10)
                Incorporated
      herein by reference to the Company’s Report on Form 8-K, filed on
      August 24, 2007 (File No. 000-20805).(11)
                Incorporated
      herein by reference to the Company’s Registration Statement on
      Form S-1, filed on June 22, 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
      July 18, 2005 (File No. 000-20805).(15)
                Incorporated
      herein by reference to the Company’s Report on Form 8-K, filed on
      March 17, 2004 (File No. 000-20805).(16)
                Incorporated
      herein by reference to the Company’s Report on Form 8-K/A, filed on
      September 4, 2002 (File No. 000-20805).(17)
                Incorporated
      herein by reference to the Company’s Report on Form 10-K for the year
      ended December 31, 2003 (File No. 000-20805).(18)
                Incorporated
      herein by reference to the Company’s Report on Form 10-Q for the
      quarter ended March 31, 2005 (File
    No. 000-20805).(19)
                Incorporated
      herein by reference to the Company’s Report on Form 10-Q for the
      quarter ended September 30, 2005 (File
      No. 000-20805).(20)
                Incorporated
      herein by reference to the Company’s Report on Form 10-K for the year
      ended December 31, 2004 (File No. 000-20805).(21)
                Incorporated
      herein by reference to the Company’s Report on Form 10-K for the year
      ended December 31, 2007 (File No. 000-20805).(22)
                Incorporated
      herein by reference to the Company’s Report on Form 8-K, filed on
      December 8, 2008 (File No. 000-20805).(23)
                Incorporated
      herein by reference to the Company’s Report on Form 8-K, filed on
      January 22, 2009 (File No. 000-20805).(24)
                Incorporated
      herein by reference to the Company’s Report on Form 8-K, filed on
      February 18, 2009 (File No. 000-20805).(25)
                Incorporated
      herein by reference to the Company’s Report on Form 10-K for the year
      ended December 31, 2008 (File No. 000-20805).(26)
                Included
      with this filing.





*
            Management
      Contract or Compensatory Plan or
Arrangement





26
 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 11, 2009.





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






27