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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K


          |X|  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended: December 31, 2000

                                       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: 0-23678

                             BIOSPHERE MEDICAL, INC.
             (Exact Name of Registrant as Specified in Its Charter)


               Delaware                                   04-3216867
   (State or Other Jurisdiction                (IRS Employer Identification No.)
 of Incorporation or Organization)


                 1050 Hingham St., Rockland, Massachusetts 02370
               (Address of Principal Executive Offices) (Zip Code)

                                 (781) 681-7900
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

          Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 par value
                                (Title of class)

     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 |X| No |_|

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

     The aggregate market value of voting Common Stock held by non-affiliates of
the  registrant  was  $51,923,849,  based on the closing  price of the shares as
reported by the Nasdaq National Market as of March 16, 2001

     Number of shares outstanding of the registrant's  Common Stock on March 16,
2001 was 10,597,422.

                      Documents incorporated by reference:
     Proxy Statement for the 2001 Annual Meeting of Stockholders--Part III.
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<PAGE>
                                     PART I

Item 1. BUSINESS

     We are pioneering the use of our proprietary  bioengineered  acrylic beads,
known as microspheres,  for medical applications using embolotherapy  techniques
and  also  to  develop  potential  applications  in  several   non-embolotherapy
applications.  We  believe  microsphere  technologies,  such as our  proprietary
microsphere   platform,   are   enabling  the  rapid   development   of  a  new,
''micro-interventional''  market.  We expect that  micro-interventional  devices
will permit  clinicians  to treat in a more  effective  and  minimally  invasive
manner than with catheter-based interventional technologies alone.

     Embolotherapy is a minimally invasive procedure in which embolic materials,
such as our  microspheres,  are  delivered  through  a  catheter  into the blood
vessels to inhibit blood flow to tumors or vascular  defects or to control blood
loss   presurgically.   Our  first  products  have  targeted  the  treatment  of
hypervascularized tumors and arterio-venous  malformations (AVM).  Hypervascular
tumors are tumors that have a large  number of blood  vessels  feeding  them and
include  certain  tumors  affecting  the brain and  spinal  cord,  tumors in the
uterus,  known as uterine  fibroids,  and tumors  associated  with primary liver
cancer.  By  selectively  blocking the tumor's  blood supply,  embolotherapy  is
designed  to cause  the  tumor  to  shrink  and  necrose.  Based on  preliminary
research,  we  believe  that our  microsphere  technology  platform  can also be
adapted to deliver drugs, living tissue or genetic material to targeted sites.

     Our  microspheres  have a variety of  characteristics  that we believe make
them  preferable to other embolic  materials  currently  used in  embolotherapy.
Specifically,  we have designed our product to be easier to use and its delivery
to the tumor more  targeted  and  controlled,  which we believe  will  result in
better  procedural  outcomes  for the  patient.  By  improving  the practice and
awareness of embolotherapy and the improved benefits of our products, we believe
that patients currently untreated,  surgical candidates and patients considering
treatment  with  other  embolics,   may  seek  treatment  with  our  microsphere
technology.

     We  believe  that our  platform  microsphere  technology  also has  several
non-embolotherapy applications, such as tissue bulking, repair and regeneration.
In this context,  we are exploring and / or developing  microspheres  for use in
the treatment of a number of conditions,  including stress urinary incontinence,
and  gastroesophageal  reflux  disease.  Consistent  with this focus, in January
2001,  we  announced  a strategic  alliance  with  Inamed  Corporation  of Santa
Barbara,  California, a surgical and medical device company primarily engaged in
the development,  manufacturing and marketing of medical devices for the plastic
and reconstructive  surgery and aesthetic medicine markets to supply proprietary
microspheres for dermal bulking applications.

     BioSphere was  originally  incorporated  as a Delaware  corporation in 1993
under the name BioSepra Inc., as a chromatography media company. During 1999, we
strategically refocused our business on the development and commercialization of
our  proprietary   microspheres  for  medical  applications.   During  2000,  we
established  two  wholly-owned  subsidiaries  to pursue the  development  of our
microsphere  technologies  in  applications  outside of, and  complimentary  to,
embolotherapy.  In May 2000, we established  Biosphere  Medical  Japan,  Inc., a
Delaware corporation,  to develop and commercialize  Embosphere (R) Microspheres
and  HepaSphere  SAP (TM)  Microspheres  in the Far East.  In December  2000, we
established  BSMD Ventures,  Inc., also a Delaware  corporation,  to explore and
develop non-embolotherapy applications for our proprietary microspheres.



INDUSTRY OVERVIEW
Embolotherapy Markets

     Embolotherapy  has been in use for more  than  20 years  by  interventional
radiologists to mechanically block the flow of blood to treat certain peripheral
tumors and arteriovenous  malformations and to control blood loss. Historically,
embolotherapy  has been used in  various  brain-based  procedures  as a means of
blocking the blood supply to inoperable  tumors or to minimize  bleeding  within
targeted  surgical areas. As applications  within the brain are considered among
the most  medically  sensitive  and  complex,  we believe the  continued  use of
embolotherapy  in these high-risk  procedures  attests to its overall safety and

<PAGE>

efficacy.  In recent years,  interventional  radiologists  in the United States,
Europe  and Japan have  begun to expand  the scope of  embolotherapy  to include
uterine  artery  embolization  and the treatment of certain  cancers,  including
liver cancer. Moreover, a growing number of affected people are taking proactive
steps in seeking alternative  treatments,  particularly as a result of increased
general  awareness brought about by the proliferation of medical Internet sites.
Accordingly,  we believe the  potential  market for  embolotherapy  continues to
expand   beyond  niche   neurovascular   applications   into   broader   medical
opportunities.


     In a process we refer to as active  embolotherapy,  we are also researching
the  development of microspheres  designed to release  embedded drugs or genetic
material specifically at a targeted site.


Uterine Fibroids

     Uterine  fibroids  are  non-cancerous  tumors  growing in or on the uterus.
Their cause is unknown.  Most  patients  with uterine  fibroids do not initially
have  symptoms  and remain  untreated  until the  patient  experiences  abnormal
bleeding, urinary frequency, pain, swelling or fertility difficulties.


     Until now,  women  suffering  from uterine  fibroids have had few treatment
options. These existing treatment options include the following:

     o    Hysterectomy:  Hysterectomy  is a  surgical  procedure  to remove  the
          uterus.  While hysterectomy has a relatively low complication rate, it
          requires a hospital stay of four to five days, a recovery period of up
          to  six  weeks,  and  results  in  loss  of  fertility  for  women  of
          child-bearing  age.  Furthermore,  hysterectomies  have  been  tied to
          adverse psychological effects, and the onset of early menopause.

     o    Myomectomy: Myomectomy is the surgical removal of the uterine fibroids
          without  removal of the uterus.  It is usually  performed on women who
          wish to preserve their  fertility.  In addition to the invasiveness of
          the procedure, the most significant disadvantage of myomectomy is a 20
          to 40 percent  recurrence  rate. Even though a myomectomy has been the
          only procedure  available to a woman with severe symptoms from uterine
          fibroids who wishes to preserve  fertility,  the  recurrence  rate and
          invasiveness  have resulted in resistance from both third party payors
          and patients. Relatively few myomectomies are performed in relation to
          the number of eligible patients.

     o    Medical  Management  and  "Watchful  Waiting:"  About  95  percent  of
          symptomatic  fibroid  patients either receive  hormone  treatment on a
          temporary basis to relieve  symptoms or remain  untreated and tolerate
          the symptoms.  Even if the patient receives treatment,  once treatment
          ceases the uterine  fibroids usually regrow.  While hormone  treatment
          temporarily  reduces symptoms,  patients often experience side effects
          associated with the accompanying  hormonal  changes.  Moreover,  women
          cannot  conceive  while  taking the  hormones.  Women with less severe
          symptoms who are, therefore, not candidates for hormone treatment, and
          those  seeking to conceive  have few  satisfactory  options.  In these
          circumstances, physicians usually monitor symptoms and will administer
          therapy only if the condition worsens.

     The therapies  currently  available for treating  uterine fibroids may have
significant drawbacks including:

     o    temporary or permanent  loss of fertility  for women of  child-bearing
          age,

     o    lengthy recovery periods,

     o    premature menopause and related symptoms,

     o    high costs, including costs of medications,  surgical procedures,  and
          frequent and long hospital stays,

     o    discomfort  and side effects from  invasive  surgical  procedures  and
          hormone therapy, and/or

     o    risk of recurrence of the fibroids.
<PAGE>

     Another method of treatment for uterine fibroids, more recently adopted, is
uterine artery  embolization.  The embolic  material most commonly used today in
uterine artery  embolization is polyvinyl alcohol, or PVA. Polyvinyl alcohol has
several limitations, including:

     o    Inconvenience and limited effectiveness. Polyvinyl alcohol often clogs
          in the catheter and the blood  vessel,  resulting in less than optimal
          occlusions of the blood supply to targeted tumors as well as undesired
          necrosis,  or  death,  of  the  surrounding  tissues.  Because  of its
          imprecise size and shape,  polyvinyl alcohol may not fully occlude the
          blood vessel,  allowing the blood to circumvent  the embolic  material
          and continue to feed the tumor.

     o    Limited control.  Polyvinyl alcohol often fragments and aggregates, or
          clumps,  in the  blood  vessel,  causing  vessel  blockages  prior  to
          reaching the desired  site of blood flow  occlusion.  Clumping  during
          embolization is problematic for two reasons. First, if clumping occurs
          in the catheter during the procedure,  more frequent catheter flushing
          or catheter replacement may be required, adding to the length and cost
          of the procedure.  Second, if clumping occurs at non-targeted sites in
          the vessel after  injection into the artery,  incomplete  embolization
          can occur.  In addition,  occlusions  can block normal  desired  blood
          supply to the tissues.

     o    Chronic inflammatory  response.  Polyvinyl alcohol often stimulates an
          inflammatory response by the body that persists for an extended period
          of time.

     Based upon the  shortcomings  in existing  technologies  and  therapies  we
discussed  above, we believe there are significant  opportunities  in developing
and commercializing  alternative  treatments for patients suffering from uterine
fibroids.


Primary Liver Cancer

     Primary  liver  cancer  refers to liver  cancer  originating  in the liver,
rather than traveling to the liver from another cancer site in the body. Over 70
percent of primary  liver cancers are  inoperable  and are,  therefore,  treated
primarily with chemotherapy or radiation. However, due to the destructive nature
of both radiation and  chemotherapy,  these  therapies have  traditionally  been
associated with the following limitations and side effects:

     o    Radiation.  While  radiation  therapy can shrink or eliminate  certain
          individual tumors, its use in treating liver cancer is limited.  Since
          it is  difficult  to isolate  radiation  exposure to the liver  tumor,
          radiation   therapy  often  results  in  damage  to  the   surrounding
          non-tumorous  tissue.  Moreover,  radiation injury can also damage the
          natural anti-tumor defenses of the body,

     o    Chemotherapy.  Chemotherapy  seeks to  control  cancer by  selectively
          killing the more-rapidly-dividing  cancer cells and is widely used for
          treating  cancer  elsewhere  in the  body.  The  use  of  systemically
          delivered  chemotherapy  agents,  however, has shown little benefit in
          treating  liver  cancer.  Similar  to  the  limitations  of  radiation
          therapy,  therapeutic  doses of chemotherapy  to the cancerous  tissue
          have a damaging effect on the normal surrounding tissue.

     Other  treatments  currently  under  investigation  to treat  primary liver
cancer are radio  frequency  tumor  ablation,  which  seeks to kill the tumor by
means  of  destructive  electrical  energy,  and  embolization  using  polyvinyl
alcohol. Interventional radiologists are also currently using chemoembolotherapy
to treat liver cancer.  Chemoembolotherapy  refers to the delivery of drugs in a
mixture  that  contains   embolic   materials  to  create  a  higher   localized
concentration of the drug.

Non-embolotherapy Applications

     Advances in cell biology are  resulting in rapid  advances in the fields of
organ  repair and  tissue  repair,  reconstruction  and  regeneration,  which we
generally  refer  to  as  tissue  engineering.   These  developments  in  tissue
engineering  are  targeted at  persuading  the body to heal  itself  through the
delivery  of  molecular  signals,   cells  and  supporting   structures  to  the
appropriate sites in the body.
<PAGE>

     In   certain    conditions    including   stress   urinary    incontinence,
gastroesophageal  reflux  disease,  urinary  reflux in infants and certain  skin
conditions,  the  normal  anatomic  supports  are not  present  in the body.  By
injecting  fillers into the existing  structures to bulk them up, referred to as
tissue bulking, the missing anatomic supports are recreated, thereby eliminating
the condition.

     Tissue repair and  regeneration  involves the  development of  bioartifical
cells, tissues and supporting matrixes,  which are scaffolds that hold the cells
or tissues together. These tissue scaffolds may also be developed from synthetic
polymers.  Tissue  scaffold  products  have a number of potential  applications,
including cartilage and bone repair and organ replacement.

PRODUCTS

     Our innovative microsphere technology evolved out of approximately 15 years
of  research  and  development  of  polymer  formulations  used in the  field of
biological  separations  and drug  purification.  In 1999,  we made a  strategic
decision  to focus on  microsphere  technologies  for medical  applications.  We
believe that our microsphere  technology is a platform  technology  which can be
configured  in several  different  ways to have  applications  as a pure embolic
material,  an embolic  material  linked to a gene or drug, a bulking agent and a
scaffold for tissue engineering.

Passive Embolotherapy

Embosphere (R) Microspheres

     Our  initial  product,  Embosphere  Microspheres,  is  intended  for use in
passive embolotherapy to block the blood supply to hypervascularized  tumors and
arteriovenous malformations. Embosphere Microspheres have been used in Europe to
treat   hypervascularized   tumors  and   arteriovenous   malformations  and  to
presurgically  control blood loss. We believe that,  pending  specific  labeling
clearance or approval by the FDA, the principal  application  of the  Embosphere
Microspheres will be as an alternative therapy for uterine fibroids.

     Uterine fibroid embolization is a minimally invasive procedure performed by
interventional  radiologists.  In  this  procedure,  microspheres  are  injected
through a small  catheter  into the blood  vessels  feeding the  fibroid  tumor,
preferentially  blocking  the  blood  supply  to the  fibroids,  but  not to the
surrounding  healthy  tissues.  The  goal of the  uterine  fibroid  embolization
procedure  is to  eliminate  the flow of blood to the uterine  fibroid,  thereby
alleviating  related  symptoms,  while  preserving  normal  uterine  and ovarian
function.

     We believe that  embolotherapy  is attractive  relative to current  therapy
alternatives for uterine fibroids,  which include invasive surgical  procedures,
such as  hysterectomy  and myomectomy,  hormone therapy and "watchful  waiting."
Current  therapies  can have  significant  side effects  including  temporary or
permanent loss of fertility,  lengthy recovery periods, high costs,  discomfort,
side effects and risk of recurrence of fibroids.

     Although the effect of uterine artery  embolization on future fertility has
not been  established,  we believe  that  uterine  artery  embolization  has the
potential  to preserve  the  fertility of the patient that would be lost through
hysterectomy  or  may  be  compromised  by  the  use  of  current  therapies  or
technologies  and to eliminate  the risk of  recurrence  of the uterine  fibroid
tumor and the  complications  associated  with  myomectomy.  Most uterine artery
embolization procedures can be performed in less than one hour, with the patient
being sedated,  but awake. The patient generally stays overnight in the hospital
and  typically  returns to  everyday  activities  within  the next few days.  In
contrast, hysterectomy patients undergo general anesthesia, stay in the hospital
for four to five days and have a recovery period of up to six weeks.
<PAGE>

     Current  embolotherapy using polyvinyl alcohol also has several limitations
associated with its imprecise size and shape, including less effective occlusion
of the blood  supply to the  tumor,  inflammation  and  untargeted  embolization
resulting in the injury of the surrounding  normal tissue.  Independent  studies
have indicated that Embosphere  Microspheres  have a variety of  characteristics
that may make them preferable to polyvinyl alcohol. These include:

     o    Perfect  spherical  shape / calibrated  particle  size. We are able to
          synthesize beads with uniform sizing and a spherical shape. When beads
          are  irregularly  shaped  or  sized,  as is the  case  with  polyvinyl
          alcohol,  clinicians  find vessel  targeting more  difficult,  and the
          possibility  of unwanted  embolization  of blood vessels away from the
          site of the tumor may increase.

     o    Compliant and resilient properties.  We have developed a soft, elastic
          microsphere  which has the  capability  to  compress to up to 30 to 50
          percent of its original  shape.  Consequently,  clinicians can deliver
          these beads  through  microcatheters.  Many  clinicians  prefer  using
          microcatheters  during  embolization as small  catheters  minimize the
          frequency of artery or vessel spasm during the procedure. Vessel spasm
          can be of particular concern during uterine artery  embolization as it
          can  disrupt the flow of blood.  Clinicians  rely on blood flow during
          embolization  to direct the  microspheres  to the vessel  targeted for
          occlusion.

     o    Hydrophilic  properties.  Based on the  choice  of  materials  used to
          manufacture  microspheres,  our products are hydrophilic,  which means
          that they absorb moisture. This characteristic is important in that it
          prevents the microspheres from clumping in the catheter and the artery
          during the procedure.

     o    Non-biodegradability.  Our  microspheres  are  composed of a synthetic
          three-component  polymer which is compatible with the human body. This
          polymer  does not dissolve in any solvent,  is  non-biodegradable  and
          resistant  to  absorption  or  digestion  by  the  body.  We  believe,
          therefore,  that our Embosphere  Microspheres are an appropriate agent
          for permanent vessel occlusion.

     o    Cell adhesion. Our Embosphere Microspheres are crosslinked with a cell
          adhesion  promoter  composed of gelatin.  This material  promotes cell
          adhesion,  resulting in a more rapid, stable and complete occlusion of
          the vessel.

     o    Charged surface  property.  Our microspheres  are positively  charged,
          enabling them to attach to the  negatively-charged  blood vessel wall.
          This  attachment  to the vessel wall  minimizes  the potential for the
          microspheres to migrate to non-targeted vessels.

     Embosphere  Microspheres  are  currently  available  in a range of  product
sizes,  from 40 to 1,200 microns,  based on current  customer  requirements  and
targeted  applications.  They are designed to precisely  fit the blood  vessels,
resulting in targeted and controlled occlusion.  They can be used with existing,
commercially  available  catheters  and delivery  systems.  We  anticipate  that
subsequent  generations of Embosphere  Microspheres will incorporate new product
characteristics,  such as  improved  cell  adhesion  properties  and an improved
ability  for  the   physician  to  visualize   the  product  on  x-rays   during
administration.

     We received CE Mark approval of our Embosphere Microspheres in the European
Union in 1997 and more  recently  received  marketing  approval in Australia and
Canada.  In April 2000,  we received  marketing  clearance  from the FDA for our
Embosphere  Microspheres,  through a 510(k)  notification for  hypervascularized
tumors and  arteriovenous  malformations.  The 510(k) clearance does not include
specific  labeling for treating  uterine  fibroids.  We are conducting  clinical
trials under an  investigation  device  exemption to support an application  for
clearance or approval from the FDA for this specific indication.

<PAGE>

HepaSphere SAP (TM) Microspheres

     Through our wholly owned subsidiary,  Biosphere Medical Japan, Inc., we are
developing  HepaSphere SAP Microspheres,  which are expandable  microspheres for
injection via catheter  into the blood  vessels  feeding the liver cancer tumor.
Once at the tumor site,  they are designed to expand by absorbing water from the
blood  and  effectively  plug the  blood  supply to the  tumor.  Targeted  liver
embolotherapy,  referred  to as (TLE) is  intended  to starve  the liver  tumor,
without damaging the surrounding  tissues or causing any adverse side effects on
other  parts  of the  body,  such as  those  associated  with  chemotherapy  and
radiation.

     Over 100  primary  liver  cancer  patients  have been  treated to date with
HepaSphere  SAP   Microspheres  on  an   investigational   basis  in  Japan.  In
September 1999,  we obtained a worldwide  exclusive  license to  HepaSphere  SAP
Microspheres  from its  Japanese  inventor.  We plan to  apply  to the  Japanese
Ministry of Health and Welfare for marketing approval within the next 24 months.


Active Embolotherapy

Viasphere (TM)  Microspheres

     We are  conducting  research on our Viasphere  Microspheres,  which will be
precisely-sized  highly  hydrophilic  microspheres to which are attached genetic
materials or drugs. We are developing these microspheres to be injected into the
blood  vessels  feeding the tumor.  We expect that once the flow of blood to the
tumor  has  been  occluded,   Viasphere   Microspheres   will  start  delivering
concentrated genes or drugs into the tumor.

     We believe that our Viasphere Microspheres may have several advantages over
current gene therapy or drug delivery products, including the following:

     o    Direct Delivery to Tumor: Our Viasphere  Microspheres will be designed
          to deliver  the drug or gene  therapy  product  directly to the tumor,
          avoiding the  potential  side effects  associated  with high levels of
          circulating  drugs or genes after an intravenous  infusion through the
          blood vessel system.  Direct delivery should permit the use of higher,
          potentially more effective, dosages of the product.

     o    Non-Viral: By using our Viasphere  Microspheres,  the physician may be
          able to avoid the risk  associated  with viruses  which are  currently
          used in the delivery of drug or gene therapy  products to increase the
          likelihood of killing the cancer cells.

     We are currently conducting  early-stage research on the development of our
Viasphere Microspheres.

Other Embolization Products

     In addition, we intend to seek to develop and commercialize other
embolization products that include:

     o    delivery systems for embolic  materials,  such as specialty  catheters
          and guidewires,

     o    procedure-enhancing  technologies  that are  designed  to improve  the
          uniformity  of  microsphere   dispersion  during   injection,   reduce
          radiation  exposure and  optimize  efficiency  of  procedure  time and
          implanted material, and

     o    additional  embolic materials such as innovative coils,  embolics that
          solidify upon injection and resorbable embolics to treat aneurysms and
          large  arteriovenous  malformations,  as well as for  specific  tumors
          based upon their type or location.

<PAGE>

Non-Embolothereapy Technologies

MatrX (TM) Microspheres

     Our MatrX Microspheres  product,  currently under preclinical  development,
will include highly hydrophilic synthetic  microspheres that will be designed to
cause  tissue  bulking  as a  means  to  provide  anatomic  support  in  disease
conditions where this support is missing.  MatrX Microspheres  preparations will
be designed to be easily  injectable yet large enough to avoid  digestion by the
body. Once injected,  we anticipate that the microsphere  matrix will be rapidly
populated  by  surrounding  cells and provide a stable,  mechanically  resistant
tissue bulking effect. Potential applications of MatrX Microspheres preparations
for tissue bulking include:

     o    Stress Urinary Incontinence:  Approximately four million adults in the
          U.S. suffer from stress urinary incontinence, which is the involuntary
          loss of urine during coughing,  laughing,  sneezing,  jogging,  or any
          other activity which causes a sufficient  increase in pressure  within
          the abdomen.  Stress urinary  incontinence  is currently  treated in a
          variety  of ways,  but the  majority  of  patients  are  managed  with
          techniques  that  treat  the  symptoms,  but  do not  restore  urinary
          continence.  Most  curative  approaches  to the  treatment  of urinary
          incontinence require significant surgical interventions.

          Tissue bulking agents are either biologically derived or synthetic and
          are  designed to be  injected in or near the bladder  neck to increase
          tissue  bulk.  While  bulking   procedures  are  gaining   acceptance,
          biologically-derived  bulking  agents are  typically  absorbed  by the
          body,  requiring  retreatment.  Other limitations include migration of
          the synthetic agents to other  non-affected  parts of the body causing
          adverse health effects,  incompatibility  of the synthetic agents with
          the human body,  and difficulty in injecting the agents into the walls
          of the urethra. Accordingly,  current available therapies provide only
          limited benefit in the treatment of stress urinary incontinence.

          We are currently  developing  our MatrX  Microspheres  tissue  bulking
          product,  which is designed to be injected  into the urethral  wall to
          reduce or  eliminate  the  incidence of urinary  incontinence.  We are
          conducting  preclinical  research  on the  application  of  our  MatrX
          Microspheres tissue bulking product for stress urinary incontinence.

     o    Vesicoureteral  Reflux:  Vesicoureteral reflux is a condition in which
          urine may  backflow  from the bladder  through the ureter and into the
          kidneys.  This condition affects over one percent of newborn children.
          MatrX  Microspheres  would be used to bulk the area of  tissue  at the
          junction of the ureter and bladder to increase backflow resistance.

     o    Gastroesophageal  Reflux  Disease:  In  many  cases,  gastroesophageal
          reflux  disease  is  attributable  to  decreased  tone  of  the  lower
          esophageal  muscle  tissue or to a  congenitally  small band of muscle
          tissue.  We are conducting  research  relating to the use of our MatrX
          Microspheres  tissue bulking product under  development to be injected
          into the muscle tissue to improve its function.

GenS2 (TM) Microspheres Injectable Tissue Scaffold

     We are seeking to design our GenS2 Microspheres  injectable tissue scaffold
product,  which is in the research  phase,  for such  applications  as cartilage
repair and other tissue or organ  replacement.  Several companies are developing
and marketing bioartifical cells, tissues and supporting scaffoldings which hold
the cells or tissues  together.  However,  the existing tissue  scaffoldings are
either difficult to inject into the body, are digested by the body over time, or
do not adequately merge into the original tissue.  In addition,  most procedures
still require surgery to place the bioartifical tissues.

     We  believe  that  our  microsphere   technology  can  be  formulated  into
injectable  microsphere scaffolds,  which we call GenS2 Microspheres,  which may
overcome many of the  limitations  of tissue  scaffolds  currently  commercially
available.  We are  designing  this  product  to adhere to cells and to be small
enough to be injected, yet large enough after injection to avoid digestion.
<PAGE>

Other Non-Strategic Products

     In addition to our  Embosphere  Microspheres  products,  we sell barium and
other ancillary  products.  Barium is purchased from Guerbet  Medical,  Inc. and
resold for use in  gastro-intestinal  medical  tests.  We sell  other  ancillary
devices as  complementary  medical  products for hospital and physician  use. We
generated a significant  portion of our revenue in 2000 from these non-strategic
products.  We do not expect these products to be a significant  component of our
future sales.

MARKETING AND SALES

     We currently market our embolotherapy products through direct sales efforts
in the  United  States and Canada and  through a  combination  of direct  sales,
distributors, field representatives and direct marketing support in the European
Union and other parts of the world. We are in the process of expanding our sales
and  marketing  management  team in the European  Union,  the United  States and
Japan.

     We plan to attend  major  medical  conventions  pertaining  to our targeted
markets  and invest in market  development,  including  physician  training  and
patient outreach. We are working closely with major academic centers to serve as
centers for excellence for physician  training,  product  evaluation and ongoing
research.  Many members of our Medical  Advisory Board are associated with these
major academic centers.


RESEARCH AND DEVELOPMENT

     Our  research  and  development  group  consists  of direct  employees  and
consultants.  In addition,  we have several development  agreements with outside
product  development  contractors  and study  agreements  with  several  medical
centers.

     Our research and  development  group is focusing on developing  our product
technology in three areas:

     o    continuous improvement of our core technology,

     o    new embolotherapy materials and platforms,

     o    complementary embolotherapy products, and

     o    new initiatives  aimed at leveraging our core technology in new market
          areas.

     Our  core  technologies   include  patented  and  proprietary   microsphere
technologies,  licenses in the medical field for patented  organic and inorganic
polymer  and surface  chemistries  for  microsphere  design and  development,  a
license in the medical  field for  non-viral DNA  transfection  technology,  and
expertise and know-how in microsphere manufacturing.

     During the fiscal years ended  December 31, 2000,  1999 and 1998,  we spent
approximately $2,517,000,  $968,000 and $34,000,  respectively,  on our research
and  development  efforts.  We expect our research and  development  expenses to
increase in the future as we seek to increase our research and development staff
and related  facilities,  enhance our existing  products and develop  additional
products.

COMPETITION

Passive Embolotherapy

     The  primary  competitive  embolotherapy  product  sold by  competitors  is
polyvinyl  alcohol,  or PVA, a product  introduced  into the market more than 20
years ago. We encounter, and expect to continue to encounter, competition in the
sale of our current and future  passive  embolotherapy  products.  Our principal
competitors in the field of  embolotherapy  are Boston  Scientific  Corporation,
Johnson  &  Johnson,  and  Cook,  as well as  companies  selling  or  developing
non-embolotherapy  solutions  for  the  disease  states  targeted  by us.  These

<PAGE>

competitors  have,  and our  future  competitors  are  likely  to have,  greater
financial,  operational,  sales and marketing  resources and more  experience in
research  and  development  than we have.  We compete  primarily on the basis of
product performance, ease of use, degree of embolization control, and quality of
patient outcomes. Our future success will depend in large part on our ability to
gain market  leadership at the early stage of the  development and acceptance of
new  procedures,  and our  ability to  continue  to develop  and bring to market
differentiated products enhancing embolotherapy.

Active Embolotherapy

     Although  we are not  aware of any  company  selling  or  marketing  active
embolotherapy products, we expect to encounter competition in the future sale of
any active embolotherapy products. We expect that our future competitors in this
area may have greater financial,  operational, sales and marketing resources and
more experience in research and development than we have. In addition, we expect
to compete with companies  which are developing and marketing  other  anticancer
therapies  and gene therapy  drugs.  These  competitors  include  several  large
pharmaceutical  companies.  We believe that the principal competitive factors in
the active  embolotherapy  market  will  include the ability to deliver a highly
concentrated dose of gene or drug to the tumor without effects on other parts of
the  body,  product  designs   facilitating  a  minimally  invasive   outpatient
procedure,  and a sales  and  marketing  organization  which is able to  support
interventional radiologists.

Tissue Engineering

     In the field of tissue  engineering,  we believe that competition will come
from  companies that are currently  developing and marketing  tissue bulking and
tissue repair and regeneration products. We believe our principal competitors in
the field of tissue  engineering  are companies  such as Medtronic and Johnson &
Johnson.  These competitors have, and our future competitors are likely to have,
greater  financial,   operational,   sales  and  marketing  resources  and  more
experience  in  research  and  development  than we have.  We  believe  that the
principal  competitive  factors in the  tissue  engineering  market  will be the
ability  to obtain  durable  effects  while  reducing  the  invasiveness  of the
procedure.

GOVERNMENT REGULATION

     FDA  Regulation.  The FDA, and other  federal,  state,  local,  and foreign
authorities,  regulates our products and manufacturing  activities.  Pursuant to
the  Federal  Food,  Drug,  and  Cosmetic  Act and the  regulations  promulgated
thereunder,  the FDA regulates the development,  clinical testing,  manufacture,
packaging,  labeling,  storage,  distribution  and promotion of medical devices.
Before a new device can be introduced  into the market,  the  manufacturer  must
generally obtain marketing  clearance through a 510(k)  notification or approval
through a premarket approval application,  or PMA. We generally will be required
to  obtain  510(k)   clearance  or  premarket   approval   prior  to  commercial
distribution of future products or future applications of current products.  Our
proposed active  embolotherapy  products will likely be regulated as combination
products,  meaning they could be subject to  regulation  as drugs or  biological
products,  which may  involve  more  extensive  clinical  testing  and  rigorous
premarket  approval  beyond that  required for our  microspheres  and  ancillary
products, and other proposed products.

     Classification  of Medical Devices.  In the United States,  medical devices
intended for human use are classified  into three  categories,  Class I,  II, or
III, on the basis of the  controls  deemed  reasonably  necessary  by the FDA to
assure their safety and  effectiveness.  Class I  devices are subject to general
controls,  for example,  labeling,  premarket notification under Section 510(k),
unless  exempt,  and  adherence  to  the  FDA's  Good   Manufacturing   Practice
regulations.  Class II devices are subject to general and special controls,  for
example, performance standards, postmarket surveillance, patient registries, and
FDA guidelines.  Class III is the most stringent regulatory category for medical
devices.  Class III  devices are those which are subject to  premarket  approval
requirements  and are intended to require,  or must require,  an FDA approval of
their safety and  effectiveness  prior to marketing.  Class III devices include,
for example,  devices which are life-sustaining,  life-supporting or implantable
devices,  or new devices which have not been found  substantially  equivalent to
legally marketed devices.

<PAGE>

     510(k) Clearance.  The FDA will clear a device under  section 510(k) if the
submitted  information  establishes  that the proposed  device is  substantially
equivalent to a legally marketed Class I or II medical device, or to a Class III
medical  device  for  which  the FDA has not yet  called  for a PMA.  Commercial
distribution  can begin  only  after the FDA  issues an order that the device is
substantially equivalent to a device that is legally marketed and not subject to
a premarket approval  requirement.  The FDA may determine that a proposed device
is not  substantially  equivalent to a legally marketed device,  in which case a
premarket  approval  will be required to market the  device,  unless  additional
information can be submitted to support a substantial equivalence determination,
or the FDA,  pursuant  to a  request  from a timely  510(k)  submitter,  makes a
risk-based  determination  that  a  not-substantially-equivalent  device  can be
classified  into Class I or II. An FDA request for additional data could require
that clinical studies of the device's safety and effectiveness be performed.  In
April, 2000, we received 510(k) clearance to market Embosphere  Microspheres for
embolization of hypervascularized  tumors and arteriovenous  malformations,  Our
embolotherapy  device is classified  into Class III by the FDA, which means that
even though we obtained  510(k)  clearance  to market the device,  the FDA could
promulgate a regulation  requiring  premarket approval of the device to allow it
to remain on the  market.  A  requirement  for  premarket  approval  will likely
require us to continue  costly clinical trials and there is no guarantee that we
can provide the FDA sufficient data for premarket  approval in a timely fashion,
if at all. Failure to obtain  premarket  approval would result in removal of our
product from the United States market.

     Premarket  Approval.  A premarket  approval  application  must be filed and
approved  before  a  device  can  be  marketed  if  a  proposed  device  is  not
substantially equivalent to a legally marketed device or, as discussed above, if
it  is  a  pre-amendments  Class  III  device,  i.e.,  a  device  in  commercial
distribution  prior to May 28, 1976,  for which the FDA has called for premarket
approvals.   A  premarket  approval  application  must  be  supported  by  valid
scientific   evidence,   which  typically  includes  extensive  data,  including
preclinical   and  clinical   trial  data,  to   demonstrate   the  safety  and
effectiveness  of the device.  Obtaining  approval  can take  several  years and
approval may be conditioned on, among other things,  substantial restrictions on
indications  for  use  and  the  conduct  of  postmarket  surveillance  studies.
Notwithstanding  the 510(k) and premarket  approval pathways to the marketplace,
if human  clinical  trials of a device are required,  and the device  presents a
"significant risk," the sponsor,  usually the manufacturer or the distributor of
a device,  must  obtain FDA  approval  of an  investigational  device  exemption
application  prior to commencing  human  clinical  trials.  Sponsors of clinical
trials are permitted to charge for devices  distributed in the course of a study
provided  such  charges  do not  exceed  recovery  of the costs of  manufacture,
research, development and handling, but devices may not be commercialized, i.e.,
promoted  as safe or  effective,  sold  for  profit  or used  beyond  legitimate
research needs.

     On October 4, 1999,  the  Obstetrics  and  Gynecology  Devices Panel of the
Medical  Devices  Advisory  Committee met to discuss  requirements  for clinical
studies to support  submissions  for  clearances  or approvals  for products for
uterine artery  embolization and other products used in the treatment of uterine
fibroids.  The FDA has not formally  classified the use of embolic particles for
this  indication  and may decide to require a PMA or,  alternatively,  may allow
commercial  clearance  via a 510(k) notice  together with clinical  support that
substantiates  product safety and efficacy.  We have received an investigational
devices  exemption,  or IDE,  which  allows us to  commence a clinical  study to
investigate  the safety  and  feasibility  of the  Embosphere  Microspheres  for
uterine artery embolization. IDE trials are subject to extensive regulation, and
may be placed on hold or terminated by the FDA if, among other reasons, there is
reason to believe the risks do not outweigh the  anticipated  benefits.  The IDE
process may take many years.  The Phase II  authorizes us to enroll 100 patients
in the study  arm  involving  uterine  artery  embolization  at as many as seven
clinical sites.
<PAGE>

     Changes in  Approved  Devices.  Device  manufacturers  must  obtain new FDA
510(k)  clearance when there is a major change or  modification  in the intended
use of a legally marketed device or a change or modification,  including product
enhancements,  and, in some case,  manufacturing  changes, to a legally marketed
device that could significantly affect its safety or effectiveness.  Supplements
for  approved  premarket  approval  devices  are  required  for device  changes,
including some manufacturing  changes, that affect safety or effectiveness.  For
devices marketed pursuant to 510(k)  determinations of substantial  equivalence,
we must obtain FDA clearance of a new 510(k) notification prior to marketing the
modified device;  for devices marketed with premarket  approval,  we must obtain
FDA approval of a supplement  to the premarket  approval  prior to marketing the
modified device.

     Good  Manufacturing  Practices and Reporting.  The Federal Food,  Drug, and
Cosmetic Act requires us to comply with Good Manufacturing  Practices or Quality
Systems  regulations.  We must comply with various quality control  requirements
pertaining  to all  aspects  of our  product  design and  manufacturing  process
including  requirements  for packaging,  labeling and record keeping,  including
complaint   files.  The  FDA  enforces  these   requirements   through  periodic
inspections of medical device manufacturing facilities. In addition, the Medical
Device Reporting  regulation obligates us to inform the FDA whenever information
reasonably  suggests that one of our devices may have caused or  contributed  to
death or serious  injury,  or when one of our devices  malfunctions  and, if the
malfunction  were to recur, the device would be likely to cause or contribute to
a death or a serious injury.

     Labeling and  Advertising.  Labeling and  promotional  activities  are also
subject to scrutiny by the FDA. Among other things, labeling is violative of the
law if it is false or misleading in any respect or it fails to contain  adequate
directions   for  use.   Moreover,   any   labeling   claims   that  exceed  the
representations  either  approved or cleared by the FDA will violate the Federal
Food, Drug, and Cosmetic Act.

     Our product  advertising is also subject to regulation by the Federal Trade
Commission  under the Federal  Trade  Commission  Act,  which  prohibits  unfair
methods of competition and unfair or deceptive acts or practices in or affecting
commerce,  as well as unfair or deceptive practices such as the dissemination of
any false advertisement  pertaining to medical devices.  Under the Federal Trade
Commission's  substantiation  doctrine,  an  advertiser  is  required  to have a
reasonable basis for all product claims at the time the claims are first used in
advertising or other promotions.

     Import  Requirements.  Imported  products  must  meet  the  same  marketing
standards  as domestic  goods.  The only  exception  is a product  imported  for
export.  In this case,  a product that would  otherwise be refused  entry can be
imported under certain conditions;  specifically, the importer must declare that
the item is intended  for  incorporation  or further  processing  by the initial
owner or consignee into a device that will be exported. The initial consignee or
owner must maintain  records  identifying  the use of the article,  and submit a
report  regarding  its  disposition  upon agency  request.  If an article is not
incorporated  or  further  processed  into a  device,  it must be  destroyed  or
exported.

     To import a device,  the  importer  must file an entry notice and bond with
the  U.S.  Customs   Department   pending  an  FDA  decision  on  the  product's
admissibility.  All devices are subject to FDA  examination  before release from
Customs.  Any article that appears to be in violation of the Federal Food, Drug,
and Cosmetic Act will be refused admission and a notice of detention and hearing
will be issued. A product also can be detained  without physical  examination if
the product has a past  history or other  information  indicates  that it may be
violative.  Foreign  firms must  register and list before their  products may be
imported,  and a device must have received 510(k)  clearance or be subject to an
approved premaket approval application if required.
<PAGE>

     Export  Requirements.  Products  for export from Europe and from the United
States are subject to foreign  countries'  import  requirements and the FDA's or
European  regulating  bodies'  exporting  requirements.  The introduction of our
products in foreign markets may subject them to foreign  regulatory  clearances,
which  may  impose  additional   product   standards,   packaging  and  labeling
requirements  and import  restrictions  on devices.  Regulatory  requirements to
market devices vary from country to country.  In addition,  each country has its
own tariff regulations, duties, and tax requirements.

     In addition to the import  requirements of foreign countries,  we must also
comply with the United States laws governing the export of products regulated by
the FDA. Devices that have obtained 510(k)  clearance or premarket  approval and
comply with the law in all other  respects may be exported  without  further FDA
authorization.  However, foreign countries often require, among other things, an
FDA certificate for products for export. To obtain this certificate,  the device
manufacturer must certify to the FDA that the product has been granted clearance
or approval in the United States and that the manufacturing  facilities appeared
to be in compliance with Good Manufacturing Practices regulations at the time of
the last FDA inspection.

     Under the FDA Export  Reform and  Enhancement  Act of 1996,  an  unapproved
Class III device, a device subject to an investigational device exemption,  or a
banned  device may be exported to any country if the product  complies  with the
laws of  that  country  and  has  valid  marketing  authorization  in one of the
following  countries or  authorities:  Australia,  Canada,  Israel,  Japan,  New
Zealand,  Switzerland,  South Africa,  the European  Union,  or a country in the
European Economic Community, or EEC, if the device is marketed in an EEC country
or  authorized  for general  marketing in the EEC. The FDA is  authorized to add
countries to this list in the future.  Further,  a device may be exported  under
this provision only if, among other things,  it is not  adulterated,  accords to
the  specifications  of the  foreign  purchaser,  complies  with the laws of the
importing  country,  is labeled  for  export,  is  manufactured  in  substantial
compliance  with  Good   Manufacturing   Practices   regulations  or  recognized
international  standards,  is not sold in the  United  States,  and meets  other
conditions.

     Another  pathway  to export an  unapproved  Class  III  device  for which a
premarket  approval would be required to market the product in the United States
is to satisfy the following requirements:

     o    the device accords to the specifications of the foreign purchaser,

     o    the device is not in conflict with the laws of the country to which it
          is intended for export,

     o    the device is labeled that it is intended for export,

     o    the device is not sold or offered for sale in domestic commerce, and

     o    the FDA determines  that the exportation of the device is not contrary
          to the public  health and has the  approval of the country to which it
          is intended for export. Compliance with these requirements will permit
          export  to  countries  where  marketing  authorization  from a  listed
          country or authority is not obtained.

     Fines  and  Penalties  for  Noncompliance.   Our  failure  to  comply  with
applicable  FDA  regulatory  requirements  could result in, among other  things,
premarket approval  withdrawal,  rescission of a 510(k) clearance,  injunctions,
product  withdrawals,  voluntary or mandatory  patient/physician  notifications,
recalls, product seizures, civil penalties, fines and criminal prosecutions.  In
addition,  the Federal Trade  Commission has a variety of processes and remedies
available to it for enforcement, both administratively and judicially, including
compulsory  process,  cease and desist  orders and  injunctions.  Federal  Trade
Commission  enforcement  can result in orders  requiring,  among  other  things,
limits on advertising,  corrective advertising, consumer redress, divestiture of
assets,  rescission  of  contracts  and  such  other  relief  as may  be  deemed
necessary.  Violation of such orders could  result in  substantial  financial or
other  penalties.  Any such  action by the FDA or the Federal  Trade  Commission
could  materially  adversely  affect  our  ability  to  successfully  market our
products.
<PAGE>

     Medical  device  laws are also in effect in many  countries  outside of the
United States. These range from comprehensive  device approval  requirements for
some or all of our medical device products to simpler  requests for product data
or  certification.  The number and scope of these  requirements  are increasing.
Sales of  medical  devices in the  European  Union are  subject to the  European
Medical Device  Directive.  This  directive  contains  requirements  for quality
system  and  product  performance  guidelines  to which all  manufacturers  must
comply.  These guidelines  contain quality system  guidelines and  preproduction
product design  verification  that closely resemble  current FDA guidelines.  In
1997, we obtained ISO 9002/EN46001 international quality systems registration, a
certification  showing that our procedures and  manufacturing  facilities comply
with standards for quality  assurance and  manufacturing  process  control.  Our
compliance with this  registration  has been confirmed since 1997 in semi-annual
surveillance  audits. The ISO 9002  certification,  along with the EN 46001, the
European Medical Device Directive  certification,  signifies compliance with the
requirements  enabling  us to affix  the CE Mark to our  Embosphere  Microsphere
product.  The CE Mark denotes  conformity with European standards for safety and
allows  certified  devices  to be placed on the  market  in all  European  Union
countries.  After June 1998,  medical  devices may not be sold in European Union
countries unless they display the CE Mark.

     Failure to comply with applicable federal, state and foreign medical device
laws  and  regulations  would  likely  have a  material  adverse  effect  on our
business.  In addition,  federal,  state and foreign  regulations  regarding the
manufacture and sale of medical devices are subject to future changes. We cannot
predict what impact,  if any, such changes might have on our business,  but such
change could have a material impact.

     We are  subject to various  federal,  state and local laws and  regulations
relating to the protection of the environment. In the course of our business, we
are involved in the  handling,  storage and disposal of certain  chemicals.  The
laws and  regulations  applicable  to our  operations  include  provisions  that
regulate  the  discharge  of  materials  into  the  environment.  Usually  these
environmental laws and regulations impose "strict liability," rendering a person
liable  without  regard to negligence or fault on the part of such person.  Such
environmental  laws and  regulations  may expose us to liability for the conduct
of, or conditions  caused by, others,  or for acts that were in compliance  with
all  applicable  laws at the time the checks were  performed.  We do not believe
that we have been required to expend  material  amounts in  connection  with our
efforts to comply with  environmental  requirements or that compliance with such
requirements will have a material adverse effect upon our capital  expenditures,
results of operations or competitive position.  Because the requirements imposed
by such laws and  regulations are frequently  changed,  we are unable to predict
the cost of compliance with such  requirements  in the future,  or the effect of
such laws on our capital  expenditures,  results of  operations  or  competitive
position.

PROPRIETARY TECHNOLOGY AND PATENT RIGHTS

     To establish and protect our proprietary technologies and products, we rely
on a combination of patent, copyright, trademark and trade secrets laws, as well
as  confidentiality  provisions in our contracts.  We have  implemented a patent
strategy designed to maximize our intellectual  property rights. We are pursuing
patent  coverage  in the United  States and  foreign  countries  to protect  the
technology,  inventions  and  improvements  that we  consider  important  to the
development of our products and business.

     In connection with our  acquisition of a 51% interest in Biosphere  Medical
S.A.,  in April 1999 we assigned  to  Biosphere  Medical  S.A.  our  interest in
several United States and foreign patents and patent applications, including two
United  States  patents  relating to  microspheres,  which we jointly owned with
L'Assistance  Publique-Hopitaux De Paris, referred to as AP-HP. In January 1998,
we entered into an agreement  with AP-HP  pursuant to which AP-HP has granted us
the exclusive right to use the  jointly-owned  patents.  These rights have since
been  assigned to BioSphere  Medical S.A. In return,  Biosphere  Medical S.A. is
required to pay to AP-HP a royalty on the sale of any products which incorporate
Embosphere Microspheres which are covered by the patents. Biosphere Medical S.A.
may sublicense its exclusive rights under the agreement with the prior written

<PAGE>

consent of AP-HP, which cannot be unreasonably  withheld.  The rights granted to
Biosphere  Medical S.A.  under the contract are for an initial period which ends
on September 16, 2009,  and are renewable on the agreement of Biosphere  Medical
S.A. and AP-HP. The agreement can be terminated on three months notice by either
party if the other party does not perform one or more of its  obligations  under
the agreement  and fails to cure its  nonperformance  during the notice  period.
These jointly-owned patents will expire in 2014.

     In  addition,  as part of the  sale of our  former  core  business  to Life
Technologies  in May 1999, we entered into a  cross-license  agreement with Life
Technologies.  Under that  agreement,  Life  Technologies  has  granted to us an
exclusive,  worldwide,  perpetual,  royalty-free  license to its  technology and
patents relating to our core field of development,  including any improvement to
that  technology  made prior to May 2004.  The  patents  licensed  to us by Life
Technologies  include a United States  composition-of-matter  patent relating to
various compounds containing trisacryl monomer,  which is used in our Embosphere
Microspheres.  This patent expires in June 2001.  Under the  agreement,  we also
granted to Life Technologies an exclusive,  worldwide,  perpetual,  royalty-free
license to any improvements to the technology they have licensed to us which are
useful in Life  Technologies'  fields of  development.  The  agreement,  and all
licenses  granted  thereunder,  can be terminated by either party on sixty day's
notice in the event of a breach of the agreement by the other party.

     In 1999, we entered into an agreement with Dr.  Shinichi Hori,  pursuant to
which we have an exclusive  royalty-bearing license to Japanese patent rights to
our HepaSphere  SAP  Microsphere  product.  These patents rights expire in 2012.
There are no United States or other international  filings corresponding to this
patent.

     We have filed two United States method-of-use patent applications  relating
to materials and methods for active embolotherapy. In addition, in July 1999, we
entered into an  agreement  with the Louis  Pasteur  University  in  Strasbourg,
France and Centre  National de la  Recherche  Scientifique  pursuant to which we
received  exclusive,  royalty-bearing  worldwide  rights  to two  United  States
patents relating to active embolotherapy technology.

     We have filed three United  States patent  applications  relating to tissue
bulking and the treatment of urinary  incontinence,  dermal  augmentation,  skin
wrinkles and gastroesophageal reflux disease. We have also filed a United States
patent application relating to materials and methods for tissue regeneration.

     Our  success  depends to a  significant  degree upon our ability to develop
proprietary  products and  technologies  and to obtain  patent  coverage for the
products  and  technologies.  We intend to continue to file patent  applications
covering any  newly-developed  products and technologies.  However, as discussed
above,  there  can be no  guarantee  that any of our  pending  or  future  filed
applications  will be issued as  patents.  There  can be no  guarantee  that the
United States Patent and Trademark  Office or some third party will not initiate
an interference  proceeding  involving any of our pending applications or issued
patents.  Finally,  there can be no guarantee  that our issued patents or future
issued patents,  if any, will provide adequate  protection from competition,  as
further discussed below.

     Patents provide some degree of protection for our  proprietary  technology.
However, the pursuit and assertion of patent rights,  particularly in areas like
medical device  development,  involve  complex legal and factual  determinations
and, therefore, are characterized by significant  uncertainty.  In addition, the
laws  governing  patentability  and the scope of  patent  coverage  continue  to
evolve,  particularly in life sciences.  As a result,  we cannot assure you that
patents  will  issue from any of our patent  applications  or from  applications
licensed  to us or  that  any  of  our  issued  patents  will  offer  meaningful
protection.  In addition,  our issued  patents or patents  licensed to us may be
successfully challenged, invalidated,  circumvented or rendered unenforceable so
that our  patent  rights  might not  create an  effective  competitive  barrier.
Moreover,  the laws of some foreign  countries  may not protect our  proprietary
rights to the same extent as do the laws of the United  States.  There can be no
assurance  that  any  patents  issued  to us  will  provide  a legal  basis  for
establishing  an  exclusive  market  for our  products  or  provide  us with any
competitive  advantages  or that the  patents of others will not have an adverse
effect on our ability to do  business  or to  continue  to use our  technologies
freely. In view of these factors, our intellectual  property positions bear some
degree of uncertainty.
<PAGE>

     For a  discussion  of current  patent  litigation  proceedings,  see "-Risk
Factors  That  May  Affect  Future   Operating   Results  -  Risks  Relating  to
Intellectual Property" and "Item 3 - Legal Proceeding." In the future, we may be
subject  to  additional   third  parties   filing  claims   asserting  that  our
technologies  or products  infringe on their  intellectual  property.  We cannot
predict  whether  third  parties  will  assert  such  claims  against  us or our
licensees  or against the  licensors  of  technology  licensed to us, or whether
those claims,  including  the claims made in the  complaint  against or filed by
with Artes Medical,  will harm our business.  If we are forced to defend against
such claims,  including the claims within the Artes Medical  complaint,  whether
they are with or without  any merit,  whether  they are  resolved in favor of or
against us, our licensees or our  licensors,  we may face costly  litigation and
diversion of management's attention and resources. As a result of such disputes,
we may have to develop at a substantial cost non-infringing technology, or enter
into licensing agreements. These agreements, if necessary, may be unavailable on
terms  acceptable to us, or at all,  which could  seriously harm our business or
financial condition.

     We also  rely  in  part on  trade  secret  protection  of our  intellectual
property.   We  attempt  to  protect  our  trade   secrets  by   entering   into
confidentiality  agreements with third parties,  employees and consultants.  Our
employees also sign agreements  requiring that they assign to us their interests
in  inventions  and  original  expressions  and any  corresponding  patents  and
copyrights  arising from their work for us.  However,  it is possible that these
agreements may be breached,  invalidated or rendered unenforceable and if so our
trade secrets could be disclosed to others, including our competitors, and there
may not be an adequate corrective remedy available. Despite the measures we have
taken to protect our intellectual property, we cannot assure you that parties to
our agreements will not breach the  confidentiality  provisions in our contracts
or infringe or misappropriate our patents, copyrights, trademarks, trade secrets
and other  proprietary  rights.  In  addition,  we cannot  assure you that third
parties will not  independently  discover or invent  competing  technologies  or
reverse engineer our trade secrets, or other technology. Therefore, the measures
we are taking to protect our proprietary technology may not be adequate.

EMPLOYEES

     As of February 28, 2001, we employed 67 persons. Of these employees,  5 are
primarily  engaged in research  and  development  activities,  18 are engaged in
manufacturing,  26 are engaged in sales and  marketing,  and the  remainder  are
engaged in finance and  administration.  Of these 67 persons,  31 are located in
the United States and 36 are located in France.

     Our  employees  in the  United  States  are  not  covered  by a  collective
bargaining agreement.  In Europe, our employees are covered by the provisions of
an agreement setting forth national guidelines and standards for labor relations
within our industry. We consider our relations with our employees to be good.

RISK FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

     This Annual Report on Form 10-K contains  forward-looking  statements.  For
this  purpose,  any  statements  contained  herein  that are not  statements  of
historical fact may be considered to be forward-looking statements. Although not
a complete list of words that might identify forward-looking  statements, we use
the words "believes,"  "anticipates," "plans," "expects," "intends," and similar
expressions  to  identify  forward-looking  statements.  There  are a number  of
important  factors that could cause our actual results to differ materially from
those  indicated  by  forward-looking  statements.  Factors  that could cause or
contribute to such  differences  include those discussed below, as well as those
discussed  elsewhere in this Form 10-K. We expressly  disclaim any obligation to
update  or alter  our  forward-looking  statements,  whether  as a result of new
information, future events or otherwise.
<PAGE>

RISK RELATING TO OUR FUTURE PROFITABILITY

Because we have a history of losses and our future  profitability  is uncertain,
our common stock is a highly speculative investment

     We have incurred  operating  losses since our inception and, as of December
31, 2000, had an accumulated  deficit of approximately  $44.5 million. We expect
to  spend  substantial  funds to  continue  research  and  product  testing,  to
establish  sales,  marketing,  quality  control,  regulatory and  administrative
capabilities,  and for  other  general  corporate  purposes.  We expect to incur
increasing losses over the next several years as we expand our commercialization
efforts.

     We may never  become  profitable.  If we do become  profitable,  we may not
remain  profitable  on a  continuing  basis.  Our  failure  to become and remain
profitable  would  depress the market  price of our common  stock and impair our
ability to raise capital and continue our operations.

RISKS RELATING TO REGULATORY MATTERS

If we do not obtain the  regulatory  approvals  required  to market and sell our
products,  then our business  will be  unsuccessful  and the market price of our
stock will substantially decline

     We are subject to governmental  regulation by national and local government
agencies  in the  United  States  and abroad  with  respect to the  manufacture,
packaging,  labeling,  advertising,  promotion,  distribution  and  sale  of our
products.  For example, our products are subject to approval or clearance by the
FDA prior to marketing in the United States for  commercial  use. The process of
obtaining necessary  regulatory  approvals and clearances will be time-consuming
and  expensive  for us. If we do not  receive  required  regulatory  approval or
clearance  to  market  our  products,  we  will  not  be  able  to  develop  and
commercialize  our products and become  profitable,  and the value of our common
stock will substantially decline.

     We are  focusing our  immediate  product  commercialization  efforts on our
Embosphere Microspheres. In April 2000, we obtained marketing clearance from the
FDA to use our Embosphere Microspheres in the United States for the embolization
of hypervascularized  tumors and arteriovenous  malformations.  However, we will
require FDA clearance of either a premarket notification under Section 510(k) of
the  Federal  Food,  Drug  and  Cosmetic  Act,  which  we  refer  to as a 510(k)
notification,  or approval of a premarket approval application under Section 515
of the Federal  Food,  Drug and Cosmetic  Act,  which we refer to as a premarket
approval,  before we can market Embosphere Microspheres in the United States for
use in the  embolization  of uterine  fibroids.  We do not expect to receive the
required  clearance for specific labeling for uterine fibroids until 2002, if at
all. In either case, the FDA will require us to undertake clinical trials, which
may be lengthy and expensive.  We currently do not have regulatory  approvals or
clearances to market any other product in any country,  other than  approvals to
market our Embosphere  Microspheres in the European Union,  Australia and Canada
for the treatment of arteriovenous  malformations,  hypervascularized tumors and
blood loss.

If the FDA or  other  regulatory  agencies  place  restrictions  on,  or  impose
additional  approval   requirements  with  respect  to,  products  we  are  then
marketing,  we may incur  substantial  additional costs and experience delays or
difficulties in continuing to market and sell these products

     Even if the FDA grants to us approval or  clearance  with respect to any of
our products, it may place substantial restrictions on the indications for which
we may market the  product or to whom we may  market the  product,  which  could
result  in us  achieving  less  sales  and  lower  revenues.  The  nature of the
marketing  claims we are permitted to make in labeling or advertising  regarding
our Embosphere  Microspheres  is limited to those specified in any FDA clearance

<PAGE>

or approval,  and if the FDA  determines  that we have made claims  beyond those
cleared or  approved  by the FDA,  then we will be in  violation  of the Federal
Food,  Drug,  and Cosmetic Act. For example,  our products are not  specifically
approved for labeling for use for uterine fibroids, which is one of the uses for
which  we  anticipate  physicians  may use  our  products.  We may not  initiate
discussions  with  physicians  about this use and, if a physician  initiates the
discussion, we may only provide peer-reviewed literature.

     We may in the future  make  modifications  to our  Embosphere  Microspheres
which we determine do not necessitate  the filing of a new 510(k)  notification.
However, if the FDA does not agree with our determination, it will require us to
make  additional  filings for the  modification,  and we will be prohibited from
marketing the modified product until we obtain FDA clearance or approval,  which
could delay our ability to introduce product modifications and enhancements into
the market.

     Further,  the FDA has classified our  embolotherapy  device into Class III,
which means that even though we have obtained  clearance under Section 510(k) of
the Federal Food,  Drug and Cosmetic Act to market the device,  the FDA could in
the future promulgate a regulation  requiring  premarket  approval of the device
under  Section 515 of the Federal  Food,  Drug and  Cosmetic  Act to allow it to
remain on the market.  We may  experience  difficulty  in  providing  to the FDA
sufficient  data for  premarket  approval  in a timely  fashion,  if at all.  In
addition,  the FDA may require us to conduct a post market surveillance study on
our  embolotherapy  device,  which is  designed  to track  specific  elements of
patient experience with our Embosphere  Microspheres product after we have begun
marketing it. If such a study revealed an unexpected rate of adverse events, the
FDA could place further  restrictions on our marketing of the device, or rescind
our clearance.

     Our   legally-marketed   products  will  be  subject  to   continuing   FDA
requirements  relating to quality  control,  quality  assurance,  maintenance of
records,  documentation,  labeling and promotion of medical devices. We are also
required to submit medical  device  reports to the FDA to report  device-related
deaths,  serious  injuries and  malfunctions,  the  recurrence of which would be
likely to cause or  contribute to a death or serious  injury.  These reports are
publicly  available and,  therefore,  can become a basis for private tort suits,
including class actions, with respect to our products.  Any of these suits would
be costly and  time-consuming  and would divert our management's  attention from
the continued development of our business.

If we fail to comply with regulatory laws and regulations, we will be subject to
enforcement  actions,  which  will  affect  our  ability  to market and sell our
products and may harm our reputation

     If we fail to comply  with  applicable  federal,  state or foreign  laws or
regulations,  we could be subject to enforcement actions, which could affect our
ability to develop, market and sell our products successfully and could harm our
reputation  and lead to less  acceptance  of our  products by the market.  These
enforcement actions include:

     -    product seizures;

     -    voluntary or mandatory recalls;

     -    voluntary or mandatory patient or physician notification;

     -    withdrawal of product clearances or approvals;

     -    withdrawal of investigational device exemption approval;

     -    restrictions on, or prohibitions against, marketing our products;

     -    fines;

     -    injunctions;

     -    civil and criminal penalties; and

     -    withdrawal of premarket approval or rescission of premarket
          notification clearance.
<PAGE>

If our clinical  trials are not completed  successfully,  we will not be able to
develop and commercialize our products

     Although for  planning  purposes we forecast  the timing of  completion  of
clinical trials,  the actual timing can vary dramatically due to factors such as
delays,   scheduling  conflicts  with  participating   clinicians  and  clinical
institutions, the rate of patient accruals and the uncertainties inherent in the
clinical  trial  process.  In addition,  because we have limited  experience  in
conducting  clinical  trials,  we may rely on academic  institutions or clinical
research  organizations to conduct,  supervise or monitor some or all aspects of
clinical trials involving our products.  Accordingly,  we have less control over
the timing and other aspects of these clinical  trials than if we conducted them
entirely on our own. As a result of these  factors,  we or third parties may not
successfully  begin  or  complete  our  clinical  trials  and  we may  not  make
regulatory  submissions or receive required regulatory  approvals to commence or
continue our clinical trials in the time periods we have forecasted,  if at all.
If we or third parties fail to commence or complete,  or  experience  delays in,
any of our planned clinical trials, then we are likely to incur additional costs
and delays in our  product  development  programs,  which  could cause our stock
price to decrease.


RISKS RELATING TO INTELLECTUAL PROPERTY

Our patent  litigation  with Artes Medical could be expensive and time consuming
and any adverse  decisions by a court could adversely affect our ability to sell
of our microsphere products as well as require payment of monies to Artes.

     On February 7, 2001, we, along with our  subsidiary,  BSMD Ventures,  Inc.,
filed a complaint for  declaratory  judgment in the United States District Court
for the District of Delaware against Artes Medical USA, Inc. The complaint seeks
a declaration that United States Patent No. 5,344,452,  which we refer to as the
`452 patent, which Artes claims to have the right to enforce, is invalid and not
infringed  by  BioSphere  and  BSMD   Ventures.   The  `452  patent  relates  to
"..implant[s]  based on a  biocompatible  solid in powder form,  in particular a
plastic".

     On February 7, 2001, Artes Medical USA filed a complaint  against us in the
United  States  District  Court for the  Central  District  of  California  (Los
Angeles).  The complaint claims that we are liable for infringement,  inducement
of infringement,  and contributory  infringement of the '452 patent. Artes seeks
monetary  damages as compensation  for the alleged  infringement and a permanent
injunction  against the alleged  infringing  activity.  Artes Medical apparently
asserts that all of our microsphere-related  products,  including our Embosphere
Microspheres,  HepaSphere SAP Microspheres and MatrX  Microspheres  infringe the
'452 patent.

     We can provide no  assurance  as to the outcome of either our  complaint or
Artes Medical's complaint.  Court decisions adverse to us in either action could
have a material  adverse  effect on our  ability  to  successfully  develop  and
commercialize products based upon our microsphere technology, including our lead
product  under  development,  Embosphere  Microspheres.  Moreover,  we may incur
substantial  expenses in  pursuing  our claim  and/or  defending  against  Artes
Medical's claim and, even if we prevail,  these claims could divert management's
attention.


If we are unable to obtain patent  protection for our discoveries,  the value of
our  technology and products could decline and we may not be able to develop and
commercialize our products, or the cost of doing so may increase

     We may not obtain  meaningful  protection  for our  technology and products
with the patents and patent  applications that we own or license relating to our
microsphere technology.  In particular,  our patents and patent applications may
not prevent others from designing  products similar to or otherwise  competitive
with our Embosphere  Microspheres and other products  commercialized  by us. For
example, one of the three patents related to copolymers used to make our present

<PAGE>

Embosphere  Microspheres  will expire in June 2001 and relates to the copolymers
that are used to make the  Embosphere  Microspheres.  The other two patents that
relate to Embosphere  Microspheres relate to materials and methods of performing
embolization.  To the extent that our  competitors  are able to design  products
competitive with ours without  infringing our intellectual  property rights,  we
may experience less market penetration with our products and,  consequently,  we
will have decreased revenues.

     We do not know  whether  competitors  have  similar  United  States  patent
applications on file,  since United States patent  applications are secret until
issued.  Consequently,  the United  States  Patent and  Trademark  Office  could
initiate interference  proceedings involving our owned or licensed United States
patent applications or issued patents.  Further,  there is a substantial backlog
of patent applications at the United States Patent and Trademark Office, and the
approval or rejection of patent applications may take several years.

     We have a license to technology  invented by a Japanese inventor.  However,
the license is limited to a single Japanese patent application.  In other words,
corresponding  United States and European patent  applications were not filed by
this inventor. We intend to file patent applications directed to improvements of
this  inventor's  technology.  However,  patent  applications  may not  issue as
patents,  and these  patents,  if issued,  may not  provide  us with  sufficient
protection against competitors. Further, we may be required to obtain additional
licenses  concerning  the  Japanese  patent  application  and any  licenses,  if
obtained, may not be on terms that are acceptable to us.

If we  become  involved  in  additional  expensive  patent  litigation  or other
proceedings to enforce our patent rights,  we could incur  substantial costs and
expenses or substantial liability for damages or be required to stop our product
development and commercialization efforts

     In addition to the above-mentioned  patent complaints,  in order to protect
or  enforce  our  patent  rights,  we may  have  to  initiate  additional  legal
proceedings  against third parties,  such as infringement  suits or interference
proceedings.  By  initiating  legal  proceedings  to  enforce  our  intellectual
property  rights,  we may also  provoke  these  third  parties to assert  claims
against  us.  Furthermore,  we may be sued for  infringing  on the  intellectual
property  rights of others,  and, as a result,  our patents  could be  narrowed,
invalidated or rendered  unenforceable by a court. We may find it necessary,  if
threatened,  to initiate a lawsuit seeking a declaration  from a court regarding
the proprietary rights of others.  Intellectual  property  litigation is costly,
and, even if we prevail,  could divert  management  attention and resources away
from our business.

     The patent  position of companies  like us  generally is highly  uncertain,
involves complex legal and factual questions,  and has recently been the subject
of much litigation.  We may not prevail in any patent-related  proceeding. If we
do not  prevail in any  litigation,  in addition to any damages we might have to
pay, we could be required to stop the  infringing  activity or obtain a license.
Any required license may not be available to us on acceptable  terms, or at all.
In addition, some licenses may be nonexclusive,  and therefore,  our competitors
may have  access to the same  technology  licensed to us. If we fail to obtain a
required  license or are unable to design  around a patent,  we may be unable to
sell some of our products, which could have a material adverse affect on us.

     Our majority-owned French subsidiary,  Biosphere Medical S.A., jointly owns
two  United  States  patents  and  corresponding  foreign  patents  relating  to
microsphere   technology  for  use  in  connection   with   embolotherapy   with
L'Assistance  Publique-Hopitaux De Paris,  referred to as AP-HP, a French public
health establishment.  Pursuant to the terms of a related license agreement with
AP-HP,  Biosphere Medical S.A. may be required to seek AP-HP's  participation in
any United  States legal  proceedings  it  initiates  against  third  parties to
protect or enforce its rights  under the  jointly-owned  patents.  If  Biosphere
Medical S.A. is not able to obtain the cooperation of AP-HP in any  infringement
suit  against a third  party,  then its ability to pursue a law suit and enforce
these patent rights relating to the  microspheres  could be harmed,  which could
have a material adverse effect on us.
<PAGE>

If any of our  licenses to use  third-party  technologies  in our  products  are
terminated, we may be unable to develop, market and sell or products

     We are  dependent  on various  license  agreements  relating to each of our
current and proposed  products that give us rights under  intellectual  property
rights of third parties. These licenses impose commercialization,  sublicensing,
royalty,  insurance  and other  obligations  on us.  Our  failure,  or any third
party's failure,  to comply with the terms of any of these licenses could result
in us losing our rights to the license, which could result in us being unable to
develop, manufacture or sell products which contain the licensed technology.


RISKS RELATING TO OUR INDUSTRY, BUSINESS AND STRATEGY

If the market is not  receptive  to our  Embosphere  Microspheres  product,  our
business prospects will be seriously harmed

     Our Embosphere  Microspheres  are based on new technologies and therapeutic
approaches  and we only  recently  began  selling  our  Embosphere  Microspheres
product in the European Union, United States, Canada and Australia.  Our success
will  depend  upon the  medical  community,  patients  and  third  party  payors
accepting   our   Embosphere   Microspheres   product  as   clinically   useful,
cost-effective and safe. In particular,  our success will depend upon obstetrics
and gynecology  physicians referring patients to interventional  radiologists to
receive  treatment  using our products in lieu of, or in addition to,  receiving
other forms of treatment  which the  obstetrics  and  gynecology  physicians can
provide directly.

     In addition,  if we receive negative publicity  associated with any adverse
medical effects attributed to embolization  treatments  generally or our product
specifically,  the  market may not accept our  products  as safe.  For  example,
Embosphere  Microspheres  are designed to remain in the body  permanently.  As a
result,  there may be some risk that some or all of the Embosphere  Microspheres
used in a medical  procedure  may travel in the blood system beyond the intended
site of action  and  occlude,  or  block,  other  blood  vessels,  resulting  in
significant  adverse health effects on the patient or even death.  Moreover,  to
use our Embosphere  Microspheres  correctly for a particular  medical procedure,
physicians  must  select  and use the proper  size and  quantity  of  Embosphere
Microspheres.  A physician's  selection and use of the wrong size or quantity of
Embosphere  Microspheres  could have  significant  adverse health effects on the
patient,  including  death.  In addition,  there is limited data  concerning the
long-term  health  effects on persons  resulting  from  embolotherapy  using our
Embosphere Microspheres.  If the market determines or concludes that our product
is not safe or effective for any reason,  we may be exposed to product liability
claims,  product  recalls and fines or other  penalties and  associated  adverse
publicity.  In  addition,  we have  provided  to our  customers  a  satisfaction
guarantee  that requires us to accept the return of any inventory and credit the
entire  amount  of the  original  order if a  properly-trained  customer  is not
satisfied with the  performance of our  microspheres.  If we experience  adverse
publicity  or are  subject  to product  liability  claims,  excessive  guarantee
claims,  recalls,  fines  and  the  like,  we will be  unable  to  commercialize
successfully our products and achieve profitability.

If we experience delays, difficulties or unanticipated costs in establishing the
sales,   distribution  and  marketing  capabilities  necessary  to  successfully
commercialize our products,  we will have difficulty  maintaining and increasing
our sales

     We are currently developing sales,  distribution and marketing capabilities
in the United  States and have only limited  sales,  distribution  and marketing
capabilities in the European Union. It is expensive and time-consuming for us to
develop a global marketing and sales force.  Moreover,  we may choose or find it
necessary to enter into strategic  collaborations to sell, market and distribute
our products.  The terms of any collaboration may not be favorable to us. We may
not be able to provide  adequate  incentive to our sales force, and distribution
and marketing partners to promote our products. If we are unable to successfully
motivate and expand our marketing and sales force and further  develop our sales
and marketing capabilities, or if our distributors fail to promote our products,
we will have difficulty maintaining and increasing our sales.


<PAGE>
If we are unable to obtain adequate  product  liability  insurance,  then we may
have to pay significant monetary damages in a successful product liability claim
against us

     Product  liability  insurance is  generally  expensive  for medical  device
companies such as ours. Although we maintain limited product liability insurance
coverage for the clinical  trials of our  products,  it is possible that we will
not be able to obtain further product  liability  insurance on acceptable terms,
if at all.  Insurance we  subsequently  obtain may not provide us with  adequate
coverage against all potential  claims.  If we are exposed to product  liability
claims  for which we have  insufficient  insurance,  we may be  required  to pay
significant  damages which would  prevent or delay our ability to  commercialize
our products.

If we are not able to compete  effectively,  we may experience  decreased demand
for our products which may result in price reductions

     We have many competitors in the United States and abroad, including medical
device and  therapeutics  companies,  universities  and other private and public
research  institutions.  Our  success  depends  upon our  ability to develop and
maintain a competitive position in the embolotherapy market. Our key competitors
are  Cordis  Corporation,   a  Johnson  &  Johnson  company,  Boston  Scientific
Corporation  and  Cook.  These and many of our other  competitors  have  greater
capabilities,  experience and financial  resources than we do. As a result, they
may develop products that compete with our Embosphere  Microspheres product more
rapidly or at less cost than we can. Currently,  the primary products with which
our Embosphere  Microspheres  compete for some of our applications are polyvinyl
alcohol,  polymerizing gels and coils. In addition,  our competitors may develop
technologies that render our products obsolete or otherwise noncompetitive.

     We may not be able to improve  our  products  or develop  new  products  or
technologies quickly enough to maintain a competitive position in our market and
continue  to  grow  our  business.  Moreover,  we may  not be  able  to  compete
effectively,  and  competitive  pressures  may  result  in less  demand  for our
products and impair our ability to become profitable.

If we fail to  maintain,  or in some  instances  obtain,  an  adequate  level of
reimbursement  for  our  products  by  third-party  payors,   there  may  be  no
commercially viable markets for our products

     The  availability  and levels of  reimbursement  by governmental  and other
third party payors affects the market for any medical device. We may not be able
to sell our products  profitably if  reimbursement  is unavailable or limited in
scope or amount.  Currently,  only a limited number of insurance companies fully
or partially  reimburse for embolization  procedures.  These third-party  payors
continually  attempt to contain or reduce the costs of healthcare by challenging
the prices that  companies  such as ours charge for  medical  products.  In some
foreign  countries,  particularly  the countries of the European Union where our
Embosphere  Microspheres  product is currently marketed and sold, the pricing of
medical  devices is subject to  governmental  control and the prices charged for
our products have in some instances been reduced as a result of these  controls.
Additionally,  in both the United States and some foreign  jurisdictions,  there
have  been a number of  legislative  and  regulatory  proposals  to  change  the
healthcare system.  Further proposals are likely.  These proposals,  if adopted,
could result in less sales  revenue to us, and could affect our ability to raise
capital and market our products.


If we do not retain our senior management and other key employees, we may not be
able to successfully implement our business strategy

     The  loss  of  Jean-Marie  Vogel,  our  Chairman,  John M.  Carnuccio,  our
President and Chief Executive  Officer,  Jonathan  McGrath,  our Vice President,
Worldwide Research and Development, or other key members of our staff could harm
us. We also depend on our  scientific  collaborators  and advisors,  all of whom
have other  commitments that may limit their  availability to us. Our success is
substantially  dependent on the ability,  experience  and  performance  of these
members  of  our  senior   management  and  other  key   employees,   scientific
collaborators and advisors.  Because of their ability and experience, if we lose
one or more of these  individuals,  our ability to  implement  successfully  our
business strategy could be seriously harmed.
<PAGE>

If we do not attract and retain skilled personnel, we will not be able to expand
our business

     Our future  success  will  depend in large part upon our ability to attract
and retain highly  skilled  scientific,  operational,  managerial  and marketing
personnel,  particularly  as we expand our  activities in clinical  trials,  the
regulatory  approval  process and sales and  manufacturing.  We face significant
competition  for these  types of persons  from  other  companies,  research  and
academic   institutions,    government   entities   and   other   organizations.
Consequently,  if we are unable to attract and retain skilled personnel, we will
not be able to expand our business.

If the strategic redirection of our business is not successful, we may be unable
to achieve growth in our business

     In early 1999, we decided to exit the  chromatography  business,  which had
constituted our core business, to focus on the commercialization of microspheres
for use in embolotherapy  and other medical  applications.  We have restated our
historical   financial   statements  to  reflect  the   discontinuation  of  our
chromatography  business.  In  addition,  73% of  1999  revenue  and 49% of 2000
revenue included in our consolidated  financial  statements was derived from the
sale of products we  consider to be  nonstrategic  and which we do not expect to
constitute  a  significant  portion  of our  revenue on an  ongoing  basis.  Our
strategic shift from the  chromatography  business to the  commercialization  of
microspheres may not prove to be successful and, consequently,  we may be unable
to grow our business and achieve profitability.

If we make any  acquisitions,  we will  incur a  variety  of costs and may never
successfully integrate the acquired business into ours

     We may attempt to acquire  businesses,  technologies,  services or products
that we  believe  are a  strategic  compliment  to our  business  model.  We may
encounter  operating  difficulties and  expenditures  relating to integrating an
acquired business,  technology,  service or product. These acquisitions may also
absorb  significant  management  attention that would otherwise be available for
ongoing  development  of our  business.  Moreover,  we  may  never  realize  the
anticipated benefits of any acquisition.  We may also make dilutive issuances of
equity securities, incur debt or experience a decrease in the cash available for
our operations,  or incur contingent  liabilities and/or  amortization  expenses
related to goodwill and other intangible  assets,  in connection with any future
acquisitions.

If we are compelled to acquire the remaining interest in Biosphere Medical S.A.,
we may be required to incur  indebtedness,  or make a significant  cash payment,
which may result in a decrease in available cash for our operations

     We currently own 85% of the outstanding  capital stock of Biosphere Medical
S.A. We have the right to acquire the remaining 15% of Biosphere Medical S.A. in
2004.  The purchase price that we are required to pay is equal to the product of
the percentage  interest to be purchased and the sum of BMSA's  rolling  average
twelve-month sales and worldwide Embosphere  Microsphere sales as of the date of
exercise.  Moreover,  the holder of the remaining 15% interest has the option to
require the Company to purchase the  remaining  15% interest  from  December 31,
2003 until  December  31,  2004 for an amount  equal to the greater of an agreed
upon price (in French  Francs)  for each  percentage  interest to be sold or the
amount payable adjusted to a rolling nine-month sales average under the purchase
option.  In any event,  the price that we are  required  to pay if the  minority
holder exercises its put option shall not be less than FF 551,020 (approximately
$79,000  as of  December  31,  2000).  If  we  are  compelled  by  the  minority
stockholder  to acquire  the  minority  interest at a future  date,  we could be
required to make a significant payment,  which could result in us incurring debt
or a decrease in the cash available to us for our operations.

<PAGE>

RISKS RELATING TO OUR FINANCIAL RESULTS AND NEED FOR FINANCING

We will continue to need substantial additional funds, and if additional capital
is not available, we may have to limit, scale back or cease our operations

     We will need to raise  additional  funds to develop and  commercialize  our
products  successfully.  If we cannot raise more funds,  we could be required to
reduce our capital expenditures,  scale back our product development, reduce our
workforce and license to others products or technologies that we otherwise would
seek to  commercialize  ourselves.  We may not  receive  additional  funding  on
reasonable  terms or at all.  Other than a $2.0 million credit line with a bank,
we have no committed source of capital. Sepracor is the guarantor of this credit
line. We have entered into a security  agreement with Sepracor pursuant to which
we have  pledged  to  Sepracor  all of our U.S.  assets,  including  our  equity
interest in Biosphere  Medical S.A., as collateral for  Sepracor's  guarantee to
the bank.  We are likely to raise more money for  working  capital  purposes  by
selling  additional capital stock, which is a common strategy for companies such
as ours.  Any sales of  additional  shares of our  capital  stock are  likely to
dilute  our  existing  stockholders.  Further,  if we  issue  additional  equity
securities, the new equity securities may have rights, preferences or privileges
senior to those of existing holders of our common stock.  Alternatively,  we may
borrow money from commercial  lenders,  possibly at high interest  rates,  which
will increase the risk of your investment in us.

If operating results fluctuate  significantly from quarter to quarter,  then our
stock price may decline

     Our  operating  results  could  fluctuate  significantly  from  quarter  to
quarter.  These  fluctuations may be due to several factors including the timing
and  volume  of  customer  orders  for  our  Embosphere  Microspheres,  customer
cancellations and general economic conditions. We also expect that our operating
results will be affected by seasonality, since we expect our revenues to decline
substantially  in the third  quarter of each year from the first two quarters of
each year because we do a significant percentage of our business in the European
Union, which typically  experiences a slowdown of business during August. Due to
these  fluctuations,  our  operating  results in some  quarters may not meet the
expectations  of stock market  analysts and  investors.  In that case, our stock
price would probably decline.

     In  addition,  a large  portion of our  expenses,  including  expenses  for
facilities,  equipment and personnel, are relatively fixed. Accordingly,  if our
revenue declines or does not grow as much as we anticipate, we might not be able
to improve our operating margins. In addition, we plan to significantly increase
operating  expenses in the next several  years.  Failure to achieve  anticipated
levels of revenue could therefore significantly harm our operating results for a
particular fiscal period.


RISKS RELATING TO THE PRODUCTION AND SUPPLY OF OUR PRODUCTS

If we experience manufacturing delays or interruptions in production then we may
experience customer dissatisfaction and our reputation could suffer

     If we fail to produce enough products at our own manufacturing  facility or
at a third-party manufacturing facility, we may be unable to deliver products to
our  customers on a timely basis,  which could lead to customer  dissatisfaction
and could harm our reputation and ability to compete.  We currently  produce all
of our Embosphere Microspheres products in one manufacturing facility in France.
We would likely  experience  significant  delays or  cessation in producing  our
products at this facility if a labor strike, natural disaster, local or regional
conflict  or  other  supply  disruption  were  to  occur.  If we are  unable  to
manufacture our products at our facility in France,  we may be required to enter
into arrangements  with one or more contract  manufacturing  companies.  We have
contingency plans to establish  manufacturing in the United States in place but,
we could  encounter  delays  or  difficulties  establishing  relationships  with
contract manufacturers or in establishing agreements on terms that are favorable
to us. In addition,  if we are required to depend on third-party  manufacturers,
our profit  margins may be lower,  which will make it more  difficult  for us to
achieve profitability.
<PAGE>

     Also,  manufacturers,  including  us, must adhere to the FDA's current Good
Manufacturing  Practices regulations,  which are enforced by the FDA through its
facilities  inspection  program.  Third-party  manufacturers  may not be able to
comply or maintain compliance with Good Manufacturing Practices regulations.  If
third parties fail to comply, their non-compliance could significantly delay our
receipt of 510(k)  clearance or  premarket  approval.  For a premarket  approval
device,  if we change  our  manufacturing  facility  or switch to a  third-party
manufacturer  we will be  required to submit a  premarket  approval  application
supplement.  For a 510(k) product, a change in our manufacturing  location would
require us to change our registration with the FDA.

Because we rely on a limited number of suppliers,  we may experience  difficulty
in meeting our customers'  demands for our products in a timely manner or within
budget

     We currently  purchase key components of our Embosphere  Microspheres  from
approximately 16 outside sources. Some of these components may only be available
to us through a few sources. We generally do not have long-term  agreements with
any of our suppliers.

     Our reliance on our suppliers exposes us to risks, including:

     -    the  possibility  that one or more of our  suppliers  could  terminate
          their services at any time without penalty;

     -    the  potential   inability  of  our   suppliers  to  obtain   required
          components;

     -    the potential  delays and expenses of seeking  alternative  sources of
          supply;

     -    reduced  control over pricing,  quality and timely delivery due to the
          difficulties in switching to alternative suppliers; and

     -    the possibility that one or more of our suppliers could fail to
          satisfy any of the FDA's required current Good Manufacturing Practices
          regulations.

     Consequently, in the event that our suppliers delay or interrupt the supply
of  components  for any reason,  our ability to produce and supply our  products
could be impaired, which could lead to customer dissatisfaction.


RISKS RELATING TO OUR FOREIGN OPERATIONS

If we are unable to meet the operational, legal and financial challenges that we
will encounter in our international  operations,  we may not be able to grow our
business

     Our  operations  are  currently  conducted  primarily  through  our  French
subsidiary. Furthermore, we currently derive a significant amount of our revenue
from the sale of our Embosphere  Microspheres and other products in the European
Union. We are increasingly  subject to a number of challenges which specifically
relate to our international  business activities.  Our international  operations
may not be  successful if we are unable to meet and overcome  these  challenges,
which would limit the growth of our business. These challenges include:

     -    failure of local laws to provide the same degree of protection against
          infringement of our intellectual property;

     -    protectionist laws and business practices that favor local
          competitors, which could slow our growth in international markets;

     -    potentially longer sales cycles to sell products, which could slow our
          revenue growth from international sales; and

     -    potentially longer accounts receivable payment cycles and difficulties
          in collecting accounts receivable.
<PAGE>

Because we exchange foreign currency received from international sales into U.S.
dollars and are required to make foreign currency payments,  we may incur losses
due to fluctuations in foreign currency translations

     A  significant  portion our business is conducted in French  francs and the
euro dollar.  In 1999 and 2000, we  experienced  net foreign  currency  exchange
gains of approximately $24,000 and $21,000,  respectively.  We recognize foreign
currency gains or losses arising from our operations in the period incurred.  As
result,  currency  fluctuations  between the U.S.  dollar and the  currencies in
which we do business will cause foreign currency  translation  gains and losses,
which  may  cause  fluctuations  in  our  future  operating  results.  We do not
currently engage in foreign exchange hedging  transactions to manage our foreign
currency exposure.

RISKS RELATING TO AN INVESTMENT IN OUR COMMON STOCK

Because  the market  price of our stock is highly  volatile,  investments  in us
could  rapidly  lose  their  value  and  we may  incur  significant  costs  from
class-action litigation

     The  market  price of our  stock is  highly  volatile.  As a  result,  your
investment  in us could  rapidly lose its value.  In addition,  the stock market
often experiences extreme price and volume fluctuations, which affect the market
price of many  medical  device  companies  and which are often  unrelated to the
operating performance of these companies.

     Recently,  when the  market  price of a stock has been as  volatile  as our
stock  price  has been,  holders  of that  stock  have  occasionally  instituted
securities class action litigation against the company that issued the stock. If
any of our stockholders were to bring a lawsuit of this type against us, even if
the lawsuit is without merit, we could incur  substantial costs in defending the
lawsuit. The lawsuit could also divert the time and attention of our management.

Because Sepracor Inc. and our executive officers and directors own a majority of
our common stock, they have substantial control over us

     As of December 31,  2000,  Sepracor  Inc.,  together  with its  affiliates,
beneficially  owned,  in the  aggregate,  approximately  55% of our  outstanding
common stock. In addition,  as of December 31, 2000, our executive  officers and
directors  beneficially  owned,  in  the  aggregate,  approximately  16%  of our
outstanding  common stock,  excluding shares owned by Sepracor which some of our
directors and executive  officers may be deemed to beneficially  own. Two of our
directors  are  executive  officers  of  Sepracor.  Sepracor  and our  executive
officers  and  directors  are able to control all  corporate  actions  requiring
stockholder  approval  irrespective  of how our  other  stockholders  may  vote,
including:

     -    the election of directors;

     -    the amendment of charter documents;

     -    the approval of mergers and other significant corporate  transactions,
          including a sale of substantially all of our assets; and

     -    the defeat of any non-negotiated takeover attempt that might otherwise
          benefit the public stockholders.

     This  ownership  concentration  could cause the market  price of our common
stock to decline. In addition, conflicts of interest between Sepracor and us may
arise,  including with respect to competitive business activities and control of
our management and our affairs.


<PAGE>
Item 2. PROPERTIES

     We  currently  lease  office  and  manufacturing  facilities  in  Rockland,
Massachusetts and Louvres,  France. Our Rockland,  Massachusetts office includes
approximately  13,000  square feet of  corporate  offices and  laboratory  space
pursuant to a five-year  lease  expiring in March of 2005.  Our Louvres,  France
facility  includes  approximately  10,000 square feet of office,  laboratory and
manufacturing  space and is leased  through  June 2001.

     In December 2000, we signed a lease to occupy  approximately  18,150 square
feet of manufacturing  and office space at another  facility in Roissy,  France.
The facility is being renovated,  and we expect to move all French operations to
the new facility by mid-2001.  The duration of this new lease is nine years.  If
needed,  we have the option to continue  the current  Louvres,  France  facility
lease on a  month-to-month  basis until the  renovations of the new facility are
complete.

     We believe that our currently-leased facilities in Rockland,  Massachusetts
and the space that will be available to us under our new lease in Roissy, France
are suitable to meet our current  requirements  and that suitable  additional or
substitute  space will be available to us on commercially  reasonable  terms, if
needed in the future.

Item 3. LEGAL PROCEEDINGS

     On February 7, 2001, we, along with our  subsidiary,  BSMD Ventures,  Inc.,
filed a complaint for  declaratory  judgment in the United States District Court
for the District of Delaware against Artes Medical USA, Inc. The complaint seeks
a declaration that United States Patent No. 5,344,452,  which we refer to as the
`452 patent, which Artes claims to have the right to enforce, is invalid and not
infringed  by  BioSphere  and  BSMD   Ventures.   The  `452  patent  relates  to
"..implant[s]  based on a  biocompatible  solid in powder form,  in particular a
plastic".

     On February 7, 2001, Artes Medical USA filed a complaint  against us in the
United  States  District  Court for the  Central  District  of  California  (Los
Angeles).  The complaint claims that we are liable for infringement,  inducement
of infringement,  and contributory  infringement of the '452 patent. Artes seeks
monetary  damages as compensation  for the alleged  infringement and a permanent
injunction  against the alleged  infringing  activity.  Artes Medical apparently
asserts that all of our microsphere-related  products,  including our Embosphere
Microspheres,  HepaSphere SAP Microspheres and MatrX  Microspheres  infringe the
'452 patent. We believe Artes' claims are without merit and intend to vigorously
defends these claims.

     For  discussions  of certain  risks  relating  to these  patent  litigation
matters,  please see " Business - Risk Factors That May Affect Future  Operating
Results - Risks Relating to Intellectual Property."

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters  were  submitted  to a vote of security  holders of the Company,
through  solicitations  of proxies or otherwise,  during the last quarter of the
year ended December 31, 2000.


<PAGE>

EXECUTIVE OFFICERS

     The executive  officers of BioSphere,  their respective ages as of December
31, 2000 and their positions with BioSphere are as follows:


Name                              Age   Position

John M. Carnuccio...............   47   Chief Executive Officer, President and
                                        Director

Jean-Marie Vogel................   50   Chairman and Director

Alain Brunier...................   56   President, Europe

Jonathan R. McGrath.............   46   Vice President, Worldwide Research and
                                        Development

Robert M. Palladino.............   46   Vice President and Chief Financial
                                        Officer

Robert T. Phelps................   44   Vice President, U.S Sales and Business
                                        Development

Donald Anderson.................   50   Vice President, U.S Marketing


     John M. Carnuccio, age 47, has served as a director of BioSphere since June
1999. From January 1999 until May 1999, Mr.  Carnuccio  served as Executive Vice
President of BioSepra (renamed, BioSphere) and President of the Medical Products
Business  of  BioSepra  (renamed  BioSphere).  In May  1999,  he  was  appointed
President and Chief Executive  Officer of BioSphere.  From 1979 to January 1999,
Mr. Carnuccio served in a number of capacities at Boston Scientific Corporation,
a medical device company,  most recently as Vice President,  Market Development,
Interventional Gynecology, from April 1998 to January 1999 and as Vice President
and General Manager, Microvasive Urology Division from 1992 to April 1998.

     Jean-Marie Vogel, age 50, served as President,  Chief Executive Officer and
a director of BioSepra (renamed,  BioSphere) from September 1994 until May 1999.
In May 1999, he was appointed Chairman. From January 1994 to September 1994, Mr.
Vogel served as Executive Vice President and Chief Operating Officer of BioSepra
(renamed  BioSphere).  From 1992 to 1993,  Mr.  Vogel served as President of the
European Operations of Cuno, Inc., a supplier of filtration processes, equipment
and devices used in the production of biological  drugs and food products.  From
1977 to 1992, Mr. Vogel served in various capacities with Millipore Corporation,
a  manufacturer  of membrane  filtration-based  products,  in its  international
operations with experience in Asia, Latin America,  the former Soviet Union, the
Middle East and Australia,  including as Vice  President and General  Manager of
Millipore's Asian operations. Mr. Vogel is a French citizen.

     Alain Brunier, age 56, has served as the President, Europe since June 2000.
From 1996 to May 2000, Mr. Brunier served as Managing  Director,  France & North
America of St. Jude Medical,  a  manufacturer  of  pacemakers  and other medical
devices used by  cardiologists.  From 1990 to 1996,  Mr.  Brunier served as Vice
President and Chief Executive,  Europe, Middle East & Africa of Telectronics,  a
manufacturer  of pacemakers and implantable  defibrillators.  Prior to 1990, Mr.
Brunier  has also held  senior  management  positions  at SMAD - HEMO France and
Baxter-Travenol.

     Jonathan R. McGrath,  age 46, has served as the Vice  President,  Worldwide
Research  and  Development  since August 1999.  From 1995 to 1998,  Mr.  McGrath
served  as the Vice  President  of  Research  and  Development  at  Urologix,  a
urological device company. From 1990 to 1995, he served as the Vice President of
Research and Development at Schneider/Pfizer,  a cardiovascular  device company.
From  1987 to  1990,  Mr.  McGrath  served  as the  Vice  President  of  Product
Development & Operations at Harbor Medical, a surgical device company. From 1980
to 1987, Mr. McGrath held various  positions at Boston  Scientific  Corporation,
most recently as the Director of Metals Product Development.

     Robert M. Palladino, age 46, has served as Chief Financial Officer and Vice
President since December 1999.  From March 1999 to December 1999, Mr.  Palladino
served as Vice President and Chief  Financial  Officer of Coretek,  Inc. a fiber
optics  manufacturer.  From 1995 to 1999, he served as Vice President of Finance
at C.P. Clare Corporation,  a multinational  electronics firm. He also served as
assistant treasurer at the Kendall Company, a health care manufacturer from 1991
to 1995.

     Robert T. Phelps, age 44, has served as the Vice President,  U.S. Sales and
Business  Development since August 1999. From 1993 to 1998, Mr. Phelps served as
the Vice  President  of Sales,  Orthopedic  Division  at  Johnson &  Johnson,  a
pharmaceutical  company.  From  1990 to 1993,  Mr.  Phelps  served  as the Group
Controller, Orthopedics Division at Johnson & Johnson.

     Donald Anderson, age 50, has served as Vice President, U.S. Marketing since
June 2000.  From February  1995 to June 2000,  Mr.  Anderson  served as the Vice
President,  Marketing of Implemed,  Inc., a manufacturer  of vascular access and
implantable drug delivery systems. From 1989 to 1995, Mr. Anderson served as the
Vice President, Sales and Marketing of Stratos/Unfusaid (a Pfizer company).
<PAGE>

                                     PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS

     The Common Stock of the Company traded on the Nasdaq  National  Market from
March 25, 1994 through  January 13, 1999,  at which time it moved to NASD's OTC:
Bulletin Board, where it traded from January 14, 1999 through March 29, 2000. On
April 3, 2000,  the Common  Stock of the Company  resumed  trading on the Nasdaq
National  Market.  The Common  Stock traded under the symbol BSEP from March 25,
1994 until May 17, 1999,  at which time the Company  changed the symbol to BSMD.
As of December 31,  2000,  the Company had  approximately  145  stockholders  of
record.

     The following  table sets forth for the periods  indicated the high and low
sales  prices per share of the Common  Stock as reported for the last two fiscal
years.
<TABLE>
<CAPTION>
                                                           2000
                                                   --------------------
                                                     HIGH        LOW
                                                   --------------------
        <S>                                         <C>         <C>
        First Quarter...........................    $50.500     $6.000
        Second Quarter..........................    $31.375    $12.250
        Third Quarter...........................    $18.625    $10.500
        Fourth Quarter..........................    $14.563     $9.000
</TABLE>
<TABLE>
<CAPTION>
                                                           1999
                                                   --------------------
                                                     HIGH         LOW
                                                   --------------------
        <S>                                         <C>        <C>
        First Quarter...........................    $ 1.125    $ 0.688
        Second Quarter..........................    $ 1.313    $ 0.703
        Third Quarter...........................    $ 2.156    $ 0.750
        Fourth Quarter..........................    $ 6.375    $ 1.500
</TABLE>

     BioSphere  has not  paid  any  dividends  on its  Common  Stock  since  its
inception  and does not intend to pay any dividends in the  foreseeable  future.
The Company currently  intends to reinvest its earnings,  if any, for use in the
business and does not expect to pay cash dividends in the foreseeable future.

<PAGE>

Item 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The  following  selected  consolidated  financial  data  should  be read in
conjunction with  "Management's  Discussion and Analysis of Financial  Condition
and Results of  Operations"  and our financial  statements  and related notes to
those  statements and other  financial  information  included  elsewhere in this
Annual Report on Form 10-K.

<TABLE>
-----------------------------------------------------------------------------------------------------
<S>                                                  <C>        <C>        <C>        <C>        <C>
YEAR ENDED DECEMBER 31,
(In thousands, except per share amounts)             2000       1999       1998       1997       1996
-----------------------------------------------------------------------------------------------------
Statement of Operations Data:
Revenue:
 Revenue from product sales.....................  $ 3,961     $2,263       $155       $117        $97
 License fees...................................       --          3         47         35         25
-----------------------------------------------------------------------------------------------------
      Total Revenue                                 3,961      2,266        202        152        122

Cost and expenses:
 Cost of products sold..........................    1,461      1,404         95         72         43
 Research and development.......................    2,517        968         34         34         39
 Selling, general and administrative............    7,847      4,003      1,364      1,195      1,505
 Stock-based compensation to non-employees......    1,261         --         --         --         --
-----------------------------------------------------------------------------------------------------
      Total cost and expenses                      13,086      6,375      1,493      1,301      1,587
-----------------------------------------------------------------------------------------------------
Loss from operations                               (9,125)    (4,109)    (1,291)    (1,149)    (1,465)
Other income (expense):
 Interest income................................      715        234         30         32         37
 Interest expense...............................      (54)      (134)      (222)       (72)      (214)
 Other..........................................       17         15         --         --         --
-----------------------------------------------------------------------------------------------------
Net loss from continuing operations               $(8,447)   $(3,994)   $(1,483)   $(1,189)   $(1,642)

Net loss from discontinued operations...........       --       (539)      (330)    (2,615)      (478)
-----------------------------------------------------------------------------------------------------
NET LOSS                                          $(8,447)   $(4,533)   $(1,813)   $(3,804)   $(2,120)
=====================================================================================================
Basic and diluted net loss per common
 share from continuing operations...............   $(0.87)    $(0.47)    $(0.17)    $(0.14)    $(0.21)
Basic and diluted net loss per common
 share from discontinued operations.............       --      (0.06)     (0.04)     (0.31)     (0.06)
-----------------------------------------------------------------------------------------------------
Basic and diluted net loss per common share.....   $(0.87)    $(0.53)    $(0.21)    $(0.45)    $(0.27)
Basic and diluted weighted average number
 of common shares outstanding...................    9,700      8,456      8,437      8,423      7,832
=====================================================================================================

-----------------------------------------------------------------------------------------------------
BALANCE SHEET DATA AS OF DECEMBER 31,
(In thousands)                                       2000       1999       1998       1997       1996
-----------------------------------------------------------------------------------------------------
Cash and cash equivalents.......................  $15,276     $5,368     $2,235     $2,370     $4,502
Working capital.................................   14,136      4,490      2,552      3,835      3,648
Total assets....................................   19,306      7,496     12,664     12,787     16,312
Debt and minority interest acquisition
 obligation.....................................      575        945         82        164        245
Stockholders' equity............................   15,686      4,588      9,136     10,716     14,329
=====================================================================================================
</TABLE>
<PAGE>

Item 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Overview

     BioSphere  Medical,  Inc.,  ("we," the "Company" or "BioSphere")  develops,
markets and manufactures innovative medical device products for the treatment of
hypervascularized  tumors and arteriovenous  malformations using  embolotherapy.
Embolotherapy is a minimally  invasive procedure in which materials that inhibit
blood flow,  referred to as embolic  materials,  such as our  microspheres,  are
injected  through a catheter  into the blood  vessels  to inhibit  blood flow to
tumors and  arteriovenous  malformations.  By  selectively  blocking the tumor's
blood  supply,   embolotherapy  is  designed  to  cause  the  tumor  to  shrink.
Hypervascularized  tumors are tumors  that are  supplied  by a larger  number of
blood vessels than the number of blood vessels supplying the tissue  surrounding
the tumor. Arteriovenous malformations are abnormal connections between arteries
and  veins,  frequently  characterized  by a dense and  wide-spread  network  of
interconnecting blood vessels. Our lead product, Embosphere Microspheres,  is an
acrylic bead with a proprietary design that is used as an embolic material.

     BioSphere was originally  incorporated  under the name BioSepra Inc. During
1999,  we   strategically   refocused  our  business  on  the   development  and
commercialization of our proprietary  microspheres for medical applications.  In
February  1999, we acquired a 51% ownership  interest in Biosphere  Medical S.A.
("BMSA"),  a French societe  anonyme.  In April 2000, we increased our ownership
interest in BMSA from 51% to 85%. BMSA retains the license to the  embolotherapy
device  that  is  the  main  focus  of  our  business.  In  May  1999,  we  sold
substantially   all  of  our  assets  relating  to  our  former  core  business,
chromatography,  and  changed  our name to  BioSphere  Medical,  Inc. We have an
option to acquire the  remaining 15% of BMSA at a later date. As of December 31,
2000,   Sepracor  Inc.,   ("Sepracor")  a  specialty   pharmaceutical   company,
beneficially owned approximately 55% of our outstanding common stock.


     During 2000, the we established two wholly owned subsidiaries to pursue the
development of other microsphere  technologies.  In May 2000,  Biosphere Medical
Japan,   Inc.,  a  Delaware   corporation,   was   established  to  develop  and
commercialize  Embosphere Microspheres as well as HepaSphere SAP Microspheres in
the  Far  East.  In  December  2000,  BSMD  Ventures,   Inc.,  also  a  Delaware
corporation,   was   established   to  explore  and  develop   non-embolotherapy
applications  with a specific focus on tissue  engineering uses. To this end, in
January 2001, BSMD Ventures, Inc. entered into a strategic supply agreement with
Inamed Corporation of Santa Barbara,  California,  a surgical and medical device
company  primarily  engaged in the development,  manufacturing  and marketing of
medical  devices  for the  plastic  and  reconstructive  surgery  and  aesthetic
medicine  markets.  Under this multi-year  agreement,  BioSphere will supply its
proprietary  microspheres  to Inamed.  In exchange,  Inamed has agreed to pay to
BioSphere  certain  up-front  distribution  access  fees as  well  as  milestone
payments  upon the  successful  completion  of certain  development  benchmarks.
BioSphere  will also be entitled to royalty  payments on net sales of  resulting
commercially approved products.

     In April 2000, we received  clearance  from the United States Food and Drug
Administration   ("FDA")  for  embolization  of  hypervascularized   tumors  and
arteriovenous malformations. In December 2000, we commenced our pivotal Phase II
clinical  testing under an  investigational  device  exemption of the safety and
effectiveness of treating uterine fibroids by Uterine Artery  Embolization  with
our Embosphere Microspheres. An investigational device exemption is a regulatory
exemption granted by the FDA to medical device  manufacturers for the purpose of
conducting  clinical  studies.  We  intend,   pending  FDA  clearance  for  this
indication,  to promote our microspheres for the treatment of uterine  fibroids.
We do not anticipate receiving this clearance before 2002, if at all.

<PAGE>
     We received CE Mark approval of our Embosphere  Microspheres product in the
European Union in 1997. CE Mark Approval is a certification  granted by European
regulatory bodies, or by some  manufacturers with satisfactory  quality systems,
that substantiates the compliance of products with specific standards of quality
and/or   safety.   This   approval   is   generally   required   prior   to  the
commercialization of a medical device in the European Union. In January 2000, we
received marketing approval of our Embosphere  Microspheres product in Australia
and Canada. We expect to file for marketing approval in Japan for our HepaSphere
SAP  Microspheres  product for the  treatment of liver cancer within the next 24
months.

     During the year ended December 31, 2000, we continued the implementation of
our new strategic plan to develop our Embosphere  Microspheres for the treatment
of  hypervascularized  tumors and  arteriovenous  malformations.  Our revenue is
primarily generated from product sales of Embosphere  Microspheres in the United
States, European Union, Australia, and Canada. Product revenues also include the
sale of  barium  and other  ancillary  products  manufactured  by us or by third
parties.

     We have  experienced  operating  losses  in each  fiscal  period  since our
inception.  As of December  31,  2000,  we had an  accumulated  deficit of $44.5
million.  In connection  with the  execution of our business  plan, we expect to
experience  continued losses for at least the next twelve-month period. The sale
of our  former  chromatography  business  has been  presented  in the  financial
statements in accordance with  discontinued  operations  accounting  principles.
Accordingly,  the results of all discontinued operations have been excluded from
the continuing  operations and presented separately in the accompanying selected
financial data.

Results of Operations

Years Ended December 31, 2000, 1999 and 1998

     Total revenue  increased to $3,961,000 for the year ended December 31, 2000
from $2,266,000 for the same period in 1999 and $202,000 in 1998. The $1,695,000
increase  from  1999 to 2000 is  primarily  attributable  to the  initiation  of
Embosphere  Microsphere  sales  in the  U.S.  following  receipt  of FDA  510(k)
clearance in April 2000.  Sales  growth  during 2000 also  increased  due to the
initiation of Embosphere  Microsphere sales within Australia and Canada, as well
as the further  penetration of the European  markets.  To a lesser  extent,  the
increase in total  revenues for the year ended December 31, 2000 compared to the
same  period in 1999 was due to the  acquisition  of BMSA in  February  of 1999,
whereby only ten months of revenue was recognized during 1999 versus a full year
in 2000.

     Cost  of  product  revenues  for the  year  ended  December  31,  2000  was
$1,461,000,  compared to  $1,404,000  in 1999 and $95,000 in 1998,  representing
37%, 62%, and 47% of product revenue,  respectively. The $57,000 increase in the
cost of  product  revenues  in the  year  ended  December  31,  2000  was due to
increased  sales  volume  offset by a shift in the  sales  mix to lower  costing
Embosphere Microsphere products.

     Gross margin for the year ended  December 31, 2000 was  $2,500,000  (63% of
revenues)  compared  with $862,000 (38% of revenues) for the same period in 1999
and $107,000  (53% of  revenues)  in 1998.  The increase in gross margin for the
year ended December 31, 2000 was attributable to a shift in product sales mix to
the higher margin Embosphere Microsphere products,  particularly in the U.S., as
well  as a  reduction  in the  unit  manufacturing  costs  caused  by  the  full
integration of the Embosphere  Microsphere  manufacturing  process at our French
production facility in the spring of 2000.
<PAGE>

     Research and  development  expenses  increased to  $2,517,000  in 2000 from
$968,000 in 1999 and $34,000 in 1998.  The  $1,549,000  increase in research and
development  expenses  from  1999 to 2000  was due  primarily  to  clinical  and
regulatory costs incurred relative to seeking Embosphere  Microsphere regulatory
approval in the United States.  We anticipate  future  research and  development
expenses will increase as a result of the advancement of Embosphere  Microsphere
products through its recently  initiated Phase II clinical trial for the uterine
artery  embolization  treatment  of uterine  fibroids  under an  investigational
device exemption  granted by the FDA.  Additional  expenses are also expected to
result from the continued  development and  enhancement of our current  products
and product candidates.

     Selling, general and administrative expenses, net of non-cash, non-employee
stock option  acceleration  charges,  increased to $7,847,000 for the year ended
December 31, 2000 from $4,003,000 in 1999 and $1,364,000 in 1998. The $3,844,000
increase in selling,  general and administrative  expenses from 1999 to 2000 was
primarily  due to the  implementation  of our  product  commercialization  plan,
including personnel costs, recruiting expenses, selling, marketing and all other
expenses associated with developing and introducing a new business.

     In connection with stock options  previously issued to  non-employees,  the
Company's Board of Directors authorized the Company to accelerate the vesting of
all  non-employee   advisors'  stock  options  subject  to  variable  accounting
principles.   Accordingly,  $1,261,000  in  non-cash  compensation  expense  was
recorded  and  presented  as a  separate  line  item  within  the  Statement  of
Operations  for the year  ended  December  31,  2000.  The  recorded  $1,261,000
aggregate  fair value of the  non-employee  stock  options was derived  from the
Black-Scholes option-pricing model.

     Interest  income in the year ended December 31, 2000 was $715,000  compared
to $234,000 in 1999 and $30,000 in 1998.  The growth in interest  income in each
of the  sequential  years was due to the  continued  increase  in  average-daily
invested cash balances.  Increased invested cash primarily resulted from the May
1999 sale of our  discontinued  chromatography  operations and the proceeds from
our February 4, 2000 and July 28, 2000 private equity placements.

     Interest expense decreased from $222,000 in 1998 to $134,000 in 1999 and to
$54,000 in 2000. This sequential decrease was due primarily to the retirement of
our significant debt in the second quarter of 1999. Interest expense during 2000
primarily  resulted from non-cash  interest charges generated from the potential
obligation to purchase the remaining outstanding minority interest in BMSA. (See
Note C to the consolidated financial statements)

     Net loss from  continuing  operations  increased to $8,447,000 for the year
ended  December 31, 2000 compared to $3,994,000 in 1999 and  $1,483,000 in 1998.
The increases are a direct result of the implementation of our strategic plan to
develop, introduce and commercialize our microsphere and other product lines. We
anticipate net losses from  operations  will continue  through at least the next
twelve-month period.

Liquidity and Capital Resources

     We have historically funded our operations from product sales, net proceeds
provided by public and private equity  offerings,  funds provided by the sale of
our  former  chromatography  business,  funds  from  Sepracor,  bank  financing,
equipment financing leases and to a lesser extent, exercise of stock options. As
of December  31,  2000,  we had  $15,276,000  of cash and cash  equivalents,  an
increase of $9,908,000  from  $5,368,000 as of December 31, 1999.  This increase
primarily  resulted  from the net proceeds of our two private  equity  placement
financings in 2000 offset, to a limited extent, by cash used to fund operations.
As of December 31, 2000, we had $14,136,000 in working capital.

     For the year ended December 31, 2000, we used  $7,017,000 in operating cash
primarily  to fund our  marketing  and  product  development  activities  and to
finance  working  capital  requirements.  Cash used in operations is expected to
increase in support of the Company's further operational and product development
efforts.
<PAGE>

     Net cash used in investing  activities  was  $1,483,000  for the year ended
December 31,  2000.  Of this amount,  $950,000 was used in  connection  with the
April 2000 purchase of an additional 34% equity  interest in our  majority-owned
subsidiary,  Biosphere  Medical,  S.A.  From  this  step-acquisition,  our total
ownership  interest in Biosphere  Medical,  S.A  increased to 85%. The remaining
amount,  approximately  $533,000,  was used to purchase  property and  equipment
relating to establishing full  manufacturing  capabilities at BMSA and to obtain
office equipment and furnishings in our new corporate  headquarters in Rockland,
Massachusetts.  Future capital expenditures are anticipated to increase over the
next twelve-month  period consistent with our plan to expand our  manufacturing,
sales  and  marketing  presence  in the  United  States,  Europe,  the Far East,
Australia  and Canada.  If available on  favorable  terms,  we expect to finance
certain future fixed asset acquisitions through leasing arrangements.

     Net cash  provided by financing  activities  was  $18,398,000  for the year
ended  December 31, 2000.  In both  February 2000 and in July 2000, we completed
private-equity  placements  resulting in the issuance of an aggregate  1,868,787
shares of Common  Stock  for net  proceeds  of  approximately  $17,716,000.  The
February 2000  private-equity  issuance included warrants to purchase a total of
163,468  shares of Common  Stock with an exercise  price of $20 per share.  Cash
provided by financing  activities also includes  $558,000 received in connection
with the sale of  approximately  270,000  shares of  common  stock  through  the
exercise  of  options   granted   under  our   incentive   stock  option  plans.
Additionally,  in  March  2000,  BMSA  entered  into a  1,000,000  French  Franc
($143,000  equivalent as of December 31, 2000) term loan with a French  national
bank that is payable over five years and accrues interest at 5.4% per annum.

     In  collaboration  with  Sepracor,  we have  available a  revolving  credit
agreement  with a bank under which we may borrow up to $2.0 million,  subject to
limitations defined in the agreement and on borrowings  outstanding by Sepracor.
There were no  borrowings  outstanding  by either the Company or Sepracor  under
this agreement as of December 31, 2000.  Interest on any outstanding  borrowings
is payable  monthly in arrears at prime  (9.5% as of December  31,  2000) or the
LIBOR rate (6.0% at  December  31,  2000) plus 0.75%.  We are  required to pay a
commitment  fee equal to 0.25% per annum on the average  available  unused line.
The  Company's  ability  to borrow  under this  credit  line is  dependent  upon
Sepracor's  maintenance of certain  financial ratios and levels of cash and cash
equivalents and tangible  capital bases.  As of December 31, 2000,  Sepracor has
informed  us  that  all   applicable   lines  of  credit   covenants  have  been
satisfactorily  met. Sepracor is guarantor of any amounts  outstanding under the
agreement.  We have entered into a security  agreement with Sepracor pursuant to
which we have pledged to Sepracor all of our U.S.  assets,  including our equity
ownership of BMSA as collateral  for Sepracor's  guarantee to the bank.  BMSA is
not a party to the agreement with Sepracor and,  therefore,  has not pledged any
of its assets.  The revolving credit agreement will expire on December 31, 2001.
Prior to  December  31,  2001,  we intend to  negotiate a new  revolving  credit
agreement containing similar terms, rates and conditions.

     We  believe  that our  existing  cash and  other  working  capital  will be
sufficient to fund our operating and capital requirements, as currently planned,
at least through the next twelve-month  period.  However,  our cash requirements
may vary  materially  from  those now  planned  due to  changes  in  anticipated
research  and  development  efforts,  the scope and results of  preclinical  and
clinical  testing,  changes  in the  focus and  direction  of our  research  and
development  programs,   competitive  and  technological   advances,  the  FDA's
regulatory process, the market's acceptance of any approved products,  and other
factors.

     We expect to incur substantial additional costs, including costs related to
ongoing  research and development  activities,  preclinical  studies,  clinical
trials, the expansion of our laboratory and administrative  functions as well as
costs  relating  to  further  commercialization  activities.  We may  also  need
additional funds for possible strategic acquisitions of synergistic  businesses,
products  and/or  technologies  or upon  exercise  of a put  option  held by the
     minority  interest  holder of BMSA to require us to purchase the  remaining
15%
interest. (See Note C to the consolidated financial statements) These additional
funds may be raised from time to time through public or private sales of equity,
through borrowings, or through other financings. There are no assurances that we
will be able to obtain any additional funding that may be required on acceptable
terms, if at all.
<PAGE>


Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is subject to market risk in the form of interest rate risk and
foreign currency risk. The Company's  investments in short-term cash equivalents
are  subject  to  interest  rate  fluctuations.  We do not  believe  that  these
exposures are material. The Company sells and distributes its products worldwide
and the  payables  may be due in  French  currency  or other  local  currencies.
Therefore,  the Company may experience gains or losses upon the payment of these
inter-company obligations.

<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of  Directors  and  Stockholders  of  BioSphere  Medical,  Inc. and
subsidiaries:

     We have audited the accompanying  consolidated  balance sheets of BioSphere
Medical,  Inc. (A Delaware Corporation) and subsidiaries as of December 31, 2000
and 1999, and the related consolidated  statements of operations,  stockholders'
equity and cash flows for each of the three years in the period  ended  December
31, 2000.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the financial position of BioSphere Medical, Inc. and
subsidiaries  as of  December  31,  2000  and  1999,  and the  results  of their
operations and their cash flows for the three years in the period ended December
31, in conformity with accounting  principles  generally  accepted in the United
States.



/s/ Arthur Andersen LLP
Boston, Massachusetts
January 17,  2001,  except with  respect to matters  discussed  in Note Q, as to
which the date is February 7, 2001


<PAGE>
<TABLE>
<CAPTION>
                             BIOSPHERE MEDICAL, INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

                                                                  DECEMBER 31,
---------------------------------------------------------------------------------
<S>                                                             <C>         <C>
ASSETS                                                          2000        1999
---------------------------------------------------------------------------------
Current assets:
 Cash and cash equivalents.................................  $15,276     $ 5,368
 Accounts receivable, net of allowance for doubtful
  accounts of $29 and $0 as of December 31, 2000
  and 1999, respectively...................................    1,142         564
 Inventories...............................................      639         389
 Prepaid and other current assets..........................      124         132
---------------------------------------------------------------------------------
   Total current assets                                       17,181       6,453

 Property and equipment, net...............................      694         322
 Goodwill, net.............................................    1,144         713
 Other assets..............................................      287           8
---------------------------------------------------------------------------------
TOTAL ASSETS                                                 $19,306     $ 7,496
=================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable..........................................  $   924     $   616
 Accrued compensation......................................      994         400
 Other accrued expenses....................................    1,086         879
 Payable to related party..................................       14          68
 Current portion of long term debt.........................       27          --
---------------------------------------------------------------------------------
   Total current liabilities                                   3,045       1,963

 Minority interest acquisition obligation..................      478         945
 Long-term debt............................................       97          --
---------------------------------------------------------------------------------
   Total liabilities                                           3,620       2,908

Commitments (Note H)
Stockholders' equity:
 Common stock, $0.01 par value, 25,000 shares
  authorized; 10,595 and 8,456 shares issued and
  outstanding as of December 31, 2000 and 1999,
  respectively.............................................      106          84
 Additional paid-in capital................................   60,100      40,587
 Accumulated deficit.......................................  (44,515)    (36,068)
 Cumulative translation adjustment.........................       (5)        (15)
---------------------------------------------------------------------------------
   Total stockholders' equity                                 15,686       4,588
---------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $19,306     $ 7,496
=================================================================================
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
                             BIOSPHERE MEDICAL, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)

                                                  FOR THE YEARS ENDED DECEMBER 31,
                                                  -------------------------------
                                                      2000       1999      1998
---------------------------------------------------------------------------------
<S>                                                <C>        <C>       <C>
Revenues:
 Product sales..................................   $ 3,961    $ 2,263   $   155
 License fees...................................        --          3        47
---------------------------------------------------------------------------------
  Total revenue                                      3,961      2,266       202
---------------------------------------------------------------------------------
Costs and expenses:
 Cost of product sales..........................     1,461      1,404        95
 Research and development.......................     2,517        968        34
 Selling, general and administrative (1)........     7,847      4,003     1,364
 Stock-based compensation to non-employees......     1,261         --        --
---------------------------------------------------------------------------------
  Total costs and expenses                          13,086      6,375     1,493
---------------------------------------------------------------------------------
Loss from operations                                (9,125)    (4,109)   (1,291)

Interest income.................................       715        234        30
Interest expense................................       (54)      (134)     (222)
Other income....................................        17         15        --
---------------------------------------------------------------------------------
Loss from continuing operations.................    (8,447)    (3,994)   (1,483)
Loss from discontinued operations...............        --       (539)     (330)
---------------------------------------------------------------------------------
NET LOSS                                           $(8,447)   $(4,533)  $(1,813)
=================================================================================

Basic and diluted net loss per common share:
 Continuing operations..........................   $ (0.87)   $ (0.47)  $ (0.17)
 Discontinued operations........................        --      (0.06)    (0.04)
---------------------------------------------------------------------------------
 Total                                             $ (0.87)   $ (0.53)  $ (0.21)
=================================================================================

Basic and diluted weighted average number
 of common shares outstanding...................     9,700      8,456     8,437
=================================================================================

(1) Excludes compensation charges relating to the issuance of stock options
    to non-employees.
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

<PAGE>
<TABLE>
<CAPTION>
                             BIOSPHERE MEDICAL, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In thousands)

                                                                                                          Accumulated
                                    Common Stock   Additional                                Other           Total
                                   --------------    Paid-in     Deferred    Accumulated  Comprehensive  Stockholders'
                                   Shares  Amount    Capital   Compensation    Deficit    Income (Loss)     Equity
---------------------------------  ------  ------  ----------  ------------  -----------  -------------  ------------
<S>                                 <C>     <C>     <C>            <C>         <C>             <C>          <C>

Balance at December 31, 1997        8,431   $ 84    $ 40,515       $ (161)     $(29,722)        $  -        $ 10,716
Comprehensive loss:
 Net loss........................      -      -           -            -         (1,813)           -          (1,813)
                                                                                                         ------------
  Total comprehensive loss.......                                                                             (1,813)

Deferred compensation
 amortization....................      -      -           -           161            -             -             161
Exercise of stock options........      25     -           41           -             -             -              41
Compensation for common
 stock warrants..................      -      -           31           -             -             -              31
---------------------------------  ------  ------  ----------  ------------  -----------  -------------  ------------
Balance at December 31, 1998        8,456     84      40,587           -        (31,535)           -           9,136

Comprehensive loss:
 Net loss                              -      -           -            -         (4,533)           -          (4,533)
 Translation adjustment                -      -           -            -             -            (15)           (15)
                                                                                                         ------------
  Total comprehensive loss.......      -      -           -            -             -             -          (4,548)
---------------------------------  ------  ------  ----------  ------------  -----------  -------------  ------------
Balance at December 31, 1999        8,456     84      40,587           -        (36,068)          (15)         4,588

Comprehensive loss:
   Net loss......................      -      -           -            -         (8,447)           -          (8,447)
   Translation adjustment........      -      -           -            -             -             10             10
                                                                                                         ------------
   Total comprehensive loss                                                                                   (8,437)
Issuance of common stock.........   1,869     19      17,697           -             -             -          17,716
Issuance of common stock
 under employee benefit and
 incentive plans.................     270      3         555           -             -             -             558
Stock-based compensation to
 non-employee....................      -      -        1,261           -             -             -           1,261
---------------------------------  ------  ------  ----------  ------------  -----------  -------------  ------------
Balance at December 31, 2000       10,595   $106    $ 60,100        $  -       $(44,515)        $  (5)      $ 15,686
---------------------------------  ------  ------  ----------  ------------  -----------  -------------  ------------
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

<PAGE>
<TABLE>
<CAPTION>
                             BIOSPHERE MEDICAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

                                                          FOR THE YEARS ENDED DECEMBER 31,
                                                          -------------------------------
                                                              2000       1999      1998
-----------------------------------------------------------------------------------------
<S>                                                        <C>        <C>       <C>
CASH FLOW FROM OPERATING ACTIVITIES:
  Net loss..............................................   $(8,447)   $(4,533)  $(1,813)
  Less: Net loss from discontinued operations...........        --       (539)     (330)
-----------------------------------------------------------------------------------------
  Net loss from continuing operations                       (8,447)    (3,994)   (1,483)
-----------------------------------------------------------------------------------------
  Adjustments to reconcile net loss from continuing
   operations to net cash used in operating activities:
    Provision for doubtful accounts......................       37         --        --
    Depreciation and amortization........................      279        102        17
    Non-cash interest on minority interest obligation....       19         --        --
    Foreign exchange (gain) / loss.......................      (85)        --        --
    Non-cash stock-based compensation for non-employees..    1,261         --        --
    Compensation for common stock warrants...............       --         --        31
    Changes in operating assets and liabilities:
      Accounts receivable................................     (615)       121        --
      Inventories........................................     (250)         5        --
      Prepaid and other current assets...................     (271)         4         2
      Accounts payable...................................      308        103      (346)
      Accrued expenses...................................      801        282        27
      Related parties payable............................      (54)      (362)      105
-----------------------------------------------------------------------------------------
  Net cash used in operating activities                     (7,017)    (3,739)   (1,647)
-----------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES:
  Purchase of property and equipment.....................     (533)      (382)       --
  Cash paid for 34% interest in Biosphere Medical, S.A...     (950)        --        --
  Decrease in restricted cash............................       --         --       146
  Increase in other assets...............................       --         (1)       (2)
  Cash acquired through acquisition of 51%
   of Biosphere Medical, S.A.............................       --        283        --
-----------------------------------------------------------------------------------------
  Net cash (used in) provided by investing activities       (1,483)      (100)      144
-----------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
  Proceeds from issuance of common stock, net............   17,716         --        41
  Proceeds from stock options exercised..................      558         --        --
  Net (repayments) borrowings under line of
   credit agreements.....................................       --     (2,000)    2,000
  Proceeds (payments) on long-term debt and
   capital leases........................................      124       (664)     (454)
-----------------------------------------------------------------------------------------
  Net cash provided by (used in) financing activities       18,398     (2,664)    1,587
-----------------------------------------------------------------------------------------
Effect of exchange rate changes on cash
 and cash equivalents....................................       10         (7)       --
-----------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.....    9,908     (6,510)       84
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS...       --      9,643      (219)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR...........    5,368      2,235     2,370
-----------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                   $15,276    $ 5,368   $ 2,235
-----------------------------------------------------------------------------------------


SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
 Cash paid for interest..................................       $5       $134      $207
-----------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
 Acquisition of 51% of Biosphere Medical, SA:
  Fair value of assets acquired..........................      $--     $1,493      $ --
  Liabilities assumed....................................       --     (1,493)       --
  Minority interest acquisition obligation...............      188        771        --
-----------------------------------------------------------------------------------------
  Goodwill                                                    $188     $  771      $ --
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.
<PAGE>

       BIOSPHERE MEDICAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A - Nature of the Business

     BioSphere  Medical,  Inc ("BioSphere" or the "Company") was incorporated in
Delaware in December 1993 under the name BioSepra Inc.  During 1999, the Company
strategically refocused its business on the development and commercialization of
its proprietary  Embosphere  Microspheres for medical applications.  In February
1999, the Company acquired a 51% ownership  interest in Biosphere  Medical S.A.,
("BMSA") a French societe anonyme.  (See Note C) BMSA retains the license to the
embolotherapy  device that is the main focus of the Company's  business.  In May
1999, the Company sold  substantially  all of its assets  relating to its former
core business, chromatography and changed its name to BioSphere Medical, Inc. In
April 2000,  the Company  increased its  ownership  interest in BMSA from 51% to
85%. The Company  retains the option to acquire the  remaining  15% of BMSA at a
later date and the 15% minority  interest holder  maintains the right to require
the Company to purchase its interest. (See Note C)

     During  2000,  the Company  established  two wholly owned  subsidiaries  to
pursue the development of other microsphere technologies. In May 2000, BioSphere
Medical  Japan,  Inc., a Delaware  corporation,  was  established to develop and
commercialize  Embosphere  Microspheres as well as HepaSphere SAP Microsphere in
the  Far  East.  In  December  2000,  BSMD  Ventures,   Inc.,  also  a  Delaware
corporation,  was  established to explore and develop  alternative  applications
with a specific focus on dermal and other tissue  engineering uses. To this end,
in January 2001, BSMD Ventures,  Inc.  entered into a strategic supply agreement
with Inamed  Corporation  of Santa Barbara,  California,  a surgical and medical
device company primarily engaged in the development, manufacturing and marketing
of medical  devices  for the plastic and  reconstructive  surgery and  aesthetic
medicine  markets.  Under this multi-year  agreement,  BioSphere will supply its
proprietary microspheres to Inamed for potential use in dermal applications.  In
exchange,  Inamed has agreed to pay to BioSphere  certain up-front  distribution
access fees as well milestone payments upon the successful completion of certain
development  benchmarks.  BioSphere will also be entitled to royalty payments on
net sales of resulting  commercially approved products. As of December 31, 2000,
Sepracor Inc. ("Sepracor"),  a specialty  pharmaceutical  company,  beneficially
owned approximately 55% of the Company's outstanding common stock.

     The  Company is  subject  to risks  common to  companies  in its  industry,
including  but  not  limited  to  obtaining  regulatory  approval  by  the  FDA,
commercial  acceptance of the Company's products,  development by the Company or
its competitors of new technological  innovations,  dependence on key personnel,
protection of proprietary  technology and the need to obtain adequate  financing
to fund future operations.


B - Summary of Significant Accounting Policies

Principles of Consolidation

     The accompanying  consolidated financial statements include the accounts of
the Company and its majority owned  subsidiary BMSA, as well as its wholly owned
subsidiaries;  Biosphere  Medical  Japan,  Inc. and BSMD  Ventures,  Inc.,  both
Delaware  corporations  established in 2000. All material  intercompany balances
and transactions have been eliminated in consolidation.

Basis of Presentation

     Certain prior period balances have been  reclassified to conform to current
reporting formats, including certain the impact of the operations of the Company
that were discontinued. (See Note N)

Translation of Foreign Currencies

     The assets and liabilities of the Company's international  subsidiaries are
translated  into  U.S.  dollars  using the  exchange  rates in effect as of each
balance sheet date.  Statements of operations  amounts are translated at average
exchange rates prevailing  during each recording period.  Resulting  translation

<PAGE>

adjustments  are recorded in the cumulative  translation  adjustment  account in
stockholders'  equity.  Aggregate foreign exchange  transaction gains and losses
are not material and are included in other income in the accompanying  statement
of operations.


Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted accounting  principles in the United States requires management to make
estimates and assumptions that affect the following: (1) the reported amounts of
assets and liabilities,  (2) the disclosure of contingent assets and liabilities
at the date of the financial statements and (3) the reported amounts of revenues
and expenses  during the  reporting  periods.  Actual  results could differ from
those estimates.

Cash and Cash Equivalents

     The  Company  considers  all highly  liquid  investments  with an  original
maturity  of  three  months  or less  to be  cash  equivalents.  Cash  and  cash
equivalents include $15.2 million and $4.5 million of commercial paper and money
market funds as of December 31, 2000 and 1999, respectively.

Financial Instruments and Concentration of Credit Risk

     The Company has no significant  off-balance-sheet  risk or concentration of
credit  risk such as  foreign  exchange  contracts,  option  contracts  or other
foreign hedging arrangements. Financial instruments that potentially subject the
Company to credit risk consist  primarily of cash and cash equivalents and trade
accounts  receivable.  BioSphere  places its cash and cash equivalents with high
credit quality financial institutions.

Property and Equipment

     Property  and  equipment  are  stated at cost.  The  Company  provides  for
depreciation  based upon expected  useful lives using the  straight-line  method
over the following estimated useful lives:
<TABLE>
     <S>                                           <C>
     Machinery and equipment..................     3-5 years
     Computer hardware and software...........     3-5 years
     Furniture and fixtures...................     3-5 years
     Leasehold improvements...................     Shorter of lease term or
                                                    estimated useful life
</TABLE>

     Maintenance and repairs are charged to expense as incurred. Upon retirement
or sale, the cost of disposed  assets and the related  accumulated  depreciation
are removed  from the  accounts  and any  resulting  gain or loss is credited or
charged to non-operating income.

Goodwill and Other Assets

     Goodwill  represents the difference between the purchase price and the fair
value of the tangible  and  identifiable  intangible  net assets  acquired  when
accounted for in accordance with the purchase method of accounting.  In February
1999, the Company  recorded  goodwill upon the  acquisition of 51% of BMSA. (See
Note C) Goodwill  associated  with this  transaction is being  amortized over an
estimated  ten-year  useful life through  February  2009. The 1999 BMSA purchase
agreement contained provisions to acquire the remaining 49% minority interest in
BMSA.  Accordingly,  all goodwill  resulting from subsequent  BMSA  acquisitions
and/or  accretion  of the  minority  interest  acquisition  obligation  will  be
amortized  through February 2009.  Accumulated  amortization  was  approximately
$174,000 and $58,000 as of December 31, 2000 and 1999, respectively.

     The  Company  periodically   evaluates  the  potential  impairment  of  its
long-lived assets whenever events or changes in circumstances  indicate that the
carrying  amount  of an asset may not be  recoverable.  At the  occurrence  of a
certain event or change in  circumstances,  the Company  evaluates the potential
impairment of an asset based on estimated future undiscounted cash flows. In the
event impairment  exists, the Company will measure the amount of such impairment
based on the present value of estimated  future cash flows using a discount rate
commensurate  with the risks involved.  Based on  management's  assessment as of
December 31, 2000, the Company has  determined  that no impairment of long-lived
assets exists.
<PAGE>

Revenue Recognition

     Revenues  from  product  sales are  recognized  when  goods are  shipped to
customers.  Management  establishes  reserves for  potential  sales  returns and
evaluates,  on a monthly  basis,  the  adequacy  of those  reserves  based  upon
realized  experience.  To date,  returns  have not been  material.  The  Company
adopted Staff  Accounting  Bulletin No. 101 in the year ended  December 31, 2000
with no material impact to the Company's results of operations.

Research and Development

     Research and development costs are expensed in the period incurred.

Income Taxes

     The Company uses the asset and liability accounting method whereby deferred
tax assets and liabilities are recognized based on temporary differences between
the financial  statements and tax basis of assets and liabilities  using current
statutory tax rates.  A valuation  allowance  against net deferred tax assets is
recorded if, based on the  available  evidence,  it is more likely than not that
some  or all  of the  deferred  tax  assets  will  not be  realized.  Management
evaluates,  on a quarterly basis, the ability to recover the deferred tax assets
and the level of the valuation allowance. At such time as it is more likely than
not that deferred tax assets are  realizable,  the valuation  allowance  will be
appropriately reduced.

Comprehensive Income /(Loss)

     Comprehensive  income  (loss) is comprised  of net income  (loss) and other
comprehensive  income (loss.) Other comprehensive income (loss) includes certain
changes in equity that are excluded from net income  (loss).  Specifically,  the
effects  of  foreign  currency  translation   adjustments  which  are  reflected
separately  in  stockholders'   equity,   are  included  in  accumulated   other
comprehensive income (loss.)

Net Loss Per Share

     Basic net loss per share is calculated based on the weighted average number
of common  shares  outstanding  during the  period.  Diluted  net loss per share
incorporates  the dilutive effect of common stock equivalent  options,  warrants
and  other  convertible  securities.  Total  warrants  and  options  potentially
convertible  into common stock as of December  31,  2000,  1999 and 1998 equaled
4,147,000, 3,780,000 and 1,627,000,  respectively. Common stock equivalents have
been excluded from the calculation of weighted  average number of diluted common
shares, as their effect would be antidilutive for all periods presented.

New Accounting Pronouncements

     In June 1998,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement of Financial  Accounting  Standards No. 133, Accounting for Derivative
Instruments and Hedging  Activities,  which will be effective for the Company in
the first quarter of Fiscal 2001.  The adoption of this standard is not expected
to have a material  effect on the  Company's  financial  position  or  operating
results.


C - Acquisition  of Biosphere  Medical S.A. and Minority  Interest  Acquisition
    Obligation

     On February 25, 1999, the Company  acquired 51% of the outstanding  capital
stock of BMSA. Accordingly, the results of operations of BMSA have been included
in  these  consolidated  financial  statements  as of the  date of  acquisition.
Pursuant to a February 25, 1999 purchase  agreement,  the Company acquired a 51%
ownership  interest  by granting to BMSA an  exclusive  sales and  manufacturing
license to certain  patents and technology  primarily  relating to the Company's
Embosphere  Microsphere  technology.  The Company was also  granted an option to
purchase the  remaining  49%  interest in BMSA through  December 31, 2004 for an
amount equal to the product of the  percentage  interest to be purchased and the

<PAGE>

sum of  BMSA's  rolling  average  twelve-month  sales and  worldwide  Embosphere
Microsphere sales as of the date of exercise (the "Purchase Option").  Moreover,
the holder of the  remaining  49%  interest was also granted an option (the "Put
Option") to require the Company to purchase  the  remaining  49%  interest  from
December 31, 2003 until  December 31, 2004 for an amount equal to the greater of
an agreed upon price (in French Francs) for each percentage  interest to be sold
or the amount payable  adjusted to a rolling  nine-month sales average under the
Purchase Option. The Put Option represents a contingent  purchase  consideration
and the Company is accreting the value of this Put Option over the period ending
December 31, 2003.

     On April 7, 2000,  the  Company  purchased  an  additional  34% of BMSA for
$950,000.  The transaction was accounted for as a step-acquisition of a minority
interest  whereby  the  fair  value  in  excess  of the  then  recorded  accrued
acquisition  obligation  was treated as an increase to goodwill.  As a result of
this step-acquisition,  the Company's total ownership interest in BMSA increased
to 85%. As of December 31, 2000, the holder of the 15% minority interest retains
its Put Option  with  respect to the  remaining  15% of the  outstanding  equity
interest in BMSA pursuant to the terms of the original purchase  agreement.  The
Company  also  retains its Purchase  Option with  respect to the  remaining  15%
equity  interest in BMSA.  As of December  31,  2000 the Company  estimated  the
present value of the Put Option to be approximately $478,000.

     The Company has applied purchase  accounting  principles to the acquisition
of its  interest  in BMSA and has  allocated  the  purchase  price to the assets
acquired and liabilities assumed. The purchase price in excess of the fair value
of  the  tangible  assets  has  been  allocated  to  goodwill.   There  were  no
identifiable  intangible  assets.  Goodwill,  net as of  December  31,  2000 and
December 31, 1999 of $1,144,000 and $713,000,  respectively,  is being amortized
through February 2009.


D - Related Party Transactions

     As of December 31, 2000,  Sepracor  beneficially owned approximately 55% of
the Company's outstanding common stock. Since the Company's inception,  Sepracor
has  provided   support   services  of  U.S.   operations,   including   certain
administrative support. For these services,  BioSphere was charged approximately
$111,000, $119,000 and $155,000 for the years ended December 31, 2000, 1999, and
1998,  respectively.  Under a separate Sublease  Agreement,  the Company had the
right to lease office space from Sepracor through 2007 in exchange for a monthly
rent.  All  related-party  charges  represent  an  allocation  of the  Company's
proportionate share of Sepracor's overhead and facility costs using formulas and
valuations which management  believes are reasonable and consistent with similar
arms-length  transactions.  Net amounts payable to Sepracor,  as of December 31,
2000 and 1999 were approximately $14,000 and $68,000, respectively.

     In April 2000, BioSphere relocated its research  laboratories and corporate
headquarters to a new facility  located in Rockland,  Massachusetts.  Concurrent
with the move,  BioSphere and Sepracor mutually agreed to terminate the Sublease
Agreement without contingency.

     Sepracor  is entitled to certain  rights with  respect to the  registration
under the  Securities Act of a total of 4,000,000  shares of BioSphere's  Common
Stock.  These  rights  provide  that  Sepracor  may  require  BioSphere,  on two
occasions,  to register  shares having an aggregate  offering  price of at least
$5,000,000,  subject to certain  conditions and limitations.  As of December 31,
2000, Sepracor has not exercised such rights.

<PAGE>
E - Inventories

     Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following as of:
<TABLE>
<CAPTION>
                                                    DECEMBER 31,
                                                 ------------------
      <S>                                        <C>         <C>
      (In thousands)                              2000        1999
      -------------------------------------------------------------
      Raw material............................   $ 156       $ 119
      Work in progress........................      78          25
      Finished goods..........................     405         245
      -------------------------------------------------------------
      Total inventory                            $ 639       $ 389
</TABLE>


F - Property and Equipment

     Property and equipment consists of the following as of:
<TABLE>
<CAPTION>
                                                    DECEMBER 31,
                                                 ------------------
      <S>                                        <C>         <C>
      (In thousands)                              2000        1999
      -------------------------------------------------------------
      Office equipment........................   $ 469       $ 289
      Laboratory and manufacturing equipment..     425          72
      Leasehold improvements..................      45          45
      ------------------------------------------------------------
                                                   939         406
      Less: accumulated depreciation..........    (245)        (84)
      -------------------------------------------------------------
      Total property and equipment               $ 694       $ 322
</TABLE>

     Depreciation  expense was  $161,000,  $49,000 and $14,000 and for the years
ended December 31, 2000, 1999, and 1998, respectively.


G -Debt and Other Obligations

     Debt consists of the following as of:

                                                    DECEMBER 31,
      (In thousands)                              2000        1999
      -------------------------------------------------------------
      5.4% French Franc term loan payable
       to a bank in monthly installments
       through March 2005, secured by the
       net assets of BMSA.....................    $124        $ --
      Less: current portion...................     (27)         --
      -------------------------------------------------------------
      Total long-term debt                        $ 97        $ --

     In  collaboration  with  Sepracor,  the Company  has  available a revolving
credit  agreement  with a bank  under  which it may  borrow up to $2.0  million,
subject to limitations defined in the agreement and on borrowings outstanding by
Sepracor. There were no borrowings outstanding by either the Company or Sepracor
under this  agreement  as of December  31,  2000.  Interest  on any  outstanding
borrowings is payable monthly in arrears at prime (9.5% as of December 31, 2000)
or the LIBOR  rate  (6.0% at  December  31,  2000) plus  0.75%.  The  Company is
required  to pay a  commitment  fee  equal to  0.25%  per  annum on the  average
available unused line. The Company's ability to borrow under this credit line is
dependent upon Sepracor's  maintenance of certain financial ratios and levels of

<PAGE>

cash and cash  equivalents and tangible  capital bases. As of December 31, 2000,
Sepracor has informed the Company that all applicable  lines of credit covenants
have been  satisfactorily  met. Sepracor is guarantor of any amounts outstanding
under the agreement. The Company entered into a security agreement with Sepracor
pursuant to which we have pledged to Sepracor all of our U.S. assets,  including
our equity ownership of BMSA as collateral for Sepracor's guarantee to the bank.
BMSA is not a party to the  agreement  with  Sepracor  and,  therefore,  has not
pledged  any of its  assets.  The  revolving  credit  agreement  will  expire on
December 31, 2001.  Prior to December 31, 2001, the Company intends to negotiate
a new revolving credit agreement containing similar terms, rates and conditions.


H - Commitments

     Prior to April  2000,  the Company  leased  office  space from  Sepracor in
exchange for monthly  payments which increased at various dates and approximated
the  Company's   proportionate  share  of  Sepracor's  cost  of  providing  such
facilities.  In January 2000,  the Company gave notice and  terminated,  without
contingency, the Sublease Agreement effective April 30, 2000.

     In January 2000, the Company  entered into a five-year  lease  agreement to
occupy 8,000 square feet in Rockland,  Massachusetts,  commencing in March 2000.
In  September   2000,  the  Company   expanded  its  Rockland  office  space  by
approximately  5,000 square feet,  thereby  increasing its total leased Rockland
facility to approximately 13,000 square feet.

     Under a lease agreement between BMSA and Guerbet Hospital (a former related
party to BMSA),  BMSA  received  rent  free-of-charge  through  April 30,  1999.
Effective May 1, 1999 the lease agreement was amended to reflect a monthly lease
rate of  FF30,000  per month  (approximately  $4,300 as of  December  31,  2000)
through June 30, 2000. In December 2000,  BMSA signed a new nine-year  agreement
to lease approximately 18,150 square feet of manufacturing and office space in a
Roissy,  France facility for approximately FF 1,030,400 per year  (approximately
$148,000 as of December 31, 2000). The Company also has several operating leases
covering  certain pieces of  manufacturing  and office  equipment  through March
2005.

     Future  minimum  lease   payments  for   facilities  and  equipment   under
non-cancelable  operating  leases in  effect as of  December  31,  2000,  are as
follows:
<TABLE>
<CAPTION>
                                                     OPERATING
            Period                                     LEASES
            --------------------------------------------------
            (In thousands)
            <S>                                      <C>
            2001..................................   $  450
            2002..................................      470
            2003..................................      470
            2004..................................      458
            2005..................................      224
            Thereafter............................      653
            --------------------------------------------------
            Total minimum lease payments             $2,725
</TABLE>

     Total rental expense for the years ended  December 31, 2000,  1999 and 1998
was approximately $245,000, $81,000 and $249,000, respectively.

<PAGE>
I - Income Taxes

     As of December 31, 2000, the Company had net operating  loss  carryforwards
of approximately  $30.8 million,  which will expire through the year 2020. As of
December  31,   2000,   research  and   experimentation   credit   carryforwards
approximated  $281,000,  which will expire through the year 2014. The components
of the Company's net deferred tax asset are as follows at:

<TABLE>
<CAPTION>
                                                    DECEMBER 31,
      (In thousands)                              2000        1999
      --------------------------------------------------------------
      <S>                                       <C>         <C>
      Assets
        Domestic NOL carryforwards............  $11,470     $ 9,003
        Tax credit  carryforwards.............      281         342
        Other.................................      138         116
      Liabilities
        Property and equipment................      (44)         (6)
      --------------------------------------------------------------
      Subtotal                                   11,845       9,455
        Valuation allowance...................  (11,845)     (9,455)
      --------------------------------------------------------------
      Net deferred tax asset                    $   --      $   --
</TABLE>


J - Segment Information

     The  Company   develops   microspheres   for  use  in  the   treatment   of
hypervascularized tumors and malformations.  The Company operates exclusively in
the  medical  device  business,  which the  Company  considers  as one  business
segment. Financial information by geographic area is as follows:
<TABLE>
<CAPTION>

                                                FOR THE YEARS ENDED DECEMBER 31,
 (In thousands, except per share amounts)         2000        1999        1998
 ---------------------------------------------  ----------  ----------  ----------
<S>                                               <C>         <C>         <C>
 REVENUE
  United States
   Unaffiliated customers.....................    $ 1,266     $   --      $   --
  Europe
   Unaffiliated customers (Primarily French)..      2,183       1,949         202
   Related parties............................      1,405         --          --
   Transfer to other geographic areas.........        512         317         --
 ---------------------------------------------  ----------  ----------  ----------
                                                    5,366       2,266         202
   Elimination and adjustments                     (1,405)        --          --
 ---------------------------------------------  ----------  ----------  ----------
   Total revenue                                  $ 3,961    $  2,266    $    202
 ---------------------------------------------  ----------  ----------  ----------
 OPERATING LOSSES
  United States...............................    $(8,976)   $ (3,965)   $ (1,291)
  Europe......................................       (149)       (144)        --
 ---------------------------------------------  ----------  ----------  ----------
   Total operating loss                           $(9,125)   $ (4,109)   $ (1,291)
 ---------------------------------------------  ----------  ----------  ----------
 LONG-LIVED ASSETS
  United States...............................    $ 2,241    $  1,324    $     49
  Europe......................................        412         251         --
  Net assets from discontinued operations.....        --          --        6,617
  Elimination and adjustments.................       (528)       (532)        --
 ---------------------------------------------  ----------  ----------  ----------
   Total long-lived assets                        $ 2,125    $  1,043     $ 6,666
 ---------------------------------------------  ----------  ----------  ----------
</TABLE>
<PAGE>
K - Capital Stock

Common Stock

     The Company's authorized capital stock includes 25,000,000 shares of common
stock,  par value $0.01 per share.  As of December 31, 2000, 5.82 million shares
or 55% of the Company's common stock outstanding is held by Sepracor. The common
stock  has  no  preemptive,  subscription,   redemption  or  conversion  rights.

Preferred Stock

     The  Company's  authorized  capital  stock  includes  1,000,000  shares  of
preferred stock, par value $0.01 per share,  with such rights,  restrictions and
specifications as the Board of Directors may determine.  As of December 31, 2000
and 1999, no shares of preferred stock have been issued.

Common Stock Financing

     In February  2000,  the Company  completed a private  equity  placement  of
common  stock and  warrants  for net  proceeds of  approximately  $5.9  million.
Investors  purchased  653,887 shares of the Company's common stock at a price of
$9.00 per share, which included warrants to purchase up to an additional 163,468
shares of common  stock.  Of the total  653,887  common  shares sold,  unrelated
third-party  institutional  investors  purchased 609,445, or 93%, and 44,442, or
7%, were purchased by executive  officers and members of the Company's  Board of
Directors.  The  warrants  have an exercise  price equal to $20.00 per share and
expire on February 4, 2005. In accordance with the Black-Scholes  option-pricing
model,  the Company valued the warrants at  approximately  $929,000 and included
such amount as a component of additional paid-in capital. The Company intends to
use the net proceeds from this private placement for general corporate purposes,
including research and development and sales and marketing activities.

     In July 2000, the Company completed an additional  private equity placement
of common  stock for net  proceeds of  approximately  $11.8  million.  Investors
purchased  1,214,900  shares of common  stock at $11.00 per share.  Of the total
shares sold,  Sepracor Inc., the Company's  parent  company,  purchased  454,545
shares, after which its majority ownership decreased to 55%. The Company intends
to use the net  proceeds  from this  private  placement  for  general  corporate
purposes, including research and development, sales and marketing activities.

L - Stock Plans and Warrants

Stock Option Plans

     The 1994 stock option plan (the "1994 Plan") provides for the grant of both
incentive stock options  ("ISOs") and  non-statutory  stock options  ("NSOs") to
officers,  directors,  advisors and key employees of the Company.  The 1994 Plan
also provides for the grant of NSOs to consultants of the Company.  The exercise
price for ISOs must be at least equal to the fair market value of the  Company's
common  stock on the date of grant  and the  exercise  price of NSOs  must be at
least equal to 50% of the fair market value of the Company's common stock on the
date of  grant.  Options  generally  become  exercisable  in five  equal  annual
installments  beginning on the first anniversary of the date of grant. ISOs have
a maximum  term of ten  years  from the date of  grant.  A total of 1.0  million
shares were  approved  for  issuance  under the 1994 Plan and as of December 31,
2000, approximately 303,000 shares were available for issuance.

     In 1997,  the  Company's  stockholders  approved the 1997 Stock Option Plan
(the "1997  Plan").  The 1997 Plan,  as amended,  provides for the grant of both
ISOs and NSOs to officers, directors, advisors and key employees of the Company.
The 1997 Plan also provides for the grant of NSOs to consultants of the Company.
In  September  2000,  the  Company's  Board of  Directors  approved,  subject to
stockholder approval, an amendment to the 1997 Stock Incentive Plan, as amended,
to  increase  the  number of shares of common  stock  available  for issue  from
3,125,000  shares to 5,000,000  shares.  As of December 31, 2000,  approximately
1,632,000  shares  under the 1997  plan were  available  for  issuance.  Options
generally become exercisable in five equal annual installments  beginning on the
first anniversary of the date of grant.
<PAGE>

     The Director Option Plan (the "Director  Plan"),  as amended,  provides for
the  granting  of NSOs to  directors  of the  Company  who are not  officers  or
employees of the Company or of any subsidiary of the Company. A total of 300,000
shares  of common  stock  may be issued  under  the  Director  Plan  subject  to
adjustments  as provided  therein.  The exercise  price per share will equal the
fair market value of a share of Company's  common stock on the date on which the
option is granted.  Options  granted under the Director Plan will vest in either
two or five equal installments beginning on the first anniversary of the date of
the grant  depending on the nature of the grant.  A total of 300,000 shares were
approved for issuance  under the Director  Plan. As of December 31, 2000,  there
were 128,000 options available for issuance under the Director Plan.

     The following  table  summarizes all stock option  activity under the three
stock option plans for the three years ended December 31, 2000:
<TABLE>
<CAPTION>

                                                    OPTIONS ISSUED
                                                    UNDER THE PLANS
                                                ----------------------
        <S>                                     <C>          <C>
                                                              Average
                                                               Price
        (In thousands, except option price)        Shares    Per Share
        --------------------------------------  ----------  ----------
        OUTSTANDING AT DECEMBER 31, 1997            1,543     $ 2.63
        --------------------------------------  ----------  ----------
         Granted..............................        294       1.89
         Exercised............................        --         --
         Canceled.............................       (255)      2.76
        --------------------------------------  ----------  ----------
        OUTSTANDING AT DECEMBER 31, 1998            1,582    $  2.51
         Granted..............................      2,549       0.94
         Exercised............................        --         --
         Canceled.............................       (393)      2.15
        --------------------------------------  ----------  ----------
        OUTSTANDING AT DECEMBER 31, 1999            3,738    $  1.42
         Granted..............................        516      14.88
         Exercised............................       (266)      2.09
         Canceled.............................        (44)      2.79
        --------------------------------------  ----------  ----------
        OUTSTANDING AT DECEMBER 31, 2000            3,944    $  3.12
</TABLE>

     The following  options and their  respective  average prices per share were
outstanding and exercisable at December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                   Average                 Average
                                                    Price                   Price
                                     Outstanding  Per Share  Exercisable  Per Share
                                     -----------  ---------  -----------  ---------
(In thousands, except option price)
 <S>                                     <C>        <C>         <C>        <C>
 December 31, 2000................       3,944      $ 3.12      1,147      $ 2.11
 December 31, 1999................       3,738        1.42      1,016        2.39
 December 31, 1998................       1,582        2.51        719        2.60
</TABLE>
<PAGE>

     Options  vest at various  rates over periods of up to five years and may be
exercised  within  ten  years  from  the  date of  grant.  The  following  table
summarizes  aggregate  information  about  total stock  options  under the three
plans, outstanding as of December 31, 2000:

<TABLE>
<CAPTION>
                                 Options Outstanding         Options Exercisable
                               -----------------------    ------------------------
                                              Weighted                     Weighted
   Range of                      Remaining     Average                      Average
   Exercise         Number      Contractual   Exercise        Number       Exercise
    Prices       Outstanding    Life (Years)    Price       Exercisable      Price
 -------------  -------------   ------------  ---------    --------------  --------
                (In thousands)                             (In thousands)

 <S>               <C>              <C>        <C>               <C>         <C>
 $0.82 -  1.25      2,284           8.13       $ 0.84            137         $0.84
  1.26 -  1.89        368           6.96         1.80            353          1.81
  1.90 -  2.85        651           5.25         2.20            525          2.18
  2.86 -  4.30         90           5.56         3.37             90          3.37
  4.31 -  6.50         42           4.81         5.12             42          5.12
  9.75 - 14.50        272           9.74        12.01             --            --
 14.51 - 21.75        207           9.42        17.80             --            --
 21.76 - 27.25         30           9.13        27.25             --            --
                -------------                              --------------
                    3,944                                      1,147
</TABLE>

     The  Company  applies  the  Accounting  Principles  Board  Opinion  No. 25,
"Accounting  for Stock  Issued to  Employees,"  and related  interpretations  in
accounting  for  its  Plans.  Accordingly,  no  compensation  expense  has  been
recognized for its employee  stock-based  compensation  plans.  Had compensation
costs for the Company's  stock-based  compensation  been determined based on the
fair value at the grant dates as  calculated  in  accordance  with  Statement of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation," the Company's net basic and diluted loss per common share for the
years ended December 31, 2000, 1999 and 1998 would have been adjusted to the pro
forma amounts indicated below:

<TABLE>
<CAPTION>
                                              FOR THE YEARS ENDED DECEMBER 31,
 (In thousands, except per share amounts)       2000        1999        1998
 ------------------------------------------  ----------  ----------  ----------
 <S>                                           <C>         <C>        <C>
 Net Loss
  As reported..............................   $(8,447)    $(4,533)    $(1,813)
  Pro forma................................    (9,227)     (7,612)     (2,321)
 Basic and diluted loss per share
  As reported..............................     (0.87)      (0.53)      (0.21)
  Pro forma................................     (0.95)      (0.90)      (0.27)
</TABLE>

     As a result of the May 1999  sale of the  Company's  former  chromatography
business (see Note N), and in accordance with the Company's various stock option
plans,  all  options  granted  prior to May  1999,  became  immediately  vested.
Accordingly,   the  pro  forma  compensation  costs  as  presented  may  not  be
representative of future pro forma costs.

<PAGE>
     The  average  fair value of options  granted,  $12.38,  $0.82 and $1.27 for
fiscal  years  2000,  1999 and  1998,  respectively,  was  estimated  using  the
Black-Scholes   option-pricing   model  using  the  following   weighted-average
assumptions:
<TABLE>
<CAPTION>
                                                 2000        1999        1998
 ------------------------------------------   ----------  ----------  ----------
 <S>                                             <C>         <C>         <C>
 Dividend Yield............................      None        None        None
 Volatility................................      110%        106%         65%
 Risk-free interest rate...................   5.5%-6.2%   4.9%-6.7%    5.5%-5.9%
 Expected life (years)...............             5           7            7
</TABLE>

     The Black-Scholes  option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable.  In  addition,  option-pricing  models  require  the use of highly
subjective assumptions,  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from those of traded  options,  and because  changes in the subjective
assumptions  can materially  affect the fair value  estimates,  in  management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock-based compensation.

Employee Stock Purchase Plan

     In 1997,  the  shareholders  approved the 1997 employee stock purchase plan
(the "1997 Plan").  Under the 1997 Plan, an aggregate of 50,000 shares of common
stock may be purchased by employees at 85% of the fair market value on the first
or last day of each six month offering  period,  whichever is lower. An eligible
employee  may  elect to have up to a maximum  of 10%  deducted  through  payroll
deductions  from his or her regular salary.  During 2000,  1999 and 1998,  there
were 0, 4,876 and 25,478 shares, respectively, issued under the Purchase Plan.

     In June 2000,  the  stockholders  approved the 2000 employee stock purchase
plan (the "2000 Plan") to replace the  Company's  1997.  Under the 2000 Plan, an
aggregate of 50,000  shares of common stock may be purchased by employees at 85%
of the fair  market  value on the first or last day of each six  month  offering
period,  whichever is lower.  During each offering period, the maximum number of
shares which may be purchased by a  participating  employee is determined on the
first day of the offering  period and is equal to the number of shares of common
stock  determined by dividing  $12,500 by the last reported sale price of the of
the common stock on the Nasdaq National Market on the first day of the offering.
An eligible  employee may elect to have up to a maximum of 10% deducted  through
payroll  deductions from his or her regular salary.  During 2000, no shares were
issued under the 2000 Plan.

Stock-Based Compensation to Non-Employees

     In connection with stock options  previously issued to  non-employees,  the
Company's Board of Directors authorized the Company to accelerate the vesting of
all  non-employee   advisors'  stock  options  subject  to  variable  accounting
principles.   Accordingly,  $1,261,000  in  non-cash  compensation  expense  was
recorded  and  presented  as a  separate  line  item  within  the  Statement  of
Operations  for the year  ended  December  31,  2000.  The  recorded  $1,261,000
aggregate  fair value of the  non-employee  stock  options was derived  from the
Black-Scholes option-pricing model.

Stock Warrants

     In 1997,  the  Company  issued a warrant to purchase  45,000  shares of the
Company's  common stock at $3.00 per share. The warrant expires on June 5, 2002.
As of December 31, 2000,  the warrant had vested with respect to 40,000  shares.
The remaining  5,000 shares are not exercisable due to the failure of the holder
to satisfy certain vesting requirements.

M - Employees Savings Plan

     The Company  adopted a 401(k)  savings plan for all  domestic  employees in
1994. Under the provisions of the plan, employees may voluntarily  contribute up
to 15% of their compensation subject to statutory limitations.  In addition, the
Company matches 50% of the first $3,000  contributed by employees up to a $1,500
maximum per employee.  Employer matching contributions amounted to approximately
$18,000,  $11,000 and $20,000 for the years ended  December 31,  2000,  1999 and
1998, respectively.

<PAGE>
N - Discontinued Operations

     On May 17,  1999,  the  Company  sold  substantially  all of its assets and
business for  approximately  $11.0 million in cash and the assumption of certain
liabilities.  Upon the consummation of the sale,  BioSepra Inc. changed its name
to BioSphere Medical, Inc. The Company utilized a portion of the proceeds to pay
approximately $880,000 of transaction costs, to repay approximately $2.0 million
of outstanding bank debt, and to repay approximately $143,000 due to Sepracor.

     The net assets  included in the sale had a net book value of  approximately
$10.5 million on May 17, 1999,  which was included in calculating a net loss for
the sale of approximately $70,000. The operations, assets and liabilities of the
business  have been  presented  in  accordance  with  disposal of a segment of a
business and discontinued  operations  accounting principles in the accompanying
consolidated  financial  statements.  Accordingly,  the operating results of the
discontinued  business for the years ended  December 31, 1999 and 1998 have been
segregated  from the continuing  operations and reported as a separate line item
on the consolidated statements of operations.

O - Valuation and Qualifying Accounts

     A rollforward  of the  allowance for doubtful  accounts for the years ended
December 31, 2000, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
                                   Balance,     Charged to                Balance,
                                 Beginning of    Costs and                 End of
(In thousands)                      Period        Expenses   Deductions    Period
---------------------------------------------------------------------------------
<S>                                  <C>            <C>        <C>         <C>
Year Ended December 31, 2000....     $ --           $37        $  (8)      $ 29
Year Ended December 31, 1999....      106            --         (106)        --
Year Ended December 31, 1998....      369             1         (264)       106
</TABLE>

     These  allowances  for all periods  presented are included in Net Assets of
Discontinued Operations as they appear on the balance sheet included herein.


P - Quarterly Financial Data (Unaudited)

     The following is a summary of quarterly financial results:
<TABLE>
<CAPTION>
                                             Fourth    Third     Second    First
(In thousands except per share amounts)     Quarter   Quarter   Quarter   Quarter
-----------------------------------------   -------   -------   -------   -------
<S>                                         <C>       <C>        <C>       <C>
Net Sales
 2000....................................   $ 1,356   $ 1,016    $  815    $  774
 1999....................................       679       594       713       280
-----------------------------------------   -------   -------   -------   -------
Gross Profit
 2000....................................       956       641       411       492
 1999....................................       231       212       285       134
-----------------------------------------   -------   -------   -------   -------
Net loss
 2000 - before discontinued operations...    (2,371)   (2,453)   (2,147)   (1,476)
 2000 - after  discontinued operations...    (2,371)   (2,453)   (2,147)   (1,476)
 1999 - before discontinued operations...    (1,452)     (979)   (1,025)     (538)
 1999 - after  discontinued operations...    (1,452)     (979)   (1,128)     (974)
-----------------------------------------   -------   -------   -------   -------
Diluted Loss per share
 2000 - before discontinued operations...     (0.23)    (0.24)    (0.23)    (0.17)
 2000 - after  discontinued operations...     (0.23)    (0.24)    (0.23)    (0.17)
 1999 - before discontinued operations...     (0.17)    (0.12)    (0.12)    (0.06)
 1999 - after  discontinued operations...     (0.17)    (0.12)    (0.13)    (0.11)
-----------------------------------------   -------   -------   -------   -------
</TABLE>
<PAGE>

Q - Subsequent Events

     On February 7, 2001, the Company, along with its subsidiary, BSMD Ventures,
Inc.,  filed a complaint for declaratory  judgment in the United States District
Court for the District of Delaware against Artes Medical USA, Inc. The complaint
seeks a declaration that United States Patent No.  5,344,452,  which the Company
refers to as the '452  patent,  which Artes claims to have the right to enforce,
is invalid and not  infringed by BioSphere  and BSMD  Ventures.  The '452 patent
relates to  "..implant[s]  based on a  biocompatible  solid in powder  form,  in
particular a plastic".

     On  February  7, 2001,  Artes  Medical  USA filed a  complaint  against the
Company and BSMD  Ventures,  Inc., in the United States  District  Court for the
Central  District of California  (Los  Angeles).  The complaint  claims that the
Company  and  its  subsidiary  are  liable  for   infringement,   inducement  of
infringement,  and  contributory  infringement  of the '452 patent.  Artes seeks
monetary  damages as compensation  for the alleged  infringement and a permanent
injunction  against the alleged  infringing  activity.  Artes Medical apparently
asserts that all of the Company's  microsphere-related  products,  including our
Embosphere  Microspheres,  HepaSphere SAP  Microspheres  and MatrX  Microspheres
infringe the '452 patent.  The Company  believes Artes' claims are without merit
and intends to vigorously defend these claims.
<PAGE>


Item  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

          None

                                    PART III

ITEMS 10-13.

     The information required for Part III in this Annual Report on Form 10-K is
incorporated by reference from the Company's  definitive proxy statement for the
Company's  2001  Annual  Meeting  of  Stockholders.  Such  information  will  be
contained in the sections of such proxy statement  captioned "Stock Ownership of
Certain Beneficial Owners and Management",  "Election of Directors",  "Board and
Committee  Meetings",  "Compensation for Directors",  "Compensation of Executive
Officers",  "Compliance  with Section 16 Reporting  Requirements",  and "Certain
Relationships  and  Related   Transactions".   Information  regarding  executive
officers of the  Company is also  furnished  in Part I of this Annual  Report on
Form 10-K under the heading "Executive Officers."


                                     PART IV


Item 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  The following documents are included as part of this Annual Report on Form
     10-K.

     1.   The Schedule listed below and the Reports of Independent Accountants
          on financial statement schedules are filed as part of this Annual
          Report on Form 10-K.

          All other schedules are omitted as the information required is
          inapplicable or the information is presented in the consolidated
          financial statements or the related notes.

     2.   The Exhibits listed in the Exhibit Index immediately preceding the
          Exhibits are filed as a part of this Annual Report on Form 10-K.

(b) Current Reports on Form 8-K filed during the last quarter of the fiscal
    year.

          None

                                   -----------

     The following trademarks of the Company are mentioned in this Annual Report
on  Form  10-K:  Biosphere  Medical(TM),   Embosphere(R),   HepaSphere  SAP(TM),
MatrX(TM) and GenS2(TM).

<PAGE>
                                  Exhibit Index

 Exhibit No.   Description
 -----------   -----------------------------------------------------------------
        3.1    Certificate  of  Incorporation,   as  amended,  of  the  Company.
               (Incorporated  herein by reference to the Company's  Registration
               Statement on Form S-1, as amended (File No. 33-75212)).

        3.2    By-Laws of the Company.  (Incorporated herein by reference to the
               Company's  Registration  Statement on Form S-1, as amended  (File
               No. 33- 75212))

        4(1)   Specimen  Certificate for shares of Common Stock, $.01 par value,
               of the Company.

       10.1    1994 Director Option Plan.  (Incorporated  herein by reference to
               the  Company's  Registration  Statement  on Form S-1,  as amended
               (File No. 33- 75212))

       10.2    Form of Technology Transfer and License Agreement dated as of
               January 1, 1994 between the Company and Sepracor Inc.
               (Incorporated herein by reference to the Company's Registration
               Statement on Form S-1, as amended (File No. 33-75212))

        10.3   Share   Purchase    Agreement   by   and   between    Marie-Paule
               Leroy-Landercy   and  the  Company   dated   December  31,  1998.
               (Incorporated  herein by reference to the Company's Form 10-K for
               the year ended December 31, 1999)

       10.4+   Joint Ownership Contract between the Company and L'Assistance
               Publique Hopitaux de Paris dated January 5, 1998, together with
               amendment dated February 10, 2000 (translated from French).
               (Incorporated herein by reference to the Company's Form 10-K for
               the year ended December 31, 1999)

       10.5+   License of SAP-MS rights, including JP 6056676 between Shinichi
               Hori and the Company dated September 21, 1999 (translated from
               Japanese). (Incorporated herein by reference to the Company's
               Form 10-K for the year ended December 31, 1999)

       10.6    Second  Amended  and  Restated   Revolving  Credit  and  Security
               Agreement by and among Fleet National Bank, Sepracor Inc. and the
               Company  dated as of December 31, 1999.  (Incorporated  herein by
               reference to the Company's  Form 10-K for the year ended December
               31, 1999)

       10.7    Amendment  No. 1 and Consent  dated  February  14, 2000 to Second
               Amended and Restated  Revolving Credit Security  Agreement by and
               among  Fleet  National  Bank,  Sepracor  Inc.  and  the  Company.
               (Incorporated  herein by reference to the Company's Form 10-K for
               the year ended December 31, 1999)

       10.8    Reimbursement  and  Security  Agreement  between  the Company and
               Sepracor Inc.  dated December 22, 1999.  (Incorporated  herein by
               reference to the Company's  Form 10-K for the year ended December
               31, 1999)

       10.9+   Exclusive License and Know How Agreement No. L99037 by and
               between Le Centre National de la Recherche Scientifique,
               L'Universite Louis Pasteur Strasbourg and the Company dated July
               15, 1999 (translated from French). (Incorporated herein by
               reference to the Company's Form 10-K for the year ended December
               31, 1999)

      10.10+   Form of Stock and Warrant Purchase Agreement dated as of February
               4, 2000, between the Company (together with schedule of
               purchasers thereto). (Incorporated herein by reference to the
               Company's Form 10-K for the year ended December 31, 1999)

      10.11    Form of Warrant  Agreement dated as of February 4, 2000,  between
               the Company and certain  purchasers  (together  with  schedule of
               purchasers  thereto).  (Incorporated  herein by  reference to the
               Company's Form 10-K for the year ended December 31, 1999)
<PAGE>

      10.12    Senior Management Retention Agreement dated October 3, 1997 by
               and between the Company and Jean-Marie Vogel. (Incorporated
               herein by reference to the Company's Form 10-Q for the quarter
               ended September 30, 1997)

      10.13    Sublease Agreement between Guerbet S.A. and of Biosphere Medical,
               S.A. (translated from French to English). (Incorporated herein by
               reference to the Company's  Form 10-K for the year ended December
               31, 1999.)

      10.14    Lease Agreement dated January 7, 2000 by and between 1050 Hingham
               Street Realty Trust and the Company. (Incorporated herein by
               reference to the Company's Form 10-K for the year ended December
               31, 1999.) (Incorporated herein by reference to the Company's
               Form 10-K for the year ended December 31, 1999)

      10.15*   First Amendment to Lease Agreement dated June 27, 2000 by and
               between 1050 Hingham Street Realty Trust and the Company.

      10.16    Employment Agreement by and between the Company and Jean-Marie
               Vogel dated as of May 14, 1999. (Incorporated herein by reference
               to the Company's Form 10-Q for the quarter ended March 30, 1999)

      10.17    Stock Purchase Agreement dated July 28, 2000 (Incorporated herein
               by reference to the Company's Form 10-Q for the quarter ended
               June 30, 1999)

      10.18    Registration Rights Agreement dated July 28,2000 (Incorporated
               herein by reference to the Company's Form 10-Q for the quarter
               ended June 30, 1999)

      10.19+*  Supply  Agreement dated January 3, 2001 between BSMD Ventures,
               Inc. and Inamed Corporation.

      10.20*   Lease Agreement  dated October 19, 2000  by and between Biosphere
               Medical  S.A.  and  Salamandre S.A.  (translated  from  French to
               English)

         21    Subsidiaries of the Company.

         23    Consent of Arthur Andersen LLP



                                  -----------

(1)  Management contract or compensatory plan or arrangement filed as an exhibit
     to this Form 10-K pursuant to Items 14(a) and 14(c) of Form 10-K.

 +   Confidential treatment requested as to certain portions.

 *   Filed herewith.

<PAGE>



                                   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.

                                           BIOSPHERE MEDICAL, INC.

                                           BY:  /S/ JOHN M. CARNUCCIO
                                           --------------------------
                                                    John M. Carnuccio
                                           PRESIDENT AND CHIEF EXECUTIVE OFFICER


Date: March 27, 2001

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
          SIGNATURE                               TITLE                   DATE
          ---------                               -----                   ----
<S>                               <C>                               <C>
/s/ JOHN M. CARNUCCIO             President, Chief Executive        March 27, 2001
-------------------------------   Officer, Director (Principal
    John M. Carnuccio             Executive Officer)


/s/ ROBERT M. PALLADINO           Chief Financial Officer           March 27, 2001
-------------------------------   (Principal Financial and
    Robert M. Palladino           Accounting Officer)


/s/ JEAN-MARIE VOGEL              Director, Chairman of             March 27, 2001
-------------------------------   the Board
    Jean-Marie Vogel


/s/ TIMOTHY J. BARBERICH          Director                          March 27, 2001
-------------------------------
    Timothy J. Barberich


/s/ William M. Cousins, Jr.       Director                          March 27, 2001
-------------------------------
    William M. Cousins, Jr.


/s/ ALEXANDER M. KLIBANOV         Director                          March 27, 2001
-------------------------------
    Alexander M. Klibanov, Ph.d.


/s/ PAUL A. LOONEY                Director                          March 27, 2001
-------------------------------
    Paul A. Looney


/s/ RICCARDO PIGLIUCCI            Director                          March 27, 2001
-------------------------------
    Riccardo Pigliucci


/s/ DAVID P. SOUTHWELL            Director                          March 27, 2001
-------------------------------
    David P. Southwell
</TABLE>
--------------------------------------------------------------------------------