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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 December 31, 2009

¨	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)

(I.R.S. Employer

Identification No.)

1875 South Grant Street, Suite 200

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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

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 January 31, 2010, there were 47,248,211 shares ($0.01 par value per share) of registrant’s common stock outstanding.

BIOFORM MEDICAL, INC.

FORM 10 - Q

Quarterly Period Ended December 31, 2009

TABLE OF CONTENTS


		Page
	PART I. FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS

	Condensed Consolidated Balance Sheets as of December 31, 2009 (unaudited) and June 30, 2009	3

	Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2009 and 2008	4

	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2009 and 2008	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	22

ITEM 4T.	CONTROLS AND PROCEDURES	23

	PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	24

ITEM 1A.	RISK FACTORS	24

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	37

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	37

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	38

ITEM 5.	OTHER INFORMATION	38

ITEM 6.	EXHIBITS	39

SIGNATURES		40

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

BIOFORM MEDICAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)


	December 31, 2009			June 30, 2009
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	46,102		$	42,162
Accounts receivable, net of allowance for doubtful accounts of $1,184 at December 31, 2009 and $1,343 at June 30, 2009		13,130			12,034
Inventories		4,558			4,894
Prepaid royalties		1,354			1,259
Prepaid other		1,204			1,249
Other current assets		293			357

Total current assets		66,641			61,955
Property and equipment, net		7,029			7,599
Long-term prepaid royalties		1,069			1,869
Intangible assets, net		5			5
Other assets		254			239

Total assets	$	74,998		$	71,667

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,621		$	1,297
Deferred revenue		57			515
Accrued royalty expense		339			299
Accrued liabilities		6,952			5,866
Capital lease obligations, current portion		32			41

Total current liabilities		9,001			8,018
Capital lease obligations, long-term portion		40			28

Total liabilities		9,041			8,046
Commitment and contingencies (Note 4)
Stockholders’ equity:
Common stock, 100,000 shares authorized, $0.01 par value, 46,540 shares issued and outstanding at December 31, 2009, 46,350 shares issued and outstanding at June 30, 2009		465			463
Additional paid-in capital		162,462			161,210
Accumulated other comprehensive income		135			79
Accumulated deficit		(97,105	)		(98,131	)

Total stockholders’ equity		65,957			63,621

Total liabilities and stockholders’ equity	$	74,998		$	71,667

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

BIOFORM MEDICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share information)

(unaudited)


	Three months ended December 31,						Six months ended December 31,
	2009			2008			2009			2008
Net sales	$	21,785		$	16,686		$	40,057		$	32,357
Cost of sales		3,098			2,813			5,788			5,537

Gross profit		18,687			13,873			34,269			26,820
Operating expenses:
Sales and marketing		13,022			15,685			24,209			30,915
Research and development		2,072			2,871			4,926			5,233
General and administrative		2,071			3,138			4,019			6,215
Gain from escrow settlement		(1,681	)		—			(1,681	)		—
Pre-acquisition costs		1,505			—			1,505			—

Total operating expenses		16,989			21,694			32,978			42,363

Other income (expenses), net
Interest income, net		17			212			38			539
Other expenses, net		(42	)		(215	)		(165	)		(572	)

Total other expense, net		(25	)		(3	)		(127	)		(33	)

Income (loss) before income taxes		1,673			(7,824	)		1,164			(15,576	)

Provision for income taxes		89			59			138			101

Net income (loss)	$	1,584		$	(7,883	)	$	1,026		$	(15,677	)

Net income (loss) per share, basic	$	0.03		$	(0.17	)	$	0.02		$	(0.34	)
Net income (loss) per share, diluted	$	0.03		$	(0.17	)	$	0.02		$	(0.34	)
Weighted-average number of shares used in computing income (loss) per share calculation, basic		46,508			46,327			46,461			46,324
Weighted-average number of shares used in computing income (loss) per share calculation, diluted		50,018			46,327			49,249			46,324

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

BIOFORM MEDICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six months ended December 31,
	2009			2008
Cash flows from operating activities
Net income (loss)	$	1,026		$	(15,677	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		915			1,014
Impairment of long-lived assets		—			208
Loss on disposal of fixed assets		83			39
Provision for doubtful accounts		180			876
Stock-based compensation expense for employees		1,064			1,339
Stock-based compensation expense for non-employees		2			—
Changes in operating assets and liabilities:
Accounts receivable		(1,259	)		(1,916	)
Inventories		174			338
Prepaid royalties		706			494
Prepaid expenses and other assets		1			(299	)
Accounts payable		320			(883	)
Deferred revenue		(462	)		540
Accrued liabilities		1,832			111

Net cash provided by (used in) operating activities		4,582			(13,816	)

Cash flows from investing activities
Purchase of property and equipment		(419	)		(614	)

Net cash used in investing activities		(419	)		(614	)

Cash flows from financing activities
Payments on capital leases		3			(17	)
Proceeds from the issuance of common stock under stock plans		159			40

Net cash provided by financing activities		162			23

Effect of exchange rate changes on cash		(385	)		(50	)

Net increase (decrease) in cash and cash equivalents for the period		3,940			(14,457	)
Cash and cash equivalents at beginning of period		42,162			59,204

Cash and cash equivalents at end of period	$	46,102		$	44,747

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

BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 main products, RADIESSE ^® and COAPTITE ^® . RADIESSE ^® is an FDA-approved dermal filler that is marketed for a number of applications including 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; and for vocal fold augmentation (“VFA”). COAPTITE ^® is an FDA approved tissue-bulking agent used to treat female stress urinary incontinence (“SUI”).

As is common with many companies in the aesthetics sector, we experience the effects of seasonality on our revenues. The first quarter of our fiscal year, which runs from July through September, is typically the slowest quarter of the year. We also generally observe a modest slowness in our third quarter, which runs from January through March. Our second and fourth quarters, which run from October to December and April to June, respectively, are typically the stronger quarters of our fiscal year. Such seasonal patterns have been altered to some degree in recent years and may be altered in future years by fluctuations in macroeconomic factors.

In December 2009, we executed a definitive agreement with Merz GMBH & Co. KGAA (“Merz”) under which Merz intends to acquire all of our outstanding shares of common stock for $5.45 per share in cash pursuant to a cash tender offer followed by a second-step merger (see Note 9).

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 (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2009 included in our Annual Report on Form 10-K filed with the SEC on September 25, 2009.

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 condensed consolidated balance sheet as of June 30, 2009 from the audited consolidated financial statements at that date.

Change in Estimate

Effective July 1, 2009, we changed our assumptions used in our revenue recognition calculation for license revenues we receive from sales of COAPTITE ^® through our distributor Boston Scientific. Under our agreement with Boston Scientific, the sales price of COAPTITE ^® payable to us is calculated as a percentage of the average selling price to Boston Scientifics’ customers with a stated minimum floor price. This calculation is performed by Boston Scientific on a quarterly basis with a minimum floor price to us and trued up every quarter. Separately, the contract with Boston Scientific also contains a right of return clause, whereby product can be returned within a defined period of time. Based on the availability of sufficient historical data, we have changed our assumptions with respect to the selling price as well as expected returns under this contract.

BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Comprehensive Income (Loss)

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 income (loss) as of the end of the periods indicated (amounts in thousands).


	Three months ended December 31,						Six months ended December 31,
	2009			2008			2009		2008
Net income (loss)	$	1,584		$	(7,883	)	$	1,026	$	(15,677	)
Unrealized translation gain (loss)		(55	)		47			55		174

Comprehensive income (loss)	$	1,529		$	(7,836	)	$	1,081	$	(15,503	)

Net Income (Loss) per Common Share

We compute basic and diluted net income (loss) per share by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Stock options 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 income (loss) per common share is as follows (amounts in thousands, except per share data):


	Three months ended December 31,					Six months ended December 31,
	2009		2008			2009		2008
Numerator:
Net income (loss)	$	1,584	$	(7,883	)	$	1,026	$	(15,677	)
Denominator:
Weighted-average common shares outstanding, basic		46,508		46,327			46,461		46,324
Weighted-average common shares outstanding, diluted		50,018		46,327			49,249		46,324
Net income (loss) per share
Basic and diluted	$	0.03	$	(0.17	)	$	0.02	$	(0.34	)

Outstanding options to purchase 4.9 million and 7.3 million shares of common stock for the three months ended December 31, 2009 and December 31, 2008, respectively, and 5.4 million and 7.3 million shares of common stock for the six months ended December 31, 2009 and December 31, 2008, respectively, were not included in the Company’s computation of dilutive securities because including them would have had an anti-dilutive effect.

Recent Accounting Pronouncements

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification

(Accounting Standards Update (“ASU”) 2009-01, previously Statement of Financial Accounting Standard No. 168 “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162”)

In June 2009, FASB issued Statement Financial Accounting Standards No. 168, “ The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162 (“ SFAS No. 168”). SFAS No. 168 establishes the FASB Accounting Standards Codification TM (“Codification”) as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP

BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

for SEC registrants. SFAS No. 168 and the Codification are effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Codification supersedes all existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification is deemed non-authoritative. Following SFAS No. 168, the FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, the FASB will issue Accounting Standards Updates, which will serve only to: (a) update the Codification; (b) provide background information about the guidance; and (c) provide the bases for conclusions on the change(s) in the Codification. Amendments to the Codification are made by issuing a “FASB Accounting Standards Update” that will display an issue date expressed as the year with number sequence. SFAS No. 168 is effective for the Company in fiscal 2010 and the adoption of this standard and the codification did not have a material effect on the Company’s financial position or results of operations or cash flows.

Business Combinations

(Included in Accounting Standards Codification (“ASC”) 805 “Business Combinations”, previously SFAS No. 141R “Business Combinations”)

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations (“SFAS No. 141R”). SFAS No. 141R 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. 141R 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. 141R 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. 141R is effective for acquisitions occurring 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. 141R. SFAS No. 141R is effective for the Company in fiscal 2010 and we are currently evaluating the effect that the adoption of SFAS No. 141R would have on any future acquisitions the Company may consummate.

Revenue Recognition – Multiple-Element Arrangements

(Included in ASC 605-25 “Revenue Recognition – Multiple-Element Arrangements”, is ASU 2009-13 “Multiple-Deliverable Revenue Arrangements”, previously EITF No. 08-1 “Revenue Arrangements with Multiple Deliverables”)

In October 2009, a modification was made to “ Revenue Recognition – Multiple Deliverable Revenue Arrangements .” This modification removes the objective-and-reliable-evidence-of-fair-value criterion from the separation criteria used to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting, replaces references to “fair value” with “selling price” to distinguish from the fair value measurements required under the “Fair Value Measurements and Disclosures” guidance, provides a hierarchy that entities must use to estimate the selling price, eliminates the use of the residual method for allocation, and expands the ongoing disclosure requirements. This modification is effective for the Company beginning July 1, 2011 and can be applied prospectively or retrospectively. Management is currently evaluating the effect that adoption of this modification will have, if any, on the Company’s consolidated financial position and results of operations when it becomes effective in 2011.

BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 3 – Certain Balance Sheet Components

(amount in thousands)


	December 31, 2009			June 30, 2009
Inventories
Raw materials	$	2,497		$	2,574
Work-in-process		1,613			2,009
Finished goods		587			483
Reserves for excess and obsolete inventory		(139	)		(172	)

	$	4,558		$	4,894

Property and Equipment
Land	$	327		$	327
Building and leasehold improvements		3,369			3,360
Machinery and equipment		5,880			5,738
Furniture, fixtures, and office equipment		4,430			4,419
Construction-in-progress		218			26

		14,224			13,870
Less: accumulated depreciation		(7,195	)		(6,271	)

	$	7,029		$	7,599

Other Accrued Liabilities
Accrued compensation	$	3,156		$	3,277
Accrued legal and patent expenses		440			138
Accrued marketing programs		—			32
Accrued taxes, permits, licenses		608			258
Other accrued liabilities		2,748			2,161

	$	6,952		$	5,866

Note 4 – Commitments and Contingencies

Lease Commitments

We have entered into several capital leases for office equipment. We had approximately $0.1 million in assets under capital lease obligations at December 31, 2009 and June 30, 2009. Accumulated depreciation associated with these capital leases was less than $0.1 million at December 31, 2009 and June 30, 2009.

The following schedule summarizes the future minimum lease payments for all capital and operating leases as of December 31, 2009 (amounts in thousands):


Years ending June 30,	Capital Lease			Operating Lease
2010 (remaining 6 months)	$	18		$	449
2011		33			808
2012		22			749
2013		6			239
2014		0			102

Total minimum lease payments		79		$	2,347

Less amounts representing interest		(7	)

Present value of minimum lease payments		72
Less current portion		(32	)

Long term portion of capital lease obligations	$	40

BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

License Agreements

In fiscal 2007, we entered into agreements with Chemische Fabrik KREUSSLER & Co. GmbH (“Kreussler”) that provided us exclusive U.S. distribution rights for Polidocanol, and with CryoLife, Inc. (“CryoLife”) for exclusive U.S., Canadian and European distribution rights for aesthetics applications for BIOGLUE ^® . We charged $2.2 million to research and development expense in fiscal 2007 for minimum, non-cancelable payments required under these two agreements. Of this amount, we paid $0.5 million in fiscal 2007 and paid the remaining $1.7 million in fiscal 2008. A milestone related to the NDA submission was reached by Kreussler in the first quarter of fiscal 2010, for which we accrued $0.7 million in the first quarter, and subsequently paid this amount in the second quarter of fiscal 2010. Contingent payments totaling $2.5 million under the agreement with Kreussler and $0.5 million under the agreement with CryoLife will become due upon success in reaching specified future 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.

Under a license from Artes Medical related to patents held by them that apply to implantable products containing microsphere particles, we were obligated to pay royalties based on sales of our products. On September 21, 2007, we executed an agreement with Artes Medical to pre-pay all royalty obligations payable to Artes Medical in the future by making two payments totaling $5.5 million. The first payment of $2.0 million was made in fiscal 2007 and the second payment of $3.5 million was made in fiscal 2008. These payments replaced any royalty that we would have been obligated to pay to Artes Medical in the future under the terms of the license. These payments were recorded as prepaid royalty and are expensed as a percentage of sales based on estimated future sales over the life of the related patents.

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. Although the results of litigation and claims cannot be predicted with certainty, we believe that the final outcome of such matters will not have any material adverse effect on our business, results of operations or financial condition as of December 31, 2009.

On January 13, 2010, one of our purported stockholders filed a purported class action lawsuit in the Superior Court of the State of California, San Mateo County, captioned Hassan Hamedi (the “plaintiff”) v. Steven Basta, et. al (the “defendants”), against us and each of our directors. The lawsuit alleges, among other things, that our director defendants breached their fiduciary duties to our stockholders to maximize the price in connection with the Merz acquisition, articulates alleged deficiencies in the Schedule 14D-9 that result in the Schedule 14D-9 being allegedly materially misleading and/or incomplete, and claims that the $5.45 price per share offered by Merz in the tender offer is inadequate. This complaint seeks to enjoin the proposed tender offer, in addition to seeking other relief. On February 11, 2010, the Superior Court denied an ex parte motion made by the plaintiff for a temporary restraining order to enjoin and/or postpone the closing of the Merz acquisition.

Note 5 – Stock Based Compensation

Stock Option Plans

We have one active stock option plan, the 2007 Equity Incentive Plan (the “2007 Plan”), which became effective as of our IPO in November 2007. Previously we granted stock options under three other plans: the 2003 (Active) Stock Plan, the 2003 (Terminated) Stock Plan, and the 2000 Plan. All three of these earlier plans have been terminated and we can no longer grant stock options under them. Only options previously granted under the 2007 Plan and 2003 Active Stock Plan remain in effect.

BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of the effectiveness of our IPO we became authorized to issue stock options, stock appreciation rights, restricted stock and restricted stock units or performance shares and units for 4.0 million common shares under the 2007 Plan. The pool of shares available for use in the 2007 Plan increases on the first day of each fiscal year beginning with the 2008 fiscal year, in an amount equal to the lesser of (i) 4.0 million shares, (ii) 4% of the outstanding shares on the last day of the immediately preceding fiscal year or (iii) such number of shares determined by the Board of Directors. On July 1, 2009, the shares authorized for issuance under the 2007 Plan automatically increased by 1.8 million shares. 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 designee, has the authority to set vesting periods, conditions, performance goals and incentives for all awards. Options granted under the 2007 Plan generally have a four year vesting term, have an exercise price equal to the fair market value on the date of grant, and have a ten year life from the date of grant. Options under the three earlier plans were generally granted on the same terms. . The 2007 Plan was amended in December 2009 to provide that in the event of a change in control, an outstanding award will become fully vested and exercisable upon the optionee’s involuntary termination (including constructive termination) following a change in control. For stock options granted on or after January 1, 2010, these terms and conditions will apply to the optionee’s involuntary termination within 12 months following a change in control.

Stock-Based Compensation Expense

Effective July 1, 2006, we adopted the provisions of Accounting Standards Codification (“ASC”) 718 (formerly Statement of Financial Accounting Standards No. 123R, Share-Based Payment (“SFAS 123R”)) using the prospective method . ASC 718 establishes accounting for stock-based awards made to employees and directors. Accordingly, stock-based compensation expense is measured at grant date, based on the fair value of the award, and is recognized as expense over the remaining requisite service period.

Under ASC 718, 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. ASC 718 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 six month periods ended December 31, 2009 and 2008 was $1.47 and $1.48, respectively, calculated using the Black-Scholes option pricing model with the following weighted average assumptions:


	Six Months Ended December 31,
	2009		2008
Weighted-average expected volatility	58	%	48	%
Weighted-average expected term (years)	4.94		4.84
Weighted-average risk-free interest rate	2.40	%	2.91	%
Dividend yield	0.00	%	0.00	%

The assumptions were developed as follows:

Volatility— As we have minimal trading history for our common stock, the expected stock price volatility for our common stock was estimated by taking the combined weighted average of our historical stock price and the medial 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.

Expected Term— Our expected term represents the period for which our stock-based awards are expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards and vesting schedules.

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.

BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Expected Dividend Yield— We have never declared or paid any cash dividends and do not presently 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 is equal to the price at which our stock trades in the open stock market. Prior to our public offering in November 2007 the fair value of our common stock 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 American Institute of Certified Public Accountants (“AICPA”) Practice Aid Valuation of Privately-Held-Company Equity Securities Issued as Compensation . The valuation methodology utilized the “income approach” to estimate enterprise value. This enterprise value was then tested 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 —Forfeitures are 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

Employee stock-based compensation expense was recorded as follows:


	Three Months Ended December 31,				Six Months Ended December 31,
	2009		2008		2009		2008
Cost of sales	$	26	$	45	$	54	$	91
Sales and marketing expense		274		277		427		541
Research and development expense		54		47		93		96
General and administrative expense		279		302		490		611

	$	633	$	671	$	1,064	$	1,339

We did not recognize any income tax benefit in the condensed consolidated statement of operations for the three and six month periods ended December 31, 2009 or 2008. The total compensation cost related to unvested stock option grants not yet recognized as of December 31, 2009 was $6.4 million and the weighted-average period over which these grants are expected to vest is 3.09 years.

The following table summarizes activity under our stock option plans from October 1, 2009 through December 31, 2009 (amounts in thousands, except weighted average exercise price):


Options	Shares Subject to Outstanding Options		Weighted Average Exercise Price		Weighted- average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Options outstanding at September 30, 2009	8,791		$	1.41
Granted	337		$	3.75
Exercised	(58	)	$	0.96
Forfeited or expired	(27	)	$	1.73

Options outstanding at December 31, 2009	9,044		$	1.50	8.43	$	17,651


Vested and expected to vest	7,863		$	1.51	8.32	$	15,287
Exercisable at December 31, 2009	2,174		$	1.79	6.34	$	3,786

BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock Options Granted to Non-employees

There were no stock options granted to non-employees (per the definition of SFAS 123R) during the three and six month periods ended December 31, 2009 and stock based compensation expense for non-employees in the three and six month periods ended December 31, 2009 was de minimus. There was no expense recognized related to stock options granted to non-employees for the three and six month periods ended December 31, 2008.

Note 6 – Income Taxes

Our provision for income taxes was less than $0.1 million for the three month periods ended December 31, 2009 and 2008. Our provision for income taxes was approximately $0.1 million for the six month periods ended December 31, 2009 and 2008. Our provision for income taxes relates to federal AMT taxes, California state taxes, and income taxes in our foreign subsidiaries. Due to the enactment of Assembly Bill 1452, California temporarily suspended the net operating loss carryover deductions for the taxable years beginning in 2008 and 2009 and also restricted the use of available credit to reduce only up to fifty percent of California tax liability.

Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain. Accordingly, our net deferred tax assets at December 31, 2009 and June 30, 2009 have been fully offset by a valuation allowance.

The total amount of our unrecognized tax benefits was approximately $0.2 million as of December 31, 2009 and $0.1 million as of June 30, 2009. None of our unrecognized tax benefits, if recognized, would affect our effective tax rate at present because they would only result in an adjustment of our valuation allowance.

We have no accrued interest or penalties related to tax contingencies. Any tax-related interest and penalties would be included in income tax expense in the consolidated statements of operations. Our federal and state net operating loss carry forwards expire between 2010 and 2029 if not utilized. Our federal and state research and development tax credit carry forwards expire between 2019 and 2027 if not utilized. Utilization of our net operating loss and credit carry forwards are subject to annual limitations due to the ownership change provisions of the Internal Revenue Code and similar state provisions. Due to our cumulative net operating loss position, all U.S. federal and state income tax returns since inception in 1999 are subject to tax authority examination.

Note 7 – Segment Reporting

We operate in one business segment, which encompasses the developing, manufacturing and marketing of medical aesthetic products. We use one measurement of profitability and do not segregate our business for internal reporting.

The following is a summary of net revenue by geographic area (based on location of customer) (amounts in thousands):


	Three months ended December 31,				Six months ended December 31,
	2009		2008		2009		2008
Domestic	$	16,475	$	13,268	$	30,667	$	26,008
International		5,310		3,418		9,390		6,349

Total	$	21,785	$	16,686	$	40,057	$	32,357

We operate from facilities in the United States and the Netherlands. Net long-lived assets were as follows:


	December 31, 2009		June 30, 2009
Domestic	$	7,961	$	9,282
International		396		430

Total	$	8,357	$	9,712

No customer accounted for 10% or more of net sales in the three or six months ended December 31, 2009 or 2008. No one customer’s receivable balance is greater than 10% of the total account receivable balance at December 31, 2009 or June 30, 2009.

BIOFORM MEDICAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 8 – Escrow Settlement

In April 2009, we filed a written certification to the escrow agent associated with the April 2008 Asset Purchase Agreement between BioForm Medical, Inc. and Advanced Cosmetic Intervention, Inc. (“ACI”) asserting that we are entitled to receive the entire $2.0 million balance of the escrow amount being held by the escrow agent as a result of material misrepresentations made by ACI to us at the time of purchase.

In October 2009, we reached a settlement agreement with ACI whereby we received approximately $1.7 million, net of related expenses, of the escrow amount. We recorded the $1.7 million (net) as a gain in our second quarter ended December 31, 2009.

Note 9 – Acquisition

In December 2009, we with Merz GMBH & Co. KGAA (“Merz”) executed a definitive agreement (“Merz acquisition”) under which Merz intends to acquire all of our outstanding shares of common stock for $5.45 per share in cash pursuant to a cash tender offer followed by a second-step merger.

We recognized $1.5 million related to pre-acquisition costs incurred related to the Merz Acquisition during our second quarter ended December 31, 2009.

In January 2010, Merz filed a Schedule TO with the Securities and Exchange Commission to commence a Tender Offer for purchase all of our outstanding shares of common stock for $5.45 per share.

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 marketing products that are used by physicians to enhance the appearance of their patients. We were incorporated in Delaware in 1999 and commenced operations in 2000. From 2001 to 2003 we received certain U.S. and international regulatory clearances and 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 ^® in December 2006. Our core product is RADIESSE ^® injectable dermal filler which is designed to provide long-lasting, cost-effective and safe aesthetic benefits for patients. We have also developed and commercialized COAPTITE ^® tissue-bulking agent which is FDA approved and 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 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 addition to our existing RADIESSE ^® and COAPTITE ^® products on the market, we have development programs and distribution rights to additional products and their applications that are in various stages of development.

•

RADIESSE ^® — We have recently launched two new syringe formats of RADIESSE ^® – the 1.5cc RADIESSE ^® Volume Advantage syringe and the 0.8cc RADIESSE ^® Moderate Fill syringe. In addition, we have a number of ongoing programs evaluating new forms, applications and indications of our patent protected RADIESSE ^® technology. The first new commercial product derived from these efforts is expected to be a form of RADIESSE ^® with lidocaine which may improve comfort for patients and flow characteristics for physicians. A method of mixing RADIESSE ^® with lidocaine was approved in July 2009. We intend to file in calendar year 2010 for approval to market a form of RADIESSE ^® with lidocaine integrated into the product during manufacturing.

•

RADIESSE ^® : Potential New Indication for Hand Augmentation —We have completed a 101-patient clinical trial demonstrating the effects of RADIESSE ^® on augmentation of the dorsum of the hand. In August 2009, we submitted a PMA supplement requesting approval to market RADIESSE ^® for this indication in the United States. During the second quarter of fiscal 2010, the FDA requested additional data from the 12-month follow-up of patients in this study as outlined in the clinical protocol. We expect to submit the final 12-month clinical data for this trial in the fourth quarter of fiscal 2010.

•

Polidocanol —In May 2007, we entered into an exclusive licensing and distribution agreement in the United States for Polidocanol, a leading sclerotherapy treatment in Europe for varicose veins (sold outside of the United States under the trade name Aethoxysklerol ^® ). According to the terms of this agreement, the manufacturer of Polidocanol, Chemische Fabrik KREUSSLER & Co. GmbH, is responsible for conducting the clinical trial and submitting regulatory filings for approval of Polidocanol to 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 July 2008 Kreussler submitted data to the FDA demonstrating that Polidocanol met the primary endpoint of its Phase III clinical trial, and in July 2009, Kreussler submitted additional manufacturing documentation related to the New Drug Application (“NDA”) for Polidocanol. The FDA has completed clinical trial site inspections and manufacturing inspections, has communicated with Kreussler regarding the final steps needed in the approval process, such as the package insert review, and has set a PDUFA target date of April 10, 2010 to complete the NDA review.

•

RELAXED EXPRESSIONS™ —In April 2008, we acquired substantially all of the assets of Advanced Cosmetic Intervention (“ACI”), and its licensor, related to a device that is currently cleared via a 510(k) by FDA to create radiofrequency (“RF”) heat lesions in nerve tissue. We have experienced delays in the development of the RELAXED EXPRESSIONS™ System associated with required technical improvements in the device and the treatment protocol in order to achieve consistently predictable clinical outcomes. Consequently, we have deferred our clinical study specifically intended to support an FDA application for the treatment of glabellar furrows or frown lines, while we address these issues.

•

BIOGLUE AESTHETIC™ —In October 2006, we licensed the exclusive United States, Canadian and European distribution rights for medical aesthetic applications of BIOGLUE ^® , a 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 AESTHETIC™ in these applications. We have received Conformité Européenne Mark (“CE Mark”) approval for use of BioGlue Aesthetic in browplasty procedures and are conducting limited market evaluation activities in Europe. As part of our cost reduction measures announced in November 2008, we have deferred clinical development of BIOGLUE AESTHETIC™ in the United States.

To date, we have expensed related to Kreussler, $2.4 million in license fees and milestones, including a milestone accrued in the first quarter of fiscal 2010. Future contingent payments to Kreussler of $2.5 million will become due upon success in reaching specified regulatory milestones. To date, we have paid CryoLife $0.5 million as a license fee for BioGlue Aesthetic and we will owe CryoLife an additional $0.5 million upon U.S. marketing approval of BioGlue Aesthetic. Under the asset purchase agreement with ACI, we paid $12.4 million ($12 million to ACI and $0.4 of transaction costs) and assumed $0.2 million of liabilities. As a result of a settlement agreement that we entered into with ACI in October 2009, we have recorded a gain of $1.7 million (net) of the escrow amount, in our second quarter of fiscal 2010. We are required to pay contingent consideration based on a percentage of future sales and a possible milestone based on a sales threshold if we commercialize the Relaxed Expressions technology. In fiscal 2009, we impaired and wrote off substantially all ACI-related assets. Due to the uncertainties inherent in medical clinical trials and regulatory review by the FDA, as well as uncertainty related to future sales, we are unable to predict if or when the contingent payments under these agreements will become payable.

Sales of RADIESSE ^® generated more than 90% of our revenue in the second quarter and the first six months of both fiscal 2010 and fiscal 2009. Other revenue consists primarily of the sale of COAPTITE ^® . Sales increased in the first half of fiscal 2010 over fiscal 2009 due to growth in sales in both the U.S. and international markets.

We expect that the key factors influencing our revenue in the future will include:

•

patient satisfaction with our products, particularly RADIESSE ^® ;

•

the strength of our direct sales and clinical training teams 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;

•

consumers’ confidence and economic activity in the countries in which we sell our products; 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. The first quarter of our fiscal year, which runs from July through September, is typically the slowest quarter of the year. We also generally observe a modest slowness in our third quarter, which runs from January through March. Our second and fourth quarters, which run from October to December and April to June, respectively, are typically the stronger quarters of our fiscal year. Such seasonal patterns have been impacted in recent quarters by fluctuations in macroeconomic factors.

We believe that tight credit markets, weak economies, and low consumer confidence in the United States and our major international markets have adversely impacted spending on certain cosmetic procedures, including treatment with RADIESSE ^® . There is significant uncertainty as to the extent to which the current recession will continue to impact our industry, generally, or our business, specifically, in the future. Our expectations regarding the nature or timing of any macroeconomic recovery, as well as any recovery in the dermal filler market, are highly uncertain and extended macroeconomic weakness and low consumer discretionary spending may impact our future sales and alter seasonal patterns in our revenue.

To reach our goal of sustained profitability we will need to increase revenues while carefully managing our operating expenses. In November 2008, we implemented steps to reduce our annual rate of operating expenses through savings in program activities and personnel reductions in most functions other than our field sales personnel. To increase revenues we will depend on growth in sales of RADIESSE ^® in the United States and international markets, as well as success in gaining approval from the FDA and regulatory agencies in other countries to market the other products that we have in various stages of development and clinical trials. Competition in the markets for aesthetic medical products is very active. Many dermal filler products are already approved and sold throughout the world and we anticipate that other new fillers will be brought to market in future years. 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 December 2009, we entered into a definitive agreement under which Merz will acquire all of our outstanding shares of common stock for $5.45 per share in cash pursuant to a cash tender offer followed by a second-step merger.

Results of Operations

Comparison of the three and six months ended December 31, 2009 and 2008

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


	Three months ended December 31,
	2009					2008					% Change
	Amount			% (a)		Amount			% (a)		% Change
Net sales	$	21,785		100.0		$	16,686		100.0		30.6
Cost of sales		3,098		14.2			2,813		16.9		10.1

Gross profit		18,687		85.8			13,873		83.1		34.7
Operating expenses
Sales and marketing expenses		13,022		59.8			15,685		94.0		(17.0	)
Research and development expenses		2,072		9.5			2,871		17.2		(27.8	)
General and administrative expenses		2,071		9.5			3,138		18.8		(34.0	)
Gain from escrow settlement, net		(1,681	)	(7.7	)		—		—		(100.0	)
Pre-acquisition costs		1,505		6.9			—		—		100.0
Other income (expense), net		(25	)	(0.1	)		(3	)	(0.02	)	733.3
Provision for income taxes		89		0.4			59		0.4		50.8

Net income (loss)	$	1,584				$	(7,883	)


	Six months ended December 31,
	2009					2008					% Change
	Amount			% (a)		Amount			% (a)		% Change
Net sales	$	40,057		100.0		$	32,357		100.0		23.8
Cost of sales		5,788		14.4			5,537		17.1		4.5

Gross profit		34,269		85.6			26,820		82.9		27.8
Operating expenses
Sales and marketing expenses		24,209		60.4			30,915		95.5		(21.7	)
Research and development expenses		4,926		12.3			5,233		16.2		(5.9	)
General and administrative expenses		4,019		10.0			6,215		19.2		(35.3	)
Gain from escrow settlement, net		(1,681	)	(4.2	)		—		—		(100.0	)
Pre-acquisition costs		1,505		3.8			—		—		100.0
Other income (expense), net		(127	)	(0.3	)		(33	)	(0.1	)	284.8
Provision for income taxes		138		0.3			101		0.3		36.6

Net income (loss)	$	1,026				$	(15,677	)

(a)	Expressed as a percentage of net sales

Comparison of the three months ended December 31, 2009 and 2008

Net Sales

Net sales were $21.8 million for the second quarter of fiscal 2010 as compared to $16.7 million for the second quarter of fiscal 2009, an increase of $5.1 million or 30.6%. Domestic sales were $16.5 million for the second quarter of fiscal 2010 as compared to $13.3 million for the second quarter of fiscal 2009, an increase of $3.2 million or 24.1%. International sales were $5.3 million for the second quarter of fiscal 2010 as compared to $3.4 million for the second quarter of fiscal 2009, an increase of $1.9 million or 55.9%. The increase in net sales was due primarily to an increase in the volume of units sold as a result of the introduction of our 0.8cc and 1.5cc syringe sizes late in fiscal 2009.

Cost of Sales

Cost of sales was $3.1 million for the second quarter of fiscal 2010 as compared to $2.8 million for the second quarter of fiscal 2009, an increase of $0.3 million or 10.1%.

Gross Profit

Gross profit was $18.7 million for the second quarter of fiscal 2010 as compared to $13.9 million for the second quarter of fiscal 2009, an increase of $4.8 million, or 34.7%. Our gross margin increased from 83.1% to 85.8% due to greater economies of scale realized from higher manufacturing volumes necessary to meet demand and the effect of certain cost reductions in our manufacturing activities.

Sales and Marketing Expenses

Our sales and marketing expenses were $13.0 million for the second quarter of fiscal 2010 as compared to $15.7 million for the second quarter of fiscal 2009, a decrease of $2.7 million or 17.0%. As a percentage of net sales, sales and marketing expenses were 59.8% of net sales for the second quarter of fiscal 2010 as compared to 94.0% for the same period in fiscal 2009. This decrease was primarily attributable to cost savings measures taken as part of our cost reduction actions announced in November 2008.

Research and Development Expenses

Our research and development expenses were $2.1 million for the second quarter of fiscal 2010 as compared to $2.9 million for the second quarter of fiscal 2009, a decrease of $0.8 million or 27.8%. As a percentage of net sales, research and development expenses were 9.5% for the second quarter of fiscal 2010 as compared to 17.2% for the second quarter of fiscal 2009. This decrease was primarily attributable to cost savings measures taken as part of our cost reduction actions announced in November 2008.

General and Administrative Expenses

Our general and administrative expenses were $2.1 million for the second quarter of fiscal 2010 as compared to $3.1 million for the second quarter of fiscal 2009, a decrease of $1.0 million, or 34.0%. As a percentage of net sales, general and administrative expenses were 9.5% in the second quarter of fiscal 2010 as compared to 18.8% in the second quarter of fiscal 2009. This decrease was primarily attributable to cost savings measures taken as part of our cost reduction actions announced in November 2008.

Gain from Escrow Settlement, Net

During the second quarter of fiscal 2010 we reached a settlement agreement with Advanced Cosmetic Intervention, Inc. (“ACI”) whereby we received approximately $1.7 million, net of related expenses, from the escrow related to the April 2008 Asset Purchase Agreement between BioForm Medical, Inc. and ACI.

Pre-acquisition Costs

During the second quarter of fiscal 2010 we recognized pre-acquisition costs of $1.5 million related to the tender offer by Merz Pharma Group to acquire all of the outstanding stock of BioForm Medical, Inc.

Other Income (Expense), Net

Other income (expense), net for the second quarter of fiscal 2010 decreased less than $0.1 million as compared to the second quarter of fiscal 2009.

Provision for Income Taxes

Our provision for income taxes for the second quarter of fiscal 2010 increased slightly when compared to the second quarter of fiscal 2009 due to additional state and alternative minimum taxes.

Net Income ( Loss)

We realized net income during the second quarter of fiscal 2010 compared to a net loss in the second quarter of fiscal 2009 due to the factors discussed above.

Comparison of the six months ended December 31, 2009 and 2008

Net Sales

Net sales were $40.1 million for the first six months of fiscal 2010 as compared to $32.4 million for the same period in fiscal 2009, an increase of $7.7 million or 23.8%. Domestic sales were $30.7 million for the first six months of fiscal 2010 as compared to $26.0 million for the same period in fiscal 2009, an increase of $4.7 million or 18.1%. International sales were $9.4 million for the first six months of fiscal 2010 as compared to $6.3 million for the same period in fiscal 2009, an increase of $3.0 million or 46.9%. The increase in net sales was due primarily to an increase in the volume of units sold as a result of the introduction of our 0.8cc and 1.5cc syringe sizes late in fiscal 2009.

Cost of Sales

Cost of sales was $5.8 million for the first six months of fiscal 2010 as compared to $5.5 million for the same period in fiscal 2009, an increase of $0.3 million, or 4.5%.

Gross Profit

Gross profit was $34.3 million for the first six months of fiscal 2010 as compared to $26.8 million for the same period in fiscal 2009, an increase of $7.5 million, or 27.8%. Our gross margin increased from 82.9% to 85.6% due to greater economies of scale reached from higher manufacturing volumes necessary to meet demand and the effect of certain cost reductions in our manufacturing activities.

Sales and Marketing Expenses

Our sales and marketing expenses were $24.2 million for the first six months of fiscal 2010 as compared to $30.9 million for the same period in fiscal 2009, a decrease of $6.7 million or 21.7%. As a percentage of net sales, sales and marketing expenses were 60.4% of net sales for the first six months of fiscal 2010 as compared to 95.5% for the same period in fiscal 2009. This decrease was primarily attributable to cost savings measures taken as part of our cost reduction actions announced in November 2008.

Research and Development Expenses

Our research and development expenses were $4.9 million for the first six months of fiscal 2010 as compared to $5.2 million for the same period in fiscal 2009, a decrease of $0.3 million or 5.9%. As a percentage of net sales, research and development expenses were 12.3% for the first six months of fiscal 2010 as compared to 16.2% for the same period in fiscal 2009. This decrease was primarily attributable to cost savings measures taken as part of our cost reduction actions announced in November 2008. These savings were partially offset by the $0.7 million milestone payment pursuant to our agreement with Kreussler for exclusive United States licensing and distribution rights of Polidocanol. This milestone was triggered upon active review by the FDA of the NDA supplement filed by Kreussler.

General and Administrative Expenses

Our general and administrative expenses were $4.0 million for the first six months of fiscal 2010 as compared to $6.2 million for the same period in fiscal 2009, a decrease of $2.2 million, or 35.3%. As a percentage of net sales, general and administrative expenses were 10.0% in the first six months of fiscal 2010 as compared to 19.2% in the same period of fiscal 2009. This decrease was primarily attributable to cost savings measures taken as part of our cost reduction actions announced in November 2008.

Gain from Escrow Settlement, Net

Pre-acquisition Costs

Other Income (Expense), Net

Other income (expense), net for the first six months of fiscal 2010 decreased $0.1 million as compared to the first six months of fiscal 2009.

Provision for Income Taxes

Our provision for income taxes for the first six months of fiscal 2010 increased slightly when compared to the same period of fiscal 2009. The increase was primarily due to additional state and alternative minimum taxes.

Net Income ( Loss)

We realized net income during the first six months of fiscal 2010 compared to a net loss in the same period in fiscal 2009 due to the reasons discussed above.

Liquidity and Capital Resources

The following table highlights selected cash flow components for the first six months of fiscal 2010 and 2009 (dollars in thousands).


	Six months ended December 31,
Cash provided by (used in):	2009			2008
Operating activities	$	4,582		$	(13,816	)
Investing activities		(419	)		(614	)
Financing activities		162			23

We have incurred losses and generated negative annual cash flows from operating activities in all but one year since inception and had an accumulated deficit of approximately $97.1 million as of December 31, 2009. Our primary source of liquidity has been through private placements of shares of our preferred stock and the sale of common stock in association with our initial public offering in November 2007. Cumulative net proceeds from the issuance of preferred and common stock totaled approximately $163 million. We anticipate that our primary source of liquidity through approximately the end of fiscal 2010 will be our cash and cash equivalents and thereafter, it will be cash provided by operations assuming we reach our goal of sustained profitable operations.

Operating Activities

In the first six months of fiscal 2010, we generated $4.6 million in cash from operating activities as compared to $13.8 million net cash used in the comparable period of fiscal 2009. In the first six months of fiscal 2010 we received the escrow settlement, net, of $1.7 million. In addition we recognized $0.8 million of net income before the gain from escrow settlement, and accrued pre-acquisition costs. These factors combined with non-cash expenses and higher accrued liabilities resulted in positive cash from operating activities in fiscal 2010. Losses from operations of $15.7 million were the primary reason for cash use in fiscal 2009.

Investing Activities

Net cash used in investing activities was $0.4 million in the first six months of fiscal 2010 as compared to $0.6 million in the comparable period of fiscal 2009. Our primary investing activities related to purchases of equipment, computers, furniture and leasehold improvements for use in production, research, selling and general and administrative activities.

Financing Activities

In the first six months of fiscal 2010, net cash provided from financing activities was approximately $0.2 million as compared to less than $0.1 million in the comparable period of fiscal 2009. Cash flows from financing activities in the first six months of both fiscal years was related to cash received from exercises of stock options.

Sufficiency of Current Cash and Cash Equivalents

Our cash and cash equivalents (“cash”) were $46.1 million as of December 31, 2009. We believe that our current cash balance will be sufficient to meet our anticipated cash needs, including for working capital purposes, capital expenditures, and contractual obligations for at least the next 12 months. We may require additional cash resources due to changes in business conditions or other future developments, including any investments or acquisitions we may decide to pursue. In any of these cases, we may seek to sell equity or debt securities or to obtain a credit facility. It is uncertain whether equity or debt financing may be available to us when needed on terms that are acceptable to us or at all. The sale of convertible debt securities or additional equity securities could result in additional dilution to our stockholders. The incurrence of indebtedness would result in debt service obligations and could result in operating and financial covenants that would restrict our operations. In addition, there can be no assurance that any additional financing will be available on acceptable terms, if at all. We anticipate that, from time to time, we may evaluate acquisitions of complementary businesses, technologies or assets. However, there are no current understandings, commitments or agreements with respect to any acquisitions.

Contractual Obligations

The following table summarizes our significant contractual obligations as of December 31, 2009 (dollars in thousands):


	Payments Due By Periods
	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Capital lease obligations	$	79	$	37	$	42	$	—	$	—
Operating lease obligations		2,423		864		1,431		128		—
Purchase obligations		3,352		3,352		—		—		—
Royalty obligations		339		339		—		—		—

Total	$	6,193	$	4,592	$	1,473	$	128	$	—

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.

Recent Accounting Pronouncements

Information with respect to recent accounting pronouncements may be found in Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements in this quarterly report, which information is incorporated herein by reference.

Critical Accounting Policies

We have made no material changes to the disclosures regarding critical accounting policies made in our Annual Report on Form 10-K for the year ended June 30, 2009, which was filed with the Securities and Exchange Commission on September 25, 2009.

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 or cash equivalents and carried at cost, which approximates market value. Our cash equivalents consist of U.S. Treasury Securities with maturities less than 90 days. 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 December 31, 2009, 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 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. At this point in time, our liquidity has not been materially impacted by the current credit environment and we do not expect that it will be materially impacted in the near future.

Our accounts receivable primarily relate to revenues from the sale of RADIESSE ^® directly to individual physicians, hospitals, and medical clinics in the United States and select countries in Europe. Outside the United States and select countries in international markets 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 December 31, 2009.

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 Principal 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 Principal 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.

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.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

On January 13, 2010, one of our purported stockholders filed a purported class action lawsuit in the Superior Court of the State of California, San Mateo County, captioned Hassan Hamedi (the “plaintiff”) v. Steven Basta, et. al. (the “defendants”), against us and each of our directors. The lawsuit alleges, among other things, that our director defendants breached their fiduciary duties to our stockholders to maximize the price in connection with the Merz acquisition, articulates alleged deficiencies in the Schedule 14D-9 that result in the Schedule 14D-9 being allegedly materially misleading and/or incomplete, and claims that the $5.45 price per share offered by Merz in the tender offer is inadequate. This complaint seeks to enjoin the proposed tender offer, in addition to seeking other relief. On February 11, 2010, the Superior Court denied an ex parte motion made by the plaintiff for a temporary restraining order to enjoin and/or postpone the closing of the Merz acquisition.

ITEM 1A.

RISK FACTORS

Risks Related to the Pending Acquisition by Merz

In connection with Merz’s tender offer to purchase all of our outstanding shares, a lawsuit has been filed against us and our board of directors.

Following the January 4, 2010 announcement of our signing of a merger agreement with Merz, one of our purported stockholders filed a purported class action lawsuit against us and each of our directors. The lawsuit alleges, among other things, that our director defendants breached their fiduciary duties to our stockholders to maximize the price in connection with the Merz acquisition, articulates alleged deficiencies in the Schedule 14D-9 that result in the Schedule 14D-9 being allegedly materially misleading and/or incomplete, and claims that the $5.45 price per share offered by Merz in the tender offer is inadequate. This case could result in substantial costs and a diversion of management’s attention and resources, which could materially harm our business.

We cannot assure you that all conditions to the merger with Merz will be completed and the merger consummated.

The merger agreement with Merz contains representations, warranties and covenants of the parties customary for transactions of this type. The closing of the merger is subject to certain closing conditions specified in the merger agreement, including, if required, approval of the merger by a majority of our stockholders. We cannot assure you that the conditions of the merger agreement will be satisfied or waived or that the merger will close in the expected time frame or at all.

If the proposed merger, or a similar transaction, are not completed, the share price of our common stock may change to the extent that the current market price of our common stock reflects an assumption that a transaction will be completed. We will have incurred significant costs, including the diversion of management resources, for which we will have received little or no benefit.

The announcement and pendency of our agreement to be acquired by Merz could adversely affect our business, financial results and operations.

The announcement and pendency of the Merz tender offer and the merger could cause disruptions in and create uncertainty surrounding our business, including affecting our relationships with our customers, vendors, and employees, which could have an adverse effect on our business, financial results, and operations. In particular, we could lose important personnel as a result of the departure of employees who decide to pursue other opportunities in light of the proposed merger. We could potentially lose customers or suppliers, or customer orders could be delayed or decreased. The sales cycles for our products may lengthen due to the uncertainty related to the proposed merger. In addition, we have diverted, and will continue to divert, significant management resources in an effort to complete the merger, which could adversely affect our business and results of operations.

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 $21.1 million, $29.5 million and $13.6 million for the fiscal years ended June 30, 2009, 2008 and 2007, respectively, and, as of December 31, 2009, we had an accumulated deficit of approximately $97.1 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 to continue operating at a net loss at least during fiscal 2009 and may continue do so in the future.

If we are unable to maintain or grow revenue from existing products and launch new products while controlling operating expenses, the timing of, or our ability to achieve, profitability would be adversely affected. 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 maintain or grow revenue or 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 to 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 products competitive with RADIESSE ^® that are now available or that may become commercially available in the future, including those products that incorporate lidocaine;

•

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;

•

the overall strength of the minimally-invasive aesthetics market, generally, and the strength of the dermal filler market, specifically;

•

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.

The current economic slowdown in the United States and our major international markets has led to lower consumer spending that has been responsible for a decline in demand for certain cosmetic procedures and, consequently, the decline in some aesthetic product makers’ results of operations, including our own. We have implemented plans to reduce our operating expenses significantly, but this action may make it difficult for us to compensate adequately for any unexpected shortfall in revenue, or to maintain and grow revenues while fully implementing our cost savings measures. Accordingly, a significant shortfall in demand for our products, as well as the implementation of operating expense reductions, could have an immediate and material adverse effect on our business, results of operations and financial condition. 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 the slowdown in demand for medical aesthetic procedures associated with the current economic recession lasts longer than anticipated, our future operating performance will be adversely impacted.

The success of our business depends on consumer demand for medical aesthetic procedures, which is highly sensitive to macroeconomic conditions. The current worldwide economic slowdown has led to lower consumer discretionary spending and a decline in dermal filler procedures in recent quarters. While we believe that there is pent-up demand and the beginnings of a recovery in the aesthetics market, the demand for dermal filler procedures may not return to historic levels of growth, even if there is an economic recovery. Turmoil in financial markets, declining consumer confidence, negative wealth effects of declines in housing values and the stock market, and other factors could further weaken medical aesthetics procedure demand, on both a short and long term basis. The macroeconomic weakness in the world economy and current worldwide financial market uncertainty may last longer than we anticipate, or have a greater adverse effect on our revenues and operating results than we anticipate.

While we believe that we may be winning market share from our competitors, in part due to our syringe sizing strategy and its adoption by physicians, and that the recent slowdown in demand for RADIESSE ^® is the result of lower consumer demand for cosmetic procedures generally, the decline could also reflect a weakening of our competitive position or physician or patient preference for other products. If the declining revenue is due to competitive factors rather than overall demand for cosmetic procedures, then we may not see the increase in revenue that we would otherwise expect with a recovery in the U.S. and international economies and consumer demand for aesthetic procedures.

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 our current and future 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 success of our efforts to promote mixing RADIESSE ^® with lidocaine;

•

the success of our efforts to develop and obtain regulatory approval for RADIESSE ^® with integrated lidocaine;

•

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;

•

the effectiveness of our clinical education and training 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 for RADIESSE ^® and our company as a whole;

•

our ability to offer a broader portfolio of aesthetic products;

•

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 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. Moreover, if we are unable to offer a broader set of aesthetic products, we will likely be unable to gain significant additional share of the aesthetics market.

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.

Even if we are able to demonstrate to a potential user that our product is superior to alternatives offered by competitors, we may not be able to convert the potential user to our product. 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 also 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 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 sales and marketing efforts, may permit unique discounting and cross-selling opportunities, and reinforce company and brand loyalty. We believe that the products we have under development, including Polidocanol, RELAXED EXPRESSIONS™ and BIOGLUE AESTHETIC™ may, if successfully developed and commercialized, significantly enhance our competitive position. However, even if we are able to commercialize and co-promote new products, we may be unable to generate expected sales and our financial performance may suffer due to various other competitive factors, including pricing, patient satisfaction and customer loyalty to the products of our competitors.

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 to 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 adopt pricing strategies that could adversely impact pricing in the filler marketplace generally.

The failure of RADIESSE ^® to meet physicians’ or patients’ expectations, or to provide a compelling alternative to competitors’ products, could inhibit 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.

While initial response to our two new product offerings, 1.5cc RADIESSE ^® Volume Advantage and 0.8cc RADIESSE ^® Moderate Fill, has been generally positive, and we believe that they will enhance our competitive position, we cannot predict whether this implementation of our competitive strategy will be perceived by physicians and patients as a sufficiently compelling value proposition to significantly alter their purchasing behavior, or to result in a meaningful advantage over our competition, increased market share, or enhanced operating performance.

Negative perception regarding RADIESSE ^® , even if unfounded, may inhibit adoption.

Gaining physician confidence and converting new accounts is important to our ability to significantly enhance our competitive position and our opportunity for significant growth in our business. 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 to not adopt the product.

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.

Dermal filler injections may be painful to the patient and many practitioners consider adoption of pain reduction practices to be important. Several companies have developed fillers that incorporate lidocaine in some fashion to reduce pain upon injection. We recently received approval to promote in the United States a method of mixing RADIESSE ^® with lidocaine in order to improve patient comfort. We may not be successful with this product mixing offering in competing with other dermal fillers that may have integral lidocaine which could have a material adverse impact on our future operating results.

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

While we have conducted and published clinical studies that we believe demonstrate the advantages of RADIESSE ^® 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.

A substantial part of our operating expenses are related to sales, marketing and clinical education. If we are not as successful or effective as our competitors in these activities, 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. If our sales representatives take longer than expected to reach anticipated productivity, if they fail to compete effectively for the time and attention of physicians and office representatives, or if they fail to meet expectations, we may not achieve our revenue goals. Our marketing organizations in the United States and Europe compete with much larger, more established and better funded marketing activities by larger competitors.

We believe that clinical confidence in the use of RADIESSE ^® is important in physician adoption of RADIESSE ^® , and we invest substantial resources in clinical education. Our efforts to train physicians may not be adequate or successful in increasing physician confidence and comfort in using RADIESSE ^® frequently in their practice. Even if physician confidence in RADIESSE ^® increases, that may not result in more orders since the decision to choose a product is dependent upon many factors beyond just clinical comfort and confidence.

Our failure to retain or effectively utilize our sales representatives, marketing and clinical education personnel, or our failure to compete effectively in physician, patient and office staff awareness of RADIESSE ^® could have a material adverse effect on our sales and results of operations.

We may incur significant additional sales and marketing expenses if and when we launch new products.

We believe that our ability to increase revenue on current products and successfully launch new products without incurring significant additional sales and marketing expenses is a key to our transition to profitability. While we believe that our existing sales and marketing infrastructure will allow us to increase revenue on current products and successfully launch new products, we may need to incur significant additional costs for sales and marketing to accomplish these goals. We base our belief regarding the adequacy of our existing sales and marketing organization on a number of assumptions, which may or may not prove to be correct. For example, we believe that, if and when approved by the FDA, our Polidocanol product will be widely adopted without significant marketing expense because awareness of Polidocanol is already high in vein centers and dermatologists are performing a significant number of sclerotherapy procedures. We also believe that our sales organization will be able to commercialize the product, despite our limited commercial experience in selling pharmaceuticals and complying with pharmaceutical specific compliance regulations. However, we may be incorrect about these and other assumptions we have made about the market for our new product candidates. If our assumptions are incorrect, then we may decide that our existing sales and marketing infrastructure is inadequate and incur significant additional sales and marketing expenses that would adversely affect our results of operations, and the timing of, or our ability to achieve, profitability.

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

International sales accounted for 19% of our total revenue for fiscal 2009 and 2008. 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 ^® , and with products that may be sold at substantially lower prices than RADIESSE ^® ;

•

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 2012 and then renews for an additional two-year term, unless terminated pursuant to its terms. Our agreement with CAM Implants runs through November 2010 and renews each year for a further year unless terminated pursuant to its terms. Neither agreement is terminable at will by either party. 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 2009, 2008 and 2007. 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 or maintain sales of COAPTITE ^® . If this were to occur, our expectations of future COAPTITE ^® revenues would be harmed.

If we are unable to commercialize Polidocanol, an investigational sclerotherapy drug that is currently the subject of an NDA submission to FDA, our expectation of future revenue growth would be harmed.

An important part of our strategy includes the successful introduction to the U.S. market of Polidocanol, an injectable sclerosing drug for the treatment of varicose veins. We have acquired the exclusive U.S. distribution rights to Polidocanol from its German manufacturer, Kreussler. Although Polidocanol has been used internationally for decades, it is not currently approved for sale in the United States. We cannot sell Polidocanol in the United States before a new drug application, or NDA, is approved by the FDA. The development and regulatory approval of a new drug is subject to a number of risks and is never certain.

In order to support the NDA submission, the manufacturer of Polidocanol conducted a Phase III clinical trial for the use of Polidocanol in treating spider and reticular veins. The trial was conducted based on a design resulting from Kreussler’s communication with the FDA regarding a special protocol assessment, or SPA. Several risks still remain regarding FDA’s review of the clinical study including:

•

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

•

Kreussler, or the contract clinical research organization managing the study, may have failed to follow proper protocols or may have failed to fully and properly execute the clinical study.

•

the FDA may determine in its clinical trial inspections that the trial was not adequately performed or may raise other questions from its clinical review of the trial data;

•

the FDA may find that the clinical data does not demonstrate to its satisfaction the safety and efficacy of the product.

If the FDA requires further clinical trials prior to approval, we may be subject to a number of risks, including:

•

any future trial would be designed and conducted by Kreussler, so decisions that could affect the success of the trial would be outside of our control;

•

any future trial may fail to meet its primary or secondary endpoints for effectiveness or may otherwise not meet the rigorous statistical criteria established with the FDA; or

•

undesirable side effects or safety issues might arise that might delay or adversely effect future approval

In addition to the clinical data review, Kreussler has recently submitted manufacturing documentation requested by FDA to complete the NDA filing. Several risks and uncertainties regarding this additional manufacturing submission and the FDA review in general of the manufacturing of Polidocanol may delay FDA approval or may prevent approval including:

•

the FDA may require further tests or validation of the manufacturing facilities or processes and delays in such work or inadequate documentation of such facilities or processes may significantly delay or prevent approval; or

•

the manufacturing equipment, facilities or processes may need to be modified or revalidated and documentation resubmitted to gain approval by the FDA.

We have experienced delays in the past due to manufacturing validations and documentation associated primarily with activities at a contract manufacturer working with Kreussler.

Sales of Polidocanol, if approved by FDA, may be adversely impacted by multiple competitive products including pharmacy compounded materials available at low cost to physicians.

Even if Polidocanol receives FDA approval, our success in marketing and selling the product will be subject to a number of further risks. Despite the success of Polidocanol internationally, and its safety and efficacy profile, physicians in the United States may not choose Polidocanol over other sclerotherapy products currently available in the United States, or over the use of generic pharmacy-compounded Polidocanol, for a number of reasons, including price sensitivity or satisfaction with the existing products. If we are not able to achieve significant sales of Polidocanol, our expected future operating performance would be adversely affected.

We do not expect our 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 Technologies. The RELAXED EXPRESSIONS™ device is currently cleared via a 510(k) by FDA to create RF heat lesions in nerve tissue. While we believe this technology may ultimately offer patients an attractive alternative therapy to Botox ^® for the treatment of frown lines, there is still significant development work to be done to implement required technical improvements in the device and the treatment protocol in order to achieve consistently predictable clinical outcomes, and to support a clinical study required to obtain FDA clearance to market the product for the treatment of glabellar furrows. There is significant uncertainty as to whether we will be successful in making the needed technical improvements to the device and to the treatment protocols. There is also significant uncertainty as to whether a clinical trial for glabellar furrows treatment will be successful and whether we will be able to obtain a specific 510(k) clearance to market this treatment for glabellar furrows. Unless we are able to address these uncertainties in a timely and cost-effective manner, we may be unable to commercialize the product.

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 RELAXED EXPRESSIONS™ device, a relatively expensive capital equipment product. Factors such as price of the product and of the treatment, clinical trial results and journal publications, regulatory clearances, early adopter experience, the effectiveness of our sales force and our marketing efforts, physician and patient loyalty to alternative products, and competitive response will all impact our ability to successfully commercialize this product.

BioForm is evaluating the Relaxed Expressions program as compared to other product development opportunities and is considering stopping future development of the Relaxed Expressions technology due to the challenges and uncertainties described above.

We are developing BIOGLUE AESTHETIC™ 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 AESTHETIC™, a 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 AESTHETIC™ for aesthetic applications, and hope to obtain such clearance by approximately 2013, but we are at an early stage in our development efforts. Our timing for clearance has been delayed by our implementation of cost reduction measures, including our decision to defer the conduct of the BioGlue Aesthetic pivotal clinical trial. We have completed a 30-patient feasibility study to evaluate the safety and effectiveness of BIOGLUE AESTHETIC™ as a method for tissue fixation in patients undergoing browplasty. We are in the process of designing a pivotal clinical study to support FDA approval. Even though we believe the results of our feasibility study generated encouraging data, a positive pivotal study may not produce safety or effectiveness data that would be adequate to support FDA approval.

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 AESTHETIC™ will not develop into a meaningful component of our business.

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, Dennis Condon, our President and Chief Business Officer, Adam Gridley, Senior Vice President, Corporate Development, and Frederick Lwee, our Vice President of Finance, Controller and Principal Financial Officer, 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.

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 damage awards against us. We maintain product liability insurance with liability coverage limits that we believe is 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 pre-market approvals and 510(k) clearances for our products 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;

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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, the 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 our products by healthcare professionals is subject to regulations that vary by state. For example, federal regulations allow our products 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.

Failure to comply with applicable federal and state laws and regulations governing interactions between medical device companies and healthcare professionals and providers may adversely affect our business.

Because our business necessitates frequent interactions with physicians and other healthcare professionals, including financial relationships such as consulting agreements, training programs, and cooperative marketing arrangements, we have implemented a broad-based corporate compliance program which incorporates the standards set forth in the Advanced Medical Technology Association (AdvaMed) Code of Ethics on Interactions with Health Care Professionals. Our compliance program is designed to promote compliance with applicable federal and state healthcare laws by preventing, detecting and responding appropriately to non-compliance. If our past or present activities are found to be in violation of any such laws and regulations, we or our officers may be subject to penalties associated with the violation, including criminal or civil sanctions, including substantial fines, imprisonment, and exclusion from participation in government healthcare programs such as Medicare and Medicaid. Any action against us for an alleged violation of such laws, even if we successfully defend against the action, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and damage our reputation. If an action was successful or we reached a settlement regarding the action, our reputation and our business and financial condition may be harmed and future activities restricted.

Polidocanol, a part of our product pipeline, will be regulated as a pharmaceutical by the FDA, when and if approved in the United States.

Companies that commercialize pharmaceutical products are subject to significant regulation by a number of national, state and local governments and agencies. The FDA administers requirements covering testing, manufacturing, safety, effectiveness, labeling, storage, record keeping, approval, sampling, advertising and promotion of products. Several states have also instituted laws and regulations covering some of these same areas. Failure to comply with applicable regulatory requirements could, among other things, result in:

•

fines;

•

changes to advertising;

•

suspensions of regulatory approvals of products;

•

product withdrawals and recalls;

•

delays in product distribution, marketing and sales and

•

civil or criminal sanctions.

Further under the laws of certain states, including California, companies that commercialize pharmaceutical products must adopt a comprehensive compliance program that is in accordance with both the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and the Pharmaceutical Research and Manufacturers of America Code on Interactions with Healthcare Professionals, or the PhRMA Code. The PhRMA Code seeks to promote transparency in relationships between healthcare professionals and the pharmaceutical industry and to ensure that pharmaceutical marketing activities comport with the highest ethical standards. The PhRMA Code contains strict limitations on certain interactions between healthcare professionals and the pharmaceutical industry relating to gifts, meals, entertainment and speaker programs, among others.

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

We have a number of ongoing programs evaluating new forms and indications of our patent protected RADIESSE ^® technology. We are developing a form of RADIESSE ^® with lidocaine to improve comfort for patients and we have submitted an application to the FDA seeking approval to market RADIESSE ^® for hand augmentation. 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 the formulation of RADIESSE ^® or its 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 our products 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 import and 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 import and 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 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. There are also competitive products incorporating calcium based materials such as CaHA in formulations that may be designed to circumvent our patents. 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, and any litigation that we initiate to protect our intellectual property may be costly, time consuming for management and may not be successful.

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 in 2005. 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 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;

•

changes in the economy, credit availability, and consumer sentiment and purchasing patterns;

•

significant fluctuations in the overall stock markets that may lead investors to buy or sell our stock even in the absence of any changes in our results or outlook; 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 these risk factors. Additionally, our public guidance is based, in part, on assumptions regarding matters outside our control, like macroeconomic conditions and competitor actions. If our assumptions are incorrect (as, for example, would be the case if the current economic slowdown persists longer than we anticipate), our guidance could be significantly and adversely affected. 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. 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;

•

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.

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.

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.

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

We held an annual meeting on December 10, 2009 at our corporate headquarters in San Mateo, California. The Class II director nominees, Chris Dennis, Jeff Nugent and Martin Sutter, were elected by a majority of votes present at the meeting as follows:


Name	Votes For	Votes Withheld
Chris Dennis	37,797,014	70,531
Jeff Nugent	37,849,760	17,785
Martin Sutter	37,805,586	61,959

The appointment of Ernst & Young LLP as independent registered public accounting firm of the Company for the fiscal year ending June 30, 2010 was ratified with 37,854,675 votes in favor, 5,869 against and 7,001 abstentions.

ITEM 5.

OTHER INFORMATION

None applicable.

BIOFORM MEDICAL, INC.

ITEM 6.

EXHIBITS


Exhibit No.		Description

10.26+		Settlement Agreement and Mutual Release and amendment to Asset Purchase Agreement by and between the Registrant and Advanced Cosmetic Intervention, Inc. dated October 22, 2009.

10.27		Third Amendment to the 2007 Equity Incentive Plan.

31.01		Certification of Chief Executive Officer under Securities Exchange Act Rule 13a-14(a).

31.02		Certification of Principal Financial Officer under Securities Exchange Act Rule 13a-14(a).

32.01		Certifications of Chief Executive Officer pursuant to 18 U.S. C. 1350 and Securities Exchange Act Rule 13a-14(b).

32.02		Certifications of Principal Financial Officer pursuant to 18 U.S. C. 1350 and Securities Exchange Act Rule 13a-14(b).

+	Confidential treatment has been requested for the deleted portions of this exhibit.

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: F EBRUARY 16, 2010	By:	/ S / S TEVEN L. B ASTA
		STEVEN L. BASTA
		CHIEF EXECUTIVE OFFICER
		(PRINCIPAL EXECUTIVE OFFICER)

Date: F EBRUARY 16, 2010	By:	/ S / F REDERICK L WEE
		FREDERICK LWEE
		PRINCIPAL FINANCIAL OFFICER
		(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)

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