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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended: June 30, 2004

OR

FOR THE TRANSITION PERIOD FROM              TO            

Commission File Number 0-23678

BIOSPHERE MEDICAL, INC.

(Exact Name of Registrant as Specified in its Charter)

1050 Hingham St., Rockland, Massachusetts 02370

(Address of Principal Executive Offices) (Zip Code)

(781) 681-7900

(Registrant’s Telephone Number, Including Area Code)

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

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

The number of shares outstanding of the Registrant’s Common Stock as of August 1, 2004 was 14,242,554 shares.

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BioSphere Medical, Inc.

INDEX

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PART I. FINANCIAL INFORMATION

BIOSPHERE MEDICAL, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands, except share and per share data)

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

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BIOSPHERE MEDICAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(In thousands, except per share data / unaudited)

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

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BIOSPHERE MEDICAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In thousands / unaudited)

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

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BIOSPHERE MEDICAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A) Nature of Business

BioSphere Medical, Inc. (“we”, ”our”) was incorporated in Delaware in December 1993. During 1999, we strategically refocused our business on the development and commercialization of our proprietary Embosphere^® Microspheres and other ancillary embolotherapy products for use in treating uterine fibroids, hypervascularized tumors and arteriovenous malformations. Between February 1999 and November 2001, we acquired all ownership interests in Biosphere Medical S.A. (“BMSA”), a French societe anonyme. BMSA holds the license to the embolotherapy platform device that is the main focus of our business. In May 1999, we sold substantially all of our assets relating to our former core business, chromatography, and changed our name from BioSepra, Inc. to BioSphere Medical, Inc.

We believe that existing working capital, together with anticipated sales proceeds from our microspheres and other medical device products, will provide liquidity sufficient to allow us to meet our expected spending obligations into the first quarter of 2005, while also allowing the further development and testing of other product candidates and technologies. We are currently evaluating various financing arrangements to fund operations beyond the first quarter of 2005. These arrangements may not be available to us on favorable terms, or at all, and if such arrangements are not available, we could be required to defer or limit some or all of our planned sales, marketing, research, development and/or clinical expenditures.

B) Basis of Presentation

The accompanying consolidated condensed financial statements are unaudited and have been prepared on a basis consistent with our annual audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2003. The consolidated condensed financial statements include the accounts of our, and our three wholly owned subsidiaries, BMSA, Biosphere Medical Japan, Inc. and BSMD Ventures, Inc. All material inter-company balances and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual audited financial statements have been condensed or omitted. The consolidated condensed financial statements, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair statement of the results for the three and six months ended June 30, 2004 and 2003. The results of operations for the periods presented are not necessarily indicative of the results of operations to be expected for the entire fiscal year. These consolidated condensed financial statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

C) Cash, Cash equivalents and Marketable Securities

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

D) Comprehensive Loss

Comprehensive loss is comprised of net loss and other comprehensive income. Other comprehensive income includes certain changes in equity that are excluded from net loss, specifically, the effects of foreign currency translation adjustments and any unrealized gains or losses on available for sale securities, that are reflected separately in accumulated other comprehensive income as stockholders’ equity. For the three and six months ended June 30, 2004 and 2003, our comprehensive loss was as follows: