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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

|þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the Quarterly Period Ended March 31, 2008

OR



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

For the Transition Period from  to

Commission File Number
001-33791

BIOFORM MEDICAL, INC.

(Exact name of the Registrant as specified in its charter)



|                                                                             |  |                                     
|---------------------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                                     |  | 39-1979642                          
|(State or other jurisdiction of incorporation or organization) organization) |  | (I.R.S. Employer Identification No.)

1875 South Grant Street, Suite 110

San Mateo, California 94402

(Address of principal executive office and zip
code)

(650) 286-4000

(Registrants telephone number, including area code)

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   þ    
No   ̈

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



|                                                                       |  |                             
|---------------------------------------------------------------------- |  | ----------------------------
| ̈  Large accelerated filer                                             |  |  ̈  Accelerated filer        
|þ  Non-accelerated filer (Do not check if a smaller reporting company) |  |  ̈  Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).

Yes   ̈     No  þ

As of April 30, 2008, there were 46,233,177 shares ($0.01 par value per share) of registrants common stock outstanding.









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##### Table of Contents

BIOFORM MEDICAL, INC.

FORM 10 - Q

Quarterly Period Ended March 31, 2008

TABLE OF CONTENTS



|                                                                                                                      |  |       
|--------------------------------------------------------------------------------------------------------------------- |  | ------
|                                                                                                                      |  | Page  
|PART I. FINANCIAL INFORMATION                                                                                         |  |       
|                                                                                                                      | 
|ITEM 1.    FINANCIAL STATEMENTS                                                                                       |  |       
|                                                                                                                      | 
|Condensed Consolidated Balance Sheets as of March 31, 2008 (unaudited) and June 30, 2007                              |  | 3     
|Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2008 and 2007 |  | 4     
|Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2008 and 2007           |  | 5     
|Notes to Unaudited Condensed Consolidated Financial Statements                                                        |  | 6 - 17
|                                                                                                                      | 
|ITEM 2.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                      |  | 18-25 
|                                                                                                                      | 
|ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                 |  | 26    
|                                                                                                                      | 
|ITEM 4T. CONTROLS AND PROCEDURES                                                                                      |  | 26-27 
|                                                                                                                      | 
|PART II. OTHER INFORMATION                                                                                            |  |       
|                                                                                                                      | 
|ITEM 1.    LEGAL PROCEEDINGS                                                                                          |  | 28    
|                                                                                                                      | 
|ITEM 1A. RISK FACTORS                                                                                                 |  | 28-42 
|                                                                                                                      | 
|ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                |  | 42    
|                                                                                                                      | 
|ITEM 3.    DEFAULTS UPON SENIOR SECURITIES                                                                            |  | 42    
|                                                                                                                      | 
|ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                        |  | 42    
|                                                                                                                      | 
|ITEM 5.    OTHER INFORMATION                                                                                          |  | 42    
|                                                                                                                      | 
|ITEM 6.    EXHIBITS                                                                                                   |  | 43    
|                                                                                                                      | 
|SIGNATURES                                                                                                            |  | 44    



2



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PART I. FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

BIOFORM MEDICAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)



|                                                                                                                                                                                                         |  |               |         |   |              |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ------------ | - | ------- | -
|                                                                                                                                                                                                         |  | March 31,2008 |         |   | June 30,2007 |  
|                                                                                                                                                                                                         |  | (unaudited)   |         |   |              |  
|ASSETS                                                                                                                                                                                                   |  |               |         |   |              |   |         |  
|Current assets:                                                                                                                                                                                          |  |               |         |   |              |   |         |  
|Cash and cash equivalents                                                                                                                                                                                |  | $             | 76,822  |   |              | $ | 17,610  |  
|Accounts receivable, net of allowance for doubtful accounts of $742 at March 31, 2008 and $428 at June 30, 2007,
respectively                                                                            |  |               | 10,831  |   |              |   | 7,725   |  
|Inventories                                                                                                                                                                                              |  |               | 6,176   |   |              |   | 4,864   |  
|Prepaid royalties                                                                                                                                                                                        |  |               | 1,513   |   |              |   |        |  
|Prepaid other                                                                                                                                                                                            |  |               | 3,944   |   |              |   | 1,194   |  
|Other current assets                                                                                                                                                                                     |  |               | 596     |   |              |   | 262     |  
|                                                                                                                                                                                                         |  |               |         |   |              |   |         |  
|Total current assets                                                                                                                                                                                     |  |               | 99,882  |   |              |   | 31,655  |  
|Property and equipment, net                                                                                                                                                                              |  |               | 8,684   |   |              |   | 5,741   |  
|Prepaid royalties                                                                                                                                                                                        |  |               | 2,723   |   |              |   |        |  
|Other assets                                                                                                                                                                                             |  |               | 210     |   |              |   | 103     |  
|                                                                                                                                                                                                         |  |               |         |   |              |   |         |  
|Total assets                                                                                                                                                                                             |  | $             | 111,499 |   |              | $ | 37,499  |  
|                                                                                                                                                                                                         |  |               |         |   |              |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                     |  |               |         |   |              |   |         |  
|Current liabilities:                                                                                                                                                                                     |  |               |         |   |              |   |         |  
|Accounts payable                                                                                                                                                                                         |  | $             | 2,173   |   |              | $ | 3,754   |  
|Deferred revenues                                                                                                                                                                                        |  |               | 474     |   |              |   | 446     |  
|Accrued royalty expenses                                                                                                                                                                                 |  |               | 285     |   |              |   | 869     |  
|Other accrued liabilities                                                                                                                                                                                |  |               | 6,962   |   |              |   | 6,686   |  
|Capital lease obligations, current portion                                                                                                                                                               |  |               | 32      |   |              |   | 20      |  
|                                                                                                                                                                                                         |  |               |         |   |              |   |         |  
|Total current liabilities                                                                                                                                                                                |  |               | 9,926   |   |              |   | 11,775  |  
|Capital lease obligations, long-term portion                                                                                                                                                             |  |               | 71      |   |              |   | 36      |  
|                                                                                                                                                                                                         |  |               |         |   |              |   |         |  
|Total liabilities                                                                                                                                                                                        |  |               | 9,997   |   |              |   | 11,811  |  
|                                                                                                                                                                                                         |  |               |         |   |              |   |         |  
|Commitment and Contingencies (Note 4)                                                                                                                                                                    |  |               |         |   |              |   |         |  
|Stockholders equity:                                                                                                                                                                                    |  |               |         |   |              |   |         |  
|Convertible preferred stock, 31,223 authorized, $0.01 par value:                                                                                                                                         |  |               |         |   |              |   |         |  
|Series A: 5,412 shares designated, zero and 5,412 shares issued and outstanding at March 31, 2008 and June 30, 2007; aggregate
liquidation value of zero and $5,412 at March 31, 2008 and June 30, 2007  |  |               |        |   |              |   | 54      |  
|Series B: 9,595 shares designated, zero and 9,595 shares issued and outstanding at March 31, 2008 and June 30, 2007; aggregate
liquidation value of zero and $14,393 at March 31, 2008 and June 30, 2007 |  |               |        |   |              |   | 96      |  
|Series C: 8,239 shares designated, zero and 8,239 shares issued and outstanding at March 31, 2008 and June 30, 2007; aggregate
liquidation value of zero and $23,069 at March 31, 2008 and June 30, 2007 |  |               |        |   |              |   | 82      |  
|Series D: 5,250 shares designated, zero and 4,938 shares issued and outstanding at March 31, 2008 and June 30, 2007; aggregate
liquidation value of zero and $16,049 at March 31, 2008 and June 30, 2007 |  |               |        |   |              |   | 49      |  
|Series E: 2,727 shares designated, zero and 2,183 shares issued and outstanding at March 31, 2008 and June 30, 2007; aggregate
liquidation value of zero and $12,008 at March 31, 2008 and June 30, 2007 |  |               |        |   |              |   | 22      |  
|Common stock, $0.01 par value, 100,000 shares authorized; 46,232 shares issued and outstanding at March 31, 2008; 4,128 shares issued and
outstanding at June 30, 2007                                   |  |               | 462     |   |              |   | 41      |  
|Additional paid-in capital                                                                                                                                                                               |  |               | 157,810 |   |              |   | 72,807  |  
|Accumulated other comprehensive income                                                                                                                                                                   |  |               | 234     |   |              |   | 24      |  
|Accumulated deficit                                                                                                                                                                                      |  |               | (57,004 | ) |              |   | (47,487 | )
|                                                                                                                                                                                                         |  |               |         |   |              |   |         |  
|Total stockholders equity                                                                                                                                                                               |  |               | 101,502 |   |              |   | 25,688  |  
|                                                                                                                                                                                                         |  |               |         |   |              |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                               |  | $             | 111,499 |   |              | $ | 37,499  |  
|                                                                                                                                                                                                         |  |               |         |   |              |   |         |  

The accompanying notes are an integral part of these financial statements



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BIOFORM MEDICAL, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)



|                                                                                   |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|---------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | -------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                   |  | Three months endedMarch 31, |        |   | Nine months endedMarch 31, |  
|                                                                                   |  | 2008                        |        |   | 2007                       |   |        | 2008 |  |   | 2007   |  
|Net sales                                                                          |  | $                           | 16,954 |   |                            | $ | 12,438 |      |  | $ | 50,771 |   |  | $ | 32,064 |  
|Cost of sales                                                                      |  |                             | 3,232  |   |                            |   | 2,065  |      |  |   | 9,104  |   |  |   | 5,868  |  
|                                                                                   |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Gross profit                                                                       |  |                             | 13,722 |   |                            |   | 10,373 |      |  |   | 41,667 |   |  |   | 26,196 |  
|Operating expenses:                                                                |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Sales and marketing                                                                |  |                             | 14,347 |   |                            |   | 11,015 |      |  |   | 39,210 |   |  |   | 26,403 |  
|Research and development                                                           |  |                             | 2,259  |   |                            |   | 1,372  |      |  |   | 6,623  |   |  |   | 3,993  |  
|General and administrative                                                         |  |                             | 2,548  |   |                            |   | 1,695  |      |  |   | 6,792  |   |  |   | 5,033  |  
|                                                                                   |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Total operating expenses                                                           |  |                             | 19,154 |   |                            |   | 14,082 |      |  |   | 52,625 |   |  |   | 35,429 |  
|                                                                                   |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Other income, net                                                                  |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Interest income, net                                                               |  |                             | 742    |   |                            |   | 161    |      |  |   | 1,490  |   |  |   | 643    |  
|Other income, net                                                                  |  |                             | 262    |   |                            |   | 23     |      |  |   | 161    |   |  |   | 62     |  
|                                                                                   |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Loss before income taxes                                                           |  |                             | (4,428 | ) |                            |   | (3,525 | )    |  |   | (9,307 | ) |  |   | (8,528 | )
|Provision for income taxes                                                         |  |                             | 69     |   |                            |   | 48     |      |  |   | 210    |   |  |   | 123    |  
|                                                                                   |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Net loss attributable to common stockholders                                       |  | $                           | (4,497 | ) |                            | $ | (3,573 | )    |  | $ | (9,517 | ) |  | $ | (8,651 | )
|                                                                                   |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Net loss per common share, basic and diluted                                       |  | $                           | (0.10  | ) |                            | $ | (0.88  | )    |  | $ | (0.36  | ) |  | $ | (2.31  | )
|                                                                                   |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Weighted-average number of shares used in per share calculation, basic and diluted |  |                             | 46,229 |   |                            |   | 4,065  |      |  |   | 26,319 |   |  |   | 3,751  |  
|                                                                                   |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |        |  

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



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BIOFORM MEDICAL, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                            |  |                            |         |   |      |   |        |  
|--------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ---- | - | ------ | -
|                                                                            |  | Nine months endedMarch 31, |        
|                                                                            |  | 2008                       |         |   | 2007 |  
|Cash flows from operating activities                                        |  |                            |         |   |      |   |        |  
|Net loss                                                                    |  | $                          | (9,517  | ) |      | $ | (8,651 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                            |         |   |      |   |        |  
|Depreciation and amortization                                               |  |                            | 995     |   |      |   | 732    |  
|Loss on disposal of fixed assets                                            |  |                            | 8       |   |      |   |       |  
|Provision for doubtful accounts                                             |  |                            | 518     |   |      |   | 215    |  
|Provision for inventory obsolescence                                        |  |                            | 159     |   |      |   | 196    |  
|Stock compensation expense to employees                                     |  |                            | 1,648   |   |      |   | 275    |  
|Stock compensation expense to consultants for services                      |  |                            | 125     |   |      |   | 384    |  
|Changes in operating assets and liabilities:                                |  |                            |         |   |      |   |        |  
|Accounts receivable                                                         |  |                            | (3,420  | ) |      |   | (2,942 | )
|Inventories                                                                 |  |                            | (1,508  | ) |      |   | (1,694 | )
|Prepaid royalties                                                           |  |                            | (4,236  | ) |      |   |       |  
|Prepaid other                                                               |  |                            | (3,235  | ) |      |   | (44    | )
|Other assets                                                                |  |                            | 203     |   |      |   | (9     | )
|Accounts payable                                                            |  |                            | (1,627  | ) |      |   | 1,052  |  
|Deferred revenues                                                           |  |                            | 28      |   |      |   | (279   | )
|Accrued liabilities                                                         |  |                            | (461    | ) |      |   | 1,321  |  
|                                                                            |  |                            |         |   |      |   |        |  
|Net cash used in operating activities                                       |  |                            | (20,320 | ) |      |   | (9,444 | )
|                                                                            |  |                            |         |   |      |   |        |  
|Cash flows from investing activities                                        |  |                            |         |   |      |   |        |  
|Purchases of property and equipment                                         |  |                            | (3,806  | ) |      |   | (2,413 | )
|                                                                            |  |                            |         |   |      |   |        |  
|Net cash used in investing activities                                       |  |                            | (3,806  | ) |      |   | (2,413 | )
|                                                                            |  |                            |         |   |      |   |        |  
|Cash flows from financing activities                                        |  |                            |         |   |      |   |        |  
|Net proceeds from the issuance of common stock in initial public offering   |  |                            | 83,095  |   |      |   |       |  
|Payments on capital leases                                                  |  |                            | (26     | ) |      |   | (7     | )
|Proceeds from the issuance of common stock in option plans                  |  |                            | 253     |   |      |   | 744    |  
|Net proceeds from the issuance of convertible preferred stock  Series D    |  |                            |        |   |      |   | 4,052  |  
|                                                                            |  |                            |         |   |      |   |        |  
|Net cash provided by financing activities                                   |  |                            | 83,322  |   |      |   | 4,789  |  
|                                                                            |  |                            |         |   |      |   |        |  
|Effect of exchange rate changes on cash                                     |  |                            | 16      |   |      |   | 39     |  
|                                                                            |  |                            |         |   |      |   |        |  
|Net increase (decrease) in cash and cash equivalents for the period         |  |                            | 59,212  |   |      |   | (7,029 | )
|Cash and cash equivalents at the beginning of the period                    |  |                            | 17,610  |   |      |   | 16,982 |  
|                                                                            |  |                            |         |   |      |   |        |  
|Cash and cash equivalents at the end of the period                          |  | $                          | 76,822  |   |      | $ | 9,953  |  
|                                                                            |  |                            |         |   |      |   |        |  
|Supplemental disclosures of non-cash investing and financing activities     |  |                            |         |   |      |   |        |  
|Conversion of convertible preferred stock                                   |  | $                          | (303    | ) |      | $ |       |  
|Purchase of property and equipment under capital leases                     |  | $                          | (84     | ) |      | $ |       |  
|Disposal of property and equipment through capital lease terminations       |  | $                          | 11      |   |      | $ |       |  

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



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BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

Note 1  The
Company and Description of Business, Initial Public Offering and Capitalization of Preferred Stock

The Company and Description of Business

BioForm Medical, Inc. (we, our, us) is a medical aesthetics company incorporated in Delaware on July 12,
1999. Our corporate headquarters are located in San Mateo, California, with manufacturing and research and development sites in Franksville, Wisconsin and European subsidiaries in the Netherlands and the United Kingdom. We are focused on developing
and commercializing products that are used by physicians to enhance their patients appearance and are dedicated to bringing doctors and their patients safe and effective products for use in dermatology, plastic surgery and facial plastic
surgery.

We currently have two products, Radiesse and Coaptite. Radiesse is an FDA approved dermal filler for use in facial aesthetics. Currently,
Radiesse is marketed in the United States for the correction of moderate to severe folds and wrinkles, including nasolabial folds for the restoration or correction of the signs of facial fat loss or lipoatrophy in patients with human
immunodeficiency virus (HIV) and for vocal fold augmentation (VFA). Coaptite, an FDA approved tissue-bulking agent, is used to treat female stress urinary incontinence (SUI).

Initial Public Offering and Conversion of Preferred Stock

In
November 2007, we completed our initial public offering of common stock (IPO) and we sold and issued 11,500 shares of common stock at an issuance price of $8 per share. We raised a total of $92,000 in gross proceeds from the IPO, or
$83,095 in net proceeds after deducting underwriting discounts and other associated costs. Upon the closing of the IPO, all shares of convertible preferred stock then outstanding were automatically converted into 30,367 shares of common stock.



|                                                                            |  |       
|--------------------------------------------------------------------------- |  | ------
|Capitalization summary upon closing of initial public offering:             |  |       
|Common stock issued and outstanding as of September 30, 2007                |  | 4,222 
|Shares of common stock issued upon stock option exercises before IPO        |  | 67    
|Exercise of outstanding warrants prior to IPO                               |  | 44    
|Sale of common stock through IPO                                            |  | 11,500
|Conversion of preferred stock into common stock upon the closing of the IPO |  | 30,367
|                                                                            |  |       
|Common stock issued and outstanding after IPO                               |  | 46,200
|                                                                            |  |       

Note 2  Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. These statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in our Registration Statement on Form S-1, Registration Number 333-145584, filed with and declared effective by the Securities and Exchange Commission (SEC) on November 6,
2007 relating to our IPO.

In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary, which
are normal and recurring in nature, for a fair presentation of our financial position and of our results of operations for the periods presented. These condensed consolidated financial statements are not necessarily indicative of the results to be
expected for the entire year. We derived the consolidated balance sheet presented as of June 30, 2007 from the audited consolidated financial statements at that date.



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BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands,
except per share data)  (continued)



Reclassifications

We reclassified certain prior year amounts in our previously issued financial statements to conform to the current period presentation.

Comprehensive Income (Loss)

Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income,
describes that comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Our comprehensive loss consists of net losses and unrealized gains on foreign exchange translations. The following table lists the
components of comprehensive loss as of the end of the periods indicated.



|                   |  |                             |        |   |                               |   |        |      |  |   |        |   |  |   |        |  
|------------------ |  | --------------------------- | ------ | - | ----------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                   |  | Three months endedMarch 31, |        |   | Nine months endedDecember 31, |  
|                   |  | 2008                        |        |   | 2007                          |   |        | 2008 |  |   | 2007   |  
|Net loss           |  | $                           | (4,497 | ) |                               | $ | (3,573 | )    |  | $ | (9,517 | ) |  | $ | (8,651 | )
|Translation gain   |  |                             | 66     |   |                               |   | 9      |      |  |   | 210    |   |  |   | 39     |  
|                   |  |                             |        |   |                               |   |        |      |  |   |        |   |  |   |        |  
|Comprehensive loss |  | $                           | (4,431 | ) |                               | $ | (3,564 | )    |  | $ | (9,307 | ) |  | $ | (8,612 | )
|                   |  |                             |        |   |                               |   |        |      |  |   |        |   |  |   |        |  

Net Loss per Common Share

We compute basic and diluted net loss per share by dividing the loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Convertible preferred
stock, options to purchase common stock and warrants to purchase common or preferred stock are not included in this calculation because their inclusion would be anti-dilutive.

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per common share follows:



|                                                                      |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------- |  | --------------------------- | ------ | - | -------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                      |  | Three months endedMarch 31, |        |   | Nine months endedMarch 31, |  
|                                                                      |  | 2008                        |        |   | 2007                       |   |        | 2008 |  |   | 2007   |  
|Numerator:                                                            |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Net loss attributable to common stockholders                          |  | $                           | (4,497 | ) |                            | $ | (3,573 | )    |  | $ | (9,517 | ) |  | $ | (8,651 | )
|Denominator:                                                          |  |                             |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Weighted-average common shares outstanding                            |  |                             | 46,229 |   |                            |   | 4,065  |      |  |   | 26,319 |   |  |   | 3,751  |  
|Loss per share attributable to common stockholders, basic and diluted |  | $                           | (0.10  | ) |                            | $ | (0.88  | )    |  | $ | (0.36  | ) |  | $ | (2.31  | )



7



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##### Table of Contents

BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands,
except per share data)  (continued)



We excluded the following outstanding options, convertible preferred stock and warrants from the computation of
diluted net loss per common share for the periods presented because including them would have had an anti-dilutive effect:



|                                                       |  |                             |  |                            |  |       |  |       
|------------------------------------------------------ |  | --------------------------- |  | -------------------------- |  | ----- |  | ------
|                                                       |  | Three months endedMarch 31, |  | Nine months endedMarch 31,
|                                                       |  | 2008                        |  | 2007                       |  | 2008  |  | 2007  
|Series A convertible preferred stock (as if converted) |  |                            |  | 5,412                      |  |      |  | 5,412 
|Series B convertible preferred stock (as if converted) |  |                            |  | 9,595                      |  |      |  | 9,595 
|Series C convertible preferred stock (as if converted) |  |                            |  | 8,239                      |  |      |  | 8,239 
|Series D convertible preferred stock (as if converted) |  |                            |  | 4,938                      |  |      |  | 4,938 
|Options to purchase common stock                       |  | 5,526                       |  | 3,826                      |  | 5,526 |  | 3,826 
|Warrants to purchase common stock                      |  |                            |  | 100                        |  |      |  | 100   
|                                                       |  |                             |  |                            |  |       |  |       
|                                                       |  | 5,526                       |  | 32,110                     |  | 5,526 |  | 32,110
|                                                       |  |                             |  |                            |  |       |  |       

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements(SFAS No. 157). SFAS No
157 provides guidance for using fair value to measure assets and liabilities. It also responds to investors requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information
used to measure fair value, and the effect of fair value measurements on earnings. SFAS No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value and does not expand the use of fair value in
any new circumstances. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We plan to adopt SFAS No. 157 in fiscal 2009. We are currently evaluating the effect that the
adoption of SFAS No. 157 will have on our results of operations and financial position.

In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115(SFAS No. 159). SFAS No. 159 provides companies with an
option to report selected financial assets and liabilities at fair value. The objective of SFAS No. 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and
liabilities differently. Most of the provisions in SFAS No. 159 are elective; however, the amendment to FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with
available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entitys first fiscal year beginning after November 15, 2007. We plan to adopt SFAS No. 159 in fiscal 2009 and are currently
evaluating the effect that the adoption of SFAS No. 159 will have on our results of operations and financial position.

In December 2007, the FASB
issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations, (SFAS No. 141(R)). SFAS No. 141(R) requires entities that acquire control of another business or businesses to
measure and recognize any obligations to make payments conditioned on the outcome of future events (contingent consideration) at the fair value of the contingent consideration at the acquisition date. SFAS No. 141(R) includes in the definition
of contingent consideration any right held by the acquirer to the return of previously transferred consideration if specific conditions are met. SFAS No. 141(R) also defines a bargain purchase and requires the acquirer to recognize the excess
fair value involved in such a purchase in earnings as a gain attributable to the acquirer. SFAS No. 141(R) is effective for acquisitions occurring on or after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The FASB has prohibited earlier adoption of SFAS No. 141(R). We plan to adopt SFAS No. 141(R) in fiscal 2010 and are currently evaluating the effect that the adoption of SFAS No. 141(R) will have on our results
of operations and financial position.



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##### Table of Contents

BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands,
except per share data)  (continued)



Note 3  Certain Balance Sheet Components



|                                          |  |               |        |   |              |   |        |  
|----------------------------------------- |  | ------------- | ------ | - | ------------ | - | ------ | -
|                                          |  | March 31,2008 |        |   | June 30,2007 |  
|Inventories                               |  |               |        |   |              |   |        |  
|Raw materials                             |  | $             | 2,352  |   |              | $ | 1,504  |  
|Work-in-process                           |  |               | 3,406  |   |              |   | 2,840  |  
|Finished goods                            |  |               | 787    |   |              |   | 736    |  
|Reserves for excess and obsolete          |  |               | (369   | ) |              |   | (216   | )
|                                          |  |               |        |   |              |   |        |  
|                                          |  | $             | 6,176  |   |              | $ | 4,864  |  
|                                          |  |               |        |   |              |   |        |  
|Property & Equipment                      |  |               |        |   |              |   |        |  
|Land                                      |  | $             | 327    |   |              | $ |       |  
|Building and leasehold improvements       |  |               | 3,251  |   |              |   | 1,465  |  
|Machinery and equipment                   |  |               | 4,526  |   |              |   | 2,265  |  
|Furniture, fixtures, and office equipment |  |               | 3,880  |   |              |   | 2,448  |  
|Construction-in-progress                  |  |               | 715    |   |              |   | 2,569  |  
|                                          |  |               |        |   |              |   |        |  
|                                          |  |               | 12,699 |   |              |   | 8,747  |  
|Less: accumulated depreciation            |  |               | (4,015 | ) |              |   | (3,006 | )
|                                          |  |               |        |   |              |   |        |  
|                                          |  | $             | 8,684  |   |              | $ | 5,741  |  
|                                          |  |               |        |   |              |   |        |  
|Other Accrued Liabilities                 |  |               |        |   |              |   |        |  
|Accrued compensation                      |  | $             | 3,228  |   |              | $ | 2,576  |  
|Accrued marketing programs                |  |               | 404    |   |              |   | 805    |  
|Accrued licensing                         |  |               | 800    |   |              |   | 1,700  |  
|Other accruals                            |  |               | 2,530  |   |              |   | 1,605  |  
|                                          |  |               |        |   |              |   |        |  
|                                          |  | $             | 6,962  |   |              | $ | 6,686  |  
|                                          |  |               |        |   |              |   |        |  

Note 4  Commitments and Contingencies

Lease Commitments

We have entered into several capital leases for office equipment. We had $129 and $86 in
assets under capital lease obligations at March 31, 2008 and June 30, 2007. Accumulated depreciation associated with these capital leases was $21 and $42 at March 31, 2008 and June 30, 2007.



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##### Table of Contents

BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands,
except per share data)  (continued)



The following schedule summarizes the future minimum lease payments for all capital and operating leases as of
March 31, 2008:



|                                               |  |               |     |   |                 |   |    
|---------------------------------------------- |  | ------------- | --- | - | --------------- | - | ---
|                                               |  | CapitalLeases |     |   | OperatingLeases
|Year ending June 30,                           |  |               |     |   |                 |   |    
|2008 (remaining three months)                  |  | $             | 10  |   |                 | $ | 126
|2009                                           |  |               | 41  |   |                 |   | 356
|2010                                           |  |               | 41  |   |                 |   | 221
|2011                                           |  |               | 17  |   |                 |   | 101
|2012                                           |  |               |    |   |                 |   | 78 
|                                               |  |               |     |   |                 |   |    
|Total minimum lease payments                   |  |               | 109 |   |                 | $ | 882
|                                               |  |               |     |   |                 |   |    
|Less amounts representing interest             |  |               | (6  | ) |                 |   |    
|                                               |  |               |     |   |                 |   |    
|Present value of minimum lease payments        |  |               | 103 |   |                 |   |    
|Less current portion                           |  |               | (32 | ) |                 |   |    
|                                               |  |               |     |   |                 |   |    
|Long-term portion of capital lease obligations |  | $             | 71  |   |                 |   |    
|                                               |  |               |     |   |                 |   |    

License Agreements

In fiscal 2007, we entered into agreements that provided us exclusive US distribution rights for Aethoxyslerol with Chemische Fabrik KREUSSLER & Co. GmbH (Kreussler) and exclusive US, Canada and
European distribution rights for aesthetics applications for BioGlue with CryoLife. Inc. (CryoLife). We charged $2,200 to research and development expense in fiscal 2007 for minimum, non-cancelable payments required under these two
agreements. Of this amount, we paid $500 in October 2006 and we accrued $1,700 as of June 30, 2007 for the remaining balance. In the first quarter of fiscal 2008, we paid $900 of the $1,700 accrual. The remaining amount is due in June 2008.
Additional payments will become due if we achieve milestones related to FDA approval of these products. Due to the uncertainties inherent in medical clinical trials and regulatory review by the FDA, we are unable to predict if or when the contingent
payments under these two agreements will become payable.

In October 2005, we entered into a settlement and license agreement with Artes Medical, Inc.
(Artes) and Dr. Martin Lemperle, pursuant to which all outstanding disputes and litigation matters among the parties were settled. Under this agreement, Artes granted to us an exclusive, world-wide license under certain of their
patents to make and sell implant products containing CaHA particles and a non-exclusive, world-wide license under the same patents to make and sell certain other non-polymeric implant products. On September 21, 2007, we executed a Second
Agreement with Artes to pre-pay all royalty obligations payable to Artes in the future by making two payments totaling $5,500. On September 30, 2007, we recorded $5,500 in accrued liabilities as a result of executing this agreement. In
addition, we recorded short and long-term prepaid assets, net of the accrued royalty liability to Artes. As of March 31, 2008, our short term and long-term prepaid assets from this agreement were $1,513 and $2,723, respectively. In October
2007, we paid the first payment of $2,000 and we paid the second installment of $3,500 in December 2007. These payments replaced any royalty that we would have been obligated to pay to Artes in the future under the terms of the original license
agreement and will be recognized in cost of sales based on units sold.

Legal Contingencies

From time to time, we may become a party to litigation and subject to product liability claims in the ordinary course of the business. There have been no material changes
in the legal matters discussed in Note 5 of the Notes to Consolidated Financial Statements in our Registration Statement on Form S-1, Registration Number 333-145584, which is incorporated herein by reference. Although we cannot predict the results
of litigation and claims with certainty, we believe that the final resolution of such matters will not have any material adverse effect on our business, results of operations or financial condition as of March 31, 2008.



10



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##### Table of Contents

BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands,
except per share data)  (continued)



Note 5  Stockholders Equity

Convertible Preferred Stock

In conjunction with our November 2007 IPO, all shares of our convertible
preferred stock were converted to 30,367 shares of common stock.

Common Stock

On November 9, 2007, we filed our amended and restated certificate of incorporation, pursuant to which all preferred stock was converted to common stock and we increased the number of shares authorized to 100,000
shares of common stock and 10,000 shares of undesignated preferred stock.

As of March 31, 2008, we were authorized to issue 100,000 shares of common
stock with a par value of $0.01. Each share of common stock has the right to one vote. Of the common stock authorized at March 31, 2008, 11,704 shares have been reserved for issuance of stock options. The holders of common stock are entitled to
dividends when funds are legally available and when declared by the Board of Directors.

Warrant

In connection with the acquisition of certain assets from Cutanix Corporation in fiscal 2005, we issued a warrant to purchase 100 shares of common stock, at an exercise
price of $5.60. On November 2, 2007, Cutanix exercised its right to buy our common stock at $5.60 per share. The exercise was affected as a net-share settlement under which we issued 44 shares to Cutanix in exchange for the warrants it held.
The number of shares issued was determined based on the amount by which the warrants were in the money at the time of the exercise. No warrants remain outstanding at March 31, 2008.

Note 6  Stock Based Compensation

Stock Option Plan

In May 2003, we adopted a stock option plan (the 2003 (Terminated) Stock Plan) whereby we granted options to certain officers, employees, consultants or
advisors (Participants) for the purchase of common stock. We reserved 1,500 shares of common stock for issuance under the 2003 (Terminated) Stock Plan. In September 2003, we terminated the 2003 (Terminated) Stock Plan and adopted a new
stock option plan (the 2003 (Active) Stock Plan) whereby we grant options to certain officers, employees, consultants or advisors (Participants) for the purchase of common stock. We initially reserved 3,500 shares of common
stock for issuance under the 2003 (Active) Stock Plan and we increased the shares authorized for the 2003 (Active) Stock Plan on October 13, 2005, June 27, 2006 and July 25, 2007, by 1,500 shares, 2,000 and 1,500 shares,
respectively.

Under the 2003 (Active) Stock Plan, we granted stock options in the form of incentive stock options, as described in Section 422 of the
Internal Revenue Code, or nonqualified stock options or stock purchase rights. Our board of directors administers the plans. Our board of directors has the authority to grant to any participant one or more incentive stock options, nonqualified stock
options or both types of stock options, or stock purchase rights depending on the plan. Each option was subject to such terms and conditions consistent with the respective plan as the Board of Directors imposed from time-to-time, subject to the
limitations as defined in the plans. Options granted under the 2003 (Terminated) Stock Plan and the 2003 (Active) Stock Plan generally vested ratably over a four year service period and expire ten years after the date of grant.



11



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##### Table of Contents

BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands,
except per share data)  (continued)



In August 2007, our board of directors adopted the 2007 Equity Incentive Plan (the 2007 Plan). Under the
2007 Plan, which, as of the effectiveness of our IPO in November 2007, replaced the 2003 (Active) Stock Plan, we are authorized to issue a maximum of 4,000 common shares in addition to any shares that have been issued pursuant to any awards granted
under the 2003 (Active) Stock Plan in the form of incentive, nonstatutory stock options, stock appreciation rights, restricted stock and restricted stock units or performance shares and units. The 2007 Plan states that the exercise price of options
and stock appreciation rights will not be less than 100% of the fair market value of the underlying common stock on the date of the grant. The board of directors, or its designate, will determine the exercise price for restricted stock or restricted
stock units and performance shares or units. The board of directors, or its designate, has the authority to set vesting periods, conditions, performance goals and incentives for all awards.

Adoption of SFAS 123R

Effective July 1, 2006, we adopted
the provisions of Statement of Financial Accounting Standards 123(R), Share-Based Payment(SFAS No. 123R), using the prospective transition method.SFAS No. 123R establishes accounting for stock-based awards made
to employees and directors. Accordingly, stock-based compensation expense is measured on the grant date, based on the fair value of the award, and is recognized as expense over the remaining requisite service period.

Under SFAS No.123R, stock-based awards, including stock options, are recorded at fair value as of the grant date and recognized on a straight-line basis, as expense over
the employees requisite service period (generally the vesting period). Because our non-cash stock compensation expense is based on awards ultimately expected to vest, it has been reduced by an estimate for future forfeitures. SFAS
No. 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The weighted-average grant date fair value per share of employee stock options granted for the nine month periods ended March 31, 2008 and 2007 was $3.18 and $1.49, respectively, calculated using the
Black-Scholes option pricing model with the following weighted average assumptions:



|                                         |  |           |   |  |      |  
|---------------------------------------- |  | --------- | - |  | ---- | -
|                                         |  | March 31, |  
|                                         |  | 2008      |   |  | 2007 |  
|Weighted-average expected volatility     |  | 45        | % |  | 45   | %
|Weighted-average expected term (years)   |  | 4.59      |   |  | 4.39 |  
|Weighted-average risk-free interest rate |  | 4.62      | % |  | 4.89 | %
|Dividend yield                           |  | 0.00      | % |  | 0.00 | %



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##### Table of Contents

BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands,
except per share data)  (continued)



The assumptions were developed as follows:

VolatilityAs we did not have any trading history for our common stock prior to our IPO, the expected stock price volatility for our common stock was estimated by taking the median historic stock price
volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of several public companies in the biotech medical device industry similar in size,
stage of life cycle and financial leverage. As permitted for privately-held companies under SFAS No. 123 prior to the adoption of SFAS No. 123R, we used the minimum value method for determining pro-forma disclosure and no volatility was
applied in the valuation of employee options.

Expected TermWe have limited historical information to develop reasonable expectations about
future exercise patterns and post vesting employment termination behavior for our stock option grants. As a result, for stock option grants made during fiscal 2008, the expected term was estimated as the average of the vesting term and the
contractual life, using the method allowed under SAB No. 107.

Risk-Free RateThe risk-free interest rate assumption was based on zero
coupon U.S. Treasury instruments whose term was consistent with the expected term of our stock option grants.

Expected Dividend YieldWe have
never declared or paid any cash dividends and do not plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.

Common Stock Fair ValueThe fair value of our common stock during the six months ended December 31, 2006 was determined by independent contemporaneous valuations prepared by an independent third party
valuation firm. In conducting these valuations, we used a two-step methodology that first estimated our fair value as a whole, and then allocated a portion of the enterprise value to our common stock. This approach is consistent with the methods
outlined in the AICPA Practice Aid Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The valuation methodology utilized the income approach to estimate enterprise value. We tested the enterprise value
for reasonableness utilizing the market approach. The income approach involved projecting future cash flows, discounting them to present value using discount rates ranging from 24% to 30% based upon a risk adjusted weighted average cost
of capital of comparable companies, and applying probabilities for success of our product candidates to the resulting discounted cash flows. The projection of future cash flows, the determination of an appropriate discount rate and the estimates of
probability for success of our product candidates each involved a significant degree of judgment.

ForfeituresSFAS No. 123R requires
forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeiture rates refer to the likelihood that unvested options will be cancelled or forfeited due to
termination of employment. In developing the expected future forfeiture rates, we analyzed unvested cancellations experience since September 2000.

Stock Options Granted to Employees

We recognized $540 of employee stock-based compensation expense during the three months ended
March 31, 2008, and charged $31, $185, $76 and $248 to cost of sales, sales and marketing, research and development, and general and administrative expense, respectively. We recognized $139 of employee stock-based compensation expense during
the three months ended March 31, 2007, and charged $13, $56, $10 and $60 to cost of sales, sales and marketing, research and development, and general and administrative expense, respectively. We did not recognize any income tax benefit in the
condensed consolidated statement of operations for the three month period ended March 31, 2008.



13



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##### Table of Contents

BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands,
except per share data)  (continued)



We recognized $1,648 of employee stock-based compensation expense during the nine months ended March 31, 2008,
and charged $101, $526, $248 and $773 to cost of sales, sales and marketing, research and development, and general and administrative expense, respectively. We recognized $275 of employee stock-based compensation expense during the nine months ended
March 31, 2007, and charged $23, $104, $23 and $125 to cost of sales, sales and marketing, research and development, and general and administrative expense, respectively. We did not recognize any income tax benefit in the condensed consolidated
statement of operations for the nine month period ended March 31, 2008 and 2007.

The total compensation cost related to unvested stock option grants
not yet recognized as of March 31, 2008 was $6,215 and the weighted-average period over which these grants are expected to vest is 2.5 years.

The
following table summarizes activity under our stock option plans from July 1, 2006 through March 31, 2008:



|                                                                  |  |                         |   |  |                                    |   |  |                              |      |                                                 |      |                         |   |      
|----------------------------------------------------------------- |  | ----------------------- | - |  | ---------------------------------- | - |  | ---------------------------- | ---- | ----------------------------------------------- | ---- | ----------------------- | - | -----
|Options                                                           |  | SharesAvailableforGrant |   |  | SharesSubject toOutstandingOptions |   |  | WeightedAverageExercisePrice |      | Weighted-averageRemainingContractualTerm(Years) |      | AggregateIntrinsicValue
|Options outstanding at June 30, 2006                              |  | 4,376                   |   |  | 2,681                              |   |  | $                            | 1.04 |                                                 |      |                         |   |      
|Options granted (weighted average grant date fair value of $1.49) |  | (1,800                  | ) |  | 1,800                              |   |  | $                            | 3.46 |                                                 |      |                         |   |      
|Options exercised                                                 |  |                        |   |  | (570                               | ) |  | $                            | 0.62 |                                                 |      |                         |   |      
|Options forfeited or expired                                      |  | 138                     |   |  | (150                               | ) |  | $                            | 1.56 |                                                 |      |                         |   |      
|                                                                  |  |                         |   |  |                                    |   |  |                              |      |                                                 |      |                         |   |      
|Options outstanding at June 30, 2007                              |  | 2,714                   |   |  | 3,761                              |   |  | $                            | 2.25 |                                                 |      |                         |   |      
|                                                                  |  |                         |   |  |                                    |   |  |                              |      |                                                 |      |                         |   |      
|Options authorized                                                |  | 5,500                   |   |  |                                    |   |  |                              |      |                                                 |      |                         |   |      
|Options granted (weighted average grant date fair value of $3.18) |  | (2,148                  | ) |  | 2,148                              |   |  | $                            | 7.28 |                                                 |      |                         |   |      
|Options exercised                                                 |  |                        |   |  | (191                               | ) |  | $                            | 1.32 |                                                 |      |                         |   |      
|Options forfeited or expired                                      |  | 106                     |   |  | (192                               | ) |  | $                            | 5.54 |                                                 |      |                         |   |      
|                                                                  |  |                         |   |  |                                    |   |  |                              |      |                                                 |      |                         |   |      
|Options outstanding at March 31, 2008                             |  | 6,172                   |   |  | 5,526                              |   |  | $                            | 4.12 |                                                 | 8.30 |                         | $ | 8,133
|                                                                  |  |                         |   |  |                                    |   |  |                              |      |                                                 |      |                         |   |      
|Vested and expected to vest                                       |  |                         |   |  | 5,006                              |   |  |                              |      |                                                 | 8.25 |                         | $ | 7,658
|                                                                  |  |                         |   |  |                                    |   |  |                              |      |                                                 |      |                         |   |      
|Exercisable at March 31, 2008                                     |  |                         |   |  | 1,664                              |   |  |                              |      |                                                 | 7.23 |                         | $ | 4,490
|                                                                  |  |                         |   |  |                                    |   |  |                              |      |                                                 |      |                         |   |      



14



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##### Table of Contents

BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands,
except per share data)  (continued)



The following table summarizes information about stock options outstanding as of March 31, 2008:



|                         |  |                     |  |                              |      |                            |       |                              |   |     
|------------------------ |  | ------------------- |  | ---------------------------- | ---- | -------------------------- | ----- | ---------------------------- | - | ----
|                         |  | Options Outstanding |  | Options Exercisable         
|Range of Exercise Prices |  | Number ofShares     |  | WeightedAverageExercisePrice |      | Number ofSharesExercisable |       | WeightedAverageExercisePrice
|$0.45  $0.84            |  | 944                 |  | $                            | 0.75 |                            | 652   |                              | $ | 0.75
|$0.85  $2.00            |  | 873                 |  | $                            | 1.67 |                            | 430   |                              | $ | 1.57
|$2.01  $3.75            |  | 1,255               |  | $                            | 3.09 |                            | 413   |                              | $ | 3.06
|$3.76  $7.76            |  | 2,454               |  | $                            | 6.82 |                            | 169   |                              | $ | 5.01
|                         |  |                     |  |                              |      |                            |       |                              |   |     
|                         |  | 5,526               |  | $                            | 4.12 |                            | 1,664 |                              | $ | 1.95
|                         |  |                     |  |                              |      |                            |       |                              |   |     

Stock Options Granted to Non-employees

Expense recognized related to stock options granted to non-employees was $(11) for the three month period ended March 31, 2008, all of which was charged to sales and marketing expense. Stock based compensation
due to stock options granted to non-employees in the three month period ended March 31, 2007 was $188, of which $102, $43 and $43 were charged to sales and marketing expense, research and development expense and general and administrative
expense, respectively.

Expense recognized related to stock options granted to non-employees was $125 for the nine month period ended March 31, 2008,
of which $15 and $110 were charged to sales and marketing, and general and administrative expense, respectively. Stock based compensation due to stock options granted to non-employees in the nine month period ended March 31, 2007 was $384, of
which $298, $43 and $43 were charged to sales and marketing, research and development and general and administrative expense, respectively.

Stock options
to non-employees were valued using the Black-Scholes option pricing model with the following assumptions:



|                                         |  |           |   |  |      |  
|---------------------------------------- |  | --------- | - |  | ---- | -
|                                         |  | March 31, |  
|                                         |  | 2008      |   |  | 2007 |  
|Weighted-average expected volatility     |  | 45        | % |  | 45   | %
|Weighted-average expected term (years)   |  | 10        |   |  | 10   |  
|Weighted-average risk-free interest rate |  | 4.24      | % |  | 4.99 | %
|Expected dividend yield                  |  | 0         | % |  | 0    | %

We estimated the expected stock price volatility for our common stock by taking the median historic stock price
volatility for industry peers based on daily price observation over a period equivalent to the expected term of the non-employee stock option grants. Industry peers consist of several public companies in the life science industry similar in size,
stage of life cycle and financial leverage.

Note 7  Income Taxes

Our provision for income taxes in the three and nine month periods ended March 31, 2008 was $69 and $210, respectively. Our provision for income taxes in the three and nine month periods ended March 31, 2007
was $48 and $123, respectively. Our provision for income taxes relates to income taxes in our foreign subsidiaries.

Because of our history of net
operating losses, we have recorded a valuation allowance to fully offset our deferred tax assets.



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##### Table of Contents

BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands,
except per share data)  (continued)



On July 1, 2007, we adopted FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes
 an interpretation of FASB Statement No. 109 (FIN 48), which supplements SFAS No. 109. FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of
uncertain tax positions taken or expected to be taken in income tax returns. There was no cumulative effect of adoption recorded in retained earnings. The total amount of unrecognized tax benefit as of the date of adoption is zero and has remained
zero for the first three quarters of the year.

Our policy is to recognize interest and penalties related to unrecognized tax benefits as part of our
income tax expense. We did not have any interest accrued on uncertain tax positions.

We are subject to taxation in the United States. and various foreign
jurisdictions. The material jurisdictions subject to examination by tax authorities are primarily U.S. federal, California and Wisconsin. We have not been audited by the Internal Revenue Service or any state income or franchise tax agency. As of
March 31, 2008, all our Federal tax returns are open (except for the year ending June 30, 2004) and could be subject to examination by the tax authorities. Our California and Wisconsin income tax returns are open by statute. In addition,
all of the net operating losses and research and development credit carryforwards that may be used in future years are still subject to inquiry given that the statute of limitation for these items would be from the year of utilization. We are not
subject to any current audits.

Note 8  Segment Reporting

We operate and report as a single operating segment, which encompasses the developing, manufacturing and marketing of medical aesthetic products for the aesthetics market. We use one measurement of profitability and do not segregate our
business for internal reporting.

We generate revenues in the following geographic regions:



|              |  |                             |        |                            |   |        |  |      |        |  |   |       
|------------- |  | --------------------------- | ------ | -------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|              |  | Three months endedMarch 31, |        | Nine months endedMarch 31,
|              |  | 2008                        |        | 2007                       |   | 2008   |  | 2007
|U.S.          |  | $                           | 14,025 |                            | $ | 10,266 |  | $    | 41,173 |  | $ | 26,489
|International |  |                             | 2,929  |                            |   | 2,172  |  |      | 9,598  |  |   | 5,575 
|              |  |                             |        |                            |   |        |  |      |        |  |   |       
|Total         |  | $                           | 16,954 |                            | $ | 12,438 |  | $    | 50,771 |  | $ | 32,064
|              |  |                             |        |                            |   |        |  |      |        |  |   |       

We attribute long-lived assets, which consist of property and equipment, to a country primarily based on the
physical location of the assets. Long-lived assets, which include property and equipment, net of accumulated depreciation and amortization, summarized by geographic location were as follows:



|              |  |               |       |              |   |      
|------------- |  | ------------- | ----- | ------------ | - | -----
|              |  | March 31,2008 |       | June 30,2007
|U.S.          |  | $             | 8,088 |              | $ | 5,527
|International |  |               | 596   |              |   | 214  
|              |  |               |       |              |   |      
|Total         |  | $             | 8,684 |              | $ | 5,741
|              |  |               |       |              |   |      

No customer accounted for 10% or more of sales in the three or nine months ended March 31, 2008. No one
customers receivable balance is greater than 10% of the total account receivable balance at March 31, 2008 and June 30, 2007.



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Note 9. Subsequent Event

On April 30, 2008, we acquired substantially all of the assets of privately-held, Denver, Colorado based, Advanced Cosmetic Intervention, Inc. (ACI) and associated technology rights for $12 million cash, plus assumption of
approximately $0.2 million of payables, contingent consideration and a potential sales-related milestone. As of March 31, 2008, we have $0.2 million in our current assets as deposit for this transaction.



17



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that could cause actual results and
events to differ materially from those expressed or implied by such forward-looking statements. For a detailed discussion of these risks and uncertainties, see the Risk Factors section in Item 1A of Part II of this Form 10-Q. We
caution the reader not to place undue reliance on these forward-looking statements, which reflect managements analysis only as of the date of this Form 10-Q. We undertake no obligation to update forward-looking statements to reflect events or
circumstances occurring after the date of this Form 10-Q.

Overview

We are a medical aesthetics company focused on developing and commercializing products that are used by physicians to enhance the appearance of their patients. Our core product is Radiesse, an injectable dermal filler
designed to provide long-lasting, cost-effective and safe aesthetic benefits for patients. We have also developed and commercialized Coaptite, an FDA approved tissue-bulking agent, which is marketed through our distribution agreement with Boston
Scientific for use in the treatment of stress urinary incontinence in adult females. We manufacture Radiesse and Coaptite at our facilities in Wisconsin, though we depend upon suppliers to manufacture components used in our products.

We currently market our products through a direct sales force of over 100 sales representatives in the United States and Europe and a complementary network of third
party distributors in more than 30 countries. Our primary customers are dermatologists, plastic surgeons and facial plastic surgeons. Radiesse is generally used for the treatment of facial wrinkles and folds. Medical aesthetics procedures such as
these are generally not covered by health insurance; instead, consumers pay for these treatments with personal funds. Coaptite is used to treat stress urinary incontinence in adult females, which is generally covered by health plans in the United
States. Reimbursement coverage of Coaptite procedures is generally not provided internationally, which we believe has been primarily responsible for limiting sales of Coaptite outside the United States.

In May 2007, we entered into an exclusive licensing and distribution agreement in the United States for Aethoxysklerol, a leading sclerotherapy treatment in Europe for
varicose veins. Aethoxysklerol is currently in a Phase III clinical trial for the treatment of spider and reticular veins, which, if successful, may allow us to introduce Aethoxysklerol in the United States. According to the terms of this agreement,
the manufacturer of Aethoxysklerol, Chemische Fabrik KREUSSLER & Co. GmbH (Kreussler), is responsible for conducting the clinical trial and regulatory filings for approval of Aethoxyskerol by the FDA, and, assuming approval is
received, will exclusively manufacture the product for us. We will be the exclusive distributor of the product in the United States and be responsible for all sales, marketing, and clinical training.

In April 2008, we acquired substantially all of the assets of Advanced Cosmetic Intervention, or ACI and its licensor JNJ, for $12 million cash, plus future contingent
consideration and a potential sales-related milestone. The ACI device is currently cleared via a 510(k) by FDA to create RF heat lesions in nerve tissue. We expect to conduct clinical studies specifically intended to support an FDA application and
other foreign applications seeking clearance to market this product for the treatment of frown lines.

Additionally, in October 2006, we licensed the
exclusive United States, Canadian and European distribution rights for medical aesthetic applications of BioGlue, a surgical adhesive Class III medical device manufactured by CryoLife. Under the terms of our development, distribution and supply
agreement, we are responsible for all clinical trials and regulatory filings for cosmetic and plastic surgery applications and will be responsible for sales and marketing of BioGlue in these applications. BioGlue is currently in early feasibility
stage human trials for use as a less invasive alternative for tissue fixation in browplasty, or forehead lift. CryoLife will remain the exclusive manufacturer of BioGlue. Under both of these agreements, we have paid and expect to pay certain
milestone payments.



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##### Table of Contents

Upon execution of the Aethoxysklerol agreement, we became obligated to pay Kreussler a total of $1.7 million in fiscal
2008. Upon execution of the BioGlue agreement, we made a $0.5 million payment to CryoLife. We charged the total amount of these non-contingent payments, $2.2 million, to research and development expense in fiscal 2007. Contingent payments totaling
$3.2 million under the agreement with Kreussler and $0.5 million under the agreement with CryoLife will become due upon success in reaching specified clinical and regulatory milestones. Due to the uncertainties inherent in medical clinical trials
and regulatory review by the FDA, we are unable to predict if or when the contingent payments under these two agreements will become payable. We expect that our future revenue may grow materially as a result of these product candidates and any other
future products or indications, if and when we introduce them.

Sales of Radiesse generated more than 90% of our revenue in the third quarter and the first
nine months of fiscal 2008 and 2007. Other revenue consists primarily of the sale of Coaptite. We believe sales increased in fiscal 2008 over the comparable period of fiscal 2007 due to growing appreciation by doctors of the benefits provided by
Radiesse, clinical training programs, the hiring of additional direct sales personnel, and improvements in our distributor network. We expect revenue to continue to grow in the remainder of fiscal 2008 over the comparable periods of fiscal 2007.

We expect that the key factors in generating future growth of our revenue will include:



| |  |  | patient satisfaction with our products, particularly Radiesse;
| | - |  | --------------------------------------------------------------



| |  |  | strength of our direct sales force in the United States and Europe and our international distribution arrangements;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | timing and scope of regulatory approvals that we have and may receive in the future; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | competitive dynamics in the marketplace.
| | - |  | ----------------------------------------

As is
common with many companies in the aesthetics sector, we experience the effects of seasonality on our revenues. We believe the first quarter of our fiscal year, which runs from July through September, is typically the slowest quarter of the year due
to summer vacations by doctors and patients. We also generally observe a modest slowness in our third quarter, which runs from January through March. Our fourth quarter, which runs from April to June, is typically the strongest quarter of our fiscal
year. The seasonality that we have experienced may have been masked in part by the growth in our revenue in the last two fiscal years.

The recent U.S.
economic slowdown has led to lower consumer confidence and discretionary spending. We believe that this has led to a decline in spending for certain cosmetic procedures, including treatment with Radiesse. This has resulted in less growth in our
January through March third quarter 2008 than anticipated and an expectation of continued slowness through our April to June fourth quarter 2008. While the recent slowdown does not appear to have had an impact on new account growth, we cannot
predict whether new account growth will continue to be apparently unaffected by recessionary conditions.

We will depend on the continued success of
Radiesse for growth in revenues for the foreseeable future and to accomplish our goal of achieving sustainable profitability. Competition is very active with many dermal filler products approved and sold throughout the world and the frequent
introduction of new product offerings. Some competing products are marketed by companies that are considerably larger and have greater resources than we do. Our industry is also characterized by pricing pressure in the form of volume discounting
and, in some cases, price reductions and bundling discounts. In addition, we offer customers the opportunity to purchase product at lower unit prices if they purchase more units of Radiesse. These factors have contributed to a decline in the average
selling price for Radiesse and may continue to do so in the future.



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##### Table of Contents

Results of Operations

Comparison of the three and nine month periods ended March 31, 2008 and 2007

The following table sets forth certain data as a
percentage of revenues for the periods indicated. Dollars are in thousands.



|                                    |  |                              |        |   |       |       |   |        |   |        |       |  |       |        |  |        
|----------------------------------- |  | ---------------------------- | ------ | - | ----- | ----- | - | ------ | - | ------ | ----- |  | ----- | ------ |  | -------
|                                    |  | Three months ended March 31, |        |   |      
|                                    |  | 2008                         |        |   | 2007  |       |   | %     
|                                    |  | Amount                       |        |   | % (a) |       |   | Amount |   |        | % (a) |  |       | Change
|Net sales                           |  | $                            | 16,954 |   |       | 100.0 |   |        | $ | 12,438 |       |  | 100.0 |        |  | 36.3 . 
|Cost of sales                       |  |                              | 3,232  |   |       | 19.1  |   |        |   | 2,065  |       |  | 16.6  |        |  | 56.5   
|                                    |  |                              |        |   |       |       |   |        |   |        |       |  |       |        |  |        
|Gross profit                        |  |                              | 13,722 |   |       | 80.9  |   |        |   | 10,373 |       |  | 83.4  |        |  | 32.3   
|Sales and marketing expenses        |  |                              | 14,347 |   |       | 84.6  |   |        |   | 11,015 |       |  | 88.6  |        |  | 30.2   
|Research and development expenses   |  |                              | 2,259  |   |       | 13.3  |   |        |   | 1,372  |       |  | 11.0  |        |  | 64.7   
|General and administrative expenses |  |                              | 2,548  |   |       | 15.0  |   |        |   | 1,695  |       |  | 13.6  |        |  | 50.3   
|Other income, net                   |  |                              | 1,004  |   |       | 5.9   |   |        |   | 184    |       |  | 1.5   |        |  | 4,456.5
|Provision for income taxes          |  |                              | 69     |   |       | 0.4   |   |        |   | 48     |       |  | 0.4   |        |  | 43.8   
|                                    |  |                              |        |   |       |       |   |        |   |        |       |  |       |        |  |        
|Net loss                            |  | $                            | (4,497 | ) |       | (26.5 | ) |        | $ | (3,573 | )     |  | (28.7 | )      |  | 25.9   
|                                    |  |                              |        |   |       |       |   |        |   |        |       |  |       |        |  |        
|                                    |  |                             
|                                    |  | Nine months ended March 31,  |        |   |      
|                                    |  | 2008                         |        |   | 2007  |       |   | %     
|                                    |  | Amount                       |        |   | % (a) |       |   | Amount |   |        | % (a) |  |       | Change
|Net sales                           |  | $                            | 50,771 |   |       | 100.0 |   |        | $ | 32,064 |       |  | 100.0 |        |  | 58.3   
|Cost of sales                       |  |                              | 9,104  |   |       | 17.9  |   |        |   | 5,868  |       |  | 18.3  |        |  | 55.1   
|                                    |  |                              |        |   |       |       |   |        |   |        |       |  |       |        |  |        
|Gross profit                        |  |                              | 41,667 |   |       | 82.1  |   |        |   | 26,196 |       |  | 81.7  |        |  | 59.1   
|Sales and marketing expenses        |  |                              | 39,210 |   |       | 77.2  |   |        |   | 26,403 |       |  | 82.3  |        |  | 48.5   
|Research and development expenses   |  |                              | 6,623  |   |       | 13.1  |   |        |   | 3,993  |       |  | 12.5  |        |  | 65.9   
|General and administrative expenses |  |                              | 6,792  |   |       | 13.4  |   |        |   | 5,033  |       |  | 15.7  |        |  | 38.9   
|Other income, net                   |  |                              | 1,651  |   |       | 3.3   |   |        |   | 705    |       |  | 2.2   |        |  | 162.3  
|Provision for income taxes          |  |                              | 210    |   |       | 0.4   |   |        |   | 123    |       |  | 0.4   |        |  | 14.6   
|                                    |  |                              |        |   |       |       |   |        |   |        |       |  |       |        |  |        
|Net loss                            |  | $                            | (9,517 | ) |       | (18.7 | ) |        | $ | (8,651 | )     |  | (27.0 | )      |  | 11.1   
|                                    |  |                              |        |   |       |       |   |        |   |        |       |  |       |        |  |        



|(a) | Expressed as a percentage of total net sales.
|--- | ---------------------------------------------

Comparison of the
three months ended March 31, 2008 and 2007

Net Sales

Net sales were $17.0 million for the third quarter of fiscal 2008 as compared to $12.4 million for the third quarter of fiscal 2007, an increase of $4.6 million or 36.3%. Domestic sales were $14.0 million for the
third quarter of fiscal 2008 compared to $10.3 million for the third quarter of fiscal 2007, an increase of $3.8 million or 36.6%. International sales were $2.9 million for the third quarter of fiscal 2008 compared to $2.2 million for the third
quarter of fiscal 2007, an increase of $0.7 million or 34.9%. The increase in net sales was due primarily to an increase in the volume of units sold. Our average selling price was



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##### Table of Contents

modestly lower due primarily to customers obtaining pricing discounts through higher purchase volumes. We believe sales increased due to growing appreciation
by doctors of the benefits provided by Radiesse, clinical training programs, the hiring of additional direct sales personnel and improvements in our distributor network.

Cost of Sales

Cost of sales was $3.2 million for the third quarter of fiscal 2008 as compared to $2.1 million for
the third quarter of fiscal 2007, an increase of $1.1 million or 56.5%. The increase was primarily due to higher sales and higher overhead costs.

Gross
Profit

Gross profit was $13.7 million for the third quarter of fiscal 2008 as compared to $10.4 million for the third quarter of fiscal 2007, an
increase of $3.3 million, or 32.3%. As a percentage of sales, gross profit for the third quarter of fiscal 2008 was 80.9% as compared to 83.4% for the third quarter of fiscal 2007. The lower gross profit was due to higher overhead costs and
marketing promotions. On September 21, 2007, we reached agreement with Artes Medical to pre-pay our license agreement in full for $5.5 million. Amortization of this amount to expense over the remaining life of the related patents resulted in
expense that was lower than the royalty due under the original agreement.

Sales and Marketing Expenses

Our sales and marketing expenses were $14.3 million for the third quarter of fiscal 2008 as compared to $11.0 million for the third quarter of fiscal 2007, an increase of
$3.3 million or 30.2%. As a percentage of sales, sales and marketing expenses were 84.6% of sales for the third quarter of fiscal 2008 compared to 88.6% for the same period in fiscal 2007. The dollar increase was primarily due to increases in
employee related expenses ($3.1 million) and other marketing expenses ($0.2 million). We expanded the number of our sales territories in the United States and Europe during fiscal 2008.

Research and Development Expenses

Our research and development expenses were $2.3 million for the third quarter of
fiscal 2008 as compared to $1.4 million for the third quarter of fiscal 2007, an increase of $0.9 million or 64.7%. As a percentage of sales, research and development expenses were 13.3% for the third quarter of fiscal 2008 compared to 11.0% for the
same period of fiscal 2007. The dollar increase in research and development was due primarily to higher employee related expenses ($0.6 million) and material and equipment expenses ($0.2 million).

General and Administrative Expenses

Our general and administrative
expenses were $2.5 million for the third quarter of fiscal 2008 as compared to $1.7 million for the third quarter of fiscal 2007, an increase of $.0.8 million, or 50.3%. As a percentage of sales, general and administrative expenses were 15.0% in the
third quarter of fiscal 2008 compared to 13.6% in the same period of fiscal 2007. The dollar increase was primarily due to higher employee wage expenses ($0.4 million), consulting services ($0.2 million) and outside services ($0.1 million).

Other Income, Net

Other income, net for the third
quarter of fiscal 2008 increased when compared to the third quarter of fiscal 2007. Other income relates primarily to interest income from our cash balance. The increase was primarily due to a higher cash balance during the third quarter of fiscal
2008 as a result of the receipt of the proceeds from our IPO in November 2007.



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Provision for income taxes

Our provision for income taxes for the third quarter of fiscal 2008 increased slightly when compared to the third quarter of fiscal 2007. The increase was primarily due to higher income tax expense in our foreign subsidiaries.

Net Loss

Our net loss increased during the third quarter of
fiscal 2008 when compared to the third quarter of fiscal 2007 due to the reasons discussed above.

Comparison of the nine months ended March 31,
2008 and 2007

Net Sales

Net sales were $50.8
million for the first nine months of fiscal 2008 as compared to $32.1 million for the same period in fiscal 2007, an increase of $18.7 million or 58.3%. Domestic sales were $41.2 million for the first nine months of fiscal 2008 compared to $26.5
million for the same period in fiscal 2007, an increase of $14.7 million or 55.4%. International sales were $9.6 million for the first nine months of fiscal 2008 compared to $5.6 million for the same period in fiscal 2007, an increase of $4.0
million or 72.2%. The increase in net sales was due primarily to an increase in the volume of units sold as we expanded the number of our sales territories in the United States and in Europe. In addition, we added more distributors in our
international operations.

Cost of Sales

Cost of sales
was $9.1 million for the first nine months of fiscal 2008 as compared to $5.9 million for the same period in fiscal 2007, an increase of $3.2 million, or 55.1%. The increase was primarily due to higher sales.

Gross Profit

Gross profit was $41.7 million for the first nine
months of fiscal 2008 as compared to $26.2 million for the same period in fiscal 2007, an increase of $15.5 million, or 59.1%. As a percentage of sales, gross profit for the first nine months of fiscal 2008 was 82.1% as compared to 81.7% for the
same period in fiscal 2007. The higher gross profit percent was due to lower royalty expense per unit sold which was partially offset by higher product overhead costs.

Sales and Marketing Expenses

Our sales and marketing expenses were $39.2 million for the first nine months of fiscal
2008 as compared to $26.4 million for the same period in fiscal 2007, an increase of $12.8 million or 48.5%. As a percentage of sales, sales and marketing expenses were 77.2% for the first nine months of fiscal 2008 compared to 82.3% for the same
period in fiscal 2007. The dollar increase was primarily due to increases in employee related expenses ($11.4 million), marketing activities ($0.8 million) and computer related expenses ($0.6 million). We expanded the number of sales territories in
the United States and Europe and increased marketing activities in Europe.

Research and Development Expenses

Our research and development expenses were $6.6 million for the first nine months of fiscal 2008 as compared to $4.0 million for the same period in fiscal 2007, an
increase of $2.6 million or 65.9%. As a percentage of sales, research and development expenses were 13.0% for the first nine months of fiscal 2008 compared to 12.5% for the same period of fiscal 2007. The dollar increase in research and development
was due primarily to increases in employee related expenses ($1.8 million), clinical expenses ($0.8 million), and materials and equipment expense ($0.4 million), partially offset by a decrease in license and permit expenses ($0.5 million).



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General and Administrative Expenses

Our general and administrative expenses were $6.8 million for the first nine months of fiscal 2008 as compared to $5.0 million for the same period in fiscal 2007, an increase of $1.8 million, or 34.9%. As a percentage
of sales, general and administrative expenses were 13.4% in the first nine months of fiscal 2008 compared to 15.7% in the same period of fiscal 2007. The dollar increase was primarily due to increases in employee related expenses ($1.0 million),
legal, accounting and consulting services ($0.5 million), and supply and equipment expense ($0.2 million).

Other Income, Net

Other income, net for the first nine months of fiscal 2008 increased when compared to the same period in fiscal 2007. Other income relates primarily to interest income
from our higher cash balance in fiscal 2008 resulting from the receipt of the proceeds from our IPO in November 2007.

Provision for income taxes

Our provision for income taxes for the first nine months of fiscal 2008 increased slightly when compared to the same period of fiscal 2007. The increase
was primarily due to higher income tax expense in our foreign subsidiaries.

Net Loss

Our net loss increased during the first nine months of fiscal 2008 when compared to the same period in fiscal 2007 due to the reasons discussed above.

Liquidity and Capital Resources

The following table highlights selected cash flow components for the first nine
months of fiscal 2008 and 2007 (dollar amounts are in thousands).



|                            |  |                            |         |   |      |   |        |  
|--------------------------- |  | -------------------------- | ------- | - | ---- | - | ------ | -
|                            |  | Nine months endedMarch 31, |        
|                            |  | 2008                       |         |   | 2007 |  
|Cash provided by (used in): |  |                            |         |   |      |   |        |  
|Operating activities        |  | $                          | (20,320 | ) |      | $ | (9,444 | )
|Investing activities        |  |                            | (3,806  | ) |      |   | (2,413 | )
|Financing activities        |  |                            | 83,322  |   |      |   | 4,789  |  

We have incurred losses, generated negative annual cash flows from operating activities in all but one year since
inception and had an accumulated deficit of $57.0 million as of March 31, 2008. Our primary source of liquidity has been through private placements of shares of our preferred stock and our recent IPO. We have also raised funds through the
exercise of stock options, placement of convertible debt (all subsequently converted to preferred stock and ultimately to common stock), and loans (all since repaid). At March 31, 2008, we had a cash balance of $76.8 million. In November 2007,
we raised approximately $83.1 million of net proceeds through our IPO. In the future, we anticipate that our primary sources of liquidity will be from cash generated from our operating activities.

Operating activities

In the first nine months of fiscal 2008, we
used $20.3 million of net cash in operating activities as compared to $9.4 million in the same period in fiscal 2007. Accounts receivable and prepaid expenses increased in the first nine months of fiscal 2008 by $0.5 million and $7.4 million,
respectively, more than they increased in fiscal 2007. In addition, accounts payable and accrued liabilities declined in the first



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nine months of fiscal 2008 whereas they increased in the same period in fiscal 2007, which contributed a further $2.7 million and $1.8 million, respectively,
to the change in net cash used in operations. Our non-cash stock option expense increased by $1.1 million in the first nine months of fiscal 2008 when compared to the same period in fiscal 2007.

Investing activities

In the first nine months of fiscal 2008, we
used $3.8 million of net cash in investing activities as compared to $2.4 million in the first nine months of fiscal 2007. Our investing activities related primarily to the purchase of our production facility in Wisconsin, and to a lesser extent,
equipment, computers, furniture and installed leasehold improvements for use in production, research, selling and general and administrative activities.

Financing activities

In the first nine months of fiscal 2008, net cash provided from financing activities was $83.3 million as compared to
$4.8 million in the first nine months of fiscal 2007. In November 2007, we completed our IPO of common stock and we sold and issued 11.5 million shares of common stock at an issuance price of $8 per share. We raised a total of $92.0 million in
gross proceeds from the IPO, or $83.1 million in net proceeds after deducting underwriting discounts and other associated costs. We received $0.3 million in cash related to exercises of stock options during the first nine months of fiscal 2008
compared to $0.7 million during the same period in fiscal 2007. During the first nine months of fiscal 2007, we received $4.1 million from the subscription of 1,246,000 shares of Series D preferred stock, net of issuance costs.

Contractual Obligations

The following table summarizes our
significant contractual obligations as of March 31, 2008 (dollar amounts in thousands):



|                            |  |       |       |                        |   |            |  |            |     |                 |   |   |  |   |  
|--------------------------- |  | ----- | ----- | ---------------------- | - | ---------- |  | ---------- | --- | --------------- | - | - |  | - | -
|                            |  |       |       | Payments due by period
|                            |  | Total |       | Less Than1 Year        |   | 1  3Years |  | 3  5Years |     | MoreThan5 Years
|Capital lease obligations   |  | $     | 109   |                        | $ | 41         |  | $          | 68  |                 | $ |  |  | $ | 
|Operating lease obligations |  |       | 882   |                        |   | 393        |  |            | 489 |                 |   |   |  |   | 
|Purchase obligations        |  |       | 504   |                        |   | 504        |  |            |    |                 |   |  |  |   | 
|License agreements (1)      |  |       | 800   |                        |   | 800        |  |            |    |                 |   |  |  |   | 
|                            |  |       |       |                        |   |            |  |            |     |                 |   |   |  |   |  
|Total                       |  | $     | 2,295 |                        | $ | 1,738      |  | $          | 557 |                 |   |  |  |   | 
|                            |  |       |       |                        |   |            |  |            |     |                 |   |   |  |   |  



|(1) | Minimum payments due under agreements that provide us with exclusive rights to distribute licensed products in the United States. Subsequent license payments in an aggregate amount
of up to $3.7 million are contingent on FDA approval to market the licensed products in the United States.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or
special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not have any undisclosed borrowings or debt, and we have
not entered into any synthetic leases. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.



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Recent Accounting Pronouncements

Information with respect to Recent Accounting Pronouncements may be found in Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements in this quarterly report, which information is incorporate herein
by reference.

Critical Accounting Policies

We have
made no material changes to the disclosures regarding critical accounting policies made in our Form S-1, which was declared effective on November 6, 2007.



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|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|------- | ---------------------------------------------------------

Interest Rate and Credit Risk

We have exposure to interest rate risk that relates primarily to our investment portfolio. All of our
current investments are classified as cash and cash equivalents and carried at cost, which approximates market value. We do not currently use or plan to use derivative financial instruments in our investment portfolio. The risk associated with
fluctuating interest rates is limited to our cash equivalents, and we do not believe that a 10% change in interest rates would have a significant impact on our interest income, operating results or liquidity.

As of March 31, 2008, our cash and cash equivalents were maintained by financial institutions in the United States, the United Kingdom and the Netherlands, and our
current deposits are likely in excess of insured limits. We believe that the financial institutions that hold our investments are financially sound and, accordingly, that minimal credit risk exists with respect to these investments.

Our accounts receivable primarily relate to revenues from the sale of Radiesse directly to individual physicians and medical clinics in the United States and select
countries in Europe. Outside the United States and select countries in Europe, we sell Radiesse to distributors. We sell Coaptite only through distributors, and most sales are in the United States. No single customer represented more than 10% of our
receivables as of March 31, 2008.

Foreign Currency Risk

The functional currencies of our operations in the United States, the Netherlands, and the United Kingdom are the U.S. Dollar, or USD, the Euro, and the Pound Sterling, respectively. Revenue is normally
generated in an operating units functional currency. Operating expenses are usually in the local currency of the operating unit, which mitigates a portion of the exposure related to currency fluctuations. Intercompany transactions between our
domestic and foreign operations are generally denominated in USD. At month-end, foreign currency-denominated accounts receivable and intercompany balances are marked to market and unrealized gains and losses are included in other income (expense),
net.

Our foreign currency exchange gains and losses have been generated primarily from fluctuations in the Euro versus the USD and in the Euro versus the
Pound Sterling. It is uncertain whether these currency trends will continue. In the future, we may experience foreign currency exchange losses on our accounts receivable and intercompany receivables and payables. Foreign currency exchange losses
could have a material adverse effect on our business, operating results and financial condition.



|ITEM 4T. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Evaluation of Disclosure Controls
and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness
of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our
Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to management as appropriate to allow for timely decisions
regarding required disclosure.



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Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this
Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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PART II. OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

We are not a party to any material pending or
threatened litigation.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Risks Related to Our Business

We have a history of net losses, and we may not be able to achieve profitability even if we are able to generate significant revenues.

We have incurred net losses of $10.7 million, $11.4 million, $13.6 million and $9.5 million for the fiscal years ended June 30, 2005, 2006 and 2007 and the first
nine months of fiscal 2008, respectively. As of March 31, 2008, we had an accumulated deficit of approximately $57.2 million. We have financed our operations primarily through private placements of equity securities and our IPO in November
2007. We have devoted substantially all of our resources to research and development of our products and the commercialization of Radiesse and our other products. We expect our operating expenses to increase as we:



| |  |  | expand our worldwide sales and marketing operations in support of Radiesse and our future products;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | develop and conduct clinical studies in support of new products and new indications;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | seek regulatory approvals for new products;
| | - |  | -------------------------------------------



| |  |  | prepare for the commercialization of future product candidates; and
| | - |  | -------------------------------------------------------------------



| |  |  | incur additional expenses associated with being a public company.
| | - |  | -----------------------------------------------------------------

We cannot assure you that we will be able to achieve or sustain profitability even if we are able to generate significant revenues. Our failure to achieve and sustain profitability would negatively impact the market
price of our common stock and require us to seek additional funding, if such funding is then available to us on terms acceptable to us or at all.

We
have a limited operating history, and we expect our financial condition and operating results to fluctuate on a quarterly and annual basis in potentially unpredictable ways.

We were incorporated in 1999 and commenced operations in 2000. From 2001 to 2003, we received certain U.S. and international regulatory approvals for, and engaged in commercial sales of, Radiesse and Coaptite. We
obtained FDA pre-market approval, or PMA, for our key commercial application of Radiesse, the correction of moderate to severe facial wrinkles and folds, in December 2006. Accordingly, we have a limited history of operations upon which you can
evaluate our business. Our operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. Factors relating to our business that may contribute to quarterly and annual
fluctuations include the following factors:



| |  |  | the rate of market adoption of Radiesse and other future products that we may offer;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | the success of competitive products to Radiesse that are now available or that may become commercially available in the future;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | the timing of regulatory clearances or approvals and success of the introduction of new products;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | the effectiveness of promotional and marketing campaigns by us or our competitors;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | seasonal variations in demand;
| | - |  | ------------------------------



| |  |  | changes in general economic conditions and the related impact on discretionary spending on elective procedures; and
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | the performance of our independent distributors, partners and suppliers.
| | - |  | ------------------------------------------------------------------------



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The success of our business also depends on consumer trends favoring medical aesthetic procedures, which could change
quickly or gradually over time. The recent U.S. economic slowdown has led to lower consumer confidence and discretionary spending. We believe that this has led to a decline in spending for certain cosmetic procedures, including treatment with
Radiesse. This has resulted in less growth in our January through March third quarter 2008 than anticipated and an expectation of continued slowness through our April to June fourth quarter 2008. While the recent slowdown does not appear to have had
an impact on new account growth, we cannot predict whether new account growth will continue to be apparently unaffected by recessionary conditions. Due to the various factors mentioned above, and others, the results of any prior quarterly or annual
periods, or guidance regarding expectations of future results, should not be relied upon as an indication of our future operating performance.

If
Radiesse and our other products fail to compete effectively and gain greater market adoption, our business will suffer.

Radiesse currently is our
primary product, and we expect it to remain so for the next several years. Radiesse competes against products that are more established and accepted within our target markets.

Our largest direct competitors in the key U.S. market include Allergan and Medicis, and there are many other companies that compete directly or indirectly with us or that are likely to compete with us in the near
future, both in the United States and internationally. Many of these competitors have significantly greater financial resources, reputation and experience in the aesthetics market than we do, as well as broader aesthetic product offerings. Competing
effectively will require us to distinguish our company and Radiesse from our competitors and their products, which will be dependent on factors such as:



| |  |  | the safety, effectiveness and ease of use of Radiesse and duration of cosmetic benefit;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | patient and physician satisfaction with Radiesse compared to other injectable aesthetic products and alternative treatments;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | the cost of Radiesse to our physician customers relative to alternative products and the price that those physicians, in turn, charge for the corresponding
procedure;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the effectiveness of our sales and marketing efforts;
| | - |  | -----------------------------------------------------



| |  |  | our ability to obtain additional regulatory approvals and promote Radiesse;
| | - |  | ---------------------------------------------------------------------------



| |  |  | our ability to co-promote our filler along with complementary products that we may seek to introduce;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | our ability to establish a strong and widely-recognized reputation;
| | - |  | -------------------------------------------------------------------



| |  |  | the results and publication in prominent journals of clinical studies that may be conducted by us or our competitors comparing Radiesse with competing products;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | intellectual property protection; and
| | - |  | -------------------------------------



| |  |  | the overall size and rate of growth of the dermal filler market.
| | - |  | ----------------------------------------------------------------

Our other current products are, and contemplated future products, including Aethoxysklerol and BioGlue, will be, subject to similar competitive risks as Radiesse. If we are unable to effectively distinguish Radiesse,
or any of our other current or future products, from those of our competitors, we are unlikely to gain significant market share and our prospects for growth would be harmed.

Our largest competitors enjoy sales and marketing advantages that could make it difficult for us to compete effectively and which could result in our future performance not meeting our expectations.

Our largest competitors enjoy sales and marketing advantages that could influence patients and physicians to choose their products over ours, regardless of relative
safety and effectiveness of the products. For example, our largest competitors have implemented expensive national direct-to-consumer marketing campaigns to promote their dermal filler products. These campaigns may lead consumers to develop a strong
brand preference for an alternate product even before their initial visit with a physician.

Competitors have, in the past, influenced physician practice
through aggressive promotional campaigns that offer significant discounts to physicians who choose their products over competing products. Some competitors also have the ability to influence a physicians practice by co-promoting, or bundling,
the sale



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of two different but related products, such as a dermal filler and a botulinum toxin. Bundling of complementary products may permit these companies to enjoy
efficiencies with respect to their marketing efforts, may permit unique discounting and cross-selling opportunities, and reinforce company and brand loyalty. If competitors sales and marketing programs and promotions are able to convince
physicians to use and recommend their products over Radiesse, we may be unable to generate expected sales and our financial performance will suffer.

List
price reductions, volume discounting and bundling discounts, along with our own volume discount promotions, have in the past contributed to, and may in the future contribute to, a decline in Radiesse selling prices.

Competition in the aesthetics market is characterized by frequent product introductions, and products not yet available could result in significant additional
competition.

Our current and future competitors will introduce new products or new formulations of existing products that will result in near-term and
long-term increased competition. While there are a number of competing dermal fillers in the United States, there are many others available internationally. Some of the dermal fillers available domestically and internationally claim to have benefits
that may be perceived as equivalent or better than other leading dermal fillers, including Radiesse, based upon such factors as durability, cost, comfort, scope of approved marketing claims or ease of treatment. If dermal fillers are perceived to
offer benefits that are equivalent to or better than Radiesse, demand for, and revenue derived from, Radiesse could be harmed. The frequent introduction of dermal fillers may create market confusion that may make it more difficult to differentiate
the benefits of Radiesse over competing products. In addition, the entry of multiple products and new competitors may lead some of our competitors to elect pricing strategies that could adversely impact pricing in the filler marketplace generally.

The failure of Radiesse to meet physicians or patients expectations could reduce demand for Radiesse and negatively impact our financial
performance.

Most procedures performed using Radiesse are elective procedures, the cost of which must be borne by the patient and are not reimbursable
through government or private health insurance. The decision to undergo a Radiesse procedure is thus driven by patient demand for an aesthetics procedure, and patients often play a central role in the selection of the dermal filler to be used.

Our future success depends upon patients having a positive experience with Radiesse. We believe that patients who have a positive experience with Radiesse
may be more likely to return for additional treatments and refer new patients, which we believe would increase physician demand for Radiesse. However, results obtained from a Radiesse procedure will vary depending on the experience and technique of
the treating physician, the volume of dermal filler injected, the patients expectations of the results that will be achieved and the duration of the results. Patients may be dissatisfied with their Radiesse treatment experience if immediate or
long-term results do not match their expectations, if they find the procedure too painful, or if they find that the temporary side-effects of treatment such as swelling and bruising outweigh the benefit received. Additionally, we believe that
patient demand for Radiesse is, in many cases, influenced by price. Treatment with a single syringe of Radiesse may cost a patient more than treatment with a single syringe of many other dermal fillers. If a Radiesse treatment produces results that
do not meet physicians and patients expectations, or if physicians and patients generally believe it is too expensive for the results obtained, our reputation, repeat sales, word of mouth referral opportunities and future sales could
suffer.

Negative perception regarding Radiesse, even if unfounded, may inhibit adoption.

There are many dermal filler products and alternate treatments from which to choose for facial aesthetic applications. Practitioners must believe that Radiesse presents
an attractive alternative before they will recommend it to their patients. The rate of physician adoption of Radiesse may be adversely affected by negative perception of the product, even if such perception is unfounded. Practitioners may be
influenced by the negative comments of another practitioner, which may lead them not to adopt the product.



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Moreover, because we cannot control how practitioners use Radiesse, there is a risk that practitioners or patients could
develop negative perceptions regarding Radiesse on the basis of treatments for which Radiesse is not suitable and has not received regulatory approval. For instance, there have been published reports of lumpiness associated with the use of Radiesse
injected into the lips, a type of treatment for which Radiesse has not been approved. Competitors have in the past promoted their dermal filler products by criticizing Radiesse, and we expect that means of competition to continue into the future. If
practitioners believe that Radiesse is unsafe, ineffective, unsatisfactory, too expensive, difficult to use or inappropriate for certain applications, they may not adopt it, which could result in our future sales not meeting our expectations.

Study results finding Radiesse preferable to competing products may not lead to an increase in market share.

While we have recently conducted and published clinical studies that we believe demonstrate Radiesses advantages over other leading dermal fillers, the publication
and promotion of these study results may not lead to increased market share. Physicians and patients may not be persuaded by our clinical study data to demand Radiesse over our competitors products. A number of factors, including price,
marketing practices and name recognition, past experience, perception and other factors may lead potential customers to choose our competitors products, instead. Additionally, a competitor may perform its own study that contradicts the results
of our previously published studies.

If the recent expansion of our sales organization in the United States and in Europe is not as successful as we
expect, our revenue may be lower than expected.

Our ability to achieve significant growth in revenues depends, in large part, on our success in
recruiting, training and retaining experienced and productive direct sales personnel. During the first quarter of fiscal 2008, we substantially increased the size and scope of our sales organization to support commercialization of Radiesse in the
United States and in Europe, expanding from 56 to 80 our U.S. sales representatives and from 15 to 23 our European sales representatives. If new sales representatives take longer than expected to reach anticipated productivity, or if they fail to
meet our expectations at all, we may not achieve our revenue goals. We anticipate a corresponding and proportionate increase in sales and marketing expense that will be attributable to this expansion.

Additionally, as we expand our sales organization, the size of the territories assigned to sales representatives may be reduced, as occurred in the case of our recent
sales force expansion in the United States. Reduced territory sizes may lead sales representatives to believe that they are losing potential compensation associated with larger territories or that their sales goals are more difficult to achieve,
which in turn may result in productive and experienced sales employees seeking alternate employment.

Our failure to retain our sales representatives could
have a material adverse effect on our sales, causing our revenue to be lower than expected and harming our results of operations.

To successfully
market and sell Radiesse internationally, we must address additional risks associated with operations in foreign countries.

International sales
accounted for 19% and 17% of our total revenue for the first nine months of fiscal 2008 and 2007, respectively. We believe that a significant portion of our business will continue to come from international sales through increased penetration in
countries where we currently sell Radiesse, combined with expansion into new international markets. In several countries in Europe, we have a direct sales organization. We principally rely on third party distributors to sell our products outside of
Europe. Our success internationally is subject to a number of risks, including:



| |  |  | difficulties in penetrating markets in which our competitors products are more established;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | intense competition, including with products that are not available in the United States that may claim to offer benefits similar to or better than Radiesse;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | maintaining existing and obtaining new foreign certification and regulatory clearances and approvals;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | difficulties in managing international operations;
| | - |  | --------------------------------------------------



| |  |  | difficulties identifying effective distributors and managing distributor relationships;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | export restrictions, trade regulations and foreign tax laws;
| | - |  | ------------------------------------------------------------



| |  |  | reduced or no protection for intellectual property rights in some countries;
| | - |  | ----------------------------------------------------------------------------



| |  |  | fluctuating foreign currency exchange rates; and
| | - |  | ------------------------------------------------



| |  |  | political and economic instability.
| | - |  | -----------------------------------

Our other
current products are, and contemplated future products will be, subject to similar international risks as Radiesse. If we are unable to effectively manage the risks associated with international operations, we may be unable to effectively sell
Radiesse outside of the United States, causing our revenue to be lower than expected and harming our results of operations.

We depend on single
manufacturer relationships for supply of our CaHA particles. Any disruption of these relationships could affect our ability to supply product and could harm our business.

We currently depend on a single contract manufacturer, Tulsa Dental Specialties, for the small CaHA particles used in Radiesse and a single contract manufacturer, CAM Implants, for the larger CaHA particles used in
Coaptite, our CaHA bulking agent for the treatment of female stress urinary incontinence. Our agreement with Tulsa Dental Specialties runs through May 2010 and then renews for an additional two-year term, unless terminated pursuant to its terms. Our
agreement with CAM Implants runs through November 2008 and renews each year for a further year unless terminated pursuant to its terms. Neither agreement is terminable at will by either party. Each of these manufacturers operates out of a single
location. Our reliance on these manufacturers subjects us to several unpredictable risks, the occurrence of any of which could lead to a disruption of our operations, including:



| |  |  | delays in production of CaHA particles that meet our specifications or failure to meet rigorous regulatory requirements;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | fluctuation in production quantity or quality due to changes in demand from us or their other customers;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | the inability to meet our production needs, if demand for Radiesse or Coaptite increases significantly;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | our CaHA manufacturers failure to comply with the terms of the contracts, or the termination thereof pursuant to the terms of the contracts;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | damage to, or other interruption of, operations at a particular facility; and
| | - |  | -----------------------------------------------------------------------------



| |  |  | increases to the price that we pay for the production of CaHA.
| | - |  | --------------------------------------------------------------

Efforts that we may undertake to negotiate terms of supply in the future or to reduce our reliance on these manufacturers could harm our relationships with them. Obtaining alternate manufacturers would be an expensive
and lengthy process and would require additional regulatory approvals, which may not be obtained. We could experience production delays related to the evaluation and testing of CaHA particles from alternate manufacturers and obtaining corresponding
regulatory qualifications. Any interruption in the supply of CaHA or our inability to obtain CaHA from alternate sources at acceptable prices, in a timely manner, could impair our ability to meet the demand of our customers, which would have an
adverse effect on our business.

We depend on Boston Scientific to market and sell Coaptite, and if Boston Scientific is not successful or reduces its
efforts to sell Coaptite, our revenues will be harmed.

We currently depend on Boston Scientific to sell Coaptite, the sales of which constituted less
than 10% of our revenues for fiscal 2007 and the first nine months of fiscal 2008. Boston Scientific is a very large corporation. While we believe our relationship with Boston Scientific is in good standing, Coaptite represents an immaterial amount
of Boston Scientifics overall revenue and Boston Scientific may in the future determine that resources currently directed to selling Coaptite should be redirected to higher priority projects or they may lack motivation to grow sales of
Coaptite. If this were to occur, our expectations of future Coaptite revenues would be harmed.



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We do not expect our recent acquisition of an RF-nerve lesion product to result in significant revenue unless we
obtain an additional FDA clearance and are able to demonstrate to physicians and patients that the product is an attractive alternative to existing treatments.

In April 2008, we acquired substantially all of the assets of Advanced Cosmetic Intervention, or ACI and its licensor JNJ, for $12 million cash, plus future contingent consideration and a potential sales-related milestone. The ACI device is
currently cleared via a 510(k) by FDA to create RF heat lesions in nerve tissue. While we believe this new treatment will offer patients an attractive alternative therapy to Botox for the treatment of frown lines, the product cannot be marketed for
uses beyond its current 510(k) indication without specific additional 510(k) clearance. We expect to conduct clinical studies to support a 2009 FDA application and other foreign applications for clearance to market this product for the treatment of
frown lines. These clinical studies will be expensive and time consuming and may not yield results that would lead the FDA to approve a 510(k) application for the treatment of frown lines. If we do not receive this additional FDA clearance, or if
the clearance is delayed beyond 2009 or limited in scope, our marketing efforts will be significantly limited and expectation of future revenue from this product will be harmed.

Additionally, while we believe that there are compelling synergies between this product and our Radiesse dermal filler, we cannot predict how successful we will be in marketing this new product to our target customer
base. Historically, we have sold Radiesse, a relatively inexpensive disposable device, and therefore cannot judge how successful we will be in selling the ACI device, a relatively expensive capital equipment product. A significant factor will be our
ability to demonstrate to physicians and patients that this product is an attractive alternative to Botox, which has been for many years the dominant treatment for frown lines. Factors such as price of the product and of the treatment, clinical
trial results and journal publications, regulatory clearances, early adopter experience, our marketing efforts and competitive response will all impact our ability to successfully commercialize this product. We may never achieve a significant
positive revenue impact from this acquisition.

If we are unable to commercialize Aethoxysklerol, which is an investigational sclerotherapy drug
currently in a Phase III clinical trial, our expectation of future growth would be harmed.

An important part of our strategy includes the successful
introduction to the U.S. market of Aethoxysklerol, an injectable sclerosing drug for the treatment of varicose veins. We have acquired the exclusive U.S. distribution rights to Aethoxysklerol from its German manufacturer, Kreussler. Although
Aethoxysklerol has been used internationally for decades, it is not currently approved for sale in the United States. We cannot sell Aethoxysklerol in the United States before a new drug application, or NDA, is submitted to and approved by the FDA.
While we intend to file an NDA with the FDA in 2008, the development, submission of an application for approval, and regulatory approval of a new drug, and the timing thereof, is subject to a number of risks and is never certain. In order to support
the NDA submission, the manufacturer of Aethoxysklerol has enrolled patients in a Phase III clinical trial for the use of Aethoxysklerol in treating spider and reticular veins. This clinical trial is subject to a number of risks, including:



| |  |  | the trial has been designed by and is being conducted by Kreussler, a third party, so decisions that could affect the success of the trial are outside of our
control;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Kreussler has limited experience conducting clinical trials pursuant to FDA requirements and obtaining FDA approvals;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



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| |  |  | the trial could produce negative or ambiguous results regarding the effectiveness of Aethoxysklerol;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | undesirable side effects or safety issues might arise that might delay or adversely effect the timimg or receipt of future approval;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the trial may fail to meet its primary or secondary endpoints for effectiveness or may otherwise not meet the rigorous statistical criteria established with FDA in
the special protocol assessment process;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Kreussler, or the contract clinical research organization managing the study, may fail to follow proper protocols or may otherwise fail to fully and properly
execute the clinical study; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the trial may be delayed, suspended or terminated.
| | - |  | --------------------------------------------------

The current clinical trial is being conducted based on a design that Kreussler believes will be acceptable to the FDA based on its communication with the FDA and a special protocol assessment, or SPA.

Although we believe, based on the SPA with the FDA, that positive data from Kreusslers on-going Phase III clinical trial will be sufficient to establish the safety
and effectiveness data required for FDA approval, the FDA may disagree. Any delays or unexpected results in the current trial, or need to conduct further trials, would delay U.S. introduction of the product and harm our expected future operations.

We are in an early stage of development of BioGlue for aesthetics applications, and we cannot provide assurance that we will be successful in our goal
of commercializing the product candidate.

We have acquired exclusive U.S., Canadian and European distribution rights for aesthetics applications of
BioGlue, a surgical adhesive Class III medical device, from CryoLife. Although the FDA cleared BioGlue in 2001 as an adjunct to sutures and staples for use in open surgical repair of large vessels, these clearances may not be used to promote
aesthetic applications. We intend to seek FDA clearance for the use of BioGlue for aesthetic applications, but we are at an early stage in our development efforts. We only recently began to enroll patients in a feasibility study to evaluate the
safety and effectiveness of BioGlue as a method for tissue fixation in patients undergoing browplasty, and enrollment is ongoing.

Even if we are able to
obtain FDA clearance for tissue fixation in browplasty or any other application for which we might seek approval, the commercialization effort may be difficult. The use of a surgical adhesive in aesthetics applications will be novel, and would
require physicians to migrate from existing and well-accepted surgical methods. If we are not successful at any stage of our efforts, clinical, regulatory or commercial, BioGlue will not develop into a meaningful component of our business.

We have increased the size of our company significantly, and difficulties managing our growth could adversely affect our business, operating results
and financial condition.

We have experienced rapid growth in a relatively short period of time and expect to continue to experience similar growth in
the future, as we continue to support Radiesse and other commercially available products and actively pursue product candidates. Our growth has placed, and will continue to place, a strain on our management team, finance department, information
systems and other resources. To manage growth effectively, we must:



| |  |  | continue to enhance our operational, financial and other systems and resources;
| | - |  | -------------------------------------------------------------------------------



| |  |  | maintain and improve our internal controls and procedures; and
| | - |  | --------------------------------------------------------------



| |  |  | expand, train and manage our employee base.
| | - |  | -------------------------------------------

We may
not be able to effectively manage this expansion in any one or more of these areas, and any failure to do so could significantly harm our business. In addition, our management, personnel and facilities currently in place may not be adequate to
support this future growth. Our rapid growth also makes it difficult for us to adequately predict the expenditures we will need to make in the future. If we do not make the necessary expenditures to accommodate our future growth, we may not be
successful in executing our growth strategy, and our results of operations would suffer. Alternatively, necessary expenditures to continue our growth could exceed our current expectations, which would affect our ability to achieve and sustain
profitability.



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If we are unable to hire and retain key employees, our ability to manage and expand our business will be harmed.

Our success largely depends on the skills, experience and efforts of our officers and other key employees, including Steve Basta, our Chief Executive
Officer, Derek Bertocci, our Chief Financial Officer, Dennis Condon, our President and Chief Business Officer, and Jeff Wells, our Senior Vice President, Product Development, along with our ability to retain these employees and to hire new employees
to fill significant needs as we grow our business. We may not be able to attract or retain qualified management, sales, finance and technology personnel in the future due to intense competition for hiring experienced personnel. Additionally, any of
our officers and other employees may terminate their employment at any time. The loss of any of our senior management team members could weaken our management expertise and harm our business.

Government regulations restricting the export of goods expose us to potential sanctions and penalties.

United States laws prohibit United States companies and foreign companies that sell U.S. origin items from engaging in commercial transactions with specified countries,
individuals and organizations. We have learned that a distributor of Radiesse in the United Arab Emirates shipped our product to physicians in Syria, a prohibited country. We have also learned that our European subsidiary, which manages this
distributor, was aware that some shipments might go to Syria, but was not aware that shipments to Syria without a specific export license violated U.S. law. Upon learning of this situation, we informed the distributor to cease all shipments to Syria
and filed a voluntary self disclosure of this situation with the U.S. Department of Commerce. Persons who violate U.S. export control laws can be subject to monetary fines and other sanctions, including possible criminal penalties. We do not expect
the fines or penalties imposed on us, if any, to be material, but we cannot assure you that the actual amount of the fines or penalties, if any, will not have an adverse effect on our financial condition or reputation.

We may acquire additional products or product candidates in the future and any costs associated with the acquisition or any difficulty integrating operations could
reduce our revenues, increase our costs and harm our operating results.

We have acquired or in-licensed several of our current products and product
candidates. In order to grow our business, we intend to acquire or in-license additional products and product candidates that we believe have significant commercial potential and that complement our existing products and products under development.
Any growth through acquisitions or in-licensing will be dependent upon the continued availability of suitable acquisition or in-license product candidates at favorable prices and upon advantageous terms and conditions. Integrating any newly-acquired
product or product candidate could be expensive and time-consuming. Other companies, many of which may have substantially greater resources and reputation, compete with us for the right to acquire and in-license products or product candidates. Any
cash acquisition we pursue would diminish the resources available to us for other uses, and any stock acquisition would dilute our stockholders ownership. Our future product development efforts also could result in large and immediate
write-offs, incurrence of debt and contingent liabilities or amortization of expenses related to intangible assets, any of which could increase our expenses and adversely affect our results of operations and financial condition.

We could become involved in product liability suits, which could result in expensive and time consuming litigation, payment of substantial damages and an increase in
our insurance rates.

Product liability litigation in the medical device industry is common, and from time to time, we may receive complaints or be
named in lawsuits claiming that our products failed to provide the desired outcome or were in some manner associated with an adverse outcome for the patient. These claims could divert managements attention from our core business, be expensive
to defend and result in sizable



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damage awards against us. We maintain product liability insurance with liability coverage limits that we believe are adequate and customary for the nature of
our business and we submit these claims to our insurance carrier. However, we may not have sufficient insurance coverage for all future claims, and we may not be able to obtain additional or expanded insurance in amounts or scope sufficient to
provide us with adequate coverage against all potential liabilities. Any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, could
harm our reputation in the industry and reduce product sales. Product liability claims in excess of our insurance coverage would be paid out of cash reserves, harming our financial condition and reducing our operating results.

Risks Related to Regulatory Matters

If we fail to maintain
necessary FDA approvals or if we fail to comply with applicable federal and state regulations, we could be subject to enforcement action and our commercial operations would be harmed.

We have obtained FDA PMA approvals and 510(k) clearances for Radiesse and for Coaptite for several indications. However, our approvals and clearances could be revoked if
safety concerns arise. The FDA and state authorities have broad enforcement powers. Our failure to comply with applicable regulatory requirements could result in enforcement action by the FDA or state agencies, which may include any of the following
actions:



| |  |  | warning letters, adverse publicity, fines, injunctions, consent decrees and civil penalties;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | repair, replacement, refunds, recall or seizure of our product;
| | - |  | ---------------------------------------------------------------



| |  |  | operating restrictions or partial suspension or total shutdown of production;
| | - |  | -----------------------------------------------------------------------------



| |  |  | refusing our requests for 510(k) clearance or pre-market approval of new products, new intended uses or modifications to our existing product;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | withdrawing 510(k) clearance or premarket approvals that have already been granted; and
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | criminal prosecution.
| | - |  | ---------------------

Our FDA approvals for
Radiesse and Coaptite contain certain requirements for post-approval studies of the long-term safety and/or efficacy of those products. Clinical studies conducted after approval are subject to the same risks as clinical studies conducted prior to
approval; for example, such studies may be delayed or halted if the product is shown not to be effective, if patients experience unacceptable side affects or if patients do not enroll in the studies at the rate we expect. In addition, FDA may alter
the parameters of the post-approval studies, including by requiring different endpoints, inclusion criteria, or study sizes, all of which may affect the cost of conducting such trials. These post-approval studies thus have the potential to reduce
our revenues, increase our expenses, and render our approved products not commercially viable.

Additionally, administration of Radiesse by healthcare
professionals is subject to regulations that vary by state. For example, federal regulations allow Radiesse to be sold to, or on the order of, licensed practitioners, as determined on a state-by-state basis. As a result, in some states,
non-physicians may legally administer Radiesse. However, a state could change its regulations at any time, disallowing sales to particular types of healthcare professionals. If we sell our products to practitioners who are not permitted by state
regulation to perform the treatment, we could be subject to enforcement action.



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If we want to expand our marketing claims, we will need to obtain additional FDA clearances or approvals, which may
not be granted.

We are developing additional formulations of our CaHA technology. Before a new use of or claim for a product can be marketed in the
United States, it must first receive FDA approval. The marketing of a product for an indication or application that has not received approval will be viewed as off-label promotion and could subject us to an FDA enforcement action,
including the issuance of a warning letter and adverse publicity. In addition, any modifications that we may make to Radiesses formulation or manufacturing that would significantly affect its safety or effectiveness or that would constitute a
major change in its intended use will require a new FDA approval. The FDA may require us to conduct clinical trials to support new indications or formulations, such trials may be time-consuming and expensive, and may produce results that do not
result in approval of our FDA application. Delays in obtaining future approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our revenue and potential future profitability. In
the event that we do not obtain additional FDA approvals for future indications or uses, our ability to promote Radiesse in the United States and to grow our revenue could be limited.

If we or our third-party manufacturers fail to comply with the FDAs Quality System Regulation, our business would suffer.

We and our third-party manufacturers are required to demonstrate and maintain compliance with the FDAs Quality System Regulation, or QSR. The QSR is a complex regulatory scheme that covers the methods and
documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of our product. The FDA enforces the QSR through periodic unannounced inspections. We and our third-party manufacturers have
been, and in the future will be, subject to such inspections. Our failure, or the failure of our third-party manufacturers, to take prompt and satisfactory corrective action in response to an adverse QSR inspection could result in enforcement
actions, including a public warning letter, a shutdown of our manufacturing operations, a recall of our product, civil or criminal penalties or other sanctions, which would cause our sales and business to suffer.

We may not be able to obtain or maintain international regulatory qualifications or approvals for our products, which could harm our business.

Sales of our products outside the United States are subject to foreign regulatory requirements that vary widely from country to country. The foreign regulatory approval
process may include all of the risks associated with obtaining FDA clearance or approval, in addition to other risks. Complying with international regulatory requirements can be an expensive and time consuming process, and approval is not certain.
The time required to obtain foreign clearances or approvals may exceed the time required for FDA clearance or approval, and requirements for such clearances or approvals may differ significantly from FDA requirements. Foreign regulatory authorities
may not clear or approve our product for the same uses cleared or approved by the FDA. Although we have obtained approval to affix the CE Mark to Radiesse for use in the European Union, we may not be able to maintain such approval.

We may not be able to obtain permission to affix the CE Mark to new products or to modifications of Radiesse. In addition, we may fail to obtain any additional
regulatory qualifications, clearances or approvals or to comply with additional legal obligations required by the individual member countries of the European Union or other countries in which we seek to market our products. The FDA also regulates
the export of drugs and medical devices from the United States. If we are not successful in obtaining and maintaining foreign regulatory approvals or complying with United States export regulations, our business will be harmed.

Foreign regulatory agencies periodically inspect manufacturing facilities both in the United States and abroad. We may fail to pass inspections of our facilities by
applicable regulatory authorities or entities both in the United States and in other countries. Delays in receiving necessary qualifications, clearances or approvals to market our products outside the United States, or the failure to receive those



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qualifications, approvals, or to comply with other foreign regulatory requirements, could limit or prevent us from marketing our products or enhancements in
international markets. Additionally, the imposition of new requirements could significantly affect our business and our product, and we might not be able to adjust to such new requirements. If we fail to comply with applicable foreign regulations,
we could face substantial penalties and our business, operations and financial condition could be adversely affected.

Risks Related to Our Intellectual
Property

Intellectual property rights provide us with only limited protection against competition.

While we attempt to protect our products through patents and other intellectual property rights, there are few barriers to entry that would prevent new entrants or
existing competitors from developing products that compete directly with ours. For example, while we believe our CaHA-based dermal filler technology maintains a strong intellectual property position, there are companies employing competing
technologies that claim to have a similar clinical effect to ours which are not CaHA-based. In addition, our patents covering the core technologies used in Radiesse and Coaptite expire in the United States beginning in 2012, and internationally
beginning in 2013, with the last to expire U.S. patent expiring in 2020. Expired patents will not prevent competitors from legally introducing products based on this technology. As a result, we believe that we will have to continually innovate and
improve our products and technologies and file new patent applications and obtain new patents relating to such innovations and technologies to maintain intellectual property protection and to compete successfully.

Patent applications may not issue as patents or, if issued, may not issue in a form that will be advantageous to us. Any patents we obtain may be challenged, invalidated
or legally circumvented by third parties. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by consultants, vendors, former employees or current employees, despite the existence
generally of confidentiality agreements, security measures and other contractual restrictions.

Monitoring unauthorized uses and disclosures of our
intellectual property is difficult, and we do not know whether the steps we have taken to protect our intellectual property will be effective. In addition, third parties may independently develop similar technologies. Moreover, we do not have patent
rights in all foreign countries in which a market may exist, and where we have applied for foreign patent rights, the laws of many foreign countries will not protect our intellectual property rights to the same extent as the laws of the United
States.

We may be involved in future costly intellectual property litigation, which could impact our future business and financial performance.

Our industry has been characterized by frequent intellectual property litigation. For example, we were involved in litigation with one of our competitors,
Artes Medical, over rights to intellectual property underlying both of our companies lead products, which resulted in the execution of a settlement and license agreement with Artes Medical. Our competitors or other patent holders may in the
future assert that Radiesse and the methods we employ are covered by their patents. If our products are found to infringe, we could be prevented from marketing them or have to pay substantial license fees or royalties to a third party. We may also
initiate litigation against third parties to protect our own intellectual property. Companies may market products for competing purposes in a direct challenge to our intellectual property position, and we may be required to initiate litigation in
order to stop them. The unauthorized use of our intellectual property could reduce or eliminate any competitive advantage we have, cause us to lose sales, or otherwise harm our business. Our intellectual property has not been fully tested in court.
If we initiate litigation to protect our rights, we run the risk of having our patents invalidated, which would undermine our competitive position.

Litigation related to infringement and other intellectual property claims, with or without merit, is unpredictable, can be expensive and time-consuming and could divert managements attention from our core business. If we lose this
kind of litigation, a court could require us to pay substantial damages and prohibit us from using technologies essential to Radiesse, any of which would have a material adverse



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effect on our business, results of operations and financial condition. We do not know whether necessary licenses would be available to us at all or on
satisfactory terms, or whether we could redesign Radiesse or processes to avoid infringement.

Risks Related to Our Common Stock and Being a Public
Company

We expect that the price of our common stock will fluctuate substantially.

The market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including:



| |  |  | volume and timing of Radiesse sales;
| | - |  | ------------------------------------



| |  |  | the introduction of new products or product enhancements by us or our competitors;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | disputes or other developments with respect to our intellectual property rights or the intellectual property rights of others;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | product liability claims or other litigation;
| | - |  | ---------------------------------------------



| |  |  | quarterly variations in our or our competitors results of operations;
| | - |  | ----------------------------------------------------------------------



| |  |  | sales of large blocks of our common stock, including sales by our executive officers and directors;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | developments in our industry;
| | - |  | -----------------------------



| |  |  | changes in governmental regulations or in the status of our regulatory approvals or applications;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | changes in earnings estimates or recommendations by securities analysts; and
| | - |  | ----------------------------------------------------------------------------



| |  |  | general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

These and other factors may make the price of our stock volatile and subject to unexpected fluctuation.

If our public guidance or our future operating performance does not meet investor expectations, our stock price could decline.

If our actual results do not meet our public guidance, or our guidance or actual results do not meet the expectations of third-party financial analysts, our stock price
could decline significantly. Our business typically has a short sales cycle, so that we do not have significant backlog of orders at the start of a quarter, and our ability to sell Radiesse successfully is subject to many uncertainties, as discussed
in this prospectus. In light of these factors, it is difficult for us to estimate with accuracy our future results. Our expectations regarding these results will be subject to numerous risks and uncertainties that could make actual results differ
materially from those anticipated.

Our financial and disclosure controls and procedures are expensive to implement and may not be sufficient to ensure
timely and reliable reporting of financial information, which could materially harm our stock price and NASDAQ listing.

We are required to comply with
the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, and the related rules and regulations of the SEC, including the requirements that we maintain disclosure controls and procedures and adequate internal control over financial reporting. We are
also required to comply with marketplace rules and corporate governance standards of NASDAQ. Compliance with the Sarbanes-Oxley Act and other SEC and NASDAQ requirements is expensive and requires significant management resources. We recently have
begun upgrading our procedures and controls and will need to continue to implement additional procedures and controls as we grow our business and organization and to satisfy these reporting requirements. The effectiveness of our controls and
procedures implemented to comply with these requirements may in the future be limited by a variety of factors, including:



| |  |  | faulty human judgment and simple errors, omissions or mistakes;
| | - |  | ---------------------------------------------------------------



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| |  |  | fraudulent action of an individual or collusion of two or more people;
| | - |  | ----------------------------------------------------------------------



| |  |  | inappropriate management override of procedures; and
| | - |  | ----------------------------------------------------



| |  |  | the possibility that any enhancements to controls and procedures may still not be adequate to assure timely and accurate financial information.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------

If we are unable to complete the required assessment as to the adequacy of our internal control over financial reporting, as required by
Section 404 of the Sarbanes-Oxley Act or if we fail to maintain internal control over financial reporting, our ability to produce timely, accurate and reliable periodic financial statements could be impaired and we could be subject to NASDAQ
delisting, SEC investigation and civil or criminal sanctions. Additionally, our ability to obtain additional financing could be impaired. A lack of investor confidence in the reliability and accuracy of our public reporting could cause our stock
price to decline.

A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

More than 95% of the privately-issued shares sold prior to our IPO are subject to lock-up agreements with us or the underwriters, which will expire on May 20, 2008.
We have agreed with the underwriters not to waive lock-up agreements with us without the consent of J.P. Morgan Securities Inc. and Piper Jaffray & Co. Our managing underwriters, however, may, in their sole discretion, permit our officers,
directors and other current stockholders who are subject to contractual lock-up agreements to sell shares before the lock-up agreements expire. After the lock-up agreements expire, the shares subject to the lock-up agreements will be eligible for
sale in the public market. Of these shares, approximately 23 million shares are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act. In addition, shares of
common stock that are either subject to outstanding options or reserved for future issuance under our employee benefit plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements,
the lock-up agreements and Rule 144 and Rule 701 under the Securities Act.

If our stockholders sell substantial amounts of our common stock in the public
market, including shares issued upon the exercise of outstanding options or warrants, the market price of our common stock could decline. These sales also might make it more difficult for us to sell equity or equity related securities in the future
at a time and price that we deem reasonable or appropriate.

Our directors, officers and principal stockholders have significant voting power and may
take actions that may not be in the best interests of our other stockholders.

Our officers, directors and principal stockholders each holding more
than 5% of our common stock collectively control more than a majority of our outstanding common stock. As a result, these stockholders, if they act together, will be able to control the management and affairs of our company and most matters
requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the
market price of our common stock. This concentration of ownership may not be in the best interests of our other stockholders.



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Anti-takeover provisions in our Amended and Restated Certificate of Incorporation and Bylaws, and Delaware law,
contain provisions that could discourage a takeover or frustrate any attempt by stockholders to change the directors or management of our company.

Our
amended and restated certificate of incorporation and bylaws, and Delaware law, contain provisions that might enable our management to resist a takeover, and might make it more difficult for an investor to acquire a substantial block of our common
stock to cause changes in our management team or corporate strategy. These provisions include:



| |  |  | a classified board of directors;
| | - |  | --------------------------------



| |  |  | advance notice requirements to stockholders for matters to be brought at stockholder meetings;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | a supermajority stockholder vote requirement for amending certain provisions of our amended and restated certificate of incorporation and bylaws;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limitations on stockholder actions by written consent;
| | - |  | ------------------------------------------------------



| |  |  | provisions permitting the issuance of blank check preferred shares without stockholder consent; and;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | the right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

We are also subject to the provisions of Section 203 of the Delaware General Corporation Law that, in general, prohibit any
business combination or merger with a beneficial owner of 15% or more of our common stock unless the holders acquisition of our stock was approved in advance by our board of directors. These provisions might discourage, delay or prevent a
change in control of our company or a change in our management. The applicability of these provisions could adversely affect the voting power of holders of common stock and limit the price that investors might be willing to pay in the future for
shares of our common stock.

We have a large number of authorized but unissued shares of stock.

Our certificate of incorporation provides for 100,000,000 shares of authorized common stock. The issuance of additional shares of common stock may have a dilutive effect
on earnings per share and relative voting power. There are no current plans to issue any additional shares of common stock, other than increases from time to time in the number of shares that are reserved for issuance under our equity incentive
plans. However, we could use the shares of common stock that are available for future issuance in dilutive equity financing transactions, or to oppose a hostile takeover attempt or delay or prevent changes in control or changes in or removal of
management, including transactions that are favored by a majority of the stockholders or in which the stockholders might otherwise receive a premium for their shares over then-current market prices or benefit in some other manner.

In addition, our certificate of incorporation provides for 10,000,000 shares of preferred stock, all of which are available for future issuance. Although there are
currently no plans to do so, our board of directors may, without further stockholder approval, issue up to 10,000,000 shares of preferred stock with such rights, preferences and privileges as our board may determine. These rights, preferences and
privileges may include dividend rights, conversion rights, voting rights and liquidation rights that may be greater than the rights of our common stock. As a result, the rights of holders of our common stock are subject to, and could be adversely
affected by, the rights of holders of any preferred stock that may be issued in the future.



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We have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment
may be limited to the value of our stock.

We have never paid cash dividends on our common stock and do not anticipate paying cash dividends on our
common stock in the foreseeable future. The payment of dividends on our common stock will depend on our earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant.
If we do not pay dividends, our stock may be less valuable because a return on your investment will only occur if our stock price appreciates.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

None
applicable.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None applicable.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

None
applicable.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None applicable.



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BIOFORM MEDICAL, INC.



|ITEM 6. | EXHIBITS
|------- | --------



|           |  |                                                                                                                                                         
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description                                                                                                                                             
|           | 
|31.1       |  | Certification of Principal Executive Officer Pursuant to Rule 13A-14(A) of the Securities Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002
|           | 
|31.2       |  | Certification of Principal Financial Officer Pursuant to Rule 13A-14(A) of the Securities Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002
|           | 
|32.1       |  | Certification of Principal Executive Officer                                                                                                            
|           | 
|32.2       |  | Certification of Principal Financial Officer                                                                                                            



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SIGNATURES

Pursuant to the requirements 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.

BioForm Medical, Inc.



|                 |  |  |  |     |  |                                                                     
|---------------- |  |  |  | --- |  | --------------------------------------------------------------------
|                 |  |  | 
|DATE:May 9, 2008 |  |  |  | BY: |  | /s/ Steven L. Basta                                                 
|                 |  |  |  |     |  | Steven L. Basta                                                     
|                 |  |  |  |     |  | Chief Executive Officer (Principal Executive Officer)               
|                 |  |  | 
|DATE:May 9, 2008 |  |  |  | By: |  | /s/ Derek Bertocci                                                  
|                 |  |  |  |     |  | Derek Bertocci                                                      
|                 |  |  |  |     |  | Chief Financial Officer (Principal Financial and
Accounting Officer)



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