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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-K

ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended: December 31, 2008oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                                    to


Commission File Number: 0-23678

BioSphere Medical, Inc.(Exact Name of Registrant as Specified in Its Charter)

Delaware(State or Other Jurisdiction of
Incorporation or Organization)

04-3216867(I.R.S. Employer
Identification No.)1050 Hingham Street, Rockland, Massachusetts(Address of Principal Executive Offices)

02370(Zip Code)


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

Securities
registered pursuant to Section 12(b) of the Act:

Title of Class

Name of Each Exchange on Which RegisteredCommon Stock, $.01 par value per share

NASDAQ Global Market


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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

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 ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter)
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. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of "large accelerated filer," "accelerated filer," and "smaller reporting company" in rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company ý


Indicate
by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the
Act). Yes o    No ý

The aggregate market value of voting common stock held by non-affiliates of the registrant on June 30, 2008, was $35,619,297 based on the
closing price of the common stock as reported on the NASDAQ Global Market as of such date.

The
Registrant had 18,347,022 shares of common stock outstanding as of March 2, 2009.

Documents incorporated by reference:

Portions of the information required by Part III of Form 10-K will appear in the registrant's definitive Proxy Statement on
Schedule 14A for the 2009 Annual Meeting of Stockholders and are hereby incorporated by reference into this report.



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BioSphere Medical, Inc.

INDEX



PagePart IFinancial InformationItem 1.

Business


3Item 1A.

Risk Factors


19Item 1B.

Unresolved Staff Comments


40Item 2.

Properties


40Item 3.

Legal Proceedings


40Item 4.

Submission of Matters to a Vote of Security Holders


41Part IIItem 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


43Item 6.

Selected Financial Data


45Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations


46Item 7A.

Quantitative and Qualitative Disclosures about Market Risk


59Item 8.

Financial Statements and Supplementary Data


62Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


86Item 9A.

Controls and Procedures


86Item 9B.

Other Information


87Part IIIItem 10.

Directors, Executive Officers and Corporate Governance


88Item 11.

Executive Compensation


88Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


88Item 13.

Certain Relationships and Related Transactions, and Director Independence


89Item 14.

Principal Accountant Fees and Services


89Part IVItem 15.

Exhibits and Financial Statement Schedules


89Exhibit Index


90Signatures


97


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PART I

This annual report on Form 10-K contains forward-looking statements that involve risks,
uncertainties and assumptions that, if they never materialize or prove incorrect, could cause the results of BioSphere Medical, Inc. to differ materially from those expressed or implied by such
forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of revenue, expenses,
earnings or losses from operations, or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning product research,
development, regulatory approval and commercialization timelines; any statements about our expectations regarding market acceptance and market penetration for our products and product liability
challenges with respect to our products; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred
to above include risks that are described in "Risk Factors" and elsewhere in this annual report on Form 10-K and that are otherwise described from time to time in our Securities and
Exchange Commission reports filed after this annual report on Form 10-K.

The forward-looking statements included in this annual report on Form 10-K represent our estimates as of the date of this annual report on
Form 10-K. We specifically disclaim any obligation to update these forward-looking statements in the future. These forward-looking statements should
not be relied upon as representing our estimates or views as of any date subsequent to the date of this annual report on Form 10-K. Unless the context otherwise requires, references
in this annual report on Form 10-K to "BioSphere," "we," "us" and "our" refer to BioSphere Medical, Inc. and our
subsidiaries.

Item 1.    BUSINESS

OVERVIEW

We develop, manufacture and market products for medical procedures that use embolotherapy. Embolotherapy is the minimally invasive,
image-guided therapeutic introduction of various biocompatible substances into a patient's circulatory system to occlude a blood vessel, either to arrest or prevent hemorrhaging, or to devitalize or
destroy the structure by occluding its blood supply. Our core technologies consist of patented bioengineered polymers, which are chemical compounds created through the application of medical science,
engineering principles and manufacturing methods. These core technologies are used to produce miniature spherical embolic particles, or microspheres, that are designed to have uniquely beneficial
properties for a variety of medical applications.

Our
embolic products, Embosphere® Microspheres and EmboGold® Microspheres, have a number of beneficial properties that we believe make them well suited for
embolotherapy procedures. Because of their uniform, spherical shape and soft, slippery surface, our particles are easy to inject through small catheters, resulting in an even distribution within the
vessel network. Additionally, we offer these products to clinicians in calibrated size ranges so they can be selected to target occlusion of specific-sized vessels. The use of appropriately sized
microspheres is designed to produce predictable results and optimize therapeutic benefit.

Our
pioneering expanding embolic, HepaSphere Microspheres, has different properties than Embosphere Microspheres and EmboGold Microspheres. Specifically, HepaSphere
Microspheres have an ability to absorb fluids and expand to four times their dry state in the body while maintaining their spherical form. HepaSphere Microspheres occlude with a high degree of
conformity to the vessel wall. HepaSphere Microspheres are indicated for the treatment of primary and metastatic liver cancer and, additionally, can be used to deliver a chemotherapeutic agent, such
as doxorubicin, to specified areas of the body.

Our
strategic priorities are to accelerate our revenue growth by expanding the market for the minimally invasive treatment of symptomatic uterine fibroids using UFE and broadening
treatment

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options
for several medical conditions for patients and physicians, including treating primary liver cancer tumors using our HepaSphere Microspheres.

Uterine
fibroids are noncancerous, or benign, hypervascular tumors growing within or on the wall of the uterus, which are treated using a procedure called uterine fibroid embolization,
or UFE. UFE is a minimally invasive procedure in which microspheres are injected through a microcatheter into the blood vessels that supply the uterus. Blood flow guides these particles into the
network of vessels that preferentially flow toward the fibroids, thereby blocking the blood supply to the fibroids, but not the surrounding healthy tissue. Most patients with uterine fibroids are not
initially symptomatic and remain untreated until the patient experiences symptoms such as abnormal bleeding, increased urinary frequency, pain, pelvic discomfort or fertility difficulties. We believe
that the selection of our Embosphere Microsphere product is gaining market acceptance in this procedure.

In
November 2002, we received 510(k) clearance from the United States Food and Drug Administration, or FDA, to market our Embosphere Microspheres for UFE. Third-party clinical data and
publications support the safety, efficacy, cost-effectiveness and long-term durability of UFE. The January 2008 issue ofObstetrics &
Gynecologyconcluded that over the long term, and in a broad range of practice settings, uterine artery embolization produces a high level of durable symptom control and
results in a significant improvement in a woman's health-related quality of life. Three-year data from the largest, multicenter, prospective voluntary registry on any procedure for benign
uterine fibroids showed that 90 percent of the women participating avoided a hysterectomy, and of these, 85 percent had a substantial improvement in symptoms and quality of life. In
August 2008, the American College of Obstetricians and Gynecologists, or ACOG, recommended UFE as a Level A alternative to hysterectomy, which means it is based on "good and consistent
scientific evidence." We believe the ACOG Level A recommendation for UFE will be a catalyst for increased acceptance of UFE as an effective alternative for patients who are on drug therapy or
are considering undergoing surgery, such as hysterectomy or myomectomy, for treatment of their uterine fibroids. As such, we anticipate that the number of UFE procedures will continue to increase. We
were the first company to gain regulatory clearance to market a product for UFE in the United States. Over the past three years, we have focused on growing our Embosphere Microsphere business through
the development of physician-referral networks and patient-awareness programs.

We
believe that there are growth opportunities for other embolotherapy procedures, notably in the treatment of other hypervascularized tumors, such as primary liver cancer tumors. In
November 2004, we received CE Mark approval to market our HepaSphere Microspheres in the European Union for the treatment of primary and metastatic liver cancer, and in November 2007 we received CE
Mark approval for use of HepaSphere Microspheres with or without delivery of doxorubicin for treatment of liver cancer and hepatic metastases. CE Mark approval denotes conformity with European
standards for quality and allows certified devices to be placed in the market in European Union countries. In
connection with the CE Mark approval of our HepaSphere Microspheres, we intend to conduct a post-market study in approximately ten European centers. We have been granted a worldwide,
exclusive, royalty-bearing license to make, use, sell and import HepaSphere Microspheres by its inventor, Dr. Shinichi Hori.

In
January 2008, the Medical Device Department of the State Food and Drug Administration of the People's Republic of China approved our Embosphere Microspheres for clinical use for
vascular embolizations, arteriovenous malformations, hypervascularized tumors, and symptomatic uterine fibroids. In March 2008, we commercially launched Embosphere Microspheres in the People's
Republic of China.

In
each of the years ended December 31, 2008, 2007 and 2006, the majority of our revenue was derived from the sale of our Embosphere Microspheres for UFE, and we believe that UFE
will remain the principal application for our microsphere products for the foreseeable future.

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We
have a number of patent applications and issued U.S. patents related to the use of our microspheres for non-embolotherapy applications. Although our current focus is on
embolotherapy markets, and, as such, we are not currently devoting significant resources to research in these areas, we believe that these non-embolotherapy uses may provide us, at some
point in the future, with development and commercialization opportunities through internal efforts or third-party licensing, collaboration or similar opportunities.

We
were incorporated in Delaware in 1993. Our principal executive offices are located at 1050 Hingham Street, Rockland, Massachusetts 02370, and our telephone number is
(781) 681-7900.

We
maintain an Internet Web site with the address www.biospheremed.com. We are not including the information contained in our Web site as part of, or incorporating it by reference into,
this annual report on Form 10-K. We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and all amendments to those reports available free of charge on our Web site as soon as reasonably practicable after we electronically file those materials with, or furnish
those materials to, the United States Securities and Exchange Commission, or SEC. Our code of business conduct and ethics and the charters of the audit committee, compensation committee, and
nominating and corporate governance committee of our board of directors are all available on the corporate governance section of our Web site. Stockholders may request a free copy of any of these
documents by writing to Investor Relations, BioSphere Medical, Inc., 1050 Hingham Street, Rockland, Massachusetts, U.S.A. 02370 or submitting a request through the Web site.

BioSphere
Medical®, Embosphere®, EmboGold®, EmboCath® Plus, Sequitor®, Segway®, HepaSphere,
QuadraSphere®, ask4UFE.com®, Ask4Tell4 and PassThru® are trademarks of BioSphere Medical, Inc. Other trademarks appearing in this annual report
on Form 10-K are the property of their respective holders.

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. Interventional radiologists around the world have adopted embolotherapy procedures, including UFE and
embolization for the treatment of certain cancers, in particular primary liver cancer tumors. We believe that an increasing number of uterine fibroid and liver cancer patients are seeking treatments
with embolotherapy due to their desire for less invasive treatment options than those presented by non-embolotherapy procedures.



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



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Liver cancer is one of the most prevalent forms of cancer worldwide. There are several types of liver cancer. Primary liver cancer
refers to cancer that begins within the liver itself. Chronic hepatitis B and chronic hepatitis C, inflammations of the liver associated with the hepatitis virus, are contributing factors to the
development of primary liver cancer. Primary liver cancer is typically diagnosed at a stage that is too advanced to cure surgically. The majority of patients diagnosed with primary liver cancer are
not surgical candidates. For these patients existing treatment options are primarily designed to improve quality of life rather than cure the underlying disease. Metastatic liver cancer occurs when
cancer begins in another part of the body, such as the colon or breast, and then migrates, or spreads, to the liver. Metastatic liver cancer is more prominent than primary liver cancer. However, the
rate of primary liver cancer is expected to increase due to incidences of hepatitis C, a key risk factor for primary liver cancer. Numerous studies and medical publications indicate that embolotherapy
has been used for at least 20 years to treat liver cancer. For example, particle embolization is commonly used in Japan to manage liver cancer patients. Embolic particles are commonly injected
with chemotherapeutic agents to control and target distribution of the chemotherapy agents, thereby increasing the therapeutic exposure at a specific area. Recently, a new, targeted approach to
treating liver cancer using radioactive particles has become available. These particles, which are similar to our Embosphere Microspheres, are delivered in a targeted fashion through catheters placed
in the feeding vessels near the tumor site.

A
number of other, less invasive technologies are either in use or in development to treat inoperable primary liver cancer. One example of these technologies is selective tumor ablation,
which uses needle-like devices containing thermal energy or chemicals that are placed directly through the skin and into the tumor. However, application of this technique is practically
limited to those with adequate liver function and relatively small tumors.

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PRODUCTS

The following tables summarize information about our principal products.

Principal Products

PRODUCT

CLEARED FOR THE FOLLOWING
INTENDED USES

PRINCIPAL GEOGRAPHIC APPROVALSMicrosphere Products:Embosphere Microspheres

Uterine fibroids, hypervascularized tumors and other arteriovenous malformations

United States, Canada, European Union, Argentina, Brazil, Panama, Peru, Uruguay, Hong Kong, Taiwan, Israel, Australia, People's Republic of China, and RussiaEmboGold Microspheres

Hypervascularized tumors (other than uterine fibroids) and arteriovenous malformations

United States, Canada, European Union, Brazil, Panama, Peru, Uruguay, Hong Kong, Taiwan, Israel, Australia, and RussiaHepaSphere Microspheres

Primary and metastatic liver cancer

Canada, European Union, Argentina, Brazil, Hong Kong, Israel, Australia and RussiaHepaSphere Microspheres

Transarterial chemoembolization, or TACE, of hepatocellular carcinoma in combination with doxorubicin.

European Union , Israel, Australia and RussiaQuadraSphere Microspheres

Hypervascularized tumors and arteriovenous malformations

United StatesEmboCath Plus Infusion Microcatheter

Infusion of various diagnostic, embolic and therapeutic agents and super-selective angiography within peripheral vasculature

United States, Canada and European UnionSequitor Steerable Guidewire

Various diagnostic and interventional procedures within peripheral vasculature

United States, Canada and European UnionSegway Guidewire

Peripheral embolization procedures

United States, Canada, European Union, Argentina, Brazil, Panama and People's Republic of China


Embosphere Microspheres

Our Embosphere Microsphere and EmboGold Microsphere products are intended for use in embolotherapy to block or control the blood supply
to certain tumors and other vascular malformations.

In
each of the years ended December 31, 2008, 2007, and 2006, the majority of our revenue was derived from the sale of our Embosphere Microspheres for UFE. We believe that UFE
will remain the principal application for our microsphere products for the foreseeable future. Uterine fibroid

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embolization
is a minimally invasive procedure, performed principally by interventional radiologists, in which microspheres are injected through a small catheter into the blood vessels that supply the
uterus. Blood flow guides these particles into the network of vessels that preferentially flow toward the fibroids, thereby blocking the blood supply to the fibroids, but not to the surrounding
healthy tissue. The goal of the uterine fibroid-embolization procedure is to eliminate the flow of blood to the uterine fibroids, thereby causing fibroid shrinkage and alleviating related symptoms,
while preserving normal uterine and ovarian function.

We
believe that embolotherapy is a significantly more attractive alternative for treatment of uterine fibroids when compared to the invasiveness of such surgical procedures as
hysterectomy or myomectomy, or to hormone therapy and "watchful waiting." Traditional therapies can have significant adverse side effects, including loss of fertility, lengthy recovery periods, high
costs, discomfort and risk of recurrence of fibroids. Embolotherapy may not be an alternative for patients with certain types of fibroids, allergies to contrast medium, or other
pre-existing medical conditions or patients who are pregnant.

Most
uterine fibroid embolization procedures can be performed in less than one hour, while the patient is sedated, but awake. The patient often stays overnight in the hospital to manage
any discomfort and/or pain associated with the procedure and typically returns to everyday activities in several days. In contrast, hysterectomy patients undergo general anesthesia and typically stay
in the hospital for two to three days and have a recovery period lasting up to six to eight weeks.

Embosphere
Microspheres have a variety of characteristics that may make them preferable to other currently marketed particles. These include:



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Embosphere Microspheres are currently available in six sizes, from 40 to 1,200 microns. They are designed to precisely fit the blood vessels, resulting in
targeted and controlled occlusion. They can be used with our accessory catheter products or with other commercially available catheter and delivery systems.

EmboGold Microspheres

Our EmboGold Microsphere product contains a product enhancement that adds color to the microspheres for improved visibility in the
syringe during preparation and injection. We do not have FDA clearance to market our EmboGold Microspheres for use in the treatment of uterine fibroids, and have determined not to seek such approval
at this time. We made this decision because of reports in 2003 that a small number of patients treated with UFE using EmboGold Microspheres, which we believe constituted approximately 2% of the total
number of patients receiving the UFE procedure using EmboGold Microspheres, reported a delayed onset of pain and/or rash.

HepaSphere Microspheres

HepaSphere Microspheres are marketed in the European Union for the treatment of primary and metastatic liver cancer. The product
attributes of HepaSphere Microspheres are:



Like
treatment of uterine fibroids, targeted liver embolotherapy is intended to starve the liver tumor without damaging the surrounding tissue or causing any adverse side effects on
other parts of the body, such as those associated with chemotherapy and radiation. In May 2000, we obtained a worldwide exclusive royalty-bearing license to HepaSphere Microsphere from
Dr. Shinichi Hori.

In
November 2004, we received CE Mark approval to market our HepaSphere Microspheres in the European Union for the treatment of primary and metastatic liver cancer, and in November 2007
we received CE Mark approval for use of HepaSphere Microspheres with or without delivery of doxorubicin for treatment of liver cancer and hepatic metastases. CE Mark approval denotes conformity with
European standards for quality and allows certified devices to be placed in the market in European Union countries. In connection with the CE Mark approval of our HepaSphere Microspheres, we intend to
conduct a post-market study in approximately ten European centers.

QuadraSphere Microspheres

In November 2006, the FDA granted marketing clearance for our QuadraSphere Microspheres in the United States for the treatment of
hypervascularized tumors and peripheral arteriovenous malformations. Our QuadraSphere Microsphere product is technically identical in all respects to our HepaSphere Microsphere product. The FDA
requires that we conduct clinical trials regarding the use of QuadraSphere Microspheres for the treatment of a specific disease or condition, such as primary and metastatic liver cancer, while
European Union regulations do not require trials for this class of medical device. The product attributes of QuadraSphere Microspheres are:



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Delivery Systems

In 2006, we introduced our EmboCath Plus Infusion Microcatheter and Sequitor Steerable Guidewire products, which are used to deliver
embolization material into the target area. In developing these devices we sought to build on the advantages of our existing EmboCath Infusion Catheter and Segway Guidewire products by adding enhanced
tracking, torque response, and coating technology to the product lines. These products were also specifically designed to be used together to optimize flexibility.

In
August 2006, we received FDA clearance to market our EmboCath Plus Infusion Microcatheter. The EmboCath Plus Infusion Microcatheter is a microcatheter that is designed to be used to
deliver embolic, diagnostic and therapeutic agents into the peripheral vascular system for interventional procedures such as UFE and the embolization of other hypervascular tumors.

The
product attributes of the EmboCath Plus Infusion Microcatheter are:



In
June 2006, we introduced our Sequitor Steerable Guidewire, designed specifically for use with our EmboCath Plus Infusion Microcatheter. Guidewires are used in most intravascular
catheter procedures
to establish a support structure for, and to aid placement of, the catheter. We designed our Sequitor Steerable Guidewire to address the needs of interventionalists with characteristics such
as:



Other Products

We also sold barium delivery kits and other ancillary products in the European Union during 2008, 2007 and 2006. We purchased barium
from a third party and resold it for use in gastrointestinal medical testing. While we generated 3%, 9%, and 11% of our revenue in 2008, 2007 and 2006, respectively, from these nonstrategic products,
we phased out this nonstrategic business during 2008 in order to focus on our core embotheraphy business, and we expect no further meaningful sales from these product lines.

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MANUFACTURING AND SUPPLY

We currently produce and package all of our microsphere products at our facility located in Roissy, France. Manufacturing of our
microsphere products includes the synthesis and processing of raw materials and third-party manufactured compounds. We also previously manufactured our barium delivery kits and other ancillary
products in our French facility. The assembly and packaging of delivery systems, which include the EmboCath Plus Infusion Microcatheter, Segway Guidewire and Sequitor Steerable Guidewire, are
accomplished by medical device contract manufacturers in the United States and Europe. We currently purchase key components and services with respect to our microspheres, catheters and guidewires from
approximately ten third-party vendors, including third parties from whom we purchase guidewires for our Segway Guidewire product; catheters for our EmboCath Plus Infusion Microcatheter product; and
guidewires for our Sequitor Steerable Guidewire product.

MARKETING AND SALES

In 2008, we marketed our embolotherapy and delivery systems products through a direct sales force covering 24 territories in the United
States and two territories in France, and through distributors in Europe, Asia, Canada, the Middle East, South America and other parts of the world. Approximately 86% of our product revenue was
generated through our direct sales force in 2008.

As
part of our sales and marketing efforts, we attend major medical conventions throughout the world pertaining to our targeted markets and invest in market development, including
physician training, practice building, referral network education and patient outreach. We work closely with major interventional radiology centers in the areas of training, therapy awareness
programs, clinical studies and ongoing research.

No
single customer accounted for more than 10% of our revenue in 2008. Our principal source of revenue in each of the last three fiscal years was from sales of our microsphere products.
For the years ended December 31, 2008, 2007 and 2006, revenue from the sale of our microsphere products accounted for 92%, 85% and 85% respectively, of our total revenue.

RESEARCH AND DEVELOPMENT

Research and development expenses for the years ended December 31, 2008, 2007 and 2006 were $3.31 million,
$2.34 million and $2.29 million, respectively, or 11%, 9% and 10%, respectively, of total revenue. Research and development expenses in these periods relate primarily
to:



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Products Under Development

MR Microspheres (magnetic resonance visible sphere)

Our MR Microsphere product under development is intended to enhance our Embosphere Microspheres with features that make the
microspheres visible under magnetic resonance imaging, or MRI. Noninvasive detection of microspheres may be useful to enable image-guided therapy as well as to optimize patient care. This product
candidate is currently in the preclinical research stage.

Resorbable Microspheres

Our Resorbable Microsphere product under development is intended to enhance our Embosphere Microspheres with features that would allow
the microspheres to dissolve. The ability to dissolve once the desired therapeutic effect is achieved may be desirable for some patients. This product candidate is currently in the preclinical
research stage.

COMPETITION

We encounter, and expect to continue to encounter, competition in the sale of our current and future embolotherapy and delivery system
products. The primary competitive embolotherapy product has been polyvinyl alcohol, or PVA, particles, a product introduced into the market more than 20 years ago. Our principal competitors in
both the fields of embolotherapy and the delivery systems used in the UFE procedure are AngioDynamics Incorporated, Biocompatibles, Limited., Boston Scientific Corporation, Cook Incorporated, Cordis
Corporation, a Johnson & Johnson company, Pfizer Inc, and Terumo Corporation, as well as companies selling or developing non-embolotherapy solutions for UFE and liver cancer.
Currently, the primary products with which our microspheres compete are spherical PVA, sold by Boston Scientific, Biocompatibles and Terumo; gel foam, sold by Pfizer; and nonspherical PVA, sold by
Boston Scientific, AngioDynamics and Cook. CeloNova Biosciences, Inc. currently has market clearance for hypervascularized tumors,
arteriovenous malformations, or AVMs, including uterine fibroids and hepatocellular carcinoma in Europe and for AVMs and hypervascularized tumors in the U.S. Many of our current 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 targeted embolization control, and quality of patient outcome. Within the field of uterine artery
embolization, we believe we are the market share leader and one of only three companies in the United States to have embolic products specifically indicated for use in UFE. Boston Scientific, which
markets both a non-spherical PVA product and a spherical PVA product, is our principal competitor in this market. Based on both research and clinical studies conducted on our product for
UFE, we believe we offer physicians a high degree of consistent and predictable product performance, ease of use, targeted delivery, and durable vessel occlusion, and therefore satisfactory short- and
long-term clinical outcomes, when compared to our competitors.

UFE
competes with other treatments that are used to address symptoms related to fibroids. Endometrial ablation is a technique for addressing excessive uterine bleeding, or menorrhagia,
in women. Most endometrial ablation systems are not indicated for use in treatment of fibroids; however, obstetricians and gynecologists may use this procedure to resolve symptoms secondary to
fibroids. Robotic surgery is an additional option that offers a less invasive alternative to a full surgical hysterectomy or myomectomy. These procedures require purchase of an expensive piece of
equipment and disposables required for the procedure. Although robotic surgery generally requires a smaller incision and therefore reduced time for healing, these procedures are still a surgical
procedure requiring the surgical removal of either the tumor or entire uterus. Robotic surgery also requires extensive training and a specialized skill set.

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In
the United States, our QuadraSphere Microsphere product competes with Biocompatibles' LC bead. Biocompatibles' LC bead is distributed by AngioDynamics. Market clearance for both our
QuadraSphere Microspheres and Biocompatibles' LC bead in the United States is for the treatment of hypervascularized tumors and arteriovenous malformations.

In
drug-delivery microspheres our primary competition in Europe is Biocompatibles' DC bead. In Europe, we have CE Mark approval for HepaSphere Microspheres for drug delivery
for hepatocellular carcinoma. Biocompatibles has CE Mark approval for its DC bead.

GOVERNMENT REGULATION

FDA Regulation.The FDA, and other federal, state, local, and foreign authorities regulate our products and manufacturing activities.
Pursuant to the
Federal Food, Drug, and Cosmetic Act and the regulations promulgated under that act, the FDA regulates the design, development, clinical trials, testing, manufacture, packaging, labeling, storage,
distribution and promotion of medical devices. Before a new device that we develop can be introduced to the market, we must obtain market clearance through a 510(k) notification or approval through a
premarket approval application. Additionally, the new device may only be introduced to the market if the manufacturer quality system complies with the Quality System Regulation (21CFR
Part 820).

Changes in Approved Devices.We must obtain new FDA 510(k) clearance or premarket approval when there is a major change or modification
in the
intended use or indications for use of a legally marketed device or a change or modification of the device, including product enhancements and product line extensions of a legally marketed device, as
required by FDA regulations.

Current Good Manufacturing Practice / Quality System Regulation and Reporting.The Federal Food, Drug, and Cosmetic Act requires us to
comply with
the Quality System Regulation pertaining to all aspects of our product design and manufacturing process, including requirements for packaging, labeling and record keeping, complaint handling,
corrective and preventive actions and internal auditing. The FDA enforces these requirements through periodic inspections of medical device manufacturers. In addition, the medical device reporting
regulation requires 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, if the device would be likely to cause or contribute to a death or a serious injury in the event the malfunction recurred. We believe that we, and all who manufacture our delivery
systems, are in compliance with applicable Quality System Regulation and medical device reporting requirements.

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

Our
product promotion 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.

Import Requirements.To import a device, the importer must file an entry notice and bond with the United States Customs Service 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
may be refused admission and a notice of detention and hearing may be issued.

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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. In addition to the import requirements of foreign countries, we must also comply with the U.S. laws governing the export of products regulated by
the FDA. However, foreign countries often require, among other things, an FDA certificate for products for export, also called a Certificate for Foreign Government. To obtain this certificate from the
FDA, the device manufacturer must apply to the FDA. The FDA certifies that the product has been granted clearance or approval in the United States and that the manufacturing facilities were in
compliance with Quality Systems Regulation regulations at the time of the last FDA inspection.

Fines and Penalties for Noncompliance.Failure to comply with applicable FDA regulatory requirements could result in, among other
things, withdrawal
of market clearance or approval, injunctions, product withdrawals, voluntary or mandatory patient/physician notifications, recalls, warning letters, product seizures, civil penalties, fines and
criminal prosecutions. Federal Trade Commission enforcement can result in orders requiring, among other things, limits on advertising, corrective advertising, consumer redress, rescission of contracts
and such other relief as may be deemed necessary.

Foreign Regulations.Medical device laws and regulations 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 compliance with the European Medical Device Directive. This directive contains requirements for quality system and essential requirements with which all manufacturers must comply. In February 2006,
we obtained ISO 13485:2003 Quality Management Systems Requirements for Regulatory Purposes certification at our French facility and in April 2006 we obtained this certification at our facility
in Rockland, Massachusetts.

Failure to Comply.Failure to materially 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.

Environmental Regulations.We are subject to various federal, state, local and foreign laws and regulations relating to the protection
of the
environment, as well as health and safety. In the course of our business, we are involved in the handling, storage and disposal of limited amounts 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 acts were performed. We have not been required to expend material amounts in connection with our efforts to comply with
environmental requirements and do not believe that compliance with such requirements will have a material adverse effect upon our capital expenditures, results of operations or competitive position.
Failure to comply with applicable environmental and related laws could have a material adverse effect on our business. In addition, 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.

Anti-Kickback Statutes.The Medicare and Medicaid Patient Protection Act of 1987, as amended, which is more commonly known as the
federal
health-care Anti-Kickback Statute, prohibits persons from, among other things, knowingly and willfully offering or paying remuneration, directly or indirectly, to a person to
induce the purchase, order, lease, or recommendation of a good or service for

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which
payment may be made in whole or part under a federal health-care program such as Medicare or Medicaid. The definition of remuneration has been broadly interpreted to include
anything of value, including, for example, gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash and waivers of payments. Several courts have interpreted the
statute's intended requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals or otherwise generate business involving goods or services reimbursed in
whole or in part under federal health-care programs, the statute has been violated. The law contains several statutory exceptions, including payments to bona fide employees, certain
discounts and certain payments to group purchasing organizations. Violations can result in significant penalties, imprisonment and exclusion from Medicare, Medicaid and other federal
health-care programs. Exclusion of a manufacturer would preclude any federal health-care program from paying for its products. In addition, some courts have held that kickback
arrangements can provide the basis for an action under the Federal False Claims Act, which is discussed in more detail below.

The
Anti-Kickback Statute is broad and potentially prohibits many arrangements and practices that are lawful in businesses outside of the health-care industry.
Recognizing that the Anti-Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements, the Office of Inspector General of Health and Human Services, or
OIG, issued a series of regulations, known as the safe harbors, beginning in July 1991. These safe harbors set forth provisions that, if all the applicable requirements are met, will assure
health-care providers and other parties that they will not be prosecuted under the Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within
one or more safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy each applicable safe
harbor may result in increased scrutiny by government enforcement authorities such as the OIG. Arrangements that implicate the Anti-Kickback Statute, and that do not fall within a safe
harbor, are analyzed by the OIG on a case-by-case basis.

Government
officials have focused recent enforcement efforts on, among other things, the sales and marketing activities of pharmaceutical, medical device, and other
health-care companies, and recently have brought cases against individuals or entities with personnel who allegedly offered unlawful inducements to potential or existing customers in an
attempt to procure their business. Settlements of these cases by health-care companies have involved significant fines and/or penalties and in some instances criminal pleas.

In
addition to the Federal Anti-Kickback Statute, many states have their own anti-kickback laws. Often, these laws closely follow the language of the federal law,
although they do not always have the same exceptions or safe harbors. In some states, these anti-kickback laws apply with respect to all payors, including commercial health insurance
companies.

False Claims Laws.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim
for payment to
the federal government or knowingly making, or causing to be made, a false statement to get a false claim paid. Manufacturers can be held liable under false claims laws, even if they do not submit
claims to the government, if they are found to have caused
submission of false claims. The Federal Civil False Claims Act also includes whistle blower provisions that allow private citizens to bring suit against an entity or individual on behalf of the United
States and to recover a portion of any monetary recovery. Many of the recent highly publicized settlements in the health-care industry relating to sales and marketing practices have been
cases brought under the False Claims Act. The majority of states also have statutes or regulations similar to the federal false claims laws, which apply to items and services reimbursed under Medicaid
and other state programs, or, in several states, apply regardless of the payor. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer's
products from reimbursement under government programs, criminal fines and imprisonment.

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Privacy and Security.The Health Insurance Portability and Accountability Act of 1996, or HIPAA, and the rules promulgated thereunder
require certain
entities, referred to as covered entities, to comply with established standards, including standards regarding the privacy and security of protected health information, or PHI. HIPAA further requires
that covered entities enter into agreements meeting certain regulatory requirements with their business associates, as such term is defined by HIPAA, which, among other things, obligate the business
associates to safeguard the covered entity's PHI against improper use and disclosure. While not directly regulated by HIPAA, a business associate may face significant contractual liability pursuant to
such an agreement if the business associate breaches the agreement or causes the covered entity to fail to comply with HIPAA. In the course of our business operations, we have entered into several
business associate agreements with certain of our customers that are covered entities. Pursuant to the terms of these business associate agreements, we have agreed, among other things, not to use or
further disclose the covered entity's PHI except as permitted or required by the agreements or as required by law, to use reasonable safeguards to prevent prohibited disclosure of such PHI and to
report to the covered entity any unauthorized uses or disclosures of such PHI. Accordingly, we incur compliance-related costs in meeting HIPAA-related obligations under business associates agreements
to which we are a party. Moreover, if we fail to meet our contractual obligations under such agreements, we may incur significant liability.

In
addition, HIPAA's criminal provisions potentially could be applied to a non-covered entity that aided and abetted the violation of, or conspired to violate, HIPAA,
although we are unable at this time to determine conclusively whether our actions could be subject to prosecution in the event of an impermissible disclosure of health information to us. Also, many
state laws regulate the use and disclosure of health information, and are not necessarily preempted by HIPAA, in particular those laws that afford greater protection to the individual than does HIPAA.
Finally, in the event we change our business model and become a HIPAA-covered entity, we would be directly subject to HIPAA, its rules and its civil and criminal penalties.

PROPRIETARY TECHNOLOGY AND PATENT RIGHTS

We seek to establish and protect our proprietary technologies and products by developing and using a strategy involving a combination
of patents, copyrights, trademarks and trade secrets, as well as by entering into licensing agreements and utilizing confidentiality agreements or provisions where appropriate. We have implemented a
patent strategy designed to maximize our intellectual property rights. We are pursuing patent rights in the United States and foreign countries to protect the technology, inventions and improvements
that we consider critical to the development of our products and business.

In
January 1998, we entered into an agreement with L'Assistance Publique-Hôpitaux de Paris, referred to as AP-HP, pursuant to which
AP-HP has granted us the exclusive license to two United States patents and their foreign counterparts that we jointly own with AP-HP relating to Embosphere Microspheres. We
are required to pay to AP-HP a royalty on the commercial sale of any products that incorporate technology covered by the patents. We may sublicense these exclusive rights under the
agreement only with the prior written consent of AP-HP, which consent cannot be unreasonably withheld. Effective March 2, 2009, we and AP-HP amended our agreement such
that our exclusive license was extended beyond the initial period, which was to expire on September 16, 2009, for the duration of both (i) the jointly owned U.S. and foreign counterpart
patents which will expire in 2014 and 2012, respectively, and (ii) the products and specialties implementing the patents. 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.

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In 2000, we entered into an agreement with Dr. Shinichi Hori, pursuant to which we have an exclusive royalty-based license relating to Japanese patent
rights for our HepaSphere Microsphere and QuadraSphere Microsphere products. These patent rights expire in 2012. We continue to develop this technology and related technology, and we are prosecuting
U.S. and foreign patent applications related to this technology. However, present 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 this technology and any licenses, if obtained, may not be on terms that are favorable to us.

In
addition to those listed above, we have a number of United States and foreign patents and pending applications related to our microsphere technologies and uses thereof. For example,
we have at least six U.S. and eleven foreign patents, and four U.S. and five foreign counterpart pending applications related to microspheres and uses thereof for tissue bulking, tissue construction,
dermal augmentation, and the treatment of gastroesophageal reflux disease, or GERD, and urinary incontinence. The U.S. and foreign counterpart patents expire at various dates between 2019 and 2020. We
also have eleven issued foreign patents and at least seventeen U.S. and four foreign counterpart pending applications related to microspheres and uses thereof for drug delivery and gene therapy.
Additionally, we have at least two patents in the U.S. and six foreign patents, as well as at least four U.S. and three foreign counterpart pending applications, related to PVA microspheres. Other
U.S. and foreign counterpart patent applications have also issued or are currently pending. The subjects of these patents and applications include new materials for embolization, new methods of using
our materials for embolization and other applications, as well as new uses of our materials outside of embolization.

We
currently own the following U.S. trademarks:



Our
success depends to a significant degree upon our ability to develop proprietary products and technologies and to obtain patent coverage for these 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 issue 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 U.S. applications or U.S. patents, or that a third party will not oppose any granted patent in Europe. There can be no guarantee that a third party will not file an opposition or the like
against any of our foreign patents or pending patent applications. 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

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legal
and factual determinations and, therefore, are characterized by significant uncertainty. Specifically, enforcement or defense of our patents against potential or actual third-party infringers
may impose a significant burden on our financial and human resources, and we may be limited in our ability to protect all of our rights. If we enforce our patents against third parties, they may
challenge the validity or enforceability of our patents. We cannot predict whether we will be successful in enforcing our patents or defending their validity or enforceability.

In
addition, the laws governing patent issuance and the scope of patent coverage continue to evolve, particularly in the life sciences, and the patent rights we possess, or are pursuing,
generally cover our technologies to varying degrees. As a result, we cannot ensure 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 may 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, the value of our intellectual property
position is uncertain.

We
have a European Patent, EP 1128816, related to certain PVA microspheres useful for embolization and methods thereof. We have validated this European patent in Germany, Spain, France,
United Kingdom and Italy. On January 13, 2005, we were notified of a Notice of Opposition filed in the European Patent Office, or EPO, by Biocompatibles UK Limited on December 23, 2004
challenging the patentability of the claims in this European patent. We filed a response to the Notice of Opposition in August 2005. Biocompatibles UK Limited subsequently filed a response in 2006. On
December 10, 2007, the European Patent Office upheld the claims of our patent in amended form. The European Patent Office rendered its formal written decision on December 27, 2007. We
and Biocompatibles have
appealed this decision. We intend to continue defending our European PVA patent in this appeal. While we are not able to predict the outcome of this proceeding, it will not impact our ability to sell
our Embosphere Microsphere or HepaSphere Microsphere products in Europe.

We
have a European Patent, EP 267839, which relates to certain drug-loaded microspheres and their use in embolization. We have validated this European Patent in Austria,
Belgium, Germany, Spain, France, United Kingdom, Greece, Italy, Luxembourg, and the Netherlands. On July 1, 2008, Biocompatibles UK Limited filed a Notice of Opposition in the EPO challenging
the patentability of the claims in this European Patent. We intend to continue to defend our European patent and will file a timely response. We are not able to predict the outcome of this
opposition proceeding.

We
may be subject to 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 will harm our business. If we are forced to defend against such claims,
regardless of their merit or 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, noninfringing 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 assigning to us their interests in inventions and

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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, parties to our agreements may breach the confidentiality provisions in our contracts or infringe or misappropriate our patents, copyrights, trademarks, trade secrets and other
proprietary rights. In addition, third parties may independently discover or invent competitive 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.

SEGMENT INFORMATION

We develop microspheres and other ancillary embolotherapy products for use in the treatment of hypervascularized tumors, including
uterine fibroids and arteriovenous malformations. We operate exclusively in the embolotherapy product business, which we consider as one business segment pursuant to Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information." Further segment information can be found in
Note 10 of the notes to our consolidated financial statements, included elsewhere in this annual report on Form 10-K.

EMPLOYEES

As of December 31, 2008, we had approximately 84 employees. Of these employees, eight are primarily engaged in research,
development and clinical activities, 24 are engaged in manufacturing, 40 are engaged in sales and marketing, and the remainder are engaged in finance and administration. Of these 84 employees, 52 are
located in the United States and 32 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.

Item 1A.    RISK FACTORS

Investing in our common stock involves a high degree of risk. The risks described below are not the only ones
facing our company. Additional risks not presently known to us or that we deem immaterial may also impair our business operations. Any of the following risks could materially adversely affect our
business, operating results and financial condition and could result in a complete loss of your investment.

Risks Relating to Our Future Profitability, Our Financial Results and Need For Financing

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

We have incurred operating losses since our inception and, as of December 31, 2008, had an accumulated deficit of approximately
$90.13 million. We expect to spend substantial funds to continue research and product testing, to maintain sales, marketing, quality control, regulatory, manufacturing and administrative
capabilities and for other general corporate purposes. We expect to continue to incur operating losses in 2009, as we seek to execute on our business plan, including continuing to establish sales and
marketing capabilities and conducting research and development activities.

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 could depress the market price
of our common stock and impair our ability to raise capital and expand, diversify or continue our operations.

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

We believe that our existing cash and other working capital, together with anticipated proceeds from sales of our products, will be
sufficient to fund our currently planned operating and capital requirements through at least the next twelve months.

Our
currently planned operating and capital requirements primarily include the need for working capital to:



However,
our cash requirements may vary materially from those now planned due to a number of factors, including, without limitation: unanticipated changes in the amount of revenue we
generate from sales of our products, in particular from the use of our Embosphere Microspheres for UFE; changes in our UFE regulatory and marketing programs; the use of our HepaSphere Microspheres for
liver cancer; the outcome of product liability challenges, including the current product liability lawsuits described under the next risk factor and in "Item 3Legal Proceedings,"
for which any adverse judgment against us could materially adversely affect market acceptance of our products, and if not covered by our product liability insurance, could have a material adverse
affect on our liquidity; costs resulting from changes in the focus and direction of our research and development programs; competitive advances that make it harder for us to market and sell our
products; the timing and cost of FDA regulatory review; the market's acceptance of any approved products; inflation; and adverse general global market and economic conditions. We may also need
additional funds for possible strategic acquisitions of synergistic businesses, products and/or technologies.

We
will require substantial additional cash to fund our planned, and any unplanned expenses. If adequate funds are not available, we could be required to reduce our capital expenditures,
scale back or eliminate some or all of our research, development, sales and marketing initiatives, reduce our workforce, and license to others or divest products or technologies that we otherwise
would seek to commercialize ourselves. We may seek additional funding through a combination of collaborative arrangements, debt financing or the sale of additional equity securities. We may not
receive such additional funding on reasonable terms, or at all. Any sales of equity or debt securities are likely to dilute the ownership of our existing stockholders, and the new securities may have
rights, preferences or privileges senior to those of existing holders of our capital stock. Debt financing, if available, may involve agreements that include covenants limiting or restricting our
ability to take specific actions such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional
funds through collaboration and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or products, or grant licenses on terms that are not favorable
to us.

We are a defendant in two product liability lawsuits, the outcomes of which are uncertain, which could result in adverse judgments substantially in excess of our product
liability coverage and which could harm our business, reputation and financial condition.

In August 2005, we were named as a defendant in a lawsuit commenced in the Circuit Court, Twenty-Second Judicial Circuit,
St. Louis, Missouri, which we refer to as the Pingel Claim. The case is presently set for trial on July 6, 2009. The lawsuit alleges, among other things, that a patient suffered
permanent bilateral blindness as a result of the use of our EmboGold Microspheres in a juvenile nasal

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angiofibroma
embolization or the negligence of the health care providers or both factors combined. The plaintiffs seek compensatory and punitive damages.

In
June 2008, we were named as a defendant in a lawsuit commenced in the Superior Court of California, County of Los Angeles, which we refer to as the Rashidi Claim. This lawsuit is in
its early stages. No discovery or document production has yet been undertaken by any parties. A trial date has been set for August 10, 2009. The plaintiff alleges, among other things, that he
presented to an emergency room with a severe nosebleed, that he suffered permanent blindness in one eye following the treatment of his severe nosebleed with our Embosphere Microspheres, that the
product was defective, that the manner in which it is marketed and sold is misleading, that the health-care providers were negligent, or all factors combined. However, as alleged in the
complaint, these claims are vague and nonspecific. The plaintiff is seeking unspecified damages.

Our
business, financial conditions and results of operations are subject to a number of risks relating to these pending lawsuits, including the following:



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If our 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 a number of factors,
including:



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. Failure to achieve anticipated levels of revenue could therefore significantly harm our operating results for a particular fiscal period. Due to
these fluctuations, our operating results in some quarters may not meet the expectations of our investors and our stock price may decline.

Unstable market and economic conditions may have serious adverse consequences on our business.

As widely reported, global credit and financial markets have been experiencing extreme disruptions in recent months, including severely
diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. There can be no
assurance that there will not be further deterioration in credit and financial markets and confidence in economic conditions. Our general business strategy may be adversely affected by the recent
economic downturn and volatile business environment and continued unpredictable and unstable market conditions. The global economic crisis could adversely affect sales of our products. Also, if the
current equity and credit markets deteriorate further, or do not improve, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any
necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to

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delay
or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficult economic
times, which would directly affect our ability to attain our operating goals on schedule and on budget.

At
December 31, 2008, we had $18.24 million of cash, cash equivalents and marketable securities consisting of asset-backed securities and government obligations. While as
of the date of this filing, we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents or marketable securities since
December 31, 2008, no assurance can be given that further deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash
equivalents or marketable securities or our ability to meet our financing objectives. Further dislocations in the credit market may adversely impact the value and/or liquidity of marketable securities
owned by us.

There
is a possibility that our stock price may decline, due in part to the volatility of the stock market and the general economic downturn.

Compliance with changing regulation of corporate governance and public disclosure as well as potential new accounting pronouncements could impact our future financial
position and results of operations.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including SEC regulations and NASDAQ
Global Market rules, could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. In addition, future
changes in financial accounting standards may cause adverse, unexpected revenue fluctuations and affect our financial position or results of operations. New accounting pronouncements and varying
interpretations of pronouncements have occurred with frequency in the past and may occur again in the future, and as a result we may be required to make changes in our accounting policies; for
example, the 2006 requirement under Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment"to expense stock options.

Our
efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and
management time related to compliance activities. We expect these efforts to require the continued commitment of significant resources. If our efforts to comply with new or changed laws, regulations
and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed and we might be subject to sanctions or
investigation by regulatory authorities, such as the SEC. Any such action could adversely affect our financial results and the market price of our common stock.

Failure to maintain effective internal controls in accordance with section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and
stock price.

Section 404 of the Sarbanes-Oxley Act of 2002 requires management's annual review and evaluation of our internal controls, and
will require attestation of the effectiveness of our internal controls by our independent registered public accounting firm beginning with the fiscal year ended December 31, 2009. This process
could require us to implement significant measures to improve our internal controls, may require us to hire additional personnel and outside advisory services, and will result in significant
accounting and legal expenses. Any failure by us to maintain effective internal controls could have a material adverse effect on our business, operating results and stock price.

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Changes to our performance in each jurisdiction in which we operate, resulting from either changes in our business or as a result of routine tax audits, could materially
impact our deferred tax assets or could materially impact our future financial position or results of operations.

We use the asset and liability accounting method whereby deferred tax assets and liabilities are recognized based on temporary
differences between the financial statement carrying amounts and tax bases of assets and liabilities using current statutory tax rates in each tax jurisdiction in which we operate. 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. Due to the size
of the net operating loss carryforward in relation to our history of unprofitable operations, we have not recognized any of our net deferred tax assets. However, future improvements in operational
performance in any tax jurisdiction in which we operate, while not guaranteed, could result in increased certainty of our ability to apply deferred tax assets against taxable income, which could, in
turn, result in a significant impact on the value of our deferred tax assets and reported operating results.

Risks Relating to Our Industry, Business and Strategy

A significant portion of our revenue is derived from sales of our Embosphere Microspheres for UFE, and if we do not successfully commercialize and achieve widespread market
acceptance of our Embosphere Microspheres for UFE, our business will be materially harmed and our stock price will decline.

The majority of our revenue for the year ended December 31, 2008 was derived from the sale of Embosphere Microspheres for use in
UFE. Our principal business focus is to grow our embolotherapy business through increases in the utilization rate for UFE procedures versus other procedures to treat uterine fibroids and in the
employment by medical providers of our Embosphere Microspheres in such procedures in lieu of competing products. We began marketing and selling Embosphere Microspheres for UFE in 2002, but to date we
have not achieved widespread market acceptance for our products. Our ability to grow our product revenue is substantially dependent upon growth in UFE procedures and our ability to achieve widespread
acceptance of the use of Embosphere Microspheres for use in UFE procedures. If growth in UFE procedures does not occur and if we do not achieve such market acceptance, our product revenue and our
prospects for profitability and success will be materially adversely affected.

We
face a number of significant risks relating to our ability to successfully commercialize Embosphere Microspheres for use in UFE, including risks relating
to:



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If the market concludes that our products are not safe or effective, we will not achieve widespread market acceptance of our microsphere products, and our business prospects
will be seriously harmed.

In the United States, we began selling our first microsphere product in the first half of 2000. In November 2002, we received FDA
clearance to market our Embosphere Microspheres in the United States for specific use in UFE. We began to market and sell our HepaSphere Microspheres in the European Union in the fourth quarter of
2005 and received marketing clearance from the FDA for our QuadraSphere Microspheres in November 2006. Our success will depend upon increasing acceptance by the medical community, patients and
third-party payors that our Embosphere Microspheres and other products are medically therapeutic and cost-effective. Our products may not gain widespread market acceptance for a variety of
reasons including:



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Other
factors could also affect market acceptance of our products, including, without limitation, the introduction of competing products, safety concerns with similar products marketed
by others, ineffective sales, marketing and distribution support and significant warranty claims.

If gynecologists, obstetricians, interventional radiologists and other health-care providers do not recommend and endorse our products, and if
health-care providers do not make the necessary referrals to interventional radiologists who administer our embolotherapy products, our sales may decline or we may be unable to increase
our sales and profits.

Our ability to establish and maintain favorable relationships with gynecologists, obstetricians, interventional radiologists and other
health-care providers is critical to our continued growth. We believe that the success of these relationships is, and will be, based on, among other things, the quality of our products,
such providers' perceptions concerning our commitment to embolotherapy treatments, our marketing efforts and our presence at medical society and trade association meetings. Any actual or perceived
diminution in our reputation or the quality of our products, or our failure or inability to maintain these or other efforts could damage our current relationships, or prevent us from forming new
relationships with health-care professionals and cause our growth to be limited and our business to be harmed.

In
order for us to sell our products, health-care professionals must recommend and endorse them. For example, our embolotherapy techniques are administered by interventional
radiologists. In the treatment of uterine fibroids, we believe that the UFE procedure utilizing our Embosphere Microspheres has not yet achieved widespread acceptance primarily because obstetrics and
gynecology physicians may elect to offer and provide other forms of treatment to their patients with uterine fibroids that do not require a referral to another specialist, such as an interventional
radiologist. The majority of our revenue is from the sale of our Embosphere Microspheres for UFE and, accordingly, our future success will depend upon obstetrics and gynecology physicians referring
patients to interventional radiologists to receive treatment using our Embosphere Microspheres in lieu of, or in addition to, receiving other forms of treatment that the obstetrics and gynecology
physicians can otherwise provide directly. We have not achieved widespread market acceptance for our products. Acceptance of our products, and our ability to obtain the necessary endorsements and
referrals, depend on educating the medical community as to the distinctive characteristics, perceived benefits, safety, clinical efficacy and cost-effectiveness of our products compared to
traditional methods of treatment and the products of our competitors, and on training health-care professionals in the proper application of our products. If we are not successful in
obtaining the recommendations or endorsements of

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gynecologists,
obstetricians, interventional radiologists and other health-care professionals for our products, our sales may decline or we may be unable to increase our sales and profits.

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

We continue to develop sales, distribution and marketing capabilities primarily in the United States, the European Union, Asia and
South America to promote UFE awareness and the benefits of our product for the treatment of uterine fibroids. It has been, and we expect it will continue to be, expensive and
time-consuming for us to seek to develop a global sales and marketing force. At December 31, 2008, we had a sales and marketing force of 40 persons located principally in the United
States. Competition for skilled salespersons in the medical device industry is intense, and we may not be able to provide adequate incentives to maintain our sales and marketing force or to attract
new sales and marketing personnel to promote our products. We have only limited sales and marketing experience in the United States and internationally and may not be successful in developing and
implementing our strategy. Among other things, we need to:



We
currently have distribution agreements with a number of third-party distributors and we may choose or find it necessary to enter into additional third-party agreements to sell,
distribute or market our products in the future. Any third party with whom we have established a sales, distribution and/or marketing relationship may not devote sufficient time to the marketing and
sales of our products, thereby adversely affecting our planned revenue and exposing us to potential expenses in terminating such distribution agreements. We and any of our third-party collaborators
must also market our
products in compliance with federal, state and local laws relating to the providing of incentives and inducements. Violation of these laws can result in substantial penalties. 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, we may not achieve profitability and our stock price could decline.

We will be required to expend significant resources for research, development, testing and regulatory approval of our products under development, and these products may not
be developed successfully.

We are developing and commercializing products for medical applications using embolotherapy techniques, including, without limitation,
MR Microspheres, Resorbable Microspheres and a smaller-sized version of our HepaSphere Microsphere and QuadraSphere Microsphere, all of which are still in preclinical development. Our products under
development may not provide greater benefits than current treatments or products, or alternative treatments or products under development. All of our products under development will require
significant additional research, development, engineering, and preclinical and/or clinical testing, as well as regulatory approval and a commitment of significant additional resources prior to their
commercialization. Our potential products may not:



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If we do not develop and introduce new products, our business may not grow and our future prospects may be adversely affected.

We derived approximately 3% of our revenue for the period ended December 31, 2008 from the sale of nonstrategic medical
products. In 2008, we phased out this business and we do not expect to have any material receivables from this business in 2009. In addition, a percentage of our revenue for the year ended
December 31, 2008 was derived from the sale of EmboGold Microspheres that physicians may have used for UFE, for which we do not have an approved indication, and do not presently intend to seek
clearance from the FDA to market. Accordingly, in order to grow our revenue in future periods we need to develop and introduce new applications for our embolotherapy technology and pursue
opportunities for microsphere technology in other medical applications. Any such new application for our embolotherapy technology or microsphere technology will be subject to a number of risks
inherent in the development and commercialization of a medical device product, including uncertainties with respect to the successful completion of clinical trials, our ability to achieve and
maintain, and our willingness to seek, required regulatory approvals and our ability to successfully commercialize, market and sell these new applications, assuming FDA approval is achieved. If, as a
result of these or other risks, we are not successful in developing new applications and products, our position in, and share of, the markets in which we participate and our business, financial
condition, results of operations o prospects may be adversely affected.

We may be exposed to product liability claims, and if we are unable to obtain or maintain adequate product liability insurance, then we may incur substantial costs and
expenses in defending such claims and may have to pay significant monetary damages in a successful product liability claim against us.

The development and sale of medical devices entails an inherent risk of product liability. For example, if physicians do not use our
products properly, if patients experience adverse side effects in procedures in which our products are used, or if the market determines or concludes that any of our products are not safe or effective
for any reason, we may be exposed to product liability claims. For example, please refer to "Risk FactorsWe are a defendant in two product liability lawsuits, the outcomes of which are
uncertain, which could result in adverse judgments substantially in excess of our product liability coverage and could harm our business,
reputation and financial condition" above for a further discussion of two pending product liability lawsuits in which we are a defendant. Although we maintain insurance, including product liability
insurance, we cannot provide assurance that any claim that may be brought against us will not result in court judgments or settlements in amounts that are not covered in whole or in part by our
insurance or are in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no
coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance.

Any
product liability claim brought against us, with or without merit, could result in the increase of our product liability insurance rates or the inability to secure additional
insurance coverage in the future. A product liability claim, whether meritorious or not, could be time consuming, distracting and expensive to defend, could be harmful to our reputation, could result
in a diversion of management and financial resources away from our primary business and could result in product recalls. In any such case, our business may suffer.

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If we are required to recall any of our products we may experience a decrease in the market acceptance of our products and our reputation may be harmed, hindering our
ability to generate revenue from sales of our product.

In March 2006, we instituted a voluntary recall of our HepaSphere Microspheres in Europe to correct a packaging defect that we
identified while conducting aging studies. HepaSphere Microspheres are contained in a prefilled vial that was in turn initially packaged inside a paper pouch. In the third quarter of 2006, we launched
a new plastic packaging configuration for our HepaSphere MicroSphere product designed to correct this defect. Although we are not aware of any adverse events resulting from the defects in the paper
packaging, our voluntary recall of this product, or any future voluntary recall of any of our products, could result in reputational harm or a perception that the recalled product is not safe, either
of which could adversely affect market acceptance of our products and result in decreased sales.

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

The medical device market is characterized by extensive research and development, and rapid technological change. Our success depends
upon our ability to develop and maintain a competitive position in both the embolotherapy and related delivery systems markets. We have many competitors in the United States and abroad, including
medical device, biotechnology and
other alternative therapeutic companies, universities and other private and public research institutions. Our key competitors in both the fields of embolotherapy and the delivery systems used in the
UFE procedure are Biocompatibles Limited, Boston Scientific Corporation, Cook Incorporated, Cordis Corporation, a Johnson &Johnson company, Pfizer Inc, Terumo Corporation and CeloNova
BioSciences, Inc.

Many
of our competitors may have greater capabilities, experience and financial resources than we do. As a result, they may develop products more quickly or at less cost, that compete
with our microsphere products and related delivery systems. For example, in recent years we have experienced increasing competition from products that compete with Embosphere Microsphere products for
UFE. Moreover, some of our competitors have provided free or reduced-price samples of competing forms of microspheres for use in medical procedures for which our Embosphere Microspheres are indicated.
We believe the availability of these free or reduced-price samples may have adversely affected our revenue, and if this practice recurs our product revenue may continue to be adversely effected.

Currently,
the primary products with which our microspheres compete for some of our applications are spherical PVA sold by Boston Scientific, Terumo and Biocompatibles, Embozene by
CeloNova, and gelfoam sold by Pfizer, Boston Scientific and Cook.

In
the treatment of symptomatic uterine fibroids, we also compete with obstetrics and gynecology physicians who elect to offer and provide other forms of treatment to their patients with
uterine fibroids that do not require referral to another specialist. These treatment options currently include hysterectomy, myomectomy, laparoscopic myomectomy and robotic-assisted hysterectomy.

Developments
by other companies of new or improved products, processes or technologies, in particular in the market for treating uterine fibroids, may make our products or proposed
products obsolete or less competitive and may negatively impact our revenue. As a result of these and other factors, 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 develop our business commercially.

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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. Some insurance companies do not fully reimburse for embolization procedures. These
third-party payors may attempt to contain or reduce the costs of health care by lowering the rate at which providers are reimbursed for embolization procedures or challenging the prices that companies
such as ours charge for medical products. For example, on January 1, 2007, the Centers for Medicare and Medicaid Services, or CMS, issued a rule providing for a single,
all-inclusive reimbursement code for UFE. This code is inclusive of all services occurring on the day of the procedure. This physician reimbursement rate is lower than the rate
historically received by physicians. We believe that some physicians have shifted their procedural mix away from UFE in response to this change in reimbursement, which has and may continue to
negatively affect our sales growth. Conversely, beginning January 1, 2008 the CMS assigned a new ambulatory procedure code, or APC, for UFE procedures performed in an outpatient setting. We
believe that this new APC code has resulted in an increase in hospital reimbursement for UFE procedures. However, CMS could adversely change this APC code in the future or otherwise decrease the
payment rate for such UFE procedures. Any change in reimbursement levels could have an adverse effect on utilization rates for UFE procedures.

In
some foreign countries, particularly the countries of the European Union where our microsphere products are 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.

Initiatives
to limit the growth of health-care costs, including price regulation, are underway in the United States and other major health-care markets. For
example, payors may increase the complexity of patient precertification required prior to performing a UFE procedure. In addition, we may be affected by prescription drug benefit legislation recently
enacted in the United States, and health-care reform initiatives proposed in certain state and local jurisdictions and other countries. While these initiatives have in many cases related
to pharmaceutical pricing, implementation of more sweeping health-care reforms in significant markets may limit the price of, or the level at which reimbursement is provided for, our
products and may influence a physician's selection of products used to treat patients.

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

Our success is substantially dependent on our ability to recruit and retain members of our senior management and other key employees.
Disruptions in our business could result in the near term as a result of any such departure. All of the agreements with our officers provide that their employment may be terminated either by the
employee or by us at any time and without notice. Although we do not have any reason to believe that we may lose the services of any of these persons in the foreseeable future, the loss of the
services of any of these persons might impede the achievement of our research, development, and commercialization objectives. We do not carry key man life insurance on any of our executive officers or
other personnel.

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

We may attempt to acquire businesses, technologies, services or products that we believe are a strategic complement 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

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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 in connection with any future acquisitions.

Because key stockholders beneficially own a significant amount of our common stock, they may be able to exert control over us.

As of March 2, 2009, we believe that Sepracor Inc., or Sepracor, and funds affiliated with Cerberus Capital
Management, L.P., or Cerberus, beneficially owned approximately 22% and 14% of our outstanding common stock, respectively, including shares of common stock issuable upon the exercise of
warrants and series A preferred stock held by these stockholders. Moreover, one of our directors is chairman of the board of directors of Sepracor, and we have granted board-observation rights
to Cerberus. Accordingly, Sepracor and Cerberus may have significant influence over corporate actions requiring stockholder approval, such as the election of directors, amendment of our charter
documents and the approval of merger or significant asset sale transactions. In addition, the shares of our series A preferred stock held by Sepracor and Cerberus entitle them to certain voting
rights in accordance with the terms and conditions of the series A preferred stock. Specifically, we will need the consent of holders of at least 50% of the series A preferred stock
initially purchased by Sepracor and Cerberus to undertake certain key corporate actions, including the following:



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

The holders of shares of our series A preferred stock have rights that could adversely affect an investment in our common stock.

The holders of our series A preferred stock have the right to an adjustment in the conversion rate of the series A
preferred stock if we issue securities at a price below the purchase price paid by these holders. These provisions could substantially dilute stockholders' interest in BioSphere in the event of future
financing transactions. The holders of series A preferred stock also have the right to receive a 6% dividend per annum which, at our election, may be paid in cash or additional shares of
series A preferred stock. To the extent such dividends are paid in stock, this dividend could also further dilute stockholders' ownership interest. In addition, the holders of our
series A preferred stock have the right to participate in future capital-raising transactions by BioSphere. The existence of this right may reduce our ability to establish terms with respect
to, or enter into, any financing with parties other than the investors.

In
the event that we enter into an acquisition or business combination in which we sell all or substantially all of our assets, or if there occurs a change of control of a majority of
our common stock outstanding prior to such transaction, the holders of our series A preferred stock will have the right to receive, before any distributions or payments to the holders of our
common stock, an amount in cash equal to their initial purchase price for the Series A preferred Stock, $8,000,000, plus an amount equal

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to
any accrued but unpaid dividends, and will then participate with the holders of the common stock on a pro rata basis with respect to the distribution of any remaining assets. The existence of this
right may make it difficult for us to raise capital in financing transactions with third parties and will also result in holders of our common stock receiving smaller distributions or payments upon a
change of control or asset sale than they would be entitled to receive if no preferential payments were required to be made to holders of our series A preferred stock.

Our employees may engage in misconduct or other improper activities, including insider trading.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply
with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state health care fraud and abuse laws and
regulations, to report financial information or data accurately or to disclose unauthorized activities to us. Employee misconduct could also involve the improper use of customer information or
information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Business Conduct and Ethics, but it is
not always possible to identify and deter employee
misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses.

In
addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding our business, our results of
operations or potential transactions we are considering. Despite the adoption of an Insider Trading Policy, we may not be able to prevent a director or employee from trading in our common stock on the
basis of, or while having access to, material, nonpublic information. If a director or employee were to be investigated, or an action were to be brought against a director or employee for insider
trading, it could have a negative impact on our reputation and our stock price. Such a claim, with or without merit, could also result in substantial expenditures of time and money, and divert
attention of our management team from other tasks important to the success of our business.

Risks Relating to Regulatory Matters

If we do not obtain and maintain the regulatory approvals or clearances required to market and sell our products, then our business may be unsuccessful and the market price
of our stock may decline.

We are subject to regulation by government agencies in the United States and abroad with respect to the design, 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 commercial marketing in the United States.
Similar regulations exist in most major foreign markets, including the European Union, Latin America and Asia. The process of obtaining necessary regulatory approvals and clearances is
time-consuming and expensive for us. If we do not receive required regulatory approval or clearance to market our products, or if any approvals or clearances we have received are revoked
or terminated, we may not be able to commercialize our products and become profitable, and the value of our common stock may decline.

We
are also subject to numerous U.S. and foreign regulatory requirements governing the conduct of clinical trials, marketing authorization, pricing and third-party reimbursement. The
foreign regulatory approval process includes all the risks associated with FDA clearance or approval described above, as well as risks attributable to the requirement to satisfy local regulations in
foreign jurisdictions. Approval or clearance by the FDA does not ensure approval by regulatory authorities of some countries outside the United States. Many foreign regulatory authorities, including
those in major markets such as Japan and the People's Republic of China, have different approval processes.

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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 us clearance or approval with respect to marketing any product, such product will be subject to ongoing
regulatory review and restrictions, including the review of clinical results which are reported after such product is made commercially available, and restrictions on the indications for which we can
market the product. The FDA can propose to withdraw approval or impose additional restrictions if new clinical data or experience shows that a product is not safe for use under the approved conditions
of use.

The
marketing claims we are permitted to make in labeling or advertising regarding our microspheres in the United States are limited to those consistent with any FDA clearance or
approval. For example, because our EmboGold Microspheres are not cleared for specific use in UFE, we may not promote them for this specific use. Although our QuadraSphere Microspheres are identical in
all respects to our HepaSphere Microspheres, which are currently marketed in the European Union for use in the embolization of hepatocellular carcinoma and hepatic metastasis, our QuadraSphere
Microspheres are not specifically indicated for use in hepatocellular carcinoma and hepatic metastasis. FDA regulations require that we conduct clinical trials prior to submitting a marketing
application to claim the use of the QuadraSphere Microspheres for the treatment of a specific disease or condition, such as hepatocellular cancer or hepatic metastasis, while European Union
regulations do not require it for this class of medical devices. Accordingly, in order for us to seek FDA clearance or approval to promote the use of QuadraSphere Microspheres for the embolization of
hepatocellular carcinoma and hepatic metastasis, we will be required to undertake clinical trials. If the FDA believes our advertisements or labeling, or statements made by our sales representatives
or other company officials, improperly promote our products for unapproved indications, the FDA could allege that our promotional activities misbrand or adulterate our products. Specifically, the FDA
could issue an untitled letter or warning letter, which requests, among other things, that we cease such promotional activities, including disseminating the advertisements and promotional labeling,
and that we issue corrective labeling, including sending letters to health-care providers. The FDA also could take enforcement action, including seizure of product, injunction or criminal
prosecution against us and our officers or employees, or seek civil penalties or disgorgement or restitution.

We
may in the future make modifications to our microspheres or their labeling 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 may require us to make additional 510(k) filings for the modification, and we may be prohibited from marketing the modified product or the new claims until we obtain
FDA clearance. Similarly, if we obtain premarket approval, we may not be able to make product, manufacturing or labeling changes until we get further FDA approval. 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 and product candidates successfully
and could harm our reputation and lead to decreased acceptances of our products by the market.

Even if we obtain the necessary FDA clearances or approvals, if we or our suppliers fail to comply with ongoing regulatory requirements, our products could be subject to
corrections, removals or recalls from the market or other enforcement action.

We are subject to the Medical Device Reporting, or MDR, regulations that require us to report to the FDA if our products may have
caused or contributed to patient death or serious injury, or if our device malfunctions and a recurrence of the malfunction would likely result in a death or serious injury. We must also file reports
of device corrections and removals and adhere to the FDA's rules on labeling and promotion. We must also comply with the FDA's Good Manufacturing Practice requirements as set

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forth
in the Quality System regulations. Our failure to comply with these or other applicable regulatory requirements could result in enforcement action by the FDA, which may include any of the
following:



If
we are subject to an enforcement action, our ability to develop, market and sell our products successfully would be adversely affected, our reputation could be harmed, and we may
experience decreased market acceptance of our products.

Recently enacted legislation may make it more difficult and costly for us to obtain regulatory approval of our product candidates and to produce, market and distribute
products after approval.

In September 2007, the President of the United States signed into law the Food and Drug Administration Amendments Act of 2007, or
FDAAA. The FDAAA grants a variety of new powers to the FDA, many of which are aimed at improving the safety of drug products before and after approval. Under the FDAAA, companies that violate certain
provisions of the new law are subject to substantial civil monetary penalties. The new requirements and other changes that the FDAAA imposes may make it more difficult, and likely more costly, to
obtain approval or clearance of new medical device products and to produce, market and distribute products after approval.

The
FDAAA also establishes requirements for registering certain types of device clinical trials, and reporting the results of those trials, in a national, publicly accessible database.
In addition, the FDA requires certification of compliance with this requirement to be submitted with applications or reports concerning such studies. The failure to comply with the clinical trial
registry requirements is subject to civil monetary penalties.

We may be subject, directly or indirectly, to federal and state health care fraud and abuse laws and regulations and, if we are unable to fully comply with such laws, could
face substantial penalties.

Our operations may be directly or indirectly affected by various broad state and federal health care fraud and abuse laws, including
the federal Anti-Kickback Statute, which prohibit any person from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, to induce or
reward either the referral of an individual, or the furnishing or arranging for an item or service, for which payment may be made under federal health-care programs, such as the Medicare
and Medicaid programs. If our past or present operations are found to be in violation of these laws, we and our officers may be subject to civil or criminal penalties, including large monetary
penalties, damages, fines, imprisonment and exclusion from Medicare and Medicaid program participation. If enforcement action were to occur, our business and financial condition would be harmed.

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Risks Relating to Our Intellectual Property

If we are unable to obtain patent protection for our products, their competitive value could decline.

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 or other ancillary products. In particular, the patent rights we possess or are pursuing generally cover our technologies to varying degrees, and these rights
may not prevent others from
designing products similar to or otherwise competitive with our Embosphere Microspheres and other products we commercialize. To the extent that our competitors are able to design products competitive
with ours, we may experience less market penetration with our products and, consequently, we may have decreased revenue. The patent laws involving medical devices and life sciences technologies such
as our microspheres are complex and vary from country to country. Thus, we cannot predict whether we will secure patent protection from any of our existing patent applications in the United States or
abroad, although we have a current policy of pursuing patent protection wherever possible for our new technologies. We also cannot predict whether such coverage obtained in any of our United States or
foreign patent applications will be meaningful.

We
do not know whether competitors have similar U.S. patent applications on file, since U.S. patent applications filed before November 28, 2000, or for which no foreign patents
will be sought, are secret until issued, and applications filed after November 28, 2000 are published approximately 18 months after their earliest priority date. Consequently, the United
States Patent and Trademark Office could initiate interference proceedings involving our owned or licensed U.S. 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
require our employees, consultants and advisors to execute confidentiality agreements. However, we cannot guarantee that these agreements will provide us with adequate protection
against improper use or disclosure of confidential information. In addition, in some situations, these agreements may conflict with, or be subject to, the rights of third parties with whom our
employees, consultants or advisors have prior employment or consulting relationships. Further, others may independently develop substantially equivalent proprietary information and techniques, or
otherwise gain access to our trade secrets. Our failure to protect our proprietary information and techniques may inhibit or limit our ability to exclude certain competitors from the market.

If we become involved in expensive patent litigation or other proceedings to enforce or defend 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.

On January 13, 2005, we were notified of a Notice of Opposition filed in the European Patent Office, or EPO, by Biocompatibles
UK Limited on December 23, 2004, challenging the patentability of the claims in our granted European Patent, EP 1128816, which relates to certain PVA microspheres for use in embolization and
methods thereof. On December 10, 2007, the EPO upheld the claims of our patent in amended form and rendered its formal written decision on December 27, 2007. We and Biocompatibles have
appealed this decision. On July 1, 2008, Biocompatibles UK Limited filed a Notice of Opposition in the EPO challenging the patentability of the claims in our granted European Patent, EP 267839,
which relates to certain drug-loaded microspheres and their use in embolization. We intend to continue to defend our European patent, including filing a timely response. We are not able to
predict the outcome of either of these opposition proceedings.

With
the exception of the two European Opposition proceedings just described, we are not currently involved in any other litigation or actions with third parties to enforce or defend our
patent rights. However, in order to protect or enforce our patent rights, we may have to initiate legal

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proceedings
against third parties, such as infringement suits, opposition proceedings, interference proceedings or defend against such proceedings. By initiating legal proceedings to enforce our
intellectual property rights, we may also provoke these third parties to assert claims against us. If we do not prevail in any such proceedings, our patents could be narrowed, invalidated or rendered
unenforceable. Furthermore, we may be sued for infringing on the intellectual property rights of others. We may find it necessary, if threatened, to initiate a lawsuit seeking a declaration from a
court regarding the proprietary rights of others. As we introduce new products into the market, we may be accused of infringing the patent rights of third parties. If we do not prevail in such a
patent litigation brought against one of our products or its use, we may be required to pay damages, stop selling our product or obtain a royalty-bearing license if one is obtainable. Any required
license might 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 prevented from selling some of our products, which could decrease our revenue. Intellectual property
litigation is costly and, even if we prevail, could divert management attention and resources away from our business.

If any of our licenses to use third-party technologies in our products are terminated, we may be unable to develop, market or sell our 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. In particular, we have an agreement with L'Assistance Publique-Hôpitaux de Paris, pursuant to which
L'Assistance Publique-Hôpitaux de Paris has granted us exclusive rights to use two United States patents and their foreign counterparts that we jointly own with
L'Assistance Publique-Hôpitaux de Paris relating to Embosphere Microspheres. We also have an agreement with Dr. Shinichi Hori pursuant to which we have an
exclusive royalty-bearing license relating to Japanese patent rights for our HepaSphere Microsphere and QuadraSphere Microsphere products. We also have an agreement with Archimmed SARL pursuant to
which we have an exclusive royalty-bearing license to patent rights for our MR Microsphere product, which is in development. Each of these agreements can be terminated on short notice by the licensor
if we default on our obligations under the license and fail to cure such default after notice is provided. 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 our losing our rights to the license, which could result in our being
unable to develop, manufacture or sell products which contain the licensed technology.

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 and package all of our
microsphere products in one manufacturing facility in France. We have contracted with two suppliers for our guidewire products, and are currently in negotiation to extend an existing contract with a
third party to supply and package our catheter product. Either we or any third-party manufacturer would likely experience significant delays or cessation in producing our products if we or they
experience difficulties, delays or failures in manufacturing processes, quality control processes, equipment calibration, process-critical equipment or in any other process necessary for the
manufacture of our products, or if we or they experience a labor-based error or omission, or a labor strike, natural disaster, local or regional conflict or any disruption in supply. If we are unable
to manufacture and package our products at our facility in France, we may be required to enter into arrangements with one or more alternative contract manufacturing companies.

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Even if we are able to identify alternative facilities to manufacture our products, if necessary, we may experience disruption in the supply of our products until
such facilities are available. Although we believe we possess adequate insurance for damage to our property and the disruption of our business from casualties, such insurance may not be sufficient to
cover all of our potential losses and may not be available to us on acceptable terms or at all. Our failure to deliver products on a timely basis could lead to customer dissatisfaction and damage our
reputation. 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.

Medical
device manufacturers must adhere to current Good Manufacturing Practices and Quality System Regulations which are enforced by the FDA through its inspection program. We and other
third-party manufacturers must comply with various quality system requirements pertaining to all aspects of our product design and manufacturing process, including requirements for packaging, labeling
and record keeping, complaint handling, corrective and preventive actions and internal auditing. In addition, medical device manufacturing laws are also in effect in many countries outside of the U.S.
We or our third-party manufacturers may not be able to comply or maintain compliance. If we or any third-party manufacturers we engage fail to comply, such noncompliance could significantly delay our
receipt of new product premarket approvals, result in FDA enforcement action, including an embargo on imported devices, or otherwise cause delays and disruptions in the manufacture and supply of our
products, any of which would harm our reputation and could materially adversely affect our operating results.

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 and services with respect to our microspheres, catheters and guidewires from approximately ten
third-party vendors, including a third party from whom we purchase guidewires for our Segway Guidewire product; a third party from whom we purchase catheters for our EmboCath Plus Infusion
Microcatheter product; and a third party from whom we purchase guidewires for our Sequitor Steerable Guidewire product. Our reliance on our suppliers exposes us to risks,
including:



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 and be harmful to our reputation.

Risks Relating to Our Foreign Operations

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

Our worldwide manufacturing and European sales operations are currently conducted primarily through our French subsidiary. Furthermore,
we currently derive a portion of our revenue from the sale

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of
our microspheres and other products in the European Union. For the years ended December 31, 2008, 2007 and 2006, approximately 16%, 23% and 24%, respectively, of our revenue was derived from
sales of our microspheres and other products in the European Union. We are increasingly subject to a number of challenges that 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:



In
March 2008, we commercially launched our Embosphere Microsphere product in the People's Republic of China. Conducting business in China exposes us to a variety of risks and
uncertainties that are unique to China. The economy of China has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the Chinese government has
implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in
business enterprises, a substantial portion of productive assets in China is still owned by the Chinese government. In addition, the Chinese government continues to play a significant role in
regulating industrial development. It also exercises significant control over China's economic growth through the allocation of resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Efforts by the Chinese government to slow the pace of growth of the Chinese economy
could result in interruptions of our commercialization efforts in China. In addition, the Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it is a
system in which decided legal cases have little precedential value. In 1979, the Chinese government began to promulgate a comprehensive system of laws and regulations governing economic matters in
general. Accordingly, we cannot predict the effect of future developments in the Chinese legal system, including the promulgation of new laws, changes to existing laws or the interpretation or
enforcement thereof, or the preemption of local regulations by national laws. Our commercialization efforts in China could be materially harmed by any changes in the political, legal or economic
climate in China or the inability to enforce applicable Chinese laws and regulations. If such commercialization efforts in China are materially harmed, we would not be able to grow sales of our
Embosphere Microspheres in China and our operating results could be adversely affected.

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Because we translate foreign currency 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 exchange rates.

A significant portion of our business is conducted in the European Union euro. We recognize foreign currency gains or losses arising
from our operations in the period incurred. As a 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.

Risk Relating to Our Stock Price

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

The market price of our stock is highly volatile. From January 1, 2007 through March 2, 2009, the price of our common
stock has ranged from a low of $1.55 to a high of $8.02. As a result of this volatility, investments in our stock could rapidly lose their value.

Our
stock price could fluctuate for many reasons, including without limitation:



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.

When
the market price of a stock has been as volatile as our stock price has been, holders of that stock may institute 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.

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Securities analysts may not initiate coverage for our common stock or may issue negative reports, and this may have a negative impact on the market price of our common
stock.

Securities analysts may elect not to provide research coverage of our common stock. If securities analysts do not cover our common
stock, the lack of research coverage may adversely affect the market price of our common stock. The trading market for our common stock may be affected in part by the research and reports that
industry or financial analysts publish about us or our business. If one or more of the analysts who elect to cover us downgrades our stock, our stock price could decline. If one or more of these
analysts ceases coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline. It may be difficult for companies such as ours, with smaller
market capitalizations, to attract independent financial analysts that will cover our common stock. This could have a negative effect on the market price of our stock.

Item 1B.    UNRESOLVED STAFF COMMENTS

None.

Item 2.    PROPERTIES

We currently lease office and manufacturing facilities in Rockland, Massachusetts, and Roissy, France. Our Rockland, Massachusetts,
office includes approximately 13,000 square feet of corporate offices, laboratory and warehouse space pursuant to a lease expiring on February 28, 2010. Our Roissy, France, facility, where we
produce our Embosphere Microspheres, HepaSphere Microspheres and QuadraSphere Microspheres includes approximately 18,000 square feet of office, laboratory and manufacturing space and is leased through
May 2010.

We
believe that the leased facilities in Rockland, Massachusetts, and 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 August 17, 2005, a lawsuit commenced in the Circuit Court, Twenty-Second Judicial Circuit, St. Louis, Missouri,
entitledBrett Pingel by next friend Dawn LaRose vs. BioSphere Medical, Inc., Bruce Kirke Bieneman, M.D., St. Louis University Hospital, John Stith, M.D. and
St. Louis University.The lawsuit alleges, among other things, that a patient suffered permanent bilateral blindness as a result of the use of our EmboGold Microspheres
in a juvenile nasal angiofibroma embolization or the negligence of the health-care providers or both factors combined. As alleged in the complaint, the claims that the EmboGold
Microspheres were defective are vague and nonspecific. All defendants have denied the allegations against them. The plaintiffs seek compensatory and punitive damages. We carry product liability
insurance and this case is currently being defended by our insurer under reservation of rights with respect to the claim of punitive damages, for which an exclusion from coverage exists. We have filed
an answer to this lawsuit in which we have denied the claims being made. Some pretrial discovery has been completed, but no party has disclosed any expert opinions. The Plaintiff has voluntarily
dismissed John Stith, M.D. from the lawsuit without a settlement payment. This case is presently set for trial on July 6, 2009.

On
June 4, 2008, a lawsuit was filed in the Superior Court of California, County of Los Angeles entitledHamid Rashidi v. Franklin Moser, M.D.,
Cedars-Sinai Medical Center, Biosphere Medical, Inc. et al. The plaintiff alleges, among other things, that he presented to an emergency room with a severe nosebleed,
that he suffered permanent blindness in one eye following the treatment of his severe nosebleed with our Embosphere Microspheres, that the product was defective, that the manner in which it is
marketed and sold is misleading, that the health-care providers were negligent, or all factors combined. However, as alleged in the complaint, these claims are vague and nonspecific. The
plaintiff

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is
seeking unspecified damages. All defendants have denied the allegations against them. We carry product liability insurance and this case is currently being defended by our insurer under reservation
of rights with respect to the claim of punitive damages, for which an exclusion from coverage exists. We have filed an answer to this lawsuit in which we have denied the claims being made. This
lawsuit is in its early stages. A trial date has been set for August 10, 2009.

We
intend to defend against the Pingel and Rashidi claims vigorously. However, we cannot give any assurance that we will prevail in either claim, that our product liability insurance
coverage would be sufficient to cover any judgments, or that all or any part of our liabilities, if any, for either lawsuit would be covered by our product liability insurance. Accordingly, we are
currently unable to predict the financial or operational impact of either of these product liability litigations.

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

No matters were submitted to a vote of our security holders, through solicitations of proxies or otherwise, during the quarter ended
December 31, 2008.

EXECUTIVE OFFICERS

As of March 2, 2009, our executive officers, their respective ages and their positions are as follows:

Name

Age

PositionRichard J. Faleschini


62

President and Chief Executive OfficerMartin J. Joyce


55

Executive Vice President and Chief Financial OfficerMelodie R. Domurad


51

Vice President of Regulatory, Medical Affairs, and Quality SystemsWillard W. Hennemann


54

Vice President of New Product and Business DevelopmentPeter C. Sutcliffe


59

Vice President of ManufacturingJoel B. Weinstein


58

Vice President of Global Marketing and Sales


Richard J. Faleschinihas served as our President and Chief Executive Officer since November 2004 and as a director of BioSphere Medical since March
2005. From 2003 to 2004, Mr. Faleschini served as Vice President and General Manager of the gynecology division at American Medical Systems Holdings, Inc., a supplier of medical devices
to physicians specializing in the treatment of urological and gynecological disorders. From 1999 to 2003, Mr. Faleschini was Vice President of Marketing and Sales for American Medical Systems
Holdings, Inc. From 1995 to 1999, he held executive marketing and general management positions at Medtronic, Inc., a medical technology company, with responsibilities in several sectors
of their cardiac rhythm management, cardiac surgery, and interventional vascular businesses. His previous experience also includes executive marketing and sales management responsibilities at Cordis
Corporation, Biomagnetic Technologies, and ATL/ADR Ultrasound. Mr. Faleschini received his B.S. in biology and M.S. in physiology from Michigan Technological University.

Martin J. Joycehas served as our Executive Vice President and Chief Financial Officer since January 2006. He served as our Chief Financial Officer
and Vice President from September 2004 to January 2006. From 2000 to 2004, Mr. Joyce served as Managing Partner of Stratex Group LLC, a provider of biopharmaceutical executive services
to early-stage companies and venture investors. From 1996 to 2000, Mr. Joyce was North American Chief Financial Officer for Serono Inc. a biotechnology company. Prior to serving as North
American Chief Financial Officer, Mr. Joyce held a variety of senior level positions within Serono, in finance, sales, marketing and manufacturing. Mr. Joyce was previously employed at
Millipore Corporation, a high technology bioscience company, and Bose

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Corporation,
an audio equipment manufacturer, focusing on strategic planning, product rationalization and return on investment analysis. Mr. Joyce received a B.S. in finance from Northeastern
University and a M.B.A. from Suffolk University, Boston, Massachusetts.

Melodie R. Domuradhas served as our Vice President of Regulatory, Medical Affairs, and Quality Systems since January 2008. From 1997 to 2007,
Dr. Domurad served as Vice President of Clinical, Regulatory, and Quality Affairs for Matritech, Inc., a developer of proteomics-based diagnostic products for the early detection of
cancer. From 1994 to 1997, Dr. Domurad held the position of Director of Clinical Research and Clinical Research Manager at Ergo Science, Inc., where she focused on therapeutics for
diabetes, obesity and cancer. Prior to joining Ergo Science, Inc., Dr. Domurad held leadership roles at the Center for the Study of Nutrition and Medicine at the New England Deaconess
Hospital and at the Cambridge Center for Holistic Health. Dr. Domurad holds a B.A. from Cornell University and a Ph.D. from the University of Cincinnati.

Willard W. Hennemannhas served as our Vice President of New Product and Business Development since February 2008. From 2006 to early 2008,
Dr. Hennemann served as Vice President of Intravascular Systems/Marketing for Medeikon Corporation, an early-stage developer of proprietary disposable technologies to treat cardiovascular
disease. From 2000 to 2006, Dr. Hennemann held the position of Vice President of Research and Development/Interventional Vascular at CryoCath Technologies, a leader in catheter-based products
for the cryotherapeutic treatment of cardiovascular disease. From 1998 to 1999, Dr. Hennemann served as Director of Marketing and Product Development for InterVascular, Inc., a division
of Datascope, which produces a broad line of vascular grafts. From 1996 to 1998, Dr. Hennemann served as Director of Marketing/International Clinical Studies of the Global Stent Business Unit
for Medtronic, Inc., a medical technology company. Prior to Medtronic, Dr. Hennemann assumed roles of increasing responsibility over a 12-year period with Cordis Corporation,
a pioneer in developing innovative diagnostic and therapeutic devices for interventional vascular medicine. Dr. Hennemann received his B.A. from the University of Maryland and a Ph.D. from the
University of Florida.

Peter C. Sutcliffehas served as our Vice President of Manufacturing since October 2002. From 2001 to 2002, Mr. Sutcliffe served as the Vice
President for North American Manufacturing for Whatman, Plc., a life science filtration company. From 1996 to 2001, he was the Chief Operating Officer for HemaSure Inc., a manufacturer
and supplier of blood filters. From 1982 to 1996, Mr. Sutcliffe held the position of Vice President of Manufacturing for Corning Costar Company, a life science products company. Prior to
Costar, he held manufacturing management positions with Millipore Corporation, a high technology bioscience company. Mr. Sutcliffe holds a B.S. in biology from the University of Richmond in
Virginia and a M.B.A. from Sul Ross State University of Texas, Fort Bliss, Texas.

Joel B. Weinsteinhas served as our Vice President of Global Marketing and Sales since January 2008. Prior to joining BioSphere Medical,
Mr. Weinstein founded and led several medical device companies, and founded his own firm, which provided strategic counsel to medical device companies and venture capital firms. From 1987 to
1998, Mr. Weinstein served as Vice President of Marketing and Business Development for Hologic, Inc., a medical device company focused on women's health. Prior to Hologic,
Mr. Weinstein had progressively greater management responsibilities over a seven-year period with Advanced Technology Laboratories, a multi-modality diagnostic ultrasound company.
He received his bachelor's degree in Electrical Engineering from City College of New York and a M.B.A. from Western New England College.

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PART II

Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on the NASDAQ Global Market under the symbol "BSMD." On March 2, 2009, the last reported sale price of
our common stock on the NASDAQ Global Market was $1.86, and there were approximately 89 stockholders of record. This number does not include stockholders for whom shares are held in "nominee" or
"street" name.

The
following table shows the range of high and low sales prices per share of our common stock for the last two fiscal years as reported on the NASDAQ Global Market.

2008High

LowFirst Quarter

$
6.00

$
3.30Second Quarter

$
5.12

$
3.10Third Quarter

$
4.50

$
3.15Fourth Quarter

$
3.59

$
1.55




2007High

LowFirst Quarter

$
7.70

$
5.88Second Quarter

$
8.02

$
6.39Third Quarter

$
7.79

$
4.32Fourth Quarter

$
6.33

$
4.15


We
have not paid any cash dividends on our common stock since our inception and do not intend to pay any cash dividends in the foreseeable future.

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Comparative Stock Performance

The following graph compares the cumulative total stockholder return on our common stock for the last five fiscal years with the
cumulative total return on (i) the Total Return Index for the NASDAQ Stock Market (U.S. Companies), which we refer to as the NASDAQ Composite Index (U.S.) and (ii) the NASDAQ Medical
Equipment Index, which we refer to as the NASDAQ Medical Equipment Index. This graph assumes the investment of $100 on December 31, 2003 in our common stock and each of the indices listed
above, and assumes dividends are reinvested. We have not paid any dividends on our common stock and no dividends are included in the representation of our performance. The stock price performance
shown in the below graph is not necessarily indicative of future price performance. Measurement points are the last trading day of the fiscal years ended December 31, 2004, 2005, 2006, 2007 and
2008.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG BIOSPHERE MEDICAL, INC., THE NASDAQ COMPOSITE INDEX (U.S.)
AND THE NASDAQ MEDICAL EQUIPMENT INDEX

12/04

12/05

12/06

12/07

12/08BioSphere Medical, Inc.

$
98.48

$
205.06

$
169.11

$
129.87

$
48.86NASDAQ Composite Index (U.S.)

$
110.08

$
112.88

$
126.51

$
138.13

$
80.47NASDAQ Medical Equipment Index

$
120.01

$
136.96

$
142.08

$
181.26

$
99.84


GRAPHIC

The
graph and table above are not "soliciting material," are not deemed filed with the SEC and are not to be incorporated by reference in any filing of ours under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, which we refer to herein as the Exchange Act, whether made before or after the date hereof and irrespective of any general
incorporation language in any such filing.

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Item 6.    SELECTED 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. Historical results are not necessarily indicative of future results.

Year Ended December 31,

2008

2007

2006

2005

2004(in thousands, except per share amounts)Statement of Operations Data:Revenue:Product sales

$
28,842

$
26,483

$
22,787

$
18,484

$
14,058License revenue


416


417


104





100Total revenue


29,258


26,900


22,891


18,484


14,158Costs and expenses:Costs of product sales


7,686


7,768


6,958


6,303


6,646Research and development


3,305


2,342


2,290


2,359


2,113Sales


10,374


7,671


7,550


5,792


5,251Marketing


6,514


5,290


3,699


2,473


2,299General, administrative and patent


7,204


6,439


5,561


4,219


4,154Litigation costs














874Total costs and expenses


35,083


29,510


26,058


21,146


21,337Loss from operations


(5,825
)

(2,610
)

(3,167
)

(2,662
)

(7,179
)Other income (expense):Interest income


375


1,017


938


225


92Interest expense


(9
)

(17
)

(15
)

(15
)

(16
)Other


96


(244
)

(80
)

(442
)

379Loss before income taxes


(5,363
)

(1,854
)

(2,324
)

(2,894
)

(6,724
)Income tax benefit (provision)


(129
)







93


(117
)Net loss


(5,492
)

(1,854
)

(2,324
)

(2,801
)

(6,841
)Preferred stock dividends


(578
)

(557
)

(525
)

(495
)

(68
)Net loss applicable to common stockholders

$
(6,070
)
$
(2,411
)
$
(2,849
)
$
(3,296
)
$
(6,909
)Basic and diluted net loss per common share applicable to common stockholders

$
(0.34
)
$
(0.14
)
$
(0.17
)
$
(0.22
)
$
(0.49
)Basic and diluted weighted average number of common shares outstanding


17,983


17,647


17,027


14,653


14,152




As of December 31,

2008

2007

2006

2005

2004(in thousands)Balance Sheet Data:Cash, cash equivalents and marketable securities

$
18,239

$
23,579

$
22,119

$
8,774

$
10,222Working capital


21,919


26,555


24,719


10,832


12,391Total assets


30,228


34,759


32,079


17,495


19,391Long-term debt and deferred licensing revenue


8


80


190


101


192Stockholders' equity


24,746


29,109


26,965


13,088


14,835


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

The following discussion of our financial condition and results of operations should be read in conjunction
with our consolidated financial statements and the related notes included elsewhere in this report. Some of the information contained in this discussion and analysis and set forth elsewhere in this
report, including information with respect to our plans, strategy and expectations for our business, financial condition and operations, includes forward-looking statements that involve risks and
uncertainties. You should review the section titled "Item 1ARisk Factors" for a discussion of important factors that could cause actual results to differ materially from the
results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We develop, manufacture and market products for medical procedures that use embolotherapy. Embolotherapy is the minimally invasive,
image-guided therapeutic introduction of various biocompatible substances into a patient's circulatory system to occlude a blood vessel, either to arrest or prevent hemorrhaging or to devitalize or
destroy the structure by occluding its blood supply. Our core technologies consist of patented bioengineered polymers, which are chemical compounds created through the application of medical science,
engineering principles and manufacturing methods. These core technologies are used to produce miniature spherical embolic particles, or microspheres, that are designed to have uniquely beneficial
properties for a variety of medical applications. We currently market and sell four microsphere products:



In
January 2008, the Medical Device Department of the State Food and Drug Administration of the People's Republic of China approved our Embosphere Microspheres for clinical use for
vascular embolizations, arteriovenous malformations, hypervascularized tumors and symptomatic uterine fibroids. In March 2008, we commercially launched Embosphere Microspheres in the People's Republic
of China.

For
the fiscal years ended December 31, 2008 and 2007, we primarily generated revenue from product sales of our embolic products in North America and the European Union. We also
recognized revenue from product sales in other geographic territories, including the Middle East, Africa, South America and Asia. Product revenue also includes the sale of accessory embolotherapy
devices such as our EmboCath®Plus Infusion Microcatheter, Sequitor®Steerable
Guidewire and Segway®Guidewire, as well our barium delivery kits and other ancillary medical devices sold during 2007 and the first half

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of
2008 exclusively in Europe. We derive a majority of our revenue in the United States and the European Union from the sale of Embosphere Microspheres for use in the treatment of uterine fibroids,
using a procedure called uterine fibroid embolization, or UFE. For the fiscal years ended December 31, 2008, 2007 and 2006 we also derived a small portion of our revenue from the license of
nonstrategic technology.

Our
strategic priorities are to accelerate our revenue growth by expanding the market for the minimally invasive treatment of symptomatic uterine fibroids using UFE and broadening
treatment options for several medical conditions for patients and physicians, including treating primary liver cancer tumors using our HepaSphere Microspheres.

In
January 2008, the Medical Device Department of the State Food and Drug Administration of the People's Republic of China approved our Embosphere Microspheres for clinical use for
vascular embolizations, arteriovenous malformations, hypervascularized tumors, and symptomatic uterine fibroids. In March 2008, we commercially launched Embosphere Microspheres in the People's
Republic of China.

We
are currently developing a smaller-sized version of our HepaSphere Microsphere and QuadraSphere Microsphere products for use in interventional oncology, which, in each case, is being
designed to allow for delivery into smaller vasculature. We are also conducting limited preclinical research based upon our proprietary technology. These programs include our MR Microsphere product
under development, which is being designed to enhance our Embosphere Microspheres with features that make the microspheres visible under magnetic resonance imaging, or MRI, and our Resorbable
Microsphere product under development, which is being designed to enhance our Embosphere Microspheres with features that would allow the microspheres to dissolve and be absorbed into the body. These
programs are at an early stage of development and we may not be successful in our development efforts.

We
have experienced operating losses in each fiscal period since our inception. As of December 31, 2008, we had approximately $18.24 million in cash, cash equivalents and
marketable securities, and an accumulated deficit of approximately $90.13 million. Most of our expenditures to date have been for sales and marketing activities, general and administrative
expenses and research and development activities. We expect to continue to incur operating losses in 2009 as we seek to execute on our business plan, including continuing to establish sales and
marketing capabilities for our products and conducting research and development activities. Prior to 1999, we were engaged in chromatography programs that were divested in 1999. Of the cumulative
operating loss at the end of 2008, approximately $31.54 million was related to chromatography and approximately $58.46 million was related to embolotherapy platform development.

Research and Development

Research and development expense as a percentage of total revenue for the fiscal years ended December 31, 2008, 2007 and 2006
was 11%, 9% and 10%, respectively. Research and development expense in these periods relate primarily to:



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Our
research and development functions typically work on a number of projects concurrently. In addition, except for clinical expenses, a substantial amount of fixed research and
development costs such as salary and salary-related benefits, facility costs, equipment depreciation and maintenance are shared among various programs. Accordingly, we have not historically tracked
specific costs for each of our research and development projects.

We
cannot reasonably estimate or know the nature, timing and estimated costs of the efforts necessary to complete the development of, or the period in which material net cash inflows are
expected to commence from, any of our product candidates that are currently in development or from any of our currently marketed products for which we are seeking expanded marketing approvals in
selected indications or geographic regions, due to the numerous risks and uncertainties associated with developing and commercializing medical devices, including uncertainties relating
to:



Any
failure to complete the development of our product candidates in a timely manner, or at all, could have a material adverse effect on our operations, financial position and liquidity.
A discussion of the risks and uncertainties associated with completing our projects on schedule, or at all, and some consequences of failing to do so, are set forth in "Part I,
Item 1ARisk Factors."

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. Note 2 to our consolidated financial statements describes the significant
accounting policies and methods used in the preparation of our consolidated financial statements. The accounting policies described below are significantly affected by critical accounting policies and
estimates. Such accounting policies require significant judgments, assumptions and estimates used in the preparation of our consolidated financial statements, and actual results could differ
materially from the amounts reported based on the policies. The significant accounting policies which we believe are most critical in gaining an understanding of our financial statements include

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policies
and judgments relating to revenue recognition, stock-based compensation, accounts receivable, inventories and income taxes.



We apply the revenue recognition guidelines summarized in Staff Accounting Bulletin, or SAB, No. 104 "Revenue Recognition." We
recognize revenue when products are shipped and the customer or distributor takes ownership and assumes risk of loss, collection of the relevant receivable is reasonably assured, persuasive evidence
of an arrangement exists, for example, a valid purchase order from an approved customer, the sales price is fixed or determinable, payment is not contingent on resale and we do not have any continuing
obligations to ensure resale. Revenue from licensing agreements is recognized ratably over the expected service period. We establish reserves for potential sales returns and evaluate the adequacy of
those reserves based upon realized experience and expectations. Any significant change in credit returns could have a material adverse impact on our revenue and operating results for the period or
periods in which such returns materialize.



We apply the provisions of Statement of Financial Accounting Standards, or SFAS, No. 123R, "Share-Based Payment," or
SFAS 123R. This statement requires us to measure the cost of employee services in exchange for equity awards based on the grant-date fair
value of an award and to recognize the cost over the requisite service period. We recognize compensation expense on fixed awards with pro rata vesting on a straight-line basis over the
awards' vesting period.

We
estimate the fair value of each option on the date of grant using the Black-Scholes option-pricing model, which requires the consideration of several subjective assumptions, including
the expected dividends on our common stock, the expected volatility of our common stock, the risk-free interest rate for the expected option term and the expected term of the option.
Equity instrument valuation models, such as the Black-Scholes valuation model, are highly subjective. Any significant changes in any of our estimates and judgments, including those used to select the
inputs for the Black-Scholes valuation model, could have a significant impact on the fair value of the equity instruments granted or sold and the associated compensation charge, if any, we record in
our financial statements.

Because
share-based compensation expense recognized in our consolidated statements of operations is based on awards ultimately expected to vest, it has been reduced for estimated
forfeitures. If factors change and we employ different assumptions in the application of SFAS 123R in future periods, the compensation expense that we record under SFAS 123R may differ
significantly from what we have recorded in the current year.



We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our
historical payment experience and any specific customer collection issues that we have identified. While such credit losses have historically been within our expectations and the provisions
established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. Substantially all of our receivables are due from hospitals, distributors,
health care clinics, and managed care systems located throughout the United States, Canada, Europe, Asia and South America. A significant portion of products sold, both foreign and domestic, is
ultimately funded through government reimbursement programs. As a consequence, changes in these programs can have an adverse impact on our operating results and cash flows.

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We value our inventory at the lower of the actual cost to purchase or manufacture the inventory or the market value for such inventory.
We regularly review inventory quantities in process and on hand and record a provision for production loss and obsolete inventory based primarily on actual loss experience and on our estimated
forecast of product demand. A significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand. In the future, if our inventory is determined to be
overvalued, we would be required to recognize such costs in our costs of product sales at the time of such determination. Although we make every effort to ensure the accuracy of our production process
and forecasts of future product demand, any significant unanticipated changes in production yield or product demand could have a significant impact on the value of our inventory and our reported
operating results.



We use the asset and liability accounting method whereby deferred tax assets and liabilities are recognized based on temporary
differences between the financial statements and the tax bases of such 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.

We
are subject to income tax in numerous jurisdictions at various rates worldwide and the use of estimates is required in determining the tax provision and valuation allowance against
net deferred tax assets. We have substantial net operating loss carryforwards that have generated significant deferred tax assets in our tax jurisdictions. Due to the size of the net operating loss
carryforward in relation to our history of unprofitable operations, we historically have not recognized any of our net deferred tax assets. However, future improvements in our operational performance
in a tax jurisdiction, if any, could increase the certainty of our ability to apply our deferred tax assets against taxable income, which, if so applied, could significantly impact the value of our
deferred tax assets and reported operating results.

Although
BioSphere Medical S.A., or BMSA, our wholly owned French subsidiary, has been profitable in recent periods, we expect that BMSA will recognize a loss in 2009 and,
therefore, we will to continue to maintain a full valuation allowance on our tax benefits until profitability has been sustained over a time period that is, and in amounts that are, sufficient to
support a conclusion that it is more likely than not that some portion or all of the deferred tax assets will be realized. We continue to evaluate the positive and negative evidence identified in
Statement of Financial Accounting Standards, or SFAS, No. 109"Accounting For Income Taxes,"to determine whether, in our view, it is more likely
than not that some or all of our deferred tax assets in each of our tax jurisdictions will be realized. Any significant changes in any of our estimates and judgments, including our assumptions
concerning the
operating profitability of our French subsidiary, could have a significant impact on the valuation allowance on our tax assets and our reported operating results.

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Results of Operations

Years Ended December 31, 2008 and 2007



For the Years Ended December 31,Increase/
(Decrease) ($)

Increase/
(Decrease) (%)(in thousands)

2008

2007Total revenue

$
29,258

$
26,900

$
2,358


9
%Costs of product sales


7,686


7,768


(82
)

(1
)%Gross margin

$
21,572

$
19,132

$
2,440


13
%Gross margin %


74
%

71
%

3
%


Revenue.Total revenue increased for the year ended December 31, 2008 as compared to the year ended December 31, 2007,
primarily due to
an increase in sales of our microsphere products for interventional gynecology and interventional oncology procedures offset by decreases in the sales of gastric products.
Specifically:



Additional
increases in revenue during the year ended December 31, 2008, as compared to 2007, were due to increased sales of our delivery systems and changes in foreign exchange
rates. Product revenue from the sales of our delivery system products increased $129,000, or 12%, from the year ended December 31, 2007 on increased demand for our EmboCath Plus catheter in the
United States.

Included
in the increase in revenue noted above is the effect of changes in foreign exchange rates. During the year ended December 31, 2008, as compared to the same period in
2007, revenue increased $296,000 due to changes in foreign exchange rates as revenue from our French operations increased due to the weakening of the U.S. dollar versus the euro during the first three
quarters of 2008.

Sales
of nonstrategic gastric products in Europe, which include, barium and drainage kits, decreased $1.65 million, or 67%, from the year ended December 31, 2007 as we
phased out nonstrategic products in 2008.

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Also
included in total revenue for the years ended December 31, 2008 and 2007 is $416,000 and $417,000, respectively, of revenue from our license of nonstrategic technology.

Gross Margin.The gross margin improvement of 3% as a percentage of revenue for 2008 as compared to 2007 was primarily attributable to
a favorable
mix of product sales resulting from the phaseout of certain nonstrategic products during 2008. Sales from our embolic and delivery system products, which have higher gross margins than our
nonstrategic products, represented 96% of overall sales during the fiscal year ended December 31, 2008, an increase of 7% as compared to the fiscal year ended December 31, 2007.

We
expect that future gross margin will be highly correlated with the following factors:



For the Years Ended December 31,Increase/
(Decrease) ($)

Increase/
(Decrease) (%)(in thousands)

2008

2007Research and development

$
3,305

$
2,342

$
963


41
%Sales


10,374


7,671


2,703


35
%Marketing


6,514


5,290


1,224


23
%General and administrative


6,499


5,999


500


8
%Patent


705


440


265


60
%Total operating expenses

$
27,397

$
21,742

$
5,655


Research and Development Expense.Total research and development expense in the fiscal year ended December 31, 2008 increased
significantly
over the fiscal year ended December 31, 2007, due primarily to higher employee costs due to an increased number of employees and higher third party development costs. During the first quarter
of 2008, we hired a vice president of new product and business development and a vice president of regulatory, medical affairs and quality systems. In addition, in 2008 we engaged a third party to
develop a new process for the manufacture of our Embosphere Microspheres. During the fourth quarter of 2008, we recognized $200,000 in additional expenses associated with this new process development.

Sales Expense.Sales expense for the fiscal year ended December 31, 2008 increased over the fiscal year ended December 31,
2007,
primarily due to an increase in salary, incentive compensation and other compensation-related expenses as a result of the expansion of our direct sales force in the United States and the addition of
an employee dedicated to managing our distributor relationships in Asia and South America. At the beginning of 2008, we increased the number of U.S. sales territories from 18 to 24 and hired a fourth
regional manager. During 2008, we also had three incremental quarters of employee-related costs associated with a sales manager we hired in the fourth quarter of 2007 to expand markets outside the
United States and Europe.

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Marketing Expense.Marketing expense for the fiscal year ended December 31, 2008 increased from the fiscal year ended
December 31,
2007, primarily due to our increased marketing spending for UFE programs. During the third quarter of 2008, we launched our "Ask4Tell4" customer outreach program with supermodel actress and reality TV
show celebrity, Beverly Johnson, who was featured on NBC'sThe Today Show, in an interview segment on NBC's iVillage Online, in a radio interview on the Tom Joiner Morning
Showand in both online and newsletter segments on Womansday.com. In addition to the "Ask4Tell4" campaign, we increased local
marketing activities during 2008, including increasing the number of comarketing programs run with hospitals.

General, Administrative and Patent Expense.General, administrative and patent expense for 2008 increased 12% from the fiscal year
ended
December 31, 2007, primarily due to higher intellectual property costs associated with our drug delivery platform and to legal costs related to our expansion into Asia.

Interest Income.Interest income decreased to $375,000 in the fiscal year ended December 31, 2008 from $1.02 million in the
fiscal year
ended December 31, 2007. The decrease in 2008 as compared to 2007 was
due primarily to lower interest rates on available investment-grade assets. At December 31, 2008, $17.00 million of our marketable securities and cash equivalents were held in U.S.
treasury obligations, representing 98% of our total investments.

Foreign Exchange Gains (Losses).Foreign exchange gains and losses primarily resulted from euro-to-U.S. dollar currency
fluctuations on euro-denominated short-term intercompany trade accounts. The foreign exchange gains during the year ended December 31, 2008 totaled approximately
$113,000, compared to the foreign exchange losses of approximately $239,000 in the comparable period of 2007. The increase was primarily the result of more favorable currency rates in 2008.

Years Ended December 31, 2007 and 2006



For the Years Ended December 31,Increase/
(Decrease) ($)

Increase/
(Decrease) (%)(in thousands)

2007

2006Total revenue

$
26,900

$
22,891

$
4,009


18
%Costs of product sales


7,768


6,958


810


12
%Gross margin

$
19,132

$
15,933

$
3,199


20
%Gross margin %


71
%

70
%

1
%


Revenue.Total revenue increased for the year ended December 31, 2007 as compared to the year ended December 31, 2006,
primarily due to
an increase in sales of our microsphere products for interventional gynecology and interventional oncology procedures.



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Additional
increases in revenue during the year ended December 31, 2007, as compared to 2006, were due to increased sales of our delivery systems, licensing revenue and changes in
foreign exchange rates. Product revenue from the sales of our delivery system products increased $290,000, or 36%, from the year ended December 31, 2006, on increased demand outside the United
States. Revenue from our licensing agreement increased $313,000 during the year ended December 31, 2007 compared to 2006 as we recognized a full year of revenue from the licensing of
nonstrategic intellectual property to a third party in 2007 compared to one quarter of revenue in 2006.

Included
in the increase in revenue noted above is the effect of changes in foreign exchange rates. During the year ended December 31, 2007, as compared to the same period in
2006, revenue increased $529,000, due to changes in foreign exchange rates, as sales from our French operations increased due to the weakening of the U.S. dollar versus the euro.

Revenue
from the sale of nonstrategic gastric products in Europe, which include, among other things, barium and drainage kits, was $2.47 million and $2.44 million for the
years ended December 2007 and 2006, respectively.

Cost of Product Sales.Cost of product sales for the year ended December 31, 2007 increased from the year ended December 31,
2006,
primarily due to higher Embosphere Microsphere sales volume and, to a lesser extent, higher inventory obsolescence charges, which increased $91,000 in 2007 as compared to 2006, primarily resulting
from the phaseout of our nonstrategic products and the release of our new expandable microsphere products.

The
gross margin improvement of 1% as a percentage of revenue for 2007 as compared to 2006 was primarily attributable to the favorable product and geography mix of sales due to the
increase in sales in 2007 of Embosphere Microspheres in the United States, which provide our highest profit margins. Offsetting these improvements was the increase in inventory write-downs.



For the Years Ended December 31,Increase/
(Decrease) ($)

Increase/
(Decrease) (%)(in thousands)

2007

2006Research and development

$
2,342

$
2,290

$
52


2
%Sales


7,671


7,550


121


2
%Marketing


5,290


3,699


1,591


43
%General and administrative


5,999


5,182


817


16
%Patent


440


379


61


16
%Total operating expenses

$
21,742

$
19,100

$
2,642


Research and Development Expense.Total research and development expense in for the fiscal year ended December 31, 2007 increased
over the
fiscal year ended December 31, 2006 due to the change in foreign exchange rates offset by lower employee costs. Our research and development activities located in France, which are denominated
in euros, cost $85,000 more during the fiscal year ended December 31, 2007 as compared to the fiscal year ended December 31, 2006 due to the weakening of

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the
U.S. dollar versus the euro. Offsetting these increases were lower employee costs resulting from open positions in the fiscal year ended December 31, 2007.

Sales Expense.Sales expense for the fiscal year ended December 31, 2007 increased over the fiscal year ended December 31,
2006,
primarily due to an increase in consulting activities and to the change in foreign exchange rates offset by lower employee costs related to an open executive position through the second half of 2007.
In 2007, we engaged an external market consultant to analyze our customer base and territory potential to optimize our planned expansion of the U.S sales force in 2008. In addition, sales expense for
our sales organization located in France was $141,000 more during 2007 as compared to 2006 due to the weakening of the U.S. dollar versus the euro. Offsetting these increases was a decrease in net
employee expenses resulting from temporary management vacancies during 2007.

Marketing Expense.Marketing expense for the fiscal year ended December 31, 2007 increased from the fiscal year ended
December 31,
2006, primarily due to increased local marketing programs in the United States, which represented $1.10 million of the increase, and salary and other compensation expenses related to the
expansion of the employee base during the latter half of 2006 to manage the increase in marketing activities. These local marketing activities, which included, among other channels, targeted print,
radio, television, public transit advertising and public relations, are designed to build physician and patient awareness and demand for UFE in the United States. In addition, during 2007 we engaged a
market research consultant to perform a strategic analysis of the interventional oncology market, representing approximately $200,000 of the increase.

General, Administrative and Patent Expense.General, administrative and patent expense for the fiscal year ended December 31, 2007
increased
from the fiscal year ended December 31, 2006, primarily due to an increase in equity compensation, consulting and headcount increases. During 2007 we recognized higher equity compensation costs
totaling approximately $380,000 due to the attainment of revenue targets on performance-based awards and to the full-year costs of previously awarded equity compensation. Expenses
associated with headcount expansion and consulting costs related to our preparation for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 were approximately $209,000 higher in 2007
as compared to 2006. In addition, the cost of our general and administrative
function located in France, was approximately $82,000 more during 2007 as compared to 2006 due to the weakening of the U.S. dollar versus the euro.

Interest Income.Interest income increased to $1.02 million in the fiscal year ended December 31, 2007 as compared to $938,000
in the
fiscal year ended December 31, 2006. The increase in 2007 as compared to 2006 was due primarily to higher average daily-invested cash balances and to a lesser extent to higher interest rates on
available investment grade assets.

Foreign Exchange Losses, Net.The foreign exchange losses during the year ended December 31, 2007 totaled approximately $239,000,
compared to
the foreign exchange losses of approximately $102,000 in the comparable period of 2006. The increase in the loss was primarily the result of higher euro-denominated intercompany trade
payable balances during 2007.

Liquidity and Capital Resources

As of December 31, 2008, we had $18.24 million of cash, cash equivalents and marketable securities, a decrease of
$5.34 million from $23.58 million at December 31, 2007. This decrease was primarily the result of the net loss incurred in 2008. We have historically funded our operations from
net proceeds provided by public and private equity offerings, net revenue, bank financing and equipment financing leases and, to a lesser extent, the exercise of stock options.

The
net cash used in operating activities in 2008 was $4.18 million and includes a net loss of $5.49 million and $1.14 million in working capital changes, offset by
noncash charges primarily related

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to
stock-based compensation and depreciation. Accounts receivable increased $722,000 as a result of a five-day increase in days sales outstanding, which increased to 59 days from
54 days at December 31, 2007. Accounts payable decreased $780,000, due primarily to the timing of payments on delivery system products, which are manufactured for us by third parties,
production materials and capital equipment.

The
net cash provided by operating activities in 2007 was $327,000 and included a net loss of $1.85 million and $645,000 in working capital changes, offset by noncash charges.
Accounts receivable
decreased $231,000 as a result of a four-day improvement in days sales outstanding, which decreased to 54 days from 58 days at December 31, 2006. Inventory increased
$1.13 million to meet the demand of higher sales of our microsphere products.

During
2008, we spent $324,000 to purchase manufacturing equipment and information technology equipment to support the expansion of our direct sales force and our existing
infrastructure. In August 2008, we acquired patent rights to enhance our intellectual property portfolio for a total cost of $345,000.

Net
cash used in financing activities was $357,000 during 2008, which included $435,000 for the payment of the 2008 preferred stock dividend in cash, and scheduled principal payments on
existing capital arrangements, offset by $105,000 from the issuance of common stock upon exercise of options under employee benefit and incentive plans.

We
believe that the $18.24 million in cash, cash equivalents and marketable securities that we have as of December 31, 2008, together with anticipated proceeds from sales
of our microspheres and delivery systems, will be sufficient to fund our operating and capital requirements as currently planned through at least the next twelve months. In the longer term, we expect
to fund our operations and capital requirements through a combination of expected proceeds from product sales and capital equipment financings.

Our
currently planned operating and capital requirements primarily include the need for working capital to:



However,
our cash requirements may vary materially from those now planned due to a number of factors, including, without limitation: unanticipated changes in the amount of revenue we
generate from sales of our products, in particular from the use of our Embosphere Microspheres for UFE; changes in our UFE regulatory and marketing programs; the outcome of lawsuits against us,
generally and as further described in "Part I, Item 3Legal Proceedings" and below, for which any adverse judgment could materially adversely impact market acceptance of our
products and, if not adequately covered by our product liability insurance, could have a material adverse effect on our liquidity; costs resulting from changes in the focus and direction of our
research and development programs; competitive advances that make it harder for us to market and sell our products; the timing and cost of FDA regulatory review; the market's acceptance of any
approved products; inflation; and adverse global market and economic conditions. We also may need additional funds for possible strategic acquisitions of synergistic businesses, products and/or
technologies.

We
may require substantial additional cash to fund our planned, and any unplanned, expenses. If adequate funds are not available, we could be required to reduce our capital expenditures,
scale back

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or
eliminate some or all of our research, development, sales and marketing initiatives, reduce our workforce and license to others or divest products or technologies that we otherwise would seek to
commercialize ourselves, or otherwise curtail our business operations. We may seek additional funding through a combination of collaborative arrangements, debt financing or the sale of additional
equity securities. We may not receive such additional funding on reasonable terms, or at all. Any sales of equity or debt securities are likely to dilute our existing stockholders, and the new
securities may have rights, preferences or privileges senior to those of existing holders of our capital stock. Debt financing, if available, may involve agreements that include covenants limiting or
restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration and
licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or products, or grant licenses on terms that are not favorable to us.

We
have two lawsuits pending against us as further descried in "Part 1, Item 3Legal Proceedings," and our financial condition is subject to a number of risks
relating to these pending lawsuits. Although we currently maintain product liability insurance coverage, if the plaintiff in either of these matters prevails in these claims against us and is awarded
substantial damages, our insurance, which is subject to a $5.00 million cap on the maximum amount our insurer is required to pay for all
claims within any one-year period, may not provide us with adequate coverage for a judgment against us. If we are forced to satisfy a significant judgment in excess of our product
liability coverage, we may not have sufficient cash to pay such judgment. In addition, our product liability insurer has advised us in writing that a verdict against us for punitive damages in either
matter is specifically excluded from our coverage. Our insurer has also advised us that it does not waive any other defenses to coverage that may apply. If either plaintiff is awarded punitive
damages, or if our insurer pursues and successfully prevails in any defenses to its coverage in either claim, we could be required to make substantial payments and we may not have sufficient cash to
make such payments. There can be no assurance that, if required, we would be able to raise the additional funds required to satisfy any such judgment on favorable terms, or at all. In such case, we
may be required to curtail our research and development or other programs or our business operations, which could have a material adverse effect on our financial condition, results of operations and
future prospects and could cause our stock price to decline.

Borrowing Arrangements

At December 31, 2008, we had a credit facility with a bank under which we may borrow up to $3.00 million. We may use
amounts borrowed under the agreement for general working capital and corporate purposes, subject to limitations defined in the agreement. This agreement expires in June 2009. There were no borrowings
outstanding under this agreement as of December 31, 2008. Each available 30-, 60-, 90- or 180-day advance will bear interest at a per annum rate,
at our option, equal to either (i) a variable rate as determined by the bank or (ii) a rate equal to the corresponding 30-, 60-, 90- or
180-day London Interbank Offering Rate, or LIBOR (1.08% as of December 31, 2008), plus a LIBOR advance rate spread as determined by certain current working capital balances at the
time of the advance. In connection with the credit facility, we entered into a security agreement pursuant to which we have pledged to the bank all of our U.S. assets, excluding our equity ownership
of BMSA, our wholly owned subsidiary, as collateral.

Other Contractual Obligations

As of December 31, 2008, we are party to two operating leases for our facilities in Rockland, Massachusetts, and Roissy, France.
The Roissy, France, operating lease expires in May 2010. On January 5, 2009, we amended the lease for the office and laboratory facility that we currently occupy in Rockland, Massachusetts.
Pursuant to that amendment, the term of the lease was extended from

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February 28,
2009 to February 28, 2010. We are party to a noncancelable capital lease agreement with an equipment-financing company, related to the acquisition during 2005 of
communication and computer equipment. The equipment lease has an initial term of 60 months, with an interest rate of 8.7%. Equipment leased under this arrangement serves as pledged capital with
respect to the capital lease agreement.

Future
cash payments, including interest, under contractual obligations in effect as of December 31, 2008, are as follows:

Payments Due by Period(in thousands)

Total

Less than
1 Year

1 - 3
Years

3 - 5
Years

More than
5 YearsCapital lease

$
17

$
9

$
8

$


$
Operating lease


878


615


258


5


Other contractual obligations


1,053


954


64


35


Total

$
1,948

$
1,578

$
330

$
40

$



The
forgoing table of contractual obligations does not include cash payments that we may make from time to time in satisfaction of the dividend payable on our outstanding shares of
series A preferred stock. The holders of the series A preferred stock have the right to receive a 6% dividend per annum which, at our election, may be paid in cash or in additional
shares of series A preferred stock. During 2008, we elected to pay this dividend in cash, in the aggregate annual amount of $435,000. We expect to make such payment in cash for the foreseeable
future and estimate that such amount will equal approximately $435,000 per year in each of the next three years.

Related Party Transactions

We did not have any related party transactions during 2008.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements.

Inflation

We believe that the effects of inflation generally do not have a material adverse impact on our operations or financial condition.

New Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board, or FASB, issued SFAS No. 141R, "Business
Combinations,"or SFAS 141R, a replacement of SFAS No. 141, "Business Combinations."SFAS 141R applies to
all transactions and other events in which an entity obtains control over one or more other businesses. The statement changes the principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance for
recognizing and measuring goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. This statement is effective prospectively, except for certain retrospective adjustments to deferred tax balances, for fiscal years beginning after
December 15, 2008. We do not believe the adoption of SFAS 141R will have a material impact on our results of operations, financial position or cash flows.

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In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements: an amendment of Accounting Research
Bulletin No. 51,"or SFAS 160. SFAS 160 establishes
new accounting and reporting standards for noncontrolling interests (formally referred to as "minority interests") in a subsidiary and for the deconsolidation of a subsidiary. Specifically, the
statement requires the recognition of a noncontrolling interest as equity in the consolidated financial statements and separate from the parent's equity. The amount of net income attributable to a
noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent's ownership interest in a subsidiary that do
not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, SFAS 160 requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. Such gains or losses will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also
includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years and interim periods within those fiscal
years, beginning on or after December 15, 2008, with early adoption prohibited. We do not believe the adoption of SFAS 160 will have a material impact on our results of operations,
financial position or cash flows.

In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement
No. 133," or SFAS 161. SFAS 161 requires enhanced disclosures about an entity's derivative and hedging activities. SFAS 161 is intended to enhance
the current disclosure framework in SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," or SFAS 133, and
requires additional information about how and why derivative instruments are being used, how derivative instruments and related hedged items are accounted for under SFAS 133 and its related
interpretations, and how derivative instruments and related hedged items affect our financial position, financial performance and cash flow. This statement is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008. We do not believe the adoption of SFAS 161 will have a material impact on our results of operations, financial
position or cash flows.

In
May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles," or SFAS 162.
SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with GAAP in the United States. This statement is effective 60 days following the SEC's approval of The Public Company Accounting Oversight Board's related
amendments to remove the GAAP hierarchy from auditing standards. We do not believe the adoption of SFAS 162 will have a material impact on our results of operations, financial position or cash
flows.

Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments

As of December 31, 2008, we did not own any derivative financial instruments or other financial and commodity instruments.
However, in the future, we may consider certain financing instruments, including foreign currency forward contracts or alternative instruments, which may be considered derivative in nature.

Primary Market Risk Exposures

Our primary market risk exposure is in the area of foreign currency exchange rate fluctuations. We are exposed to currency exchange
rate fluctuations related to our operations in France. Our operations in France are denominated in the euro, and as of December 31, 2008, approximately euro 2.54 million, or
$3.59 million, remained outstanding within the intercompany trade accounts. We have not engaged in formal currency hedging activities to date, but do have a limited natural hedge in that both
our

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revenue
and expenses in France are primarily denominated in the euro. We also attempt to minimize exchange rate risk by converting non-U.S. currency to U.S. dollars as often as
practicable. We generally view our investment in foreign subsidiaries operating under a functional currency (the euro) other than our reporting currency (the U.S. dollar) as long term. Our investment
in foreign subsidiaries is sensitive to fluctuations in foreign currency exchange rates. The effect of a change in foreign exchange rates on our net investment in foreign subsidiaries is reflected in
the "Other accumulated comprehensive loss" component of stockholders' equity. Because our foreign currency exchange rate risk is not material, no quantitative tabular disclosure has been provided.

The
primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing
risk. We maintain our portfolio of cash equivalents and short-term investments primarily in treasuries and, to a lesser extent, in asset-backed securities. Due to the conservative nature
of our investments, the relatively short duration of their maturities, our ability to convert some or all of our long-term investments to less interest rate-sensitive holdings
and our general intent to hold most securities until maturity, we believe interest rate risk is mitigated. A hypothetical 100-basis-point increase or decrease in interest rates would not
have a material impact on the fair value of our short-term investments or their respective cash flows as of December 31, 2008. As of December 31, 2008, approximately 98% of
the $17.40 million classified as available-for-sale marketable securities and cash equivalents will mature within one year.

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BioSphere Medical, Inc.        INDEX



PageReport of Independent Registered Public Accounting Firm

62Consolidated Balance Sheets as of December 31, 2008 and 2007

63Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006

64Consolidated Statements of Stockholders' Equity and Comprehensive Loss for the Years Ended December 31, 2008, 2007
and 2006

65Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007, and 2006

66Notes to Consolidated Financial Statements

67


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Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Report of Independent Registered Public Accounting Firm

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

We
have audited the accompanying consolidated balance sheets of BioSphere Medical, Inc. as of December 31, 2008 and 2007, and the related consolidated statements of
operations, stockholders' equity and comprehensive loss, and cash flows for each of the three years in the period ended
December 31, 2008. 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 the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Company's internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes
of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and 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 consolidated financial position of BioSphere Medical, Inc. at
December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S.
generally accepted accounting principles.

As
discussed in Note 9 to the consolidated financial statements, effective January 1, 2007, the Company adopted FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes."



Boston,
Massachusetts
March 17, 2009

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BIOSPHERE MEDICAL, INC.        CONSOLIDATED BALANCE SHEETS

December 31,(in thousands except share data)

2008

2007ASSETSCurrent Assets:Cash and cash equivalents

$
17,837

$
15,608Marketable securities


402


7,971Account receivable, net of allowance for doubtful accounts of $97 and $160 as of December 31, 2008 and 2007, respectively


4,729


4,058Inventories


3,762


3,836Prepaid and other current assets


663


652Total current assets


27,393


32,125Property and equipment, net


989


1,124Goodwill


1,443


1,443Other assets


403


67Total Assets

$
30,228

$
34,759LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities:Accounts payable

$
1,175

$
1,970Accrued compensation


2,051


1,674Accrued preferred dividend


144


Other accrued liabilities


2,032


1,816Current portion of capital lease obligations and long-term debt


9


27Current portion of deferred licensing revenue


63


83Total current liabilities


5,474


5,570Long-term capital lease obligations


8


17Long-term portion of deferred licensing revenue





63Total Liabilities


5,482


5,650Commitments and contingencies (Note 8 and 15)Stockholders' equity:Preferred stock; $.01 par value; 1,000,000 shares authorized:6% series A convertible preferred stock, 12,000 authorized shares, 9,636 and 9,495 shares issued and outstanding, as of December 31, 2008 and
2007, respectively


8,521


8,523Common stock; $.01 par value; 50,000,000 shares authorized; 18,347,022 and 18,287,834 shares issued and outstanding as of December 31, 2008 and 2007,
respectively


184


183Additional paid-in capital


105,729


103,753Accumulated deficit


(90,129
)

(84,059
)Accumulated other comprehensive income


441


709Total stockholders' equity


24,746


29,109Total Liabilities and Stockholders' Equity

$
30,228

$
34,759


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

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BIOSPHERE MEDICAL, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31,(in thousands except per share data)

2008

2007

2006Revenue:Product sales

$
28,842

$
26,483

$
22,787Licensing revenue


416


417


104Total revenue


29,258


26,900


22,891Costs and expenses:Costs of product sales


7,686


7,768


6,958Research and development


3,305


2,342


2,290Sales


10,374


7,671


7,550Marketing


6,514


5,290


3,699General and administrative


6,499


5,999


5,182Patent


705


440


379Total costs and expenses


35,083


29,510


26,058Loss from operations


(5,825
)

(2,610
)

(3,167
)Interest income


375


1,017


938Interest expense


(9
)

(17
)

(15
)Foreign exchange gain (loss), net


113


(239
)

(102
)Other (expense) income, net


(17
)

(5
)

22Loss before income tax


(5,363
)

(1,854
)

(2,324
)Income tax provision


(129
)




Net loss


(5,492
)

(1,854
)

(2,324
)Preferred stock dividends


(578
)

(557
)

(525
)Net loss applicable to common stockholders

$
(6,070
)
$
(2,411
)
$
(2,849
)Net loss per common share applicable to common stockholdersBasic and diluted

$
(0.34
)
$
(0.14
)
$
(0.17
)Weighted average number of common shares outstandingBasic and diluted


17,983


17,647


17,027


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

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BIOSPHERE MEDICAL, INC.        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        AND COMPREHENSIVE LOSS

Common Stock







Accumulated
Other
Comprehensive
Income (Loss)Preferred
Stock

Additional
Paid-in
Capital

Deferred
Compensation

Accumulated
Deficit

Total
Stockholders'
Equity(in thousands)

Shares

AmountBalance at December 31, 2005

$
7,449


15,006

$
150

$
84,471

$
(41
)
$
(78,799
)
$
(142
)
$
13,088Comprehensive loss:Net loss

















(2,324
)




(2,324
)Unrealized loss on marketable securities




















(4
)

(4
)Translation adjustment




















334


334Total comprehensive loss























(1,994
)Dividends on convertible preferred stock


525














(525
)




Dividends paid in cash in lieu of partial shares


(4
)



















(4
)Issuance of common stock





2,075


21


13,477











13,498Issuance of common stock under employee benefit and incentive plans





462


5


943











948Issuance of restricted stock





415


4














4Reclassification of deferred compensation upon adoption of SFAS 123R











(41
)

41








Non-cash stock-based compensation











1,425











1,425Balance at December 31, 2006


7,970


17,958


180


100,275





(81,648
)

188


26,965Comprehensive loss:Net loss

















(1,854
)




(1,854
)Unrealized gain on marketable securities




















10


10Translation adjustment




















511


511Total comprehensive loss























(1,333
)Dividends on convertible preferred stock


557














(557
)




Dividends paid in cash in lieu of partial shares


(4
)



















(4
)Issuance of common stock under employee benefit and incentive plans





412


4


1,642











1,646Issuance of restricted stock





17

















Forfeiture of restricted stock





(100
)

(1
)













(1
)Non-cash stock-based compensation











1,836











1,836Balance at December 31, 2007


8,523


18,287


183


103,753





(84,059
)

709


29,109Net loss

















(5,492
)




(5,492
)Unrealized gain on marketable securities




















(40
)

(40
)Translation adjustment




















(228
)

(228
)Total comprehensive loss























(5,760
)Dividends on convertible preferred stock

















(578
)




(578
)Dividends paid in cash in lieu of partial shares


(2
)



















(2
)Issuance of common stock under employee benefit and incentive plans





42


1


104











105Issuance of restricted stock





18

















Non-cash stock-based compensation











1,872











1,872Balance at December 31, 2008

$
8,521


18,347

$
184

$
105,729

$


$
(90,129
)
$
441

$
24,746


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

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BIOSPHERE MEDICAL, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,(in thousands)

2008

2007

2006Cash flows from operating activities:Net loss

$
(5,492
)
$
(1,854
)
$
(2,324
)Adjustments to reconcile net loss to net cash used in operating activities:Recovery of doubtful accounts


(8
)

(38
)

(8
)Provision for inventory obsolescence


257


328


231(Recovery) provision for sales returns and allowances


(9
)

9


Depreciation


430


438


445Non-cash stock compensation


1,872


1,836


1,425Foreign currency (gain) loss, net


(113
)

239


102Realized loss on available-for-sale investments


1


13


Unrealized loss on available-for-sale investments


20





Loss on disposal of property and equipment





1


Changes in operating assets and liabilities:Accounts receivable


(722
)

231


(413
)Inventories


(252
)

(1,128
)

(449
)Prepaid and other current assets


(24
)

4


(193
)Accounts payable


(780
)

513


144Accrued compensation


411


(334
)

39Other accrued expenses


231


69


399Net cash (used in) provided by operating activities


(4,178
)

327


(602
)Cash flows from investing activities:Purchase of property and equipment


(324
)

(565
)

(464
)Purchase of marketable securities





(11,162
)

(16,575
)Proceeds from the sale and maturity of marketable securities


7,507


16,395


3,364Acquisition of patent rights


(345
)




Net cash provided by (used in) investing activities


6,838


4,668


(13,675
)Cash flows from financing activities:Proceeds from issuance of common stock, net








13,498Proceeds from issuance of common stock under employee benefit and incentive plans


105


1,645


952Payment of cash dividends


(435
)

(4
)

(4
)Principal payments under long-term debt and capital lease obligations


(27
)

(57
)

(124
)Net cash (used in) provided by financing activities


(357
)

1,584


14,322Effect of exchange rate changes on cash and cash equivalents


(74
)

116


94Net increase in cash and cash equivalents


2,229


6,695


139Cash and cash equivalents at beginning of year


15,608


8,913


8,774Cash and cash equivalents at end of year

$
17,837

$
15,608

$
8,913


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

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BIOSPHERE MEDICAL, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Nature of the Business

BioSphere Medical, Inc. (the "Company") develops, manufactures and markets products for medical procedures that use embolotherapy. Embolotherapy is the
minimally invasive, image-guided therapeutic introduction of various biocompatible substances into a patient's circulatory system to occlude a blood vessel, either to arrest or prevent hemorrhaging or
to devitalize or destroy a structure by occluding its blood supply. The Company's core technologies consist of patented bioengineered polymers, which are
chemical compounds that the Company creates through the application to medical science, engineering principles and manufacturing methods. These core technologies are used to produce miniature
spherical embolic particles, or microspheres, that are designed to have uniquely beneficial properties for a variety of medical applications. The Company's principal focus is the application of its
Embosphere® Microspheres for the treatment of symptomatic uterine fibroids using a procedure called uterine fibroid embolization ("UFE"). The Company's wholly owned subsidiary, BioSphere
Medical SA ("BMSA"), a French société anonyme, holds the license to the embolotherapy technology that is the main focus of the Company's business.

The
Company believes that its existing working capital as of December 31, 2008, together with anticipated proceeds from sales of microspheres, delivery systems and other products
will be sufficient to fund operating and capital requirements, as currently planned through at least the next twelve months. In the longer term, the Company expects to fund its operations and sustain
its capital requirements through a combination of expected proceeds from product sales and capital equipment financing. However, cash requirements may vary materially from those now planned due to a
number of factors, including the Company's failure to achieve expected revenue amounts, costs associated with changes in its UFE marketing programs, the outcome of product liability challenges,
including the current product liability lawsuit described in Note 15, "Contingencies," for which an adverse judgment against the Company may not be adequately covered by product liability
insurance, unanticipated research and development expenses, the scope and results of preclinical and clinical testing, changes in the focus and direction of research and development programs,
competitive and technological advances, the timing and results of regulatory review at the United States Food and Drug Administration ("FDA") or comparable regulatory agencies in other countries,
delays or failures in the market's acceptance of any approved products, including Embosphere Microspheres for UFE, HepaSphere Microspheres and QuadraSphere® Microspheres, and
the need for additional funds for possible strategic acquisitions of synergistic businesses, products and/or technologies.

2.     Summary of Significant Accounting Policies



The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries BMSA,
BioSphere Medical Japan, Inc. and BSMD Ventures, Inc. All intercompany balances and transactions have been eliminated in consolidation.



The functional currency of each of the Company's foreign subsidiaries is its local currency. The assets and liabilities of the
Company's foreign subsidiaries are translated into U.S. dollars using the exchange rates in effect as of each balance sheet date. Revenue and expense items are translated into U.S. dollars at average
exchange rates prevailing during each reporting period. Resulting translation adjustments are recorded in the cumulative translation adjustment account in stockholders' equity.

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Aggregate
foreign exchange transaction gains and losses resulting from euro to U.S. dollar foreign currency fluctuations on euro-denominated intercompany trade accounts are included in the
accompanying statement of operations.



The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the 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 revenue and expenses during the reporting periods. Actual results could differ from those estimates.



The Company considers all highly liquid investments with an original maturity of ninety days or less, as of the date of purchase, to be
cash equivalents. In accordance with its investment policy, surplus cash is invested in investment grade corporate and U.S. government debt as well as certain asset-backed securities. The Company
determines the appropriate classification of marketable securities at each balance sheet date. Available-for-sale marketable securities are carried at their fair value.
Unrealized gains and unrealized losses that are not deemed to be other-than-temporary are included in accumulated other comprehensive income. The Company recognizes declines in
fair value of its marketable securities that are deemed to be other-than-temporary impairments in the consolidated statement of operations. For the twelve months ended
December 31, 2008 and 2007, the Company did not record significant realized gains or realized losses on marketable securities.

In
September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the
United States ("GAAP"), and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB
having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS 157 does not require any new fair value measurements. The
Company adopted SFAS 157 on January 1, 2008. The adoption of SFAS 157 did not have any impact on the Company's results of operations, financial position or cash flows.

As
of December 31, 2008 and 2007, approximately $17.23 million and $14.84 million, respectively, of cash and cash equivalents held by financial institutions in the
United States exceeded Federal Deposit Insurance Corporation-insured amounts.



The Company has no material concentrations of credit risk, nor is it a party to any financial instruments with material
off-balance sheet risk. Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash equivalents, marketable securities and trade
accounts receivable. The estimated fair value of the Company's financial instruments approximates their carrying value. Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of customers and their dispersion across many geographic areas. No single customer accounted for greater than 10% of the outstanding receivables on December 31,
2008 or 2007, and no single customer accounted for greater than 10% of revenue in 2008, 2007 or 2006.

The
Company places its cash, cash equivalents and marketable securities with major United States financial institutions. In accordance with the Company's investment policy, surplus cash
is invested in investment-grade corporate and U.S. government debt as well as certain asset-backed securities. At

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December 31,
2008, all marketable securities were classified as current, since the Company had the intent and ability to use such securities to satisfy current liabilities as needed.
Available-for-sale marketable securities are carried at their fair value. Unrealized gains and losses that are not deemed to be other-than-temporary are
included in accumulated other comprehensive income (loss) in the accompanying balance sheet. The Company recognizes declines in fair value of its marketable securities that are deemed to be
other-than-temporary impairments in the consolidated statement of operations.



Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the
Company's best estimate of the amount of probable credit losses in its existing accounts receivable. The Company determines the allowance based on the creditworthiness of customers, age of
receivables, historical write-off experience and future expectations by location. The Company reviews its allowance for doubtful accounts monthly. Account balances are charged off against
the allowance when the Company feels it is probable the receivable will not be recovered. The Company does not have any off-balance sheet credit exposure related to its customers.



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:

Office equipment

3-5 yearsLaboratory and manufacturing equipment

3-5 yearsLeasehold improvements

Shorter of lease term or estimated useful life


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 the statement of operations.



Goodwill represents the difference between the purchase price and the fair value of the tangible and identifiable intangible assets
acquired net of liabilities assumed when accounted for in accordance with the purchase method of accounting. Between February 1999 and November 2001, the Company recorded goodwill upon the step
acquisition of BMSA.

The
Company performs impairment reviews of its goodwill annually or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.
Goodwill was derived from the step acquisition of BMSA, the consolidated subsidiary that holds the license to the embolotherapy platform device that is the main focus of the Company's business. In
performing the review, the Company utilizes the two-step approach prescribed under the Financial Accounting Standards Board ("FASB") Statement No. 142,
"Goodwill and Other Intangible Assets." The first step requires a comparison of the carrying value of the reporting units, as defined, to the fair value
of these units. If the carrying value of a reporting unit exceeds its fair value, the Company will perform the second step of comparing the implied fair value of the reporting unit's goodwill to its
carrying value. For purposes of performing the goodwill impairment review, management considers itself to be one reporting unit. Based upon the Company's review, the Company has not recorded any
impairment charges.



The Company periodically evaluates the potential impairment of its long-lived assets in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or

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Disposal of Long-lived Assets," to determine whether events or changes in circumstances may indicate that the carrying amount of a recorded asset may not be
recoverable. Based on management's assessment as of December 31, 2008, the Company has determined that no impairment of long-lived assets exists.



The Company applies the revenue recognition guidelines summarized in Staff Accounting Bulletin ("SAB") No. 104,
"Revenue Recognition." The Company recognizes revenue when products are shipped and the customer or distributor takes ownership and assumes risk of
loss, collection of the relevant receivable is reasonably assured, persuasive evidence of an arrangement exists (a valid purchase order from an approved customer or distributor), the sales price is
fixed or determinable, payment is not contingent on resale and the Company does not have any continuing obligations to ensure resale. The Company establishes reserves for potential sales returns and
evaluates the adequacy of those reserves based upon realized experience and expectations. Any significant credit returns could have a material adverse impact on the Company's revenue and operating
results for the period or periods in which such returns materialize. Shipping and handling costs are included in costs of product sales.

In
September 2006, the Company entered into an agreement to license certain patent technologies to a third party in exchange for an upfront lump-sum payment of $250,000 and
an additional 4% royalty on future net sales of the licensed products. Under the agreement, the third party is required to pay a minimum royalty of $1.00 million over the first three years of
the agreement. The Company will recognize both the lump-sum payment and the minimum royalties over the estimated useful life of the patent. The Company recognized approximately $416,000,
$417,000 and $104,000, respectively, as licensing revenue during the years ending December 31, 2008, 2007 and 2006.



Research and development costs include payroll, facility costs, administrative expenses, and third-party costs related to developing
new products, making technological improvements to existing products and production methods. Research and development costs are expensed in the period incurred. Preclinical testing of product
candidates and clinical trials and product validation costs associated with recently launched products are also included in research and development expenses.

In
June 2007, the FASB ratified Emerging Issue Task Force ("EITF") No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or
Services to Be Used in Future Research and Development Activities"("EITF 07-3"). The EITF concluded that nonrefundable advance payments for goods or
services to be received in the future for use in research and development activities should be deferred and capitalized. The capitalized amounts should be expensed as the related goods are delivered
or the services are performed. If an entity's expectations change such that it does not expect it will need the goods to be delivered or the services to be rendered, capitalized nonrefundable advance
payments should be charged to expense in the period such determination is made. The Company did not have any nonrefundable advance payments capitalized at December 31,
2008. The Company adopted EITF 07-3 on January 1, 2008. The adoption of EITF 07-3 did not have a material impact on the Company's results of operations,
financial position or cash flows.



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 bases of such 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.

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The
Company is subject to income tax in numerous jurisdictions at various rates worldwide, and the use of estimates is required in determining the tax provision and valuation allowance
against net deferred tax assets. The Company has substantial net operating loss carryforwards that have generated significant deferred tax assets in its tax jurisdictions. Due to the size of the net
operating loss carryforward in relation to the Company's history of unprofitable operations, the Company historically has not recognized any of its net deferred tax assets. However, future
improvements in the Company's operational performance in a tax jurisdiction, if any, could increase the certainty of the Company's ability to apply its deferred tax assets against taxable income,
which, if so applied, could significantly impact the value of the Company's deferred tax assets and reported operating results.

Although
the Company's French subsidiary, BMSA, has been profitable in recent periods, the Company expects BMSA to recognize a loss in 2009, and, therefore, the Company will continue to
maintain a full valuation allowance on its tax benefits until profitability has been sustained over a time period, and in amounts, that are sufficient to support a conclusion that it is more likely
than not that some portion or all of the deferred tax assets will be realized. The Company continues to evaluate the positive and negative evidence identified in SFAS No. 109 "Accounting For Income Taxes,"to determine whether, in its view, it is more likely than not that some or all of its deferred tax assets in each of its
tax jurisdictions will be realized.



Other comprehensive income includes certain changes in equity that are excluded from net loss; specifically, the effects of foreign
currency translation adjustments and unrealized gains and losses on available-for-sale marketable securities, which are reflected separately in stockholders' equity in
accumulated other comprehensive income. The components of accumulated other comprehensive income are as follows:

December 31,(in thousands)

2008

2007Foreign exchange currency translation

$
475

$
703Unrealized gains (losses) on investments


(34
)

6Total accumulated other comprehensive income

$
441

$
709




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. Shares used to compute dilutive net loss per share exclude the following
common share equivalents as their inclusion would have an antidilutive effect.

As of December 31,(in thousands)

2008

2007

2006Shares issuable upon exercise of stock options


2,891


2,220


2,627Shares issuable upon conversion of convertible securities


2,409


2,409


2,271Shares issuable upon exercise of outstanding warrants


400


400


400Unvested restricted stock awards


335


333


4306,035


5,362


5,728


71

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Table of Contents



The Company follows the provisions of SFAS No. 123R, "Share-Based Payment"
("SFAS 123R"). This statement requires the Company to measure the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the
award and to recognize cost over the requisite service period. Under the modified prospective transition method, the Company has not adjusted its financial statements for periods prior to the date of
adoption for the change in accounting. However, the Company will recognize compensation expense for (1) all share-based payments granted after the effective date and (2) all awards
granted to employees prior to the effective date that remain unvested on the effective date. The Company recognizes compensation expense on fixed awards with pro rata vesting on a
straight-line basis over the vesting period of such awards.



Certain reclassifications have been made to prior year's consolidated financial statements to conform to the current-year
presentation. In connection with the preparation of the accompanying consolidated balance sheets, the Company concluded that it was
appropriate to classify reimbursable legal expenses resulting from our royalty agreements within prepaid and other current assets. Previously, such amounts were classified as accounts receivable. This
revision in classification does not affect total current assets.



In December 2007, the FASB issued SFAS No. 141R, "Business Combinations"("SFAS 141R"), a replacement of SFAS No. 141, "Business Combinations."SFAS 141R applies to all transactions and other events in
which an entity obtains control over one or more other businesses. The statement changes the principles and requirements for how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring goodwill
acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.
This statement is effective prospectively, except for certain retrospective adjustments to deferred tax balances, for fiscal years beginning after December 15, 2008. The Company does not
believe the adoption of SFAS 141R will have a material impact on its results of operations, financial position or cash flows.

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements: an amendment of Accounting Research
Bulletin No. 51"("SFAS 160"). SFAS 160 establishes new accounting and reporting standards for noncontrolling interests (formally referred to as "minority
interests") in a subsidiary and for the deconsolidation of a subsidiary. Specifically, the statement requires the recognition of a noncontrolling interest as equity in the consolidated financial
statements and separate from the parent's equity. The amount of net income attributable to a noncontrolling interest will be included in consolidated net income on the face of the income statement.
SFAS 160 clarifies that changes in a parent's ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial
interest. In addition, SFAS 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gains or losses will be measured using the fair value of
the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest.
SFAS 160 is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008, with early adoption prohibited. The Company does not
believe the adoption of SFAS 160 will have a material impact on its results of operations, financial position or cash flows.

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In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement
No. 133" ("SFAS 161"). SFAS 161 requires enhanced disclosures about an entity's derivative and hedging activities. SFAS 161 is intended to enhance
the current disclosure framework in SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), and
requires additional information about how and why derivative instruments are being used, how derivative instruments and related hedged items are accounted for under SFAS 133 and its related
interpretations, and how derivative instruments and related hedged items affect the Company's financial position, financial performance and cash flow. This statement is effective for financial
statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not believe the adoption of SFAS 161 will have a material impact on its results
of operations, financial position or cash flows.

In
May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162").
SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with Generally Accepted Accounting Principles ("GAAP") in the United States. This statement is effective 60 days following the SEC's approval of The Public Company
Accounting Oversight Board's related amendments to remove the GAAP hierarchy from auditing standards. The Company does not believe the adoption of SFAS 162 will have a material impact on its
results of operations, financial position or cash flows.

3.     Marketable Securities and Cash Equivalents

All current fixed maturity securities are classified as "available-for-sale" and are reported at fair value. The Company has determined
that its investment securities are available to support current operations and, accordingly, has classified such marketable securities as current assets without regard to contractual maturities. The
unrealized gains or losses on these securities are included in accumulated other comprehensive income as a separate component of stockholders' equity unless the decline in value is deemed to be
other-than-temporary, in which case securities are written down to fair value and the loss is charged to income. The Company evaluates its investment securities for
other-than-temporary declines based on quantitative and qualitative factors. In 2008, the Company recognized an approximate $20,000 charge to income as a result of a
write-down of certain asset-backed securities due to an other-than-temporary decline in the quality of the underlying assets.

The
Company's available-for-sale marketable securities and cash equivalents, including accrued interest receivable, as of December 31, 2008 are as follows:

(in thousands)

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated
Fair
ValueMarketable securities:Asset-backed obligations

$
436

$


$
(34
)
$
402Cash Equivalents:Treasury obligations


17,000








17,000Total marketable securities and cash equivalents

$
17,436

$


$
(34
)
$
17,402


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Table of Contents

The
Company's available-for-sale marketable securities and cash equivalents, including accrued interest receivable, as of December 31, 2007 are as follows:

(in thousands)

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated
Fair
ValueMarketable securities:Corporate obligations

$
1,368

$
1

$
(3
)
$
1,366Bank obligations


1,162


6


(1
)

1,167Asset-backed obligations


3,305


10


(12
)

3,303Federal agency obligations


1,879


4





1,883Tax-exempt obligations


252








252Total marketable securities


7,966


21


(16
)

7,971Cash Equivalents:Bank obligations


1,449


1





1,450Treasury obligations


12,100








12,100Total marketable securities and cash equivalents

$
21,515

$
22

$
(16
)
$
21,521


The
Company recognized $21,000 of net losses on its marketable securities during the year ended December 31, 2008. No material realized gains or losses were recognized for the
year ended December 31, 2007.

As
of December 31, 2008, the contractual maturities of marketable securities are as follows:

(in thousands)

Estimated
Fair ValueDue within one year:Asset-backed obligations

$
10Due between one and five years:Asset-backed obligations


260Due after ten years:Asset-backed obligations


132Total marketable securities

$
402Cash equivalents:Treasury obligations


17,000Total marketable securities and cash equivalents

$
17,402


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Table of Contents

The following table presents information about the Company's assets that are measured at fair value on a recurring basis at each reporting period as of
December 31, 2008, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize
quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices,
interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market
activity for the asset or liability:

Fair Value Measurements at
Reporting Date Using(in thousands)

December 31,
2008

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)Marketable securities:Asset-backed obligations

$
402

$


$
310

$
92Cash equivalents:Treasury obligations


17,000


17,000





Total marketable securities and cash equivalents

$
17,402

$
17,000

$
310

$
92




(in thousands)

Fair Value Measurements
Using Significant
Unobservable Inputs
(Level 3)Beginning balance (at December 31, 2007):

$
Total unrealized losses:Included in earnings


(20
)Included in other comprehensive income


(29
)Transfers in and/or out of Level 3


141Ending balance (at December 31, 2008)

$
92


4.     Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:

December 31,(in thousands)

2008

2007Finished goods

$
2,395

$
2,387Work in progress


1,039


1,319Raw material


328


130Total inventory

$
3,762

$
3,836


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Table of Contents

5.     Property and Equipment

Property and equipment consists of the following:

December 31,(in thousands)

2008

2007Office equipment

$
1,235

$
1,116Laboratory and manufacturing equipment


3,185


3,205Leasehold improvements


222


223Total property and equipment


4,642


4,544Less: accumulated depreciation


(3,653
)

(3,420
)Net property and equipment

$
989

$
1,124


Property
and equipment under capital lease agreements, net of accumulated depreciation, which are included in the table above, were $15,000 and $30,000, respectively, at
December 31, 2008 and 2007.

Depreciation
expense, including amortization on capital leases, was $424,000, $438,000 and $445,000 for the years ended December 31, 2008, 2007 and 2006, respectively.

6.     Goodwill and Other Assets

Goodwill equaled $1.44 million as of December 31, 2008 and 2007, respectively, and was comprised entirely of the unamortized purchase price paid in
excess of the net BMSA assets acquired.

Other
assets include an intangible asset related to a patent acquisition. The intangible asset has a carrying value of approximately $339,000 and is being amortized over its approximate
useful life of 17 years on a straight-line basis.

7.     Accrued Expenses

Accrued expenses consist of the following:

December 31,(in thousands)

2008

2007Accrued royalties

$
1,241

$
1,185Accrued other


791


631Total accrued expenses

$
2,032

$
1,816


8.     Debt and Lease Obligations

Debt consists of the following:

December 31,(in thousands)

2008

2007Capital lease obligations

$
17

$
44Less: current portion


(9
)

(27
)Total long-term capital lease obligations

$
8

$
17


The
Company currently has a credit facility with a bank under which it may borrow up to $3.00 million. The Company may use amounts borrowed under the agreement for general working
capital and corporate purposes, subject to limitations defined in the agreement. The credit facility

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Table of Contents

expires
in June 2009. There were no borrowings outstanding under this agreement as of December 31, 2008 or 2007. Each available 30-, 60-, 90- or
180- day advance will bear interest at a per annum rate, at the Company's option, equal to either (i) a variable rate as determined by the bank or (ii) a rate equal to the
corresponding 30-, 60-, 90- or 180-day London Interbank Offering Rate ("LIBOR") (1.08% as of December 31, 2008), plus a LIBOR advance rate spread
as determined by certain current working capital balances at the time of the advance. In connection with the credit facility, the Company entered into a security agreement pursuant to which the
Company has pledged to the bank all of the Company's U.S. assets, excluding its equity ownership of its subsidiaries including BMSA, as collateral. Letters of credit issued in the ordinary course of
business totaled $410,000 as of December 31, 2008, and were collateralized by the Company's credit facility noted above.

The
Company leases approximately 13,000 square feet of office and laboratory space at its Rockland, Massachusetts, facility under an operating lease expiring in February 2010 for
approximately $234,000 per year, exclusive of periodic operating and maintenance expenses. BMSA leases approximately 18,000 square feet of manufacturing and office space in Roissy, France, through May
2010 for approximately €220,000 per year (approximately $310,000 as of December 31, 2008). The Company also has several operating leases covering two vehicles located in France
and certain pieces of office equipment through 2010.

The
Company has entered into a capital lease agreement in connection with the acquisition of certain computer and communication equipment. The lease has an initial term of
60 months with an interest rate of 8.7%. All equipment leased under this agreement serves as pledged capital.

Future
minimum lease payments under noncancelable operating leases and the capital lease in effect as of December 31, 2008, are as follows:

(in thousands)

Operating

Capital2009

$
615

$
92010


225


82011


33


2012


5


Thereafter





Total lease commitments

$
878

$
17Less amount representing interest





(1
)Present value of net minimum capital lease payments




$
16


Total
facility rental expense for the years ended December 31, 2008, 2007 and 2006 was approximately $560,000, $650,000 and $540,000, respectively.

9.     Income Taxes

The components of the Company's pre-tax income (loss) by tax jurisdiction, net of any intercompany transactions, are as follows:

For the years ended
December 31,(in thousands)

2008

2007

2006United States

$
(5,410
)
$
(2,875
)
$
(2,815
)France


47


1,021


491Pretax loss

$
(5,363
)
$
(1,854
)
$
(2,324
)


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Table of Contents

In
2008, the Company recorded an income tax provision of $129,000 due to the reversal of a previously applied income tax credit that was disallowed by the French tax authorities during a
recent tax audit of BMSA. For the year ended December 31, 2008, the increase in the valuation allowance relating to losses not resulting in a current period tax benefit and the reversal of the
income tax credit of BMSA are the primary differences between the income tax provision (benefit) recorded by the Company and the amount of the income tax benefit that would be at statutory income tax
rates. For the years ended December 31, 2007, and 2006, the increase in the valuation allowance relating to losses not resulting in a current period tax benefit is the primary difference
between the income tax provision (benefit) recorded by the Company and the amount of the income tax benefit that the Company would have recorded at statutory income tax rates. During the years
presented, the income earned in France was fully offset by previous net operating loss ("NOL") carryforwards.

As
of December 31, 2008, the Company had federal NOL carryforwards of approximately $76.19 million, which will expire through the year 2028, state NOL carryforwards of
approximately $20.45 million, which will expire through the year 2018, and foreign NOL carryforwards of approximately $3.81 million, which do not expire. During the year ended
December 31, 2008, approximately $7.17 million of state NOL carryforwards expired. The Company has $185,000 of research and development credit carryforwards to offset future income
taxes, which will expire through the year 2018. The components of the Company's net deferred tax asset at December 31, 2008 and 2007 are as follows:

December 31,(in thousands)

2008

2007Assets derived from the following:NOL carryforwards

$
27,419

$
26,513Tax credit carryforwards


185


185Stock-based compensation


807


533Other


234


169Subtotal


28,645


27,400Valuation allowance


(28,645
)

(27,400
)Net deferred tax asset

$


$



Utilization
of the NOL carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations
that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL credit carryforwards that can be utilized annually to offset future taxable income
and tax, respectively. The Company has not completed a study to assess whether an ownership change has occurred, or whether there have been multiple ownership changes since its formation, due to the
significant complexity and related cost associated with such study. There also could be additional ownership changes in the future which may result in additional limitations in the utilization of the
carryforward NOLs and credits.

As
discussed in Note 2, the Company adopted SFAS 123R effective January 1, 2006 for stock-based compensation plans. Generally, tax return deductions are allowable on
such arrangements but may arise in different amounts and periods from compensation costs recognized in the financial statements. Pursuant to SFAS 123R, if the tax return deduction for an award
exceeds the cumulative compensation cost recognized in the financial statements, any excess tax benefit shall be recognized as additional paid-in-capital when the deduction
reduces taxes payable. Prior to adoption, the Company recognized deferred tax assets, along with an offsetting valuation allowance, for net operating loss carryforwards that included deductions for
excess tax benefits from stock-based compensation. Included in the net operating loss carryforwards stated above is approximately $7.67 million of unrealized excess

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tax
benefit. In addition, the Company also has $2.38 million of additional net operating losses resulting from excess tax benefits that were recognized after the adoption of SFAS 123R.

The
Company has established a full valuation allowance against its deferred tax assets as of December 31, 2008, as it considers the realizable value of any tax benefit against
future taxable income to be uncertain. The change in the valuation allowance from December 31, 2007 to December 31, 2008 is a result of the increase in NOL carryforwards from the
inclusion of the current period loss, offset by a decrease in state NOL carryforwards due to expiration and the utilization of foreign net operating loss carryforwards.

In
June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of
FAS 109" ("FIN 48"). This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be
recognized in a company's financial statements. The Company adopted FIN No. 48 on January 1, 2007. The implementation of FIN No. 48 did not have a material impact on the Company's
consolidated financial statements, results of operations or cash flows. At the adoption date of January 1, 2007, and also at December 31, 2008, the Company had no unrecognized tax
benefits. The Company has not, as yet, conducted a study of its research and development credit carryforwards. This study may result in an adjustment to the Company's research and development credit
carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position under FIN 48. A full valuation allowance has been
provided against the Company's research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no
impact to the consolidated balance sheet or statement of operations if an adjustment were required.

10.   Segment Information

The Company develops microspheres and other ancillary embolotherapy products for use in the treatment of hypervascularized tumors, including uterine fibroids and
arteriovenous malformations. The Company operates exclusively in the embolotherapy product business, which the Company considers as
one business segment pursuant to SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." Financial information by
geographic area, attributable to countries according to the location of customers and equipment, is as follows:

For the years ended December 31,(in thousands)

2008

2007

2006Revenue:United States

$
22,523

$
19,395

$
16,458France


2,643


4,074


3,516Other European Union countries


2,097


2,183


1,855Other foreign countries


1,995


1,248


1,062Total revenue

$
29,258

$
26,900

$
22,891




As of December 31,(in thousands)

2008

2007

2006Long-lived assets:United States

$
291

$
340

$
385France


698


784


544Total long-lived assets

$
989

$
1,124

$
929


79

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Table of Contents

11.   Stockholders' Equity



On February 22, 2006, the Company sold 2,075,000 shares of common stock at a price per share of $7.00 to several accredited
investors in a private placement. The Company received net proceeds of approximately $13.50 million. The proceeds are being used to fund current operations.



Under the certificate of incorporation of the Company, the Board of Directors has the authority to issue up to 1,000,000 shares of
$0.01 par value preferred stock from time to time in one or more series with such preferences terms and rights as the Board of Directors may determine without further action by the stockholders of the
Company and as of December 31, 2008, a total of 9,636 shares had been issued. Accordingly, the Board of Directors has the power to establish the provisions, if any, relating to dividends,
voting rights, redemption rates, liquidation preferences and conversion rights for any series of preferred stock issued in the future.



In November 2004, the Company completed a private placement of $8.00 million of its series A convertible preferred stock
("series A preferred stock") and warrants to purchase common stock with Sepracor Inc. and affiliates of Cerberus Capital Management, L.P., two existing investors. These investors
purchased a total of 8,000 shares of series A preferred stock, which are initially convertible into 2,000,000 shares of common stock based upon a conversion price of $4.00 per share. In
addition, the Company has the right to convert the series A preferred stock into common stock, or redeem it, under specified circumstances. The series A preferred stock has a 6%
dividend, which is payable quarterly in either cash or additional shares of series A preferred stock, at the Company's election. Additionally, the investors were issued warrants to purchase an
aggregate of 400,000 shares of common stock. These warrants expire five years from the date of issuance and have an initial exercise price of $4.00 per share. These warrants were assigned a value of
$850,000 using the Black-Scholes option-pricing model. Through December 31, 2008, the Company issued 1,636 shares of series A preferred stock in payment of series A preferred
stock dividends requirements.

12.   Stock Plans



As of December 31, 2008, the Company has granted options and/or restricted stock awards under the following three stock-based
compensation plans: (1) the 2006 Stock Incentive Plan (the "2006 Plan"), which was adopted by the Company's Board of Directors on March 9, 2006, approved by the Company's stockholders on
May 10, 2006 and amended on May 14, 2008, and which authorizes the issuance of up to an aggregate of 2,500,000 shares of common stock to officers, directors, advisors, consultants and
employees of the Company; (2) the 1997 Stock Option Plan (the "1997 Plan"), which expired March 2007, and, accordingly, has no shares available for future grant; and (3) the 1994
Director Option Plan (the "Director Plan"), which expired in January 2000, and, accordingly, has no shares available for future grant. The Company's 2006 Plan and 1997 Plan each provide for the grant
of Incentive Stock Options ("ISOs") to officers and employees and Non-Statutory Stock Options ("NSOs") to officers, directors, advisors, consultants and employees of the Company. Options
granted under such plans generally become exercisable in five equal annual installments beginning on the first anniversary of the date of the grant and have a maximum term of ten years from the date
of grant. The Company's Director Plan provided for the grant of NSOs to directors of the Company who are not officers or employees of the Company or any subsidiary of the Company. Options granted
under the Director Plan vest in either two or five equal installments beginning on the first anniversary of the date

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of
the grant, depending on the nature of the grant, and have a maximum term of ten years from the date of grant. At December 31, 2008, there were 1,058,000 shares available for future grant
under the 2006 Plan.

The
2006 Plan also provides for the grant of restricted stock awards to officers, directors, advisors, consultants and employees of the Company. Generally, the restricted stock awards
are subject to a right of repurchase by the Company if service is terminated prior to specified dates and/or if specified performance conditions are not met, which right of repurchase lapses over
time. Ownership of restricted stock cannot be transferred, except under specified circumstances, until the foregoing repurchase restrictions have lapsed. In connection with restricted stock grants,
the Company records compensation expense based on the fair value of the shares at the time of grant, which is amortized on a straight-line basis over the vesting periods.

On
June 1, 2006, the Board of Directors awarded an aggregate of 400,000 shares of restricted common stock to the Company's existing executive officers under the 2006 Plan. These
shares of restricted common stock are subject to a right of repurchase by the Company, which lapses on June 1, 2010, subject to the achievement by the Company of specified gains in the market
price of its common stock. If on June 1, 2010, the four-year cumulative total stockholder return on the Company's common stock is equal in dollar amount to the four-year
cumulative total return for the NASDAQ Medical Equipment Index ("NASDAQ Index"), 25% of the restricted stock award will vest and no longer be subject to the repurchase option. An additional 1.6304% of
the restricted stock award will vest and become free of the repurchase option for each one percentage that the
four-year cumulative total stockholder return on the Company's common stock exceeds the four-year cumulative total return for the NASDAQ Index. The aggregate intrinsic value of
the 400,000 shares of the Company's common stock at the date of grant underlying the restricted stock awards was $2.40 million, based on the closing price of the Company's common stock on the
NASDAQ National Market on the date of grant. The Company utilized a Monte-Carlo simulation method to estimate a range of possible future stock prices over the four-year period for the
Company's common stock and the NASDAQ Index to estimate the number of shares of restricted stock that may vest based upon such simulation. Using the Monte-Carlo simulation method, the Company
calculated an aggregate compensation cost of $580,000 at the time of the grant. The Company is recognizing this compensation cost over the four-year service period whether or not the
market condition is actually satisfied. However, in the event one or more of the participants voluntarily terminates before the end of the four-year period, some amounts of the charge will
be reversed. In the event that a qualifying change in the control of the Company occurs prior to June 1, 2010, the Company's repurchase option will fully lapse, and the Company will then
recognize a compensation change equal to the full $2.40 million intrinsic value less any previously recognized compensation expense. In connection with the resignation of one of the Company's
executive officers on July 27, 2007, the Company exercised its right to repurchase all 100,000 shares of the common stock issued to this executive at the price per share originally paid by the
executive.

Pursuant
to the Company's 2000 Employee Stock Purchase Plan (the "2000 ESPP"), the Company may issue and sell to its eligible employees up to an aggregate of 160,000 shares of common
stock at a purchase price equal to 85% of the lower of the fair market value on the first or last day of each six-month offering period. Eligible employees may elect to have up to a
maximum of 10% of their regular compensation withheld through payroll deductions to pay the purchase price of the shares at the end of the offering period, subject to limitations specified in the
plan.

As
discussed in Note 2, stock-based compensation expense relates to stock options, restricted stock and stock issued under the Company's employee stock purchase plan. The Company
measures the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes cost over the requisite service period.
The Company recognizes compensation expense on fixed awards with pro rata vesting on a straight-line basis over the vesting period of such awards.

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The
fair value of stock options granted during the years ended December 31, 2008, 2007 and 2006 are estimated on the date of the grant using the Black-Scholes option-pricing model
with the following weighted average assumptions:

For the Years Ended December 31,2008

2007

2006Options granted (in thousands)


763


441


620Weighted average exercise price

$
4.13

$
7.05

$
7.01Weighted average grant date fair value

$
2.45

$
4.48

$
5.21Assumptions:Dividend yield


0
%

0
%

0
%Expected volatility


65
%

68
%

83
%Risk-free interest rate


2.79
%

4.41
%

4.85
%Expected term (years)


5.67


5.79


6.25


Historical
Company information was the primary basis for the expected volatility and the expected term assumptions. SFAS 123R requires the application of an estimated forfeiture
rate to current-period expense to recognize stock-based compensation expense only for those awards expected to vest. The Company estimates forfeitures based upon historical data, adjusted for known
trends, and will adjust its estimate of forfeitures if actual forfeitures differ, or are expected to differ from such estimates. Subsequent changes in estimated forfeitures will be recognized through
a cumulative adjustment in the period of change and will also impact the amount of stock-based compensation expense in future periods.

Changes
in outstanding stock options for the year ended December 31, 2008 were as follows:

(in thousands, except exercise price and term)

Number of
Stock
Options

Weighted-Average
Exercise Price

Weighted-Average
Remaining
Contractual
Term (in years)Outstanding at December 31, 2007


2,220

$
5.29Granted


763

$
4.13Exercised


(9
)
$
2.90Forfeited and expired


(83
)
$
5.60Outstanding at December 31, 2008


2,891

$
4.98


6.98Exercisable at December 31, 2008


1,343

$
5.10


5.76Vested or expected to vest at December 31, 2008


2,604

$
4.98


6.87


The
aggregate intrinsic value of stock options outstanding at December 31, 2008 of $16,000 is calculated as the difference between the exercise price of the underlying stock
options and the market price of the Company's common stock for the 45,000 shares of common stock underlying stock options that had exercise prices that were lower than the $1.93 closing market price
of the Company's common stock at December 31, 2008. The aggregate intrinsic value of stock options vested or expected to vest at December 31, 2008 is $14,000. The aggregate intrinsic
value of stock options exercisable at December 31, 2008 is $9,000. The total intrinsic value of stock options exercised was $13,000, $338,000 and $2.30 million during the years ended
December 31, 2008, 2007 and 2006, respectively, determined as of the date of exercise.

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Changes
in non-vested restricted stock awards for the year ended December 31, 2008 were as follows:

(in thousands, except fair value)

Number of
Restricted Shares

Weighted Average
Grant Date
Fair ValueNon-vested at December 31, 2007


333

$
1.99Awarded


17

$
3.81Vested


(15
)
$
7.16Forfeited





Non-vested at December 31, 2008


335

$
1.85


The
aggregate intrinsic value of restricted shares outstanding at December 31, 2008 is $643,000.

At
December 31, 2008, there was $3.75 million and $221,000 of unrecognized compensation cost, net of estimated forfeitures, related to non-vested stock options
and restricted stock awards, respectively, which the Company expects to recognize over weighted-average periods of 3.04 years and 1.36 years, respectively. However, the amount of stock
compensation expense recognized in any future period cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. The adoption of SFAS 123R
did not require any cumulative adjustments to the Company's financial statements.



Under the 2000 ESPP, an aggregate of 160,000 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 that 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 common stock on the NASDAQ Global 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 2008, 2007 and 2006, 32,688,
18,370 and 21,801 shares of the Company's common stock, respectively, were issued under the 2000 ESPP. During the years ended December 31, 2008, 2007 and 2006, the Company recognized $18,000,
$17,000 and $43,000, respectively, of equity compensation related to the issuance of shares under the 2000 ESPP.

The
following table presents the stock-based compensation expense relating to stock options, restricted stock and stock issued under the Company's employee stock purchase plan, for the
years ended December 31, 2008, 2007 and 2006:

For the Years Ended December 31,(in thousands)

2008

2007

2006Cost of product sales

$
230

$
274

$
195Research and development

$
136

$
93

$
72Sales

$
253

$
237

$
46Marketing

$
68

$
54

$
18General and administrative

$
1,185

$
1,178

$
794


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13.   Employee Savings Plan

The Company has a 401(k) savings plan for all domestic employees pursuant to which eligible employees may voluntarily contribute up to $15,500, subject to
statutory limitations. In addition, the Company matches in cash 50% of the first $5,000 contributed by employees up to a $2,500 maximum per employee per year. Employer cash-matching
contributions amounted to approximately $87,000, $46,000, and $43,000 for the years ended December 31, 2008, 2007 and 2006, respectively.

The
Company maintains a retirement indemnity plan for its employees located in France pursuant to which employees are eligible to receive a one-time payment calculated based
on years of service. The indemnity is payable upon retirement and is forfeited upon discontinuation of service prior to retirement. As of December 31, 2008, the present value of the benefit
under this plan is approximately $99,000, of which the Company has purchased an insurance contract covering approximately $32,000.

14.   Valuation and Qualifying Accounts

The Company monitors the creditworthiness of its trade customers based upon historical payment experience. The allowance for doubtful accounts activity for the
years ended December 31, 2008, 2007 and 2006 is as follows:

(in thousands)

Balance,
Beginning
of Period

Recovery
of Prior
Costs and
Expenses

Deductions

Balance,
End of
PeriodYear ended December 31, 2008

$
160

$
(8
)
$
(55
)
$
97Year ended December 31, 2007

$
218

$
(38
)
$
(20
)
$
160Year ended December 31, 2006

$
233

$
(8
)
$
(7
)
$
218


15.   Contingencies

On August 17, 2005, a lawsuit commenced in the Circuit Court, Twenty-Second Judicial Circuit, St. Louis, Missouri, entitled Brett Pingel by next friend
Dawn LaRose vs. BioSphere Medical, Inc., Bruce Kirke Bieneman, M.D., St. Louis University Hospital, John Stith, M.D. and
St. Louis University.The lawsuit alleges, among other things, that a patient suffered permanent bilateral blindness as a result of the use of the Company's EmboGold
Microspheres in a juvenile nasal angiofibroma embolization or the negligence of the health-care providers or both factors combined. As alleged in the complaint, the claims that the
EmboGold Microspheres were defective are vague and nonspecific. All defendants have denied the allegations against them. The plaintiffs seek compensatory and punitive damages. The Company carries
product liability insurance and this case is currently being defended by the Company's insurer under reservation of rights with respect to the claim of punitive damages, for which an exclusion from
coverage exists. The Company has filed an answer to this lawsuit in which it has denied the claims being made. Some pretrial discovery has been completed, but no party has disclosed any expert
opinions. The plaintiff has voluntarily dismissed John Stith, M.D. from the lawsuit without a settlement payment. The case is presently set for trial on July 6, 2009.

On
June 4, 2008, a lawsuit was filed in the Superior Court of California, County of Los Angeles, entitledHamid Rashidi v. Franklin Moser, M.D.,
Cedars-Sinai Medical Center, BioSphere Medical, Inc. et al. The plaintiff alleges, among other things, that he presented to an emergency room with a severe nosebleed,
that he suffered permanent blindness in one eye following the treatment of his severe nosebleed with the Company's Embosphere Microspheres, that the product was defective, that the manner in which it
is marketed and sold is misleading, that the health-care providers were negligent, or all factors combined. However, as alleged in the complaint, these claims are vague and nonspecific.
The plaintiff is seeking unspecified damages. All defendants have denied the allegations against them. The Company carries product liability insurance and this case is currently being defended by the
Company's

84

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insurer
under reservation of rights with respect to the claim of punitive damages, for which an exclusion from coverage exists. The Company has filed an answer to this lawsuit in which the Company has
denied the claims being made. This lawsuit is in its early stages. A trial date has been set for August 10, 2009.

The
Company intends to defend against the Pingel and Rashidi claims vigorously. However, the Company cannot give any assurance that it will prevail in either claim, whether its product
liability insurance coverage would be sufficient to cover any judgment, or that all or any part of its liabilities, if any, for either lawsuit would be covered by its product liability insurance.
Accordingly, the Company is currently unable to predict the financial or operational impact of either of these product liability litigations.

16.   Quarterly Financial Data (Unaudited)

The following is a summary of quarterly financial results:

(in thousands except per share amounts)

First
Quarter

Second
Quarter

Third
Quarter

Fourth
QuarterNet revenue2008

$
7,214

$
7,611

$
7,198

$
7,2352007

$
6,585

$
6,974

$
6,637

$
6,704Gross profit2008

$
5,171

$
5,621

$
5,309

$
5,4712007

$
4,490

$
5,052

$
4,740

$
4,850Net loss applicable to common stockholders2008

$
(1,546
)
$
(1,304
)
$
(1,543
)
$
(1,677
)2007

$
(1,172
)
$
(405
)
$
(453
)
$
(381
)Basic and diluted net loss per share2008

$
(0.09
)
$
(0.07
)
$
(0.09
)
$
(0.09
)2007

$
(0.07
)
$
(0.02
)
$
(0.03
)
$
(0.02
)


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

None.

Item 9A.    CONTROLS AND PROCEDURES



Our
management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of
December 31, 2008. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other
procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal
executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2008, our chief executive officer and chief financial officer concluded that, as of
such date, our disclosure controls and procedures were effective at the reasonable assurance level.



The
management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial
reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company's principal
executive and principal financial officers and effected by the Company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures
that:



Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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The
Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2008. In making this assessment, the Company's
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based
on our assessment, management concluded that, as of as of December 31, 2008, the Company's internal control over financial reporting is effective based on those criteria.



This
annual report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our registered independent public accounting firm pursuant to the rules of the SEC that permit us to provide only management's report
in this annual report on Form 10-K.



No
change in our internal control over financial reporting occurred during the fiscal quarter ended December 31, 2008 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

Item 9B.    OTHER INFORMATION

None.

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PART III

Item 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

Information regarding our directors will be included in the definitive proxy statement for the 2009 Annual Meeting of Stockholders
under "Nominees for Director" which we intend to file within 120 days of December 31, 2008 and is incorporated herein by reference.

Information
regarding our executive officers is included in Part I, Item 4, under the heading "Executive Officers" and is incorporated herein by reference.

Audit Committee

We have a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act.
Additional information regarding the Audit Committee will be included in the definitive proxy statement for the 2009 Annual Meeting of Stockholders which we intend to file within 120 days of
December 31, 2008 under "Board and Committee Meetings" and "Report of the Audit Committee" and is incorporated herein by reference.

Audit Committee Financial Expert

The Board of Directors has determined that William M. Cousins, Jr. and John H. MacKinnon are each an "audit committee financial expert"
as defined by Item 401(h) of Regulation S-K of the Exchange Act and has determined that they are independent within the meaning of Item 7(d)(3)(iv) of
Schedule 14A of the Exchange Act.

Section 16(a) Beneficial Ownership Reporting Compliance

Information regarding Section 16(a) Beneficial Ownership Reporting Compliance will be included in the definitive proxy statement
for the 2009 Annual Meeting of Stockholders which we intend to file within 120 days of December 31, 2008 under "Section 16(a) Beneficial Ownership Reporting Compliance" and is
incorporated herein by reference.

Code of Ethics

We have adopted a code of business conduct and ethics that applies to our directors, officers (including our principal executive
officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) as well as our employees, a copy of which is listed as an exhibit to this
annual report on Form 10-K. A copy of our code of ethics is also available on the Company's Web site atwww.biospheremed.com.

Item 11.    EXECUTIVE COMPENSATION

The response to this item will be included in the definitive proxy statement for the 2009 Annual Meeting of Stockholders which we
intend to file within 120 days of December 31, 2008 under "Compensation of Executive Officers" and is incorporated herein by reference.

Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The response to this item will be included in the definitive proxy statement for the 2009 Annual Meeting of Stockholders which we
intend to file within 120 days of December 31, 2008 under "Stock Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" and is incorporated
herein by reference.

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Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The response to this item will be included in the definitive proxy statement for the 2009 Annual Meeting of Stockholders which we
intend to file within 120 days of December 31, 2008 under "Certain Relationships and Related Transactions" and "Nominees for Director" and is incorporated herein by reference.

Item 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The response to this item will be included in the definitive proxy statement for the 2009 Annual Meeting of Stockholders which we
intend to file within 120 days of December 31, 2008 under "Report of the Audit Committee" and "Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees" and is incorporated herein by
reference.

PART IV

Item 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1)

The following consolidated financial statements of BioSphere Medical, Inc. and subsidiaries are filed as part of this
Form 10-K:StatementReport of Independent Registered Public Accounting FirmConsolidated Balance SheetsDecember 31, 2008 and 2007Consolidated Statements of OperationsYears ended December 31, 2008, 2007 and 2006Consolidated Statements of Stockholders' Equity and Comprehensive LossYears ended December 31, 2008, 2007 and 2006Consolidated Statements of Cash FlowsYears ended December 31, 2008, 2007 and 2006Notes to Consolidated Financial Statements(a) (2)

All schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or
notes thereto.(a) (3)

Exhibits included or incorporated herein:See Exhibit Index


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Exhibit Index

Incorporated by ReferenceFiled with this
10-KExhibit No.

Description

Form

SEC Filing Date

Exhibit No.Articles of Incorporation and Bylaws3.1

Certificate of Incorporation, as amended, of the Company


S-8


07/23/1999


4.13.2

Certificate of Amendment of Certificate of Incorporation of the Company


10-K


03/24/2007


4.43.2

Bylaws of the Company


S-8


06/10/1999


4.23.3

Amendment to Bylaws of the Company


8-K


12/11/2007


3.1Instruments defining the rights of security holders4.1

Specimen Certificate for shares of Common Stock, $.01 par value, of the Company


10-K


03/30/2000


44.2

Certificate of Designations, Preferences and Rights of Series A Preferred Stock of the Company


8-K


11/15/2004


4.14.3

Amendment No. 1 to Certificate of Designations, Preferences and Right of Series A Preferred Stock of the Company


8-K


05/23/2005


4.1Material Contractsfinancing agreements10.1

Share Purchase Agreement by and between Marie-Paule Leroy-Landercy and the Company, dated December 31, 1998


10-K


03/30/2000


10.410.2

Credit Agreement between the Company and Brown Brothers Harriman & Co., dated May 17, 2002


10-Q


08/14/2002


10.110.3

Second Modification, dated as of June 30, 2004, to the Credit Agreement and Promissory Note by and between the Company and Brown Brothers Harriman & Co., dated May 17, 2002


10-Q


11/12/2004


10.110.4

Third Modification, dated as of June 29, 2005, to the Credit Agreement and Promissory Note by and between the Company and Brown Brothers Harriman & Co., dated May 17, 2002


8-K


07/05/2005


10.110.5

Fourth Modification, dated as of June 29, 2007, to the Credit Agreement and Promissory Note by and between the Company and Brown Brothers Harriman & Co., dated May 17, 2002


8-K


07/03/2007


10.1


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Incorporated by ReferenceFiled with this
10-KExhibit No.

Description

Form

SEC Filing Date

Exhibit No.10.6

Security Agreement between the Company and Brown Brothers Harriman & Co., dated May 17, 2002


10-Q


08/14/2002


10.210.7

Securities Purchase Agreement, dated as of November 10, 2004, by and among the Company and the investors named therein


8-K


11/15/2004


10.110.8

Investor Rights Agreement, dated as of November 10, 2004, by and among the Company and the investors named therein


8-K


11/15/2004


10.210.9

Warrant No. 2004-1, dated as of November 10, 2004, issued to Cerberus Partners, L.P.


8-K


11/15/2004


10.310.10

Amendment No. 1 to Warrant No. 2004-1, dated December 23, 2004, issued to Cerberus Partners, L.P.


8-K


12/30/2004


10.210.11

Warrant No. 2004-2, dated as of November 10, 2004, issued to Sepracor Inc.


8-K


11/15/2004


10.410.12

Amendment No. 1 to Warrant No. 2004-2, dated December 23, 2004, issued to Sepracor Inc.


8-K


12/30/2004


10.310.13

Restrictive Covenants Agreement, dated as of December 23, 2004, by and among the Company, Cerberus Partners, L.P. and Sepracor Inc.


8-K


12/30/2004


10.110.14

Securities Purchase Agreement, dated as of February 17, 2006, by and among the Company and the investors named therein


8-K


2/21/2006


10.110.15

Registration Rights Agreement, dated as of February 17, 2006, by and among the Company and the investors named therein


8-K


2/21/2006


10.2Material Contractsleases10.16

Lease Agreement dated January 7, 2000 by and between 1050 Hingham Street Realty Trust and the Company


10-K


03/30/2000


10.1610.17

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


10-K


03/29/2001


10.15


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Incorporated by ReferenceFiled with this
10-KExhibit No.

Description

Form

SEC Filing Date

Exhibit No.10.18

Second Amendment to Lease between Company and Thomas J. Teuten and John H. Spurr, Jr., Trustees of 1050 Hingham Street Realty Trust, dated January 24, 2005


8-K


1/27/2005


10.1510.19

Third Amendment to Lease between the Company and Thomas J. Teuten and John H. Spurr, Jr., Trustees of 1050 Hingham Street Realty Trust, dated February 24, 2006


8-K


2/28/2006


10.110.20

Fourth Amendment to Lease between the Company and Thomas J. Teuten and John H. Spurr, Jr., Trustees of 1050 Hingham Street Realty Trust, dated January 5, 2009


8-K


01/8/2009


10.110.21

Lease Agreement dated October 19, 2000 by and between the Company and Salamandre S.A. (translated from French)


10-K


03/29/2001


10.20Material Contractscollaboration agreements and licenses10.22

Form of Technology Transfer and License Agreement, dated as of January 1, 1994 between the Company and Sepracor Inc.


S-1


02/14/1994


10.310.23+

Joint Ownership Contract between the Company and L'Assistance Publique Hôpitaux de Paris, dated January 5, 1998, together with amendment dated February 10, 2001 (translated from French)


10-K


03/30/2000


10.510.24

Rider No. 2, dated June 20, 2000 to the Joint Ownership Contract between the Company and L'Assistance Publique Hôpitaux de Paris dated January 5, 1998 (translated from French)


10-K


04/01/2002


10.510.25+

Rider No. 3, dated March 2, 2009 to the Joint Ownership Contract between the Company and L'Assistance Publique Hôpitaux de Paris, dated January 5, 1998 (translated from French)











X10.26+

Exclusive License Agreement between Dr. Shin-ichi Hori and the Company dated May 8, 2000


10-K


04/01/2002


10.6


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Incorporated by ReferenceFiled with this
10-KExhibit No.

Description

Form

SEC Filing Date

Exhibit No.10.27+

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)


10-K


03/30/2000


10.1010.28+

Microspheres Yield Improvement Agreement with E.I. du Pont de Nemours and Company, dated December 20, 2007


10-K


03/26/2008


10.26Material Contractsmanagement contracts and compensatory plans10.29(1)

1994 Director Option Plan


S-1


02/14/1994


10.210.30(1)

1994 Stock Option Plan


S-1


02/14/1994


10.110.31(1)

1997 Stock Incentive Plan


10-Q


08/08/1997


10.210.32(1)

2006 Stock Incentive Plan


8-K


05/16/2006


10.110.33(1)

Amendment No. 1 to 2006 Stock Incentive Plan


8-K


08/09/2006


10.110.34

Amendment No. 2 to 2006 Stock Incentive Plan


8-K


5/20/2008


10.110.35

2000 Employee Stock Purchase Plan


8-K


5/20/2008


10.210.36

Amendment No. 1 to 2000 Employee Stock Purchase Plan


8-K


5/20/2008


10.210.37

Amendment No. 2 to 2000 Employee Stock Purchase Plan


8-K


5/20/2008


10.210.38(1)

Form of Nonstatutory Stock Option Agreement granted under 1994 Stock Option Plan


10-K


03/29/2005


10.410.39(1)

Form of Incentive Stock Option Agreement granted under 1997 Stock Incentive Plan


10-K


03/29/2005


10.510.40(1)

Form of Nonstatutory Stock Option Agreement granted under 1997 Stock Incentive Plan


10-K


03/29/2005


10.610.41(1)

Form of Restricted Stock Agreement granted under 1997 Stock Incentive Plan


10-K


03/29/2005


10.710.42(1)

Form of Incentive Stock Option Agreement granted under 2006 Stock Incentive Plan


8-K


05/16/2006


10.210.43(1)

Form of Nonstatutory Stock Option Agreement granted under 2006 Stock Incentive Plan


8-K


05/16/2006


10.3


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Incorporated by ReferenceFiled with this
10-KExhibit No.

Description

Form

SEC Filing Date

Exhibit No.10.44(1)

Form of Restricted Stock Agreement granted under 2006 Stock Incentive Plan


8-K


05/16/2006


10.410.45(1)

Employment Agreement between the Company and Richard J. Faleschini, dated November 2, 2004


8-K


11/08/2004


10.210.46(1)

Executive Retention Agreement between the Company and Richard J. Faleschini, dated November 2, 2004


8-K


11/08/2004


10.310.47(1)

Second Acknowledgement and Amendment Agreement between the Company and Richard J. Faleschini, dated April 5, 2007


10-Q


05/14/2007


10.210.48(1)

Third Acknowledgement and Amendment Agreement between the Company and Richard J. Faleschini, dated October 10, 2007


8-K


10/12/2007


10.310.49(1)

Fourth Acknowledgement and Amendment Agreement between the Company and Richard J. Faleschini, dated December 23, 2008


8-K


12/23/2008


10.610.50(1)

Letter Agreement between the Company and Martin J. Joyce, dated June 14, 2005


8-K


06/17/2005


10.210.51(1)

Acknowledgement and Amendment Agreement between the Company and Martin J. Joyce, dated October 10, 2007


8-K


10/12/2007


10.110.52(1)

Second Acknowledgement and Amendment Agreement between the Company and Martin J. Joyce, dated December 23, 2008


8-K


12/23/2008


10.110.53(1)

Letter Agreement between the Company and Peter C. Sutcliffe, dated June 14, 2005


8-K


06/17/2005


10.310.54(1)

Acknowledgement and Amendment Agreement between the Company and Peter C. Sutcliffe, dated October 10, 2007


8-K


10/12/2007


10.210.55(1)

Second Acknowledgement and Amendment Agreement between the Company and Peter C. Sutcliffe, dated December 23, 2008


10-K


12/23/2008


10.210.56(1)

Letter Agreement between the Company and Melodie R. Domurad, dated December 14, 2007


10-K








X


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Incorporated by ReferenceFiled with this
10-KExhibit No.

Description

Form

SEC Filing Date

Exhibit No.10.57(1)

Acknowledgement and Amendment Agreement between the Company and Melodie R. Domurad, dated December 23, 2008


8-K


12/23/2008


10.310.58(1)

Letter Agreement between the Company and Joel B. Weinstein, dated January 3, 2008


10-K








X10.59(1)

Acknowledgement and Amendment Agreement between the Company and Joel B. Weinstein, dated December 23, 2008


8-K


12/23/2008


10.410.60(1)

Letter Agreement between the Company and Willard W. Hennemann, dated February 3, 2008


10-K








X10.61(1)

Acknowledgement and Amendment Agreement between the Company and Willard W. Hennemann, dated December 23, 2008


8-K


12/23/2008


10.5Additional Exhibits14.1

Code of Business Conduct and Ethics of the Company


10-K


03/29/2005


14.121.1

Subsidiaries of the Company


10-K


03/29/2001


2123.1

Consent of Ernst & Young LLP











X31.1

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated
March 20, 2009











X31.2

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated
March 20, 2009











X32.1

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated March 20, 2009











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Incorporated by ReferenceFiled with this
10-KExhibit No.

Description

Form

SEC Filing Date

Exhibit No.32.2

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated March 20, 2009











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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/ RICHARD J. FALESCHINI Richard J. FaleschiniPresident and Chief Executive OfficerDate: March 20, 2009


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.

Signature

Title

Date/s/ RICHARD J. FALESCHINI Richard J. Faleschini

Director, President and Chief Executive Officer (Principal Executive Officer)

March 20, 2009/s/ MARTIN J. JOYCE Martin J. Joyce

Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

March 20, 2009/s/ TIMOTHY J. BARBERICH Timothy J. Barberich

Director

March 20, 2009/s/ WILLIAM M. COUSINS, JR. William M. Cousins, Jr.

Director

March 20, 2009/s/ MARIAN L. HEARD Marian L. Heard

Director

March 20, 2009/s/ ALEXANDER M. KLIBANOV, PH.D. Alexander M. Klibanov, Ph.D.

Director

March 20, 2009/s/ JOHN H. MACKINNON John H. MacKinnon, CPA

Director

March 20, 2009/s/ RICCARDO PIGLIUCCI Riccardo Pigliucci

Director

March 20, 2009/s/ DAVID P. SOUTHWELL David P. Southwell

Director and Chairman of the Board

March 20, 2009


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