Cautionary Statement Relating to Forward Looking Statements

Information contained in this filing contains "forward-looking statements" which can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "anticipates" or comparable terminology, or by discussions of strategy. We cannot assure you that the future results covered by these forward-looking statements will be achieved. Some of the matters described in the "Risk Factors" section of our Form 10-K constitute cautionary statements which identify factors regarding these forward-looking statements, including certain risks and uncertainties, that could cause actual results to vary materially from the future results indicated in these forward-looking statements. Other factors could also cause actual results to vary materially from the future results indicated in such forward-looking statements.

Management Overview: Recent Developments

We are a leader in the use of natural tissues and innovative technologies to produce orthopedic and other surgical implants that repair and promote the natural healing of human bone and other human tissues and improve surgical outcomes. To produce our allografts we process human musculoskeletal and other tissue, including bone, cartilage, tendon, ligament and dermal tissue. We also process bovine tissue to produce our xenograft line of products. Surgeons then use our products to repair and promote the healing of a wide variety of bone and other tissue defects, including spinal vertebrae repair, musculoskeletal reconstruction, fracture repair, dental repair, breast reconstruction, hernia repair, urology implants, and repairs to the jaw and related tissues, among other conditions. Our products are distributed in all 50 states and in over 31 other countries worldwide.

We are not seeing any delays in major, more critical surgeries such as sports medicine for athletes, general orthopedic and spine surgeries. However, given the country's macroeconomic climate, we are seeing elective, non-critical surgeries, such as some dental and sports medicine procedures, being postponed.

Our goals for 2008 are to continue to fully integrate TMI with the Company, realize potential expense synergies, develop revenue synergies, and build on the Company's competitive strengths as we focus on our future. We continue to focus on several long-term strategies in order to meet our goals. The key strategies are:

• develop new allograft and xenograft implants to enhance our current lines of implants;

• increase efforts to maintain and increase tissue available for processing from tissue recovery agencies;

• focus on marketing, distribution and regulatory support of our line of xenograft implants; and

• maintain our commitment to research and development and focus clinical efforts to support the market acceptance of our allograft and xenograft implants.

Three and Nine Months Ended September 30, 2008 Compared With Three and Nine
Months Ended September 30, 2007



                                        Three months ended        Nine months ended
                                           September 30,            September 30,
                                         2008       2007 (1)       2008      2007 (1)
     Fees from tissue distribution:
     Sports medicine                  $     8,780   $   6,824   $   27,981   $  18,651
     Spinal constructs                     10,926      10,843       29,714      30,719
     Bone graft substitutes                 3,044       4,396       11,775      13,062
     Dental                                 7,789          -        19,488          -
     Surgical specialties                   5,241          -        11,753          -
     General orthopedic                     1,894         279        4,193         744
     Cardiovascular                            -          257           13       1,793
     Other revenues                           860       1,169        4,355       3,737

     Total revenues                   $    38,534   $  23,768   $  109,272   $  68,706

     Domestic revenues                     33,518      22,544       94,036      64,461
     International revenues                 5,016       1,224       15,236       4,245

     Total revenues                   $    38,534   $  23,768   $  109,272   $  68,706

(1) Regeneration Technologies, Inc. only results

Three Months Ended September 30, 2008 Compared With Three Months Ended September 30, 2007

Revenues. Our revenues increased $14.8 million, or 62.1%, to $38.5 million for the three months ended September 30, 2008 compared to $23.8 million for the three months ended September 30, 2007.

Sports Medicine - Revenues from sports medicine allografts increased $2.0 million, or 28.7%, to $8.8 million for the three months ended September 30, 2008 compared to the three months ended September 30, 2007. Sports medicine revenues increased primarily as a result of continued unit volume increases. Unit volumes increased by 29.6% due to higher numbers of tendons distributed, including our assembled tendons.

Spinal Constructs - Revenues from spinal allografts increased $83,000, or 0.8%, to $10.9 million for the three months ended September 30, 2008 compared to the three months ended September 30, 2007. Spinal construct revenues increased primarily due to $1.6 million of revenues associated with TMI for the three months ended September 30, 2008. The increase was offset primarily due to lower orders from our largest spine distributor.

Bone Graft Substitutes - Revenues from bone graft substitute allografts decreased $1.4 million, or 30.8%, to $3.0 million for the three months ended September 30, 2008 compared to the three months ended September 30, 2007. Bone graft substitute allograft revenues decreased primarily as a result of unit volume decreasing by 27.8%. The decreases are primarily due to lower orders from our largest spine distributor. In addition, we reallocated cancellous tissue to our dental business accounting for a $550,000 decline in revenues.

Dental - We did not offer dental allografts prior to our merger with TMI, which closed on February 27, 2008. Revenues from dental allografts for the three months ended September 30, 2008 were $7.8 million.

Surgical Specialties - We did not offer surgical specialty allografts (hernia repair, breast reconstruction, urology, and ophthalmology) prior to our merger with TMI, which closed on February 27, 2008. Revenues from surgical specialty allografts for the three months ended September 30, 2008 were $5.2 million.

General Orthopedic - Revenues from general orthopedic allografts increased $1.6 or 578.9%, to $1.9 for the three months ended September 30, 2008 compared to the three months ended September 30, 2007. The increase is primarily attributable to $1.8 million of revenues associated with TMI for the three month period ended September 30, 2008.

Cardiovascular - For the three months ended September 30, 2007, we recognized revenues of $257,000 on distribution of cardiovascular tissue. The company completed its exit of the cardiovascular business at the end of 2007 and consequently recognized no comparable revenues in 2008.

Other Revenues - Revenues from other sources, consisting of tissue recovery fees, biomedical laboratory fees, deferred revenues, shipping fees, distribution of reproductions of our allografts to distributors for demonstration purposes, and restocking fees, decreased by $309,000, or 26.4%, to $860,000 for the three months ended September 30, 2008 compared to the three months ended September 30, 2007 primarily due to lower tissue recovery fees.

Costs of Processing and Distribution. Costs of processing and distribution increased by $6.4 million, or 44.8%, to $20.6 million for the three months ended September 30, 2008. As a percentage of revenues, costs of processing and distribution decreased from 59.8% for the three months ended September 30, 2007 to 53.4% for the three months ended September 30, 2008.

The increase in cost of processing and distribution was primarily due to higher levels of tissue distributed during the quarter. The decrease in cost of processing as a percentage of revenues is due primarily to the acquired TMI product lines which have higher average gross margins than those previously recognized by Regeneration Technologies. Gross margin increased from 40.2% for the three months ended September 30, 2007 to 46.6% for the three months ended September 30, 2008.

Marketing, General and Administrative Expenses. Marketing, general and administrative expenses increased by $7.6 million, or 99.2%, to $15.3 million for the three months ended September 30, 2008 from $7.7 million for the three months ended September 30, 2007. Marketing, general and administrative expenses increased as a percentage of revenues from 32.2% for the three months ended September 30, 2007 to 39.6% for the three months ended September 30, 2008. The increase was primarily due to an increase in distributor commissions of $2.7 million, as a result of higher sports medicine revenue and the addition of commissions on the acquired dental product line; an increase in domestic payroll and benefits expense of $914,000; higher legal expenses of $472,000; higher amortization of $251,000, primarily as a result of the intangibles acquired in the TMI transaction; and the addition of $2.1 million in marketing, general and administrative costs associated with the acquired former TMI processing facility in Germany.

Research and Development Expenses. Research and development expenses increased by $551,000, or 36.5%, to $2.1 million for the three months ended September 30, 2008 from $1.5 million for the three months ended September 30, 2007. As a percentage of revenues, research and development expenses decreased from 6.3% for the three months ended September 30, 2007 to 5.3% for the three months ended September 30, 2008. These increases are primarily due to an increase in payroll and benefits expense of $395,000, and the addition of $350.000 in research and development expenses associated with the acquired TMI processing facility in Germany.

Restructuring Charges.There were no restructuring charges for the three months ended September 30, 2008.

Net Other (Expense) Income. Net other expense was $8,000 for the three months ended September 30, 2008 compared to net other income of $44,000 for the three months ended September 30, 2007. Interest income decreased by $59,000 for the three months ended September 30, 2008 to $166,000 from $225,000 for the three months ended September 30, 2007 due to the lower interest earned on the investment of excess cash in interest bearing cash equivalents than the comparable prior year period. Interest expense decreased by $7,000 for the three months ended September 30, 2008 to $174,000 from $181,000 for the three months ended September 30, 2007 due to the lower interest paid on long-term obligations.

Income Tax Provision. Income tax provision for the three months ended September 30, 2008 was $237,000 compared to $247,000 for the three months ended September 30, 2007. Our effective tax rate for the three months ended September 30, 2008 and 2007 was 37.9% and 58.1%, respectively. Our effective tax rate for the three months ended September 30, 2008 compared to the three months ended September 30, 2007 decreased primarily as a result of increased profitability, reducing the negative impact on non-deductible stock based compensation of $367,000.

Nine Months Ended September 30, 2008 Compared With Nine Months Ended September 30, 2007

Revenues. Our revenues increased $40.6 million, or 59.0%, to $109.3 million for the nine months ended September 30, 2008 compared to $68.7 million for the nine months ended September 30, 2007.

Sports Medicine - Revenues from sports medicine allografts increased $9.3 million, or 50.0%, to $28.0 million for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. Sports medicine revenues increased primarily as a result of significant unit volume increases and higher average revenue per unit. Unit volumes increased by 42.1% due to higher numbers of tendons distributed, including our assembled tendons.

Spinal Constructs - Revenues from spinal allografts decreased $1.0 million, or 3.3%, to $29.7 million for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. Spinal construct revenues increased primarily due to $3.8 million of revenues associated with TMI for the three months ended September 30, 2008. The increase was offset primarily due to lower orders from our largest spine distributor.

Bone Graft Substitutes - Revenues from bone graft substitute allografts decreased $1.3 million, or 9.9%, to $11.8 million for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. Bone graft substitute allograft revenues decreased primarily as a result of unit volume decreasing by 8.6%. The decreases are primarily due to lower orders from our largest spine distributor. In addition, we reallocated cancellous tissue to our dental business accounting for a $750,000 decline in revenues.

Dental - We did not offer dental allografts prior to our merger with TMI, which closed on February 27, 2008. Revenues from dental allografts were $19.5 million, and are included for the period from February 28, 2008 through September 30, 2008.

Surgical Specialties - We did not offer surgical specialty allografts (hernia repair, breast reconstruction, urology, and ophthalmology) prior to our merger with TMI, which closed on February 27, 2008. Revenues from surgical specialty allografts were $11.8 million, and are included for the period from February 28, 2008 through September 30, 2008.

General Orthopedic - Revenues from general orthopedic allografts increased $3.4 million or 463.6%, to $4.2 million for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. General orthopedic revenues for the period increased due to $3.7 million of revenues associated with TMI for the period February 28, 2008 to September 30, 2008.

Cardiovascular - During the nine months ended September 30, 2007, we recognized $1.8 million of revenues on distribution of cardiovascular tissue. The company completed its exit of the cardiovascular business at the end of 2007 and consequently recognized no comparable revenues in 2008.

Other Revenues - Revenues from other sources, consisting of tissue recovery fees, biomedical laboratory fees, deferred revenues, shipping fees, distribution of reproductions of our allografts to distributors for demonstration purposes, and restocking fees, increased by $618,000, or 16.5%, to $4.4 million for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. The increase is primarily attributable to other revenues associated with TMI for the period February 28, 2008 to September 30, 2008.

Costs of Processing and Distribution. Costs of processing and distribution increased by $15.9 million, or 37.6%, to $58.1 million for the nine months ended September 30, 2008. As a percentage of revenues, costs of processing and distribution decreased from 61.5% for the nine months ended September 30, 2007 to 53.2% for the nine months ended September 30, 2008.

The increase in cost of processing and distribution was primarily due to higher levels of tissue distributed during the quarter. The decrease in cost of processing as a percentage of revenues is due primarily to the acquired TMI product lines which have higher average gross margins than Regeneration Technologies'. Gross margin increased from 38.5% in the nine months ended September 30, 2007 to 46.8% in the nine months ended September 30, 2008.

Marketing, General and Administrative Expenses. Marketing, general and administrative expenses increased by $18.6 million, or 85.8%, to $40.4 million for the nine months ended September 30, 2008 from $21.7 million for the nine months ended September 30, 2007. Marketing, general and administrative expenses increased as a percentage of revenues from 31.6% for the nine months ended September 30, 2007 to 37.0% for the nine months ended September 30, 2008. The increase was primarily due to an increase in distributor commissions of $7.4 million, as a result of higher sports medicine revenue and the addition of commissions on the acquired dental product line; an increase in payroll and benefits expense of $2.6 million; higher amortization of $591,000, primarily as a result of the intangibles acquired in the TMI transaction; an increase in professional fees of $741,000; and the addition of $5.1 million in marketing, general and administrative costs associated with the acquired former TMI processing facility in Germany.

Research and Development Expenses. Research and development expenses increased by $2.3 million, or 61.4%, to $6.2 million for the nine months ended September 30, 2008 from $3.8 million for the nine months ended September 30, 2007. As a percentage of revenues, research and development expenses remained the same at 5.6% for the nine months ended September 30, 2007 and the nine months ended September 30, 2008. These increases are primarily due to increased payroll and benefits expense of $1.1 million, studies and research material and supplies expense of $191,000; and the addition of $845,000 in research and development costs associated with the acquired former TMI processing facility in Germany.

Gain on Business Exchange. On December 15, 2006 the Company entered into an Exchange and Service Agreement with CryoLife, Inc., whereby on January 1, 2007 the Company exchanged certain rights of its cardiovascular business for certain rights of CryoLife's orthopedic sports medicine business which resulted in a gain of $197,000. No cash was exchanged in the transaction. The transaction was treated as a non-monetary exchange and the fair value of certain assets in the Company's cardiovascular business, including the Company's goodwill, was exchanged for intangibles related to CryoLife's orthopedic sports medicine business.

Restructuring Charges. As a result of the merger with TMI we implemented a formal restructuring plan which resulted in $450,000 of expenses in the nine months ended September 30, 2008. These expenses include severance benefits.

Net Other (Expense) Income. Net other expense was $46,000 for the nine months ended September 30, 2008 compared to net other income of $43,000 for the nine months ended September 30, 2007. Interest income decreased by $118,000 for the nine months ended September 30, 2008 to $501,000 from $619,000 for the nine months ended September 30, 2007 due to the lower interest earned on the investment of excess cash in interest bearing cash equivalents than the comparable prior year period. Interest expense decreased by $29,000 for the nine months ended September 30, 2008 to $547,000 from $576,000 for the nine months ended September 30, 2007 due to the lower interest paid on long-term obligations as a result of lower loan and capital lease balances.

Income Tax Provision. Income tax provision for the nine months ended September 30, 2008 was $1.6 million compared to $644,000 for the nine months ended September 30, 2007. Our effective tax rate for the nine months ended September 30, 2008 and 2007 was 38.3% and 56.0%, respectively. Our effective tax rate for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007 decreased primarily as a result of increased profitability.Our effective tax rate for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007 decreased primarily as a result of increased profitability, reducing the negative impact on non-deductible stock based compensation of $939,000.

Liquidity and Capital Resources

Cash Flows - Three Months Ended September 30, 2008 Compared With Three Months Ended September 30, 2007.

Cash flows provided by operating activities were $328,000 for the three month period ended September 30, 2008, compared to $1.1 million for the three month period ended September 30, 2007.

Key components of working capital are accounts receivable and inventory. At September 30, 2008, we had 34 days of sales outstanding in trade accounts receivable, which is favorable to September 30, 2007 by 3 days. At September 30, 2008, we had 267 days of inventory on hand, unfavorable to September 30, 2007 by 33 days.

Our cash used in investing activities was $2.3 million for the three months ended September 30, 2008, compared to $1.0 million for the three months ended September 30, 2007. Our investing activities consisted primarily of purchases of property, plant and equipment of $1.8 million. Our investing activities for the three months ended September 30, 2007 consisted primarily of purchases of property, plant, and equipment of $781,000.

Our net cash provided by financing activities was $2.2 million for the three months ended September 30, 2008 compared to $26,000 for the three months ended September 30, 2007. Cash provided by financing activities for the three months ended September 30, 2008 consisted primarily of proceeds from credit line and short-term borrowings of $2.0 million, and proceeds from exercises of stock options of $728,000, offset by payments on long-term obligations of $540,000. Our financing activities for the three months ended September 30, 2007 consisted primarily of payments on long-term obligations of $587,000 and proceeds from exercise of stock options of $532,000.

Cash Flows - Nine months Ended September 30, 2008 Compared With Nine months Ended September 30, 2007.

Cash flows used in operating activities were $521,000 for the nine month period ended September 30, 2008, compared to cash flows provided by $6.1 million for the nine month period ended September 30, 2007.

Our cash provided by investing activities was $2.0 million for the nine months ended September 30, 2008 compared to cash used in investing activities of $1.8 million for the nine months ended September 30, 2007. Our investing activities consisted primarily of purchases of property, plant and equipment of $3.9 million, offset by cash acquired with the merger with TMI, net of transaction costs of $879,000, and proceeds from the sale of marketable securities of $5.2 million. Our investing activities for the nine months ended September 30, 2007 consisted primarily of purchases of property, plant, and equipment of $1.3 million.

Our net cash provided by financing activities was $1.5 million for the nine months ended September 30, 2008, compared to cash used in financing activities of $1.0 million for the six months ended September 30, 2007. Cash provided by financing activities for the nine months ended September 30, 2008 consisted primarily of proceeds from credit line and short-term obligations of $1.8 million and proceeds from exercises of stock options of $2.2 million, offset by payments on long-term obligations of $2.7 million. Our financing activities for the nine months ended September 30, 2007 consisted primarily of payments on long-term obligations of $1.8 million.

Liquidity.

As of September 30, 2008, we had $21.6 million of cash and cash equivalents. We believe that our working capital as of September 30, 2008 will be adequate to fund our on-going operations.

Certain Commitments.

On May 14, 2007, the Company entered into an exclusive distribution agreement with Zimmer with an initial term of 10 years, relating to certain new bone graft substitute products. As part of the agreement, Zimmer has agreed to make three payments to the Company totaling $5.0 million for the aforementioned exclusive distribution rights, and maintain certain minimum order volumes. The first payment of $1.0 million was made at the time of

entering the agreement. The second payment of $2.0 million was made in the first quarter of 2008. The final payment of $2.0 million is expected to be paid in the fourth quarter of 2008. The $5.0 million exclusivity payment has been deferred and is being recognized as other revenue on a straight-line basis over the initial term of the contract. The contract provides for repayment, on a pro rata basis, of the exclusivity payments during the initial contract term for specific events of non-performance, as defined in the agreement. The agreement also includes automatic two-year renewal terms, as well as buy-out provisions by both parties upon proper notice of cancellation.

On February 20, 2004, we entered into a long-term financing agreement with a major financial institution. The credit agreement consists of a $9.0 million five year term loan and a five year $16.0 million revolving line of credit which was limited to eligible receivables as reported in previous filings. The $9.0 million term loan calls for monthly principal payments of $125,000. Interest on the term loan agreement is paid monthly at LIBOR plus 4.25% (7.18% at September 30, 2008). The outstanding balance due on the term loan at September 30, 2008 is $2.3 million. The term loan and revolving line of credit are fully collateralized by substantially all of the assets of the Company, including accounts receivable, inventories and certain property and equipment. We are currently in the process of refinancing the outstanding balance on the term loan and obtaining a new $10 million line of credit with either the present lender or another to replace the existing credit agreement which expires February 28, 2009. Availability under the current line of credit is restricted pending the completion of certain amendments to the loan agreement and ongoing refinancing activities. We can provide no assurance that such additional financing will be available, or if available, that such funds will be available on favorable terms.

The credit agreement also contains various restrictive covenants which limit, among other things, indebtedness, liens and business combination transactions. In the second quarter of 2006, the lender replaced all financial covenants with a minimum liquidity requirement of $6.0 million. Minimum liquidity is defined as the amount available under the revolving line of credit plus unrestricted cash. We exceeded the $6.0 million minimum liquidity requirement as of September 30, 2008.

As part of the merger with TMI on February 27, 2008, we acquired TMI's long-term obligations, which consist of senior debt construction loans, and TMI's working capital credit lines.

Under the terms of revolving credit facilities with two German banks, we may borrow up to 1.5 million Euros (1.0 million Euros and 500,000 Euros, respectively) or approximately $2.2 million for working capital needs. At September 30, 2008, we had 293,000 Euros, or $423,000, borrowings outstanding under the revolving credit agreements with variable interest rate of 7.75%. The 500,000 Euro revolving credit facility is secured by accounts receivable of TMI's German subsidiary. The 1.0 million Euro revolving credit facility is secured by a mortgage on our German facility and a guarantee by TMI.

In November 2005, TMI entered into a revolving credit facility in the U.S. for up to $1.5 million, expiring on November 18, 2008. At September 30, 2008, we had borrowed the full $1.5 million. The TMI U.S. accounts receivable and inventory assets secure the borrowing under the revolving credit facility. The Company is . . .