UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Mark One)
ý			QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

			For the quarterly period ended: September 30, 2005

			OR

o			TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

			FOR THE TRANSITION PERIOD FROM TO

Commission File Number 0-23678

BIOSPHERE MEDICAL, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware		04-3216867
(State or Other Jurisdiction of Organization or Incorporation)		(IRS Employer Identification Number)

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

(781) 681-7900

(Registrant’s Telephone Number, Including Area Code)

Indicate by a check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý NO o

Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES o NO ý

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

The number of shares outstanding of the Registrant’s Common Stock as of November 1, 2005 was 14,806,244 shares.

EXPLANATORY NOTE

This Quarterly Report on Form 10-Q/A amends Part I, Item 1 “Financial Statements” to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2005, solely for the purpose of deleting the first paragraph in Note 4-Committments and Contingencies. Except as previously noted, no other changes to the Form 10-Q have been set forth herein. In addition, pursuant to the rules of the Securities and Exchange Commission, the registrant has also included in this Form 10-Q/A, under Part II, Item 6 “Exhibits,” currently dated certifications pursuant to Rules 13a-14(a) and 15d-14 of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

BioSphere Medical, Inc.

INDEX

Part I—Financial Information

	Item 1.	Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004 (unaudited)

		Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2005 and 2004 (unaudited)

		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2004 (unaudited)

		Notes to Consolidated Financial Statements

Part II—Other Information

	Item 6.	Exhibits

Signatures

Exhibit Index

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BIOSPHERE MEDICAL, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share data)	September 30, 2005			December 31, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	8,058		$	9,460
Marketable securities	84			762
Accounts receivable, net of allowance for doubtful accounts of $214 and $184 as of September 30, 2005 and December 31, 2004, respectively	2,878			2,999
Inventories, net	2,613			3,311
Prepaid expenses and other current assets	503			222
Total current assets	14,136			16,754
Property and equipment, net	907			1,134
Goodwill, net	1,443			1,443
Other assets	62			60
Total Assets	$	16,548		$	19,391
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	868		$	1,084
Accrued compensation	1,565			1,880
Other accrued expenses	1,027			1,224
Current portion of long-term debt and capital lease obligations	140			175
Total current liabilities	3,600			4,363

Long-term debt and capital lease obligations	125			192
Total Liabilities	3,725			4,555

Commitments and contingencies (Note 4)	—			—
Stockholders’ equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized: 6% series A convertible preferred stock, 12,000 shares authorized, 8,434 and 8,000 shares issued and outstanding, as of September 30, 2005 and December 31, 2004, respectively (aggregate liquidation preference including accrued dividends of $8,437)	7,322			6,945
Common stock, $0.01 par value, 25,000,000 shares authorized; 14,795,744 and 14,294,032 shares issued and outstanding as of September 30, 2005 and December 31, 2004, respectively	148			143
Additional paid-in capital	83,980			83,438
Accumulated deficit	(78,527		)	(75,502		)
Accumulated other comprehensive loss	(100		)	(188		)
Total Stockholders’ Equity	12,823			14,836
Total Liabilities and Stockholders’ Equity	$	16,548		$	19,391

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

BIOSPHERE MEDICAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share data)	2005			2004			2005			2004
Product sales	$	4,412		$	3,413		$	13,330		$	9,799
Licensing revenues	—			60			—			80
Total revenues	4,412			3,473			13,330			9,879
Cost and expenses:
Costs of product sales	1,546			1,161			4,587			5,010
Research and development	498			498			1,648			1,629
Sales	1,478			1,290			4,631			3,796
Marketing	406			812			1,718			1,767
General, administrative and patent	949			955			3,172			2,551
Total costs and expenses:	4,877			4,716			15,756			14,753
Loss from operations	(465		)	(1,243		)	(2,426		)	(4,874		)
Interest income	66			18			156			56
Interest expense	(4		)	(4		)	(12		)	(10		)
Foreign exchange gains/(losses), net	13			86			(468		)	(107		)
Other income, net	(4		)	(5		)	2			(13		)
Loss before income taxes	$	(394	)	$	(1,148	)	$	(2,748	)	$	(4,948	)
Income tax benefit	—			—			93			—
Net loss	(394		)	(1,148		)	(2,655		)	(4,948		)
Preferred stock dividends	(125		)	—			(369		)	—
Net loss applicable to common stockholders	$	(519	)	$	(1,148	)	$	(3,024	)	$	(4,948	)
Net loss per common share applicable to common stockholders
Basic and diluted	$	(0.04	)	$	(0.08	)	$	(0.21	)	$	(0.35	)
Weighted average number of common shares outstanding
Basic and diluted	14,776			14,249			14,597			14,102

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

BIOSPHERE MEDICAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine Months Ended September 30,
(in thousands)	2005			2004
Cash flows from operating activities:
Net loss	$	(2,655	)	$	(4,948	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for doubtful accounts	46			21
Provision for inventory obsolescence	—			1,268
Depreciation and amortization	373			438
Non-cash stock-based compensation	11			—
Realized loss on available-for-sale investments	4			4
Changes in operating assets and liabilities:
Accounts receivable	(48		)	(177		)
Inventories	504			(961		)
Prepaid expenses and other current assets	(315		)	74
Accounts payable	(153		)	115
Accrued compensation	(279		)	(195		)
Other accrued expenses	(107		)	(159		)
Net cash used in operating activities	(2,619		)	(4,520		)
Cash flows from investing activities:
Purchase of property and equipment	(226		)	(188		)
Purchase of marketable securities	—			(255		)
Sale and maturity of available for sale marketable securities	680			3,010
Net cash provided by investing activities	454			2,567
Cash flows from financing activities:
Costs from issuance of convertible preferred stock and warrants, net	(59		)	—
Proceeds from issuance of common stock under employee benefit and incentive plans	536			639
Proceeds from issuance of long-term debt and capital leases	43			211
Principal payments under long-term debt and capital leases	(127		)	(126		)
Net cash provided by financing activities	393			724
Effect of exchange rate changes on cash and cash equivalents	370			83
Net decrease in cash and cash equivalents	(1,402		)	(1,146		)
Cash and cash equivalents at beginning of period	9,460			2,043
Cash and cash equivalents at end of period	$	8,058		$	897

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

BIOSPHERE MEDICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

A) Nature of Business

BioSphere Medical, Inc. (the “Company”) was incorporated in Delaware in December 1993. The Company is focused on applying its proprietary Embosphere® Microspheres and other ancillary embolotherapy products for use in treating uterine fibroids, hypervascularized tumors and arteriovenous malformations. The Company’s wholly-owned subsidiary, Biosphere Medical S.A. (“BMSA”), a French société anonyme, holds the license to the embolotherapy technology that is the main focus of the Company’s business.

The Company believes that its existing working capital as of September 30, 2005, together with anticipated proceeds from sales of microspheres, delivery systems and other products, will be sufficient to fund operating and capital requirements, as currently planned, through the fourth quarter of 2006. In the longer term, the Company expects to fund its operations and sustaining capital requirements through a combination of expected proceeds from product sales and capital equipment financing. However, cash requirements may vary materially from those now planned due to a number of factors, including, without limitation, its failure to achieve expected revenue amounts, costs associated with changes in its uterine fibroid embolization (“UFE”) marketing programs, anticipated research and development expenses, the scope and results of preclinical and clinical testing, changes in the focus and direction of research and development programs, competitive and technological advances, the timing and results of regulatory review at the United States Food and Drug Administration (“FDA”) or comparable regulatory agencies in other countries and the market’s acceptance of any approved products, including Embosphere Microspheres for UFE and HepaSphere™ Microspheres.

B) Basis of Presentation

The accompanying consolidated financial statements are unaudited and have been prepared on a basis consistent with the Company’s annual audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2004. The consolidated financial statements include the accounts of the Company’s three wholly-owned subsidiaries, BMSA, Biosphere Medical Japan, Inc. and BSMD Ventures, Inc. All material intercompany balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in its annual audited financial statements have been condensed or omitted. The consolidated financial statements, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair statement of the results for the three and nine months ended September 30, 2005 and 2004. The results of operations for the periods presented are not necessarily indicative of the results of operations to be expected for the entire fiscal year. These consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004.

C) Cash, Cash Equivalents and Marketable Securities

The Company considers all highly liquid investments with a maturity of ninety days or less, as of the date of purchase, to be cash equivalents. In accordance with its investment policy, surplus cash is invested in investment-grade corporate and U.S. government debt, as well as certain asset-backed securities. The Company determines the appropriate classification of marketable securities at each balance sheet date. Available-for-sale marketable securities are carried at their fair value with unrealized gains and losses included in accumulated other comprehensive loss in the accompanying balance sheet.

D) Comprehensive Loss

Total comprehensive loss is comprised of net loss and other comprehensive income (loss). Other comprehensive income (loss) includes certain changes in equity that are excluded from net loss, specifically, the effects of foreign currency translation adjustments and any unrealized gains or losses on available-for-sale securities, that are reflected separately in accumulated other comprehensive income (loss) as stockholders’ equity. For the three and nine months ended September 30, 2005 and 2004, the Company’s comprehensive loss was as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2005			2004			2005			2004
Net loss	$	(394	)	$	(1,148	)	$	(2,655	)	$	(4,948	)
Cumulative translation adjustment	(5		)	(28		)	82			23
Unrealized gain on available for sale securities	3			(1		)	6			(3		)
Total comprehensive loss	$	(396	)	$	(1,177	)	$	(2,567	)	$	(4,928	)

E) Net Loss Per Share

Basic net loss per share is calculated based on the weighted average number of common shares outstanding during the period. Diluted net loss per share incorporates the dilutive effect of common stock equivalent options, warrants and other convertible securities. The following potentially issuable common shares were not included in the computation of diluted net loss per share as their effect would be antidilutive for all periods presented due to the losses for such periods:

	Nine Months Ended September 30,
(in thousands)	2005	2004
Shares issuable upon exercise of stock options	2,838	2,470
Shares issuable upon conversion of convertible securities	2,000	—
Shares issuable upon exercise of outstanding warrants	400	163
Unvested restricted stock awards	15	—
	5,253	2,633

F) Stock Compensation

The Company applies the principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”(“APB 25”), and related interpretations, in accounting for its stock incentive plans. Under APB 25, compensation expense is measured as the difference, if any, between the option exercise price and the fair value of the Company’s common stock at the date of grant. The Company has historically granted options to employees and directors at exercise prices equal to the fair value of the Company’s common stock. Accordingly, no compensation expense has been generally recognized under APB 25 for its employee stock-based compensation plans.

If the recognition provisions of Financial Accounting Standards Board (“FASB”) Statement No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment of FASB Statement No. 123”, had been adopted, the Company’s reported net loss and basic and diluted net loss per common share for the three and nine months ended September 30, 2005 and 2004 would have been adjusted to the pro forma amounts indicated below:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2005			2004			2005			2004
Net loss applicable to common stockholders
As reported	$	(519	)	$	(1,148	)	$	(3,024	)	$	(4,948	)
Pro forma compensation expense	(229		)	(497		)	(644		)	(970		)
Pro forma net loss	$	(748	)	$	(1,645	)	$	(3,668	)	$	(5,918	)

Basic and diluted loss per share
As reported	$	(0.04	)	$	(0.08	)	$	(0.21	)	$	(0.35	)
Pro forma	$	(0.05	)	$	(0.12	)	$	(0.25	)	$	(0.42	)

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

G) Reclassifications

Certain reclassifications have been made to the prior year’s consolidated financial statements to conform to the current period presentation. In connection with the preparation of this report, the Company concluded that it was appropriate to classify costs associated with the maintenance of patents as general and administrative expenses. Previously, such costs had been classified as research and development expenses. Accordingly, the Company revised the classification to include these costs in general and administrative expenses on its consolidated statements of operations for all periods presented.

2. Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following as of September 30, 2005 and December 31, 2004.

(in thousands)	September 30, 2005		December 31, 2004
Raw material	$	224	$	468
Work in process	849		1,393
Finished goods	1,540		1,450
Total inventory	$	2,613	$	3,311

Included in inventory is an excess and obsolete product valuation allowance for finished goods of $188,000 and $321,000 as of September 30, 2005 and December 31, 2004, respectively.

3. Segment Information

The Company develops microspheres and other ancillary embolotherapy products for use in the treatment of uterine fibroids, hypervascularized tumors and arteriovenous malformations. The Company operates exclusively in the medical device business, which it considers one business segment. Financial information by geographic area, attributed to countries according to the location of the Company’s customers and equipment, is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2005		2004		2005		2004
Revenues:

United States	$	3,072	$	2,151	$	8,980	$	6,170
France	754		705		2,611		2,240
Other European Union countries	386		365		1,245		1,018
Other foreign countries	200		252		494		451
Total revenues	$	4,412	$	3,473	$	13,330	$	9,879

	September 30, 2005		December 31, 2004
Long-lived assets:
United States	$	345	$	425
France	562		709
Total long-lived assets	$	907	$	1,134

4. Commitments and Contingencies

On September 9, 2005, the Company was served with a summons and complaint in a lawsuit commenced in the Circuit Court, Twenty-Second Judicial Circuit, St. Louis City, Missouri captioned Brett Pingel by next friend Dawn LaRose vs. BioSphere Medical, Inc., Bruce Kirke Bieneman, M.D., St. Louis University Hospital and John Stith, M.D. The lawsuit alleges, among other things, that a patient suffered permanent bilateral blindness as a result of the use of the Company’s Embosphere Microspheres in a juvenile nasal angiofibroma embolization. The claim seeks a monetary judgment against the Company for bodily injury, punitive damages, negligence and breach of warranties. The Company carries product liability insurance and this case is currently being defended by the Company’s insurer under reservation of rights with respect to the claim of punitive damages, for which an exclusion from coverage exists. The Company has filed an answer to this lawsuit in which it has denied the claims being made. The Company believes that this lawsuit is without merit and that it has viable defenses to the allegations in the complaint. Accordingly, the Company intends to defend against the claims vigorously. However, the Company can not give any assurance that it will prevail and it is currently unable to predict the impact, financial or otherwise, of this product liability litigation.

5. Recent Accounting Pronouncements

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (as revised, “SFAS 123R”). SFAS 123R addresses the accounting for transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise, or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS 123R supersedes APB 25 and requires that such transactions be accounted for using a fair-value based method. SFAS 123R requires companies to recognize an expense for compensation cost related to share-based payment arrangements including stock options and employee stock purchase plans. In April 2005, the Securities and Exchange Commission (“SEC”) announced the adoption of a new rule that amends the compliance dates for SFAS 123R. The new rule of the SEC requires companies to implement SFAS 123R at the beginning of the next fiscal year that begins after June 15, 2005. Accordingly, the Company will adopt SFAS 123R as of January 1, 2006. The Company is currently evaluating option valuation methodologies and assumptions related to its stock compensation plans.

As permitted by Statement of Financial Accounting Standards No. 123 (“SFAS 123”), the Company currently accounts for share-based payments to employees using APB 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS 123R fair value method will have a significant impact on the Company’s result of operations, although it will have no impact on its overall financial position and cash position. The impact of adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net loss per share in footnote 1.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs—an amendment of Accounting Research Bulletin (“ARB”) No. 43, Chapter 4” (“SFAS 151”). SFAS 151 is the result of a broader effort by the FASB to improve the comparability of cross-border financial reporting by working with the International Accounting Standards Board (“IASB”) toward development of a single set of high quality accounting standards. The FASB and the IASB noted that both ARB No. 43, Chapter 4 and International Accounting Standard (“IAS”) No. 2, “Inventories,” require that abnormal amounts of idle freight, handling costs, and wasted materials be recognized as period costs; however, the FASB and the IASB noted that differences in the wording of the two standards could lead to inconsistent application of those similar requirements. The FASB concluded that clarifying the existing requirements in ARB No. 43 by adopting language similar to that used in IAS No. 2 is consistent with its goals of improving financial reporting in the United States and promoting convergence of accounting standards internationally. Adoption of SFAS 151 is required for fiscal years beginning after June 15, 2005; accordingly, the Company will adopt SFAS 151 as of January 1, 2006. The provisions of SFAS 151 will be applied prospectively. The Company is currently in the process of evaluating the impact of SFAS 151, but does not believe it will have a material impact on the results of operations and financial position of the Company.

		BIOSPHERE MEDICAL, INC.


Date: November 16, 2005		/s/ RICHARD J. FALESCHINI
		Richard J. Faleschini
		Chief Executive Officer
		(principal executive officer)

Date: November 16, 2005		/s/ MARTIN J. JOYCE
		Martin J. Joyce
		Chief Financial Officer
		(principal financial and accounting officer)

Exhibit Number		Description

31.1		Certification of the principal executive officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the principal financial officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the principal executive officer pursuant to pursuant to Rule 13a-14(b) and 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the principal financial officer pursuant to pursuant to Rule 13a-14(b) and 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.