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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   FORM 10-Q [X]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Quarter Ended June 30, 2004 [  ]
    
    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: 0-27596 CONCEPTUS, INC.  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    94-3170244
(I.R.S. Employer
Identification No.)
 1021 Howard Avenue
San Carlos, CA 94070
(Address of principal executive offices) Registrants telephone number, including area code: (650) 628-4700   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 at least the past 90 days. Yes X
    No
 Indicate by checkmark whether the registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2). Yes
[x]   No [  ] As of July 31, 2004, 25,568,280 shares of the registrants Common Stock
were outstanding.




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CONCEPTUS, INC. FORM 10-Q for the Quarter Ended June 30, 2004 INDEX PagePart I.
    
    Financial InformationItem 1.
    
    Condensed Consolidated Financial Statements (unaudited)a)
    
    Condensed Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003
    
    
    3b)
    
    Condensed Consolidated Statements of Operations for the three and six month periods ended June 30, 2004 and 2003
    
    
    4c)
    
    Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2004 and 2003
    
    
    5d)
    
    Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    25Part II.
    
    Other Information
    
    
    26Item 1.
    
    Legal Proceedings
    
    
    26Item 2.
    
    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    26Item 3.
    
    Defaults upon Senior Securities
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    26Item 5.
    
    Other Information
    
    
    27Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    27Signature
    
    
    
    
    
    
    29EXHIBIT 31.1EXHIBIT 32.1
  2




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PART I: FINANCIAL INFORMATION 
 ITEM 1. Condensed Consolidated Financial Statements Conceptus, Inc. 
 Condensed Consolidated Balance Sheets (Unaudited)
  June 30, 2004
    
    December 31, 2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    32,946
    
    
    $
    30,794Short-term investments
    
    
    9,951
    
    
    
    Restricted cash
    
    
    69
    
    
    
    69Accounts receivable, net
    
    
    1,584
    
    
    
    1,582Inventories, net
    
    
    1,664
    
    
    
    2,682Other current assets
    
    
    1,635
    
    
    
    504Total current assets
    
    
    47,849
    
    
    
    35,631Property and equipment, net
    
    
    1,560
    
    
    
    2,031Intangible assets, net
    
    
    1,850
    
    
    
    1,950Other assets
    
    
    2,070
    
    
    
    2,238Total assets
    
    $
    53,329
    
    
    $
    41,850Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    2,711
    
    
    $
    2,698Accrued compensation
    
    
    1,380
    
    
    
    2,691Other accrued liabilities
    
    
    773
    
    
    
    2,491Total current liabilities
    
    
    4,864
    
    
    
    7,880Other long-term liabilities
    
    
    114
    
    
    
    233Total liabilities
    
    
    4,978
    
    
    
    8,113Stockholders equity:Common stock and additional paid-in capital
    
    
    218,920
    
    
    
    190,971Accumulated other comprehensive income
    
    
    
    
    
    
    26Accumulated deficit
    
    
    (170,569
    )
    
    
    (157,260
    )Total stockholders equity
    
    
    48,351
    
    
    
    33,737Total liabilities and stockholders equity
    
    $
    53,329
    
    
    $
    41,850
 The accompanying notes are an integral part of these condensed consolidated financial statements 3




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Conceptus, Inc. 
 Condensed Consolidated Statements of Operations (Unaudited)
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net sales
    
    $
    2,769
    
    
    $
    2,040
    
    
    $
    5,150
    
    
    $
    3,194Cost of goods sold
    
    
    1,676
    
    
    
    1,766
    
    
    
    3,796
    
    
    
    2,916Gross profit
    
    
    1,093
    
    
    
    274
    
    
    
    1,354
    
    
    
    278Operating expenses:Research and development
    
    
    905
    
    
    
    1,656
    
    
    
    2,204
    
    
    
    3,267Selling, general and administrative
    
    
    6,545
    
    
    
    9,331
    
    
    
    12,669
    
    
    
    18,949Total operating expenses
    
    
    7,450
    
    
    
    10,987
    
    
    
    14,873
    
    
    
    22,216Operating loss
    
    
    (6,357
    )
    
    
    (10,713
    )
    
    
    (13,519
    )
    
    
    (21,938
    )Interest and other income, net
    
    
    176
    
    
    
    167
    
    
    
    210
    
    
    
    367Net loss
    
    $
    (6,181
    )
    
    $
    (10,546
    )
    
    $
    (13,309
    )
    
    $
    (21,571
    )Basic and diluted net loss per share
    
    $
    (0.25
    )
    
    $
    (0.49
    )
    
    $
    (0.55
    )
    
    $
    (1.01
    )Weighted-average shares used in computing
basic and diluted net loss per share
    
    
    25,185
    
    
    
    21,499
    
    
    
    24,142
    
    
    
    21,441
 The accompanying notes are an integral part of these condensed consolidated financial statements. 4




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Conceptus, Inc. 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
 (In thousands)
 Six Months EndedJune 30,2004
    
    2003Cash flows from operating activitiesNet loss
    
    $
    (13,309
    )
    
    $
    (21,571
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    687
    
    
    
    641Stock compensation expense
    
    
    452
    
    
    
    278Allowance for recovery of doubtful accounts
    
    
    (75
    )
    
    
    91Provision for inventories
    
    
    580
    
    
    
    (60
    )Retirement of fixed assets
    
    
    43
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    73
    
    
    
    (859
    )Inventories
    
    
    438
    
    
    
    415Other current assets
    
    
    (1,157
    )
    
    
    (246
    )Other assets
    
    
    168
    
    
    
    46Accounts payable
    
    
    13
    
    
    
    287Accrued compensation
    
    
    (1,311
    )
    
    
    40Other accrued liabilities
    
    
    268
    
    
    
    461Long term liabilities
    
    
    (119
    )
    
    
    (9
    )Net cash used in operating activities
    
    
    (13,249
    )
    
    
    (20,486
    )Cash flows from investing activitiesPurchase of investments
    
    
    (17,434
    )
    
    
    (6,988
    )Maturities of investments
    
    
    7,483
    
    
    
    11,987Capital expenditures, net
    
    
    (159
    )
    
    
    (389
    )Net cash provided by (used in) investing activities
    
    
    (10,110
    )
    
    
    4,610Cash flows from financing activitiesProceeds from issuance of common stock, net
    
    
    25,497
    
    
    
    497Net cash provided by financing activities
    
    
    25,497
    
    
    
    497Effect of exchange rate changes on cash
    
    
    14
    
    
    
    99Net increase (decrease) in cash and cash equivalents
    
    
    2,152
    
    
    
    (15,280
    )Cash and cash equivalents at beginning of period
    
    
    30,794
    
    
    
    59,673Cash and cash equivalents at end of period
    
    $
    32,946
    
    
    $
    44,393
 The accompanying notes are an integral part of these condensed consolidated financial statements. 5




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
  1.
    
    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
instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, considered necessary for a fair presentation have
been included. The condensed consolidated balance sheet at December 31, 2003 has been
derived from the audited consolidated financial statements at that date but
does not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. This financial data should be reviewed in conjunction with the
audited consolidated financial statements and related notes included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2003. The
results of operations for the three and six months ended June 30, 2004 may not
necessarily be indicative of the operating results for the full 2004 fiscal
year or any other future interim periods.  2.
    
    Organization, Ownership and Business In January 2004, the Company completed the sale of its wholly-owned French
subsidiary for a nominal amount to an investor group comprised of the Companys
former French management team, and signed a long-term exclusive distribution
agreement for Essure with the acquiring group for the European, Middle Eastern
and African markets. The sale agreement includes a long-term call option that
is intended to enable the Company to repurchase the French company at
predetermined prices, depending upon the time periods, that are typical for a
distribution company. The transaction did not have any material financial
impact to the Companys condensed consolidated financial statements.  3.
    
    Summary of Significant Accounting Policies The Companys significant accounting policies are disclosed in the Companys
Annual Report on Form 10-K for the year ended December 31, 2003 that was filed
with the Securities and Exchange Commission on March 15, 2004. The Companys
significant accounting policies have not materially changed since December 31,
2003.  4.
    
    Inventories, net Inventories are stated at the lower of cost or market. Cost is based on
actual costs computed on a first-in, first-out basis. The components of
inventories consist of the following: (in thousands)
    
    June 30, 2004
    
    December 31, 2003Raw materials
    
    $
    457
    
    
    $
    516Work-in-process
    
    
    805
    
    
    
    1,420Finished goods
    
    
    402
    
    
    
    746Total
    
    $
    1,664
    
    
    $
    2,682
  5.
    
    Intangible Assets Intangible assets as of June 30, 2004 are comprised of a technology license
obtained as a result of the settlement of the patent litigation with Ovion,
Inc. The license was acquired at a cost of $2.0 million in October 2003, which
was paid in the Companys common stock, and has an expected useful life of ten
years from the date of settlement. The license fee is amortized based on the
straight-line method over the useful life of ten years. Amortization expense
of $50,000 and $100,000, respectively, has been classified on the Companys
condensed consolidated statement of operations for the three months and six
months ended June 30, 2004 as cost of goods sold. Estimated future 6




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amortization expenses for each of the years ended December 31, 2004 through
2012 are $200,000 per year and $150,000 for the year ended December 31, 2013.  6.
    
    Other Assets Other assets as of June 30, 2004 are principally comprised of the $1.9
million carrying value of the $2.0 million cash payment that the Company made
to Ovion, Inc. as part of the settlement of a patent litigation suit. The
settlement agreement provided for the payment of a royalty to Ovion that will
be equal to 3.25% of the cumulative net sales of Essure in excess of $75.0
million for a period of no longer than ten years. In accordance with the terms
of the settlement agreement, the Companys prepaid royalties will be fully
amortized when cumulative net sales of Essure reach $136.5 million, thereby
resulting in an effective royalty rate of 1.47%. The Company is amortizing the
prepaid royalties to cost of goods sold over its net sales using this effective
rate.  7.
    
    Warranty The Company offers warranties on its product and records a liability for
the estimated future costs associated with warranty claims, which is based upon
historical experience and the Companys estimate of the level of future costs.
Warranty costs are reflected in the statement of operations as a cost of goods
sold. A reconciliation of the changes in the Companys warranty liability for
the six months ended June 30, 2004 and 2003 follows (in thousands): 2004
    
    2003Warranty accrual at the beginning of the period
    
    $
    99
    
    
    
    28Accruals for warranties issued during the period
    
    
    99
    
    
    
    115Settlements made in kind during the period
    
    
    (124
    )
    
    
    (39
    )Warranty accrual at the end of the period
    
    $
    74
    
    
    
    104
  8.
    
    Stock-based Compensation As permitted by SFAS No. 123, Accounting for Stock-Based Compensation,
(SFAS No. 123), as amended by SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure  an amendment of FASB Statement No.
123, the Company accounts for employee stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock
Issued to Employees, and related interpretations in accounting for its
stock-based compensation plans. The Company granted 283,020 shares of restricted stock to its employees and
directors during the six months ended June 30, 2004. The restricted stock
shares have a purchase price of $0.003 per share and vest in equal installments
over three years or cliff vest after three years with the potential of
acceleration if certain company objectives are met. The Company is amortizing
the total restricted stock expense of $2.3 million, calculated based on the
fair market value of the stock on the date of the grant, over the vesting term
of three years on a straight-line basis. Future restricted stock expense shall
be $0.6 million, $0.8 million, $0.8 million and $0.1 million for the years
2004, 2005, 2006 and 2007, respectively. Of the total restricted stock expense
of $2.3 million, $0.3 million is related to cost of sales, $0.3 million is
related to research and development, and $1.7 million is related to selling,
general and administrative expenses. For the six months ended June 30, 2004,
$237,000 of restricted stock employee compensation expense is included in the
net loss as reported and no restricted stock employee compensation expense is
included in the net loss reported for the six months ended June 30, 2003.For
the three months ended June 30, 2004, $168,000 of restricted stock employee
compensation expense is included in the net loss as reported, and no restricted
stock employee expense is included in the net loss reported for the three
months ended June 30, 2003. 7




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The following table provides a reconciliation of net loss to pro forma net
loss as if the fair value method, pursuant to SFAS No. 123, had been applied to
all employee awards (in thousands, except per share data): Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net loss, as reported
    
    $
    (6,181
    )
    
    $
    (10,546
    )
    
    $
    (13,309
    )
    
    $
    (21,571
    )Add: Stock based compensation
expense included in reported net
loss
    
    
    168
    
    
    
    
    
    
    
    237
    
    
    
    Less: Total stock-based employee
compensation expense determined
under fair value based method for
all awards
    
    
    (1,345
    )
    
    
    (1,989
    )
    
    
    (3,997
    )
    
    
    (3,771
    )Pro forma net loss
    
    $
    (7,358
    )
    
    $
    (12,535
    )
    
    $
    (17,069
    )
    
    $
    (25,342
    )Basic and diluted net loss per shareAs reported
    
    $
    (0.25
    )
    
    $
    (0.49
    )
    
    $
    (0.55
    )
    
    $
    (1.01
    )Pro forma
    
    $
    (0.29
    )
    
    $
    (0.58
    )
    
    $
    (0.71
    )
    
    $
    (1.18
    )
 To comply with pro forma reporting requirements of SFAS No. 123, compensation
expense is also estimated for the fair value of the Companys Employee Stock
Purchase Plan (ESPP) rights, which are included in the pro forma totals above. Stock-based compensation arrangements to non-employees are accounted for
in accordance with SFAS No. 123 and Emerging Issues Task Force Issue (EITF) No.
96-18, Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services,
which requires that these equity instruments are recorded at their fair value
on the measurement date. The measurement of stock-based compensation is
subject to periodic adjustment as the underlying equity instruments vest.
Stock-based compensation expense relating to non-employees was $217,000 and
$214,000 for the six months ended June 30, 2004 and 2003, respectively.
Stock-based compensation expense relating to non-employees was $81,000 and
$215,000 for the three months ended June 30, 2004 and 2003, respectively.  9.
    
    Computation of Net Loss Per Share Basic net loss per share is computed using the weighted-average number of
common shares outstanding during each period. Diluted net loss per share is
computed using the weighted-average number of common and potential dilutive
shares outstanding during each period. Under the requirements for calculating
basic net loss per share, the effect of potentially dilutive securities such as
stock options, restricted stock grants, common stock shares subject to
repurchase, warrants and convertible securities are excluded. Basic and
diluted net loss per share is equivalent for all periods presented due to the
Companys net loss position. The total weighted average outstanding common shares used in determining
net loss per share is as follows (in thousands): Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Weighted average
shares used in
basic and diluted
net loss per share
    
    
    25,185
    
    
    
    21,499
    
    
    
    24,142
    
    
    
    21,441
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The following numbers of shares represented by options and shares subject
to repurchase were excluded from the computation of diluted net loss per share
as their effect was antidilutive (in thousands): At June 30,2004
    
    2003Effect of potentially dilutive securities:Unvested common stock subject to repurchase
    
    
    283
    
    
    
    Options
    
    
    4,007
    
    
    
    4,308Total potentially dilutive securities excluded from the computation
of net loss per common share as their effect was antidilutive
    
    
    4,290
    
    
    
    4,308
  10.
    
    Comprehensive Loss The components of comprehensive loss for the three and six months ended
June 30, 2004 and 2003 are as follows (in thousands). Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net loss, as reported
    
    $
    (6,181
    )
    
    $
    (10,546
    )
    
    $
    (13,309
    )
    
    $
    (21,571
    )Add: Foreign currency translation gain (loss)
    
    
    (26
    )
    
    
    (32
    )
    
    
    (26
    )
    
    
    30Comprehensive loss
    
    $
    (6,207
    )
    
    $
    (10,578
    )
    
    $
    (13,335
    )
    
    $
    (21,541
    )
 Unrealized gains and losses on available-for-sale securities were immaterial
for all periods presented.  11.
    
    Stockholders Equity On February 25, 2004, the Company completed a private placement of
approximately 3,000,000 shares of common stock at $8.50 per share. The net
proceeds to the Company, after fees and other offering costs totaling
$1,600,000, were approximately $23,900,000.  12.
    
    Legal Proceedings From time to time the Company is involved in legal proceedings arising in
the ordinary course of business. The Company believes there is no litigation
pending that could have, individually or in the aggregate, a material adverse
effect on its financial position, result of operations or cash flows.  13.
    
    Recent Accounting Pronouncements At its November 2003 meeting, the EITF reached a consensus on disclosure
guidance previously discussed under EITF 03-01, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments.
The consensus provided for certain disclosure requirements that were effective
for fiscal years ending after December 15, 2003. At its March 2004 meeting,
the EITF reached a consensus on recognition and measurement guidance previously
discussed under EITF 03-01. The consensus clarifies the meaning of
other-than-temporary impairment and its application to investments classified
as either available-for-sale or held-to-maturity under FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities, and
investments accounted for under the cost method or the equity method. The
recognition and measurement guidance for which the consensus was reached in the
March 2004 meeting is to be applied to other-than-temporary impairment
evaluations in reporting periods beginning after June 15, 2004. The adoption of
the disclosure requirements has to date not had a material impact on the
Companys business, financial position, cash flows or result of operations. 9




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations The following discussion of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and related notes thereto included in Part
I-Item 1 of this quarterly report. In addition, the following discussion
contains forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. We wish to alert readers that the
risk factors set forth in our Annual Report on Form 10-K for the year ended
December 31, 2003, as well as other factors, including those set forth in the
following discussion and under Risk Factors below, could in the future
affect, and in the past have affected, our actual results and could cause our
results for future periods to differ materially from those expressed or implied
in any forward-looking statements made by us. Overview We
develop, manufacture and market Essure®, an innovative and proprietary
non-incisional permanent birth control device for women that was approved for
marketing in the United States in November 2002 by the United States Food and
Drug Administration (FDA). Essure is a soft and flexible micro-insert
delivered into a womans fallopian tubes designed to provide permanent birth
control by causing a benign tissue in-growth that blocks the fallopian tubes.
A successfully placed Essure micro-insert prohibits the egg from traveling
through the fallopian tubes and therefore prevents fertilization. The Essure Procedure The Essure placement procedure is typically performed as an outpatient
procedure and is intended to be a less invasive and a less costly alternative
to tubal ligation, the leading form of birth control in the United States and
worldwide. Laparoscopic tubal ligation and tubal ligation by laparotomy
typically involve abdominal incisions and/or punctures, general or regional
anesthesia, four to ten days of normal recovery time and the risks associated
with an incisional procedure. The Essure placement procedure does not require
cutting or penetrating the abdomen, which lowers the likelihood of
post-operative pain due to the incisions/punctures, and is typically performed
in an outpatient setting without general or regional anesthesia. In the
Pivotal trial of Essure, the total procedure time averaged 35 minutes, with an
average of 13 minutes of hysteroscopic time to place the Essure micro-insert.
A patient is typically discharged approximately 45 minutes after the Essure
placement procedure. No overnight hospital stay is required. Furthermore,
Essure is effective without drugs or hormones. There is a three-month waiting
period after the procedure during which the woman must use another form of
birth control while tissue in-growth occurs. At 90 days following the
procedure, the patient completes a follow-up examination called a
hysterosalpingogram (HSG), which can determine whether the device was placed
successfully and whether the fallopian tubes are occluded. We believe that Essure is also an attractive alternative to tubal ligation
for physicians, hospitals and payors. Essure is a less invasive permanent
birth control option for physicians to offer to their patients; hospitals are
able to utilize their facilities more cost effectively with the Essure
placement procedure compared with tubal ligation, and payors are experiencing
cost reductions resulting from the elimination of overhead and procedural costs
related to anesthesia and post-operative hospital stays associated with tubal
ligations. In addition, payors may also benefit from the reduction of
unplanned pregnancies associated with non-permanent methods of birth control
used by patients who have chosen to avoid the drawbacks of traditional
permanent birth control methods but who may elect to use Essure. Published reports estimate that 700,000 tubal ligation procedures are
performed each year in the United States and 13 million procedures worldwide.
We intend to tap into this market and establish the Essure procedure as the
standard of care for permanent birth control. Essure is currently being marketed in multiple countries. In November
2002 we received approval from the FDA to market Essure in the United States.
In 2001, we were given approval to affix the CE Mark to Essure, indicating that
Essure is certified for sale throughout the European Union, subject to
compliance with local regulations such as registration with health ministries
and/or particular requirements regarding labeling or distribution. In 1999,
Essure was listed with Australias Therapeutic Goods Administration, which
allows us to 10




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market and sell Essure in Australia. In Canada, we received
clearance from Health Canada to market Essure in Canada in November 2001. We
also have distributors in Singapore, Indonesia, Morocco, Turkey and New
Zealand. Effectiveness of Essure Based on clinical trial data filed with the FDA in November 2003, Essure
has been demonstrated to be 99.8% effective at three years of follow-up. In
June 2004, the FDA approved new labeling claims that extended the labeled
effectiveness rate to 99.8% at three years of follow-up, from two years
previously. Penetration As of June 30, 2004, Conceptus has trained or is in the process of
training 1,233 physicians on the Essure procedure. Doctors are required to be
preceptored for between 3 and 5 cases by a certified trainer before they can
perform procedures independently. This represents an increase of 264
physicians over the number of physicians at March 31, 2004 and 441 over the
number of physicians at December 31, 2003. The level of sales for Essure,
particularly in this early period of adoption, is highly dependent on the
number of physicians trained to perform the procedure. Reimbursement of Essure Market acceptance of Essure also depends in part upon the availability of
reimbursement within prevailing healthcare payment systems. We believe that
physician advocacy of our product will be required to continue to obtain
reimbursement. As of June 30, 2004, we received positive reimbursement
decisions for Essure from private insurers covering a total of 148 million
covered lives, which represents 71% of all the insured, non-Medicare population
of the United States. We intend to continue our effort to educate payors of
the cost-effectiveness of our product, and to further establish programs to
help physicians to navigate reimbursement issues. In the first six months of 2004, we received several positive responses
from government and private agencies, which we believe will help us to speed up
the acceptance of Essure by doctors and patients. In March 2004, the American Medical Association accepted our application
for a category I CPT code, which will be effective January 1, 2005, subject to
the completion of the AMA application process. Category I codes are reserved
for those procedures that have demonstrated clinical efficacy, widespread use
and have FDA approval. By having a CPT code specific to the Essure procedure,
it is expected that coding for reimbursement will become considerably easier
for doctors and facilities and that there will be fewer incidents of doctors
being reimbursed incorrectly or having claims denied inadvertently. We
expect that the new code, once the process to establish it at all private
payers that have given a favorable coverage decision is complete, will
significantly ease the burden on a physicians office in obtaining
reimbursement for Essure, and accelerate the coverage of Essure by private
insurance companies and Medicaid. This process is expected to take up to six
months following the January 1, 2005 effectivity date of the CPT code. In March 2004, the Committee for Medicare and Medicaid Services (CMS)
established a temporary Healthcare Common Procedure Coding System (HCPCS) code
for separate payment of the Essure device when used in an office setting or
outpatient/ambulatory surgery center for both private payers and Medicaid. The
temporary HCPCS code became effective on April 1, 2004. CMS issues temporary
codes while permanent codes are being established, a process that typically
takes six to twelve months. CMS issues permanent HCPCS codes for use in
procedures that may be covered by Medicare and Medicaid. Private insurance
companies use the CMS issued codes and payment levels as a baseline for
establishing their own coverage systems and levels. We believe the CMS
reimbursement code helps create an avenue for reimbursement of Essure when
performed in the physicians office and surgery centers. In early March 2004, Planned Parenthood Federation of America (Planned
Parenthood) approved Essure for use in qualifying Planned Parenthood affiliates
across the United States. Planned Parenthood has nearly 900 clinics under 123
Planned Parenthood affiliates that serve nearly five million people per year.
Planned Parenthood tested the Essure procedure in clinics in Oregon and
Pennsylvania, evaluating the ability of a typical clinic to successfully offer
the procedure. Standards for the use of Essure in Planned Parenthood
affiliates were then developed along with guidelines for the introduction of
the procedure into Planned Parenthood clinic settings. We 11




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believe that Planned
Parenthood conducted a thorough evaluation that demonstrated that Essure could
safely and effectively be offered
in a clinical setting. We believe that their approval is of vital
importance to our goal of making sure all women have access to Essure,
including those who do not have private insurance coverage. Utilization of Essure Essure is a novel product in the contraception market, which is dominated
by procedures that are well established among physicians and patients and are
routinely taught to new physicians. As a result, we believe that
recommendations and endorsements by physicians will be essential for market
acceptance of our product. Physicians are traditionally slow to adopt new
products and treatment practices, partly because of perceived liability risks.
Our biggest challenge is to speed up the adoption process to make the Essure
procedure the standard of care for permanent birth control. The following
discussion summarizes our program in the United States to increase adoption of
the Essure procedure. Utilization, which is the average number of procedures performed per
physician, increased this quarter for the first time since the commercial
launch of the product in the U.S. to 0.9 from an average of 0.8 in the first
quarter of 2004, for those physicians that are certified to perform the Essure
procedure. This increase is directly attributable to our tactical
reimbursement efforts aimed at educating the physician and office staff
regarding payer procedures following a declined claim, including appeals and
petitioning procedures. Typically a newly covered product will go through a
period where claims are either inadvertently declined or are paid at the
incorrect amount. In either instance, the physician is reluctant to perform
additional procedures until payment has been secured for earlier cases, causing
the decline in utilization for Essure. Our tactical reimbursement focus is
intended to give the physician and his/her staff the tools to ensure that
claims will ultimately be paid and thereby encourages the physician to continue
performing the Essure procedure despite reimbursement issues. We expect to
complete our program in our top 100 accounts by the end of August 2004, and
will then pursue the next group of 100 accounts. This tactical reimbursement
program will be in place for the foreseeable future and is expected to be able
to reach 100 accounts every 45 to 60 days. On July 27, 2004, we announced that the FDA had approved labeling changes
allowing concomitant use of Essure with Johnson & Johnsons GYNECARE
THERMACHOICE* Uterine Balloon Therapy system. THERMACHOICE is a device
allowing the physician to perform endometrial ablation to correct the condition
of menorrhagia (excessive uterine bleeding). We had signed in October 2003 a
co-promotion agreement with the GYNECARE division that will permit the GYNECARE
sales force to market Essure. We believe this agreement will provide us with
the ability to substantially increase awareness, gaining market presence and
credibility, accelerating our ability to train doctors, as well as expand our
market opportunity by driving adoption among a group of physicians not
previously targeted by our marketing programs. The success of the joint
marketing campaign will depend upon the effectiveness of our GYNECARE sales
force training programs, market demand for Essure in conjunction with the
THERMACHOICE treatment and the efforts and commitment of GYNECARE to this new
program. We cannot be certain how successful this program will be, if at
all. As a condition of FDA approval, Conceptus and GYNECARE agreed to provide
the FDA with investigational data from a prospective study of 50 women to
assess whether the THERMACHOICE endometrial ablation procedure causes
intrauterine scarring and/or adhesions that could prevent or interfere with an
effective HSG at three-months post-Essure placement. In addition, the study
will also assess tubal occlusion three months after concomitant
Essure/THERMACHOICE procedures. The study is to be conducted at no fewer than
three investigational sites and is expected to be completed within nine months
following study approval. A final report should be submitted to the FDA within
three months of completion of the study. Information provided in this report
will be used to assess the effectiveness of concomitant Essure/THERMACHOICE
procedures. Data presented in this report may be used to develop additional
statements for inclusion in Essure labeling. In addition, we are expanding our sales territories and channels of
distribution that will also impact penetration and utilization. With the
addition of two national account managers and three sales territories, we will
have increased our sales coverage by 25%, from 19, as of March 31, 2004, to 24
direct sales representatives. We are pursuing relationships with regional
distributors of womens gynecology products. In late July 2004 we announced that we initiated an extensive direct to
consumer advertising campaign in the Chicago, Illinois metropolitan area that
would commence in August 2004 and that would extend for 6 months 12




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and involve
radio, direct mail and print media (magazine) advertisements aimed at
increasing consumer awareness.
Depending on the success of this marketing effort, we will be evaluating
additional major metropolitan markets in which to conduct a similar advertising
campaign in 2005. This program is directly responsible for the forecasted
increase in selling, general and administration expense during the remaining
six months of 2004. We have experienced significant operating losses since inception and, as of
June 30, 2004, had an accumulated deficit of $170.6 million. We expect our
operating losses to continue at least through 2004 as we continue to expend
substantial resources in the selling and marketing of Essure in the United
States. Due to the unpredictable nature of these activities, we do not know
whether we will achieve or sustain profitability in the future. We maintain websites located at www.conceptus.com and www.essure.com. We
make available free of charge on or through our website, our annual report on
Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC. Information
contained on our website is not incorporated by reference into and does not
form a part of this Form 10-Q. Results of Operations  Three and Six Months Ended June 30, 2004 and 2003 Net Sales Net sales were $2.8 million for the three months ended June 30, 2004 as
compared to $2.0 million for the three months ended June 30, 2003, an increase
of $0.8 million, or 36%, and $2.4 million for the three months ended March 31,
2004. Net sales for the six months ended June 30, 2004 were $5.2 million as
compared to $3.2 million for the six months ended June 30, 2004. The increase
of $2.0 million, or 61%, in net sales for the first six months of 2004 is due
to increased sales of Essure in the United States. After we received FDA
approval to market Essure in the United States in November of 2002, we launched
an aggressive marketing campaign to increase awareness of Essure among
physicians and patients while at the same time increase our customer base by
establishing physicians training programs. The net sales increase is a direct
result of our continuous effort to market and sell Essure in the United States. We expect net sales to increase on a quarterly basis for the remainder of
fiscal 2004 and have put in place sales, marketing and reimbursement programs
to help us to reach our sales goal. However, as we have noted elsewhere in
this Form 10-Q, our expected sales growth is dependant on market acceptance of
Essure and third party reimbursement for the procedure, which involves factors
that are outside of our control. For the three months ended June 30, 2004, net sales to one distributor
accounted for 11% of our total consolidated net sales. For the three months
ended June 30, 2003, no single customer accounted for more than 10% of net
sales. For the six months ending June 30, 2004, one distributor accounted for
12% of our net sales. For the same period in 2003, one distributor accounted
for 10% of our net sales. Accounts receivable from one distributor accounted
for 22% of our total net accounts receivables outstanding as of June 30, 2004.
At June 30, 2003, accounts receivable from one distributor were 21%,of our
total net accounts receivables outstanding. Net product sales by geographic region as a percentage of net sales for
the three and six months ended June 30, 2004 and 2003 are as follows: Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003United States of America
    
    
    85
    %
    
    
    75
    %
    
    
    83
    %
    
    
    71
    %Europe
    
    
    12
    
    
    
    17
    
    
    
    13
    
    
    
    18Australia
    
    
    3
    
    
    
    7
    
    
    
    3
    
    
    
    9Asia and Canada
    
    
    0
    
    
    
    1
    
    
    
    1
    
    
    
    2
 Net sales are attributed to region based on the shipping location of the
external customers. 13




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Gross Profit Cost of goods sold for the three months ended June 30, 2004 were $1.7
million as compared to $1.8 million for the three months ended June 30, 2003.
The decrease of $0.1 million, or 5%, is primarily due to cost efficiencies from
higher production volume. Gross profit margin also improved from 11% in the
first quarter of 2004 to 39% in the second quarter of 2004, which represents
improved costs in our manufacturing processes as a result of our manufacturing
outsourcing effort. For the six months ending June 30, 2004, cost of goods
sold was $3.8 million, compared to $2.9 million for the same period last year,
for an increase of $0.9 million, or 30%. Gross profit margin for the first six
months increased from 9% in 2003 to 26% in 2004. We have reduced per unit
production cost by increasing production volume without increasing fixed cost.
In April 2004, we received FDA approval to begin manufacturing at UTI Venusa,
Ltd, in Ciudad Juarez, Mexico. We have transitioned generally all
manufacturing activities to our third party subcontractor in Mexico and
maintain only limited production capability in San Carlos for research and
development of new manufacturing processes. We expect this change will result
in significant further decreases in manufacturing costs in future periods and
we expect our gross profit margin to continue to improve into the mid to upper
60% range by the third quarter of 2004. Cost of goods sold for the three and
six months ended June 30, 2003 represented the costs of early stage product
introduction and limited production volumes. Operating Expenses Research and development expenses, which includes expenditures related to
product development, clinical research and regulatory affairs, decreased to
$0.9 million for the three months ended June 30, 2004 from $1.7 million for the
three months ended June 30, 2003. The decline of $0.8 million, or 45%,
reflects the reduction in clinical research and regulatory affairs expenses in
primarily compensation ($0.5 million) and consulting and outside services ($0.1
million). For the six months ended June 30, 2004, research and development
expenses decreased $1.1 million, or 33%, to $2.2 million from $3.3 million in
same period of 2003. The reduction in spending reflects the decline of
clinical research and regulatory affairs activities after FDA approval of
Essure in November 2002. We expect research and development expenses for the
remaining quarters of fiscal 2004 to trend up slightly from the level of the
second quarter of fiscal 2004 to a level of between $1.0 and $1.1 million. Selling, general and administrative spending for the three months ended
June 30, 2004 was $6.5 million as compared to $9.3 million for the three months
ended June 30, 2003. The decrease of $2.8 million, or 30%, is primarily a
result of reduced spending in training and marketing expenses. For the six
months ended June 30, 2004, selling, general and administrative expenses were
$12.7 million, which represents a decrease of $6.3 million, or 33%, from $18.9
million for the six months ending June 30, 2003. In early 2003, we had focused
on group training of physicians to attain an aggressive training goal within a
relatively short period of time. As a result, we successfully reached our goal
of training more than 700 doctors in 2003. Our current goal is to help our
trained physicians to build their practices so that they can increase the
number of procedures performed, which is benefited by one on one training. The
decrease in marketing spending is primarily due to the reduction in spending
related to the initial cost of building our marketing infrastructure such as
concept design, development of videos, marketing brochures and other marketing
medias. In addition to the marketing and training expense reductions, we also
decreased spending as a result of the spin-off of our former French subsidiary
in January 2004. These decreases were partially offset by increased general
and administrative expenses for Sarbanes-Oxley implementation. In order to
focus our resources domestically, we are also in the process of negotiating an
asset sale agreement of our wholly owned Australian subsidiary to our
Australian management team along with a long-term distribution agreement and a
call option to repurchase the subsidiary. We expect to complete the agreement
by the end of fiscal year 2004. We expect selling, general and administrative
expenses for the remaining quarters of 2004 to increase over the levels of
second quarter of 2004 to a level between $8.5 million and $9.0 million due to
the Companys direct-to-consumer advertising campaign being conducted in
Chicago. Net interest and other income of $0.2 million was unchanged for the three
months ended June 30, 2004 as compared to the three months ended June 30, 2003.
For the six months ending June 30, 2004, net interest and other income was
$0.2 million compared to $0.4 million for the same period in 2003. The $0.2
million decrease was a result of the sale of our former French subsidiary at a
net loss and lower interest income earned due to lower average cash, cash
equivalent and short-term investments balances. 14




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We have a limited history of operation and have incurred significant
operating losses since our inception in 1992. We will continue to be in a net
loss position until sufficient revenues can be generated to offset expenses.
In February 2004, we completed a private placement of common stock that
generated enough cash to help us to reach
profitability. However, if our revenue growth does not materialize as
planned, we may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. Liquidity and Capital Resources As of June 30, 2004, we had cash, cash equivalents, restricted cash and
short-term investments of $43.0 million, compared with $30.9 million at
December 31, 2003. The increase of $12.1 million is due to net proceeds of
$23.9 million received from issuance of approximately 3.0 million shares of our
common stock in a private placement in February 2004 and $1.6 million received
from exercises of stock options, partially offset by $13.2 million of cash used
in operating activities and $10.1 million used in capital and investment
expenditures. In April 2004, we received FDA approval to begin manufacturing the Essure
product at UTI Venusa, LTD, our third-party subcontractor located in Mexico.
This will substantially decrease our production cost and we expect the
transition of the manufacturing activities to reduce our operating cash
requirements in the remaining quarters of 2004. We are at the early stage of marketing our products and have incurred
significant operating losses since inception. We have historically financed
our operations primarily through equity financing. Although we expect our
existing cash will be sufficient to fund us through profitability, if our
expected revenue growth does not materialize, we may in the future seek to
raise additional funds through bank facilities, debt or equity offerings or
other sources of capital. Operating Activities Net cash used in operating activities was $13.2 million in the six months
ended June 30, 2004, primarily as a result of our net loss of $13.3 million
adjusted for non-cash related items of $1.7 million relating to depreciation
and amortization, stock compensation expense, provisions for bad debt
allowance, inventories and retirement of fixed assets. Other major items that
contributed to net cash used in operating activities were related to an
increase in other current assets of $1.2 million primarily from prepaid
insurance premiums and pay down of accrued compensation and other liabilities
of $1.1 million, offset by a decrease in inventories of $0.4 million and
changes in other assets of $0.2 million. We expect cash usage in operating
activities to decrease sequentially from quarter to quarter as we expect
moderate revenue growth on a quarterly basis. The increase in provision for inventories of $0.6 million was related to
reserves recorded for demonstration inventory, that will not be reworked for
future sales.The change in accounts receivable was negligible because we did
not experience a material fluctuation in revenues and collections activities.
As of June 30, 2004, our worldwide days sales outstanding was 51 days as
compared to 62 days as of December 31, 2003. We have credit policies that help
us to monitor our collection activities and reduce our credit loss exposure.
We intend to continue to improve and modify those policies as our business
evolves. We may not be able to maintain our current ratio or we may experience
less than satisfactory performance in collections due to factors outside of our
control such as changes in economic climates. The decrease in accrued compensation of $1.3 million related primarily to
compensation liability relieved after the divestiture of our former French
subsidiary, and payment of severance obligations and bonuses. Net cash used in operating activities for the six months ended June 30,
2003 was $20.5 million consisting primarily of our net loss of $21.6 million,
adjusted for non-cash related items of $0.6 million related to
depreciation and amortization, stock compensation expenses and provision for
bad debt allowance and inventories Net cash used in operating activities also
consisted of increases in accounts receivable of $0.9 million related to
increases in revenue. Net cash used in operating activities was offset by
decreases in inventories of $0.4 million due to increased number of units
shipped, and increases of $0.6 million in other accrued liabilities. 15




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Investing Activities Net cash used by investing activities for the six months ended June 30,
2004 was $10.1 million from purchases of short-term investments of $17.4
million and $0.2 million of capital expenditures, offset by the maturity of
$7.5 million of investments. Net cash provided by investing activities for the
six months ended June 30, 2003 was $4.6 million primarily from the maturity of
investments of $12.0 million, partially offset by purchases of investments of
$7.0 million and $0.4 million of capital expenditures. Financing Activities Net cash provided by financing activities was $25.5 million for the six
months ended June 30, 2004, primarily from the issuance of our common stock in
a private placement completed in February 2004. Our net proceeds from the
issuance of approximately 3.0 million shares of our common stock at $8.50 per
share in the private placement were approximately $23.9 million, after
deducting offering costs and commissions totaling $1.6 million. We also
received $1.6 million from employees from the exercises of stock options in the
six months ended June 30, 2004. Net cash provided by financing activities was
$0.5 million for the six months ended June 30, 2003, primarily from the
exercise of stock options. We expect to have negative cash flows from operations through at least
2005, and we estimate that our existing capital resources will be sufficient to
meet our cash requirements for at least the next 12 months. The successful
achievement of our business objectives may require additional financing and
therefore, we may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. Any
additional equity financing may be dilutive to stockholders, and debt
financing, if available, may involve restrictive covenants. Additional funding
may not be available when needed or on terms acceptable to us. If we are unable
to obtain additional capital, we may be required to delay, reduce the scope of
or eliminate our sales and marketing activities. Our future liquidity and
capital requirements will depend upon many factors, including, among others:  
    
    Resources devoted to establish sales, marketing and distribution capabilities;
    
    Resources devoted to increasing our manufacturing capacity;
    
    The rate of product adoption by doctors and patients; and
    
    The insurance payor communitys acceptance of and reimbursement for the Essure
procedure. Recent Accounting Pronouncements At its November 2003 meeting, the EITF reached a consensus on disclosure
guidance previously discussed under EITF 03-01, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments.
The consensus provided for certain disclosure requirements that were effective
for fiscal years ending after December 15, 2003. At its March 2004 meeting,
the EITF reached a consensus on recognition and measurement guidance previously
discussed under EITF 03-01. The consensus clarifies the meaning of
other-than-temporary impairment and its application to investments classified
as either available-for-sale or held-to-maturity under FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities, and
investments accounted for under the cost method or the equity method. The
recognition and measurement guidance for which the consensus was reached in the
March 2004 meeting is to be applied to other-than-temporary impairment
evaluations in reporting periods beginning after June 15, 2004. The adoption of
the disclosure requirements has to date not had a material impact on our
business, financial position, cash flows or result of operations. 16




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Risk Factors In addition to the other information in thisForm 10-Q, the following
factors should be considered carefully in evaluating Conceptus and our
business. ThisForm 10-Qcontains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth below and elsewhere in thisForm 10-Q. We have a limited history of operation with Essure and have incurred
significant operating losses since inception. We expect to incur significant
operating losses for the foreseeable future and we may never achieve or
maintain profitability. We have a limited history of operation with Essure and have incurred
significant operating losses since our inception in 1992, including operating
losses of $13.5 million for the six months ended June 30, 2004, $40.2 million
in 2003, $33.1 million in 2002 and $18.8 million in 2001. We expect to continue
to incur significant operating expenses and net losses as we continue sales and
marketing efforts in the United States. Our net losses may continue until
sufficient revenues can be generated to offset these expenses. We may not be
able to generate these revenues, and we may never achieve profitability. Our
failure to achieve and sustain profitability would negatively impact the market
price of our common stock. If our product fails to gain market acceptance, our business will suffer. We are attempting to introduce a novel product into the contraception
market, which is dominated by procedures that are well established among
physicians and patients and are routinely taught to new physicians. As a
result, we believe that recommendations and endorsements by physicians will be
essential for market acceptance of our product. We do not know whether
physicians and patients will accept our product or whether we will be able to
obtain their recommendations or endorsements in sufficient amounts to be
profitable. We believe that physicians will not use a product unless they
determine, based on clinical data and other factors, that it is an attractive
alternative to other means of contraception and that it offers clinical utility
in a cost-effective manner. Physicians are traditionally slow to adopt new
products and treatment practices, partly because of perceived liability risks.
If Essure does not achieve significant market acceptance among physicians,
patients and healthcare payors, even if reimbursement levels are sufficient and
necessary United States and international regulatory approvals are maintained,
we may never achieve significant revenues or profitability. Government or third party reimbursement for Essure may not be available or
may be inadequate, which would limit our future product revenues and delay or
prevent our profitability. Market acceptance of Essure in the United States and in international
markets will depend in part upon the availability of reimbursement within
prevailing healthcare payment systems. Reimbursement systems in international
markets vary significantly by country and sometimes by region, and
reimbursement approvals must be obtained on a country-by-country basis. Many
international markets have government-managed health care systems that
determine reimbursement for new devices and procedures. In most markets, there
are private insurance systems as well as government-managed systems. Regardless
of the type of reimbursement system, we believe that physician advocacy of our
product will be required to obtain reimbursement. Availability of continued
reimbursement will depend, at least in part, on the clinical and cost
effectiveness of our product. We do not know whether reimbursement for our
product will continue to be available in the United States or in international
markets under either government or private reimbursement systems, or whether
physicians will support and advocate reimbursement for use of our product for
all indications intended by us. Large-scale market acceptance of Essure will
depend on the availability and level of reimbursement in the United States and
targeted international markets. We may be unable to obtain or maintain
reimbursement in any country within a particular time frame, for a particular
amount, or at all, which would limit our future product revenues and delay or
prevent our profitability. If the effectiveness and safety of our product are not supported by
long-term data, we may not achieve market acceptance and we could be subject to
liability. The Pivotal trial of Essure was designed to support a PMA application and
to have five years of post-market follow-up. In addition, patients in the
Phase II study will be followed to five years. The long-term results of using 17




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Essure will not be available for several years. If long-term studies or
clinical experience indicate that Essure is less effective or less safe than
our current data suggest, we may not achieve or sustain market acceptance
and/or we could be subject to significant liability. Our Co-Promotion Agreement with GYNECARE may not be successful On October 30, 2003, we announced the signing of an exclusive U.S.
co-promotion agreement with GYNECARE for marketing Essure in the United States
in combination with the GYNECARE THERMACHOICE Uterine Balloon Therapy
endometrial ablation system. With the FDAs approval of marketing and labeling
claims regarding compatability of the Essure procedure and the THERMACHOICE
device in July 2004, marketing is expected to commence. However, the success
of the joint marketing campaign will depend upon the effectiveness of our
GYNECARE sales team training programs, market demand for Essure in conjunction
with the THERMACHOICE treatment, the efforts and commitment of GYNECARE to this
new program and the results of the required 50 patient post-approval clinical
study Our direct-to-consumer advertising campaign may not be successful The Company has announced the commencement of a six month advertising
campaign in the Chicago, Illinois metropolitan area involving radio, direct
mail, and print media (magazine). Such advertising programs aimed at
increasing consumer awareness for the Companys product are expensive and may
have limited success, if any at all. Such campaigns require consumers to make
contact with an Essure physician, often involving a referral from their primary
care physician and then to be provided information regarding birth control
options by the physician, be pre-authorized for insurance reimbursement and
then be scheduled for the procedure. Many of these steps are not within the
control of the Company, and the program may not result in revenue generation
commensurate with its costs. We have limited sales and marketing experience and minimal distribution
capabilities, and if we are unable to develop our sales and marketing
capabilities or be successful in our co-marketing agreement with GYNECARE, we
may be unsuccessful in commercializing Essure. In order to market, sell and distribute Essure, we will need to maintain
and continue to develop a sales force and marketing group with relevant
experience and continue to develop the relationship with GYNECARE for
co-marketing the Essure device to the endometrial ablation market. Developing
a marketing and sales force is expensive and time consuming and can impact the
effectiveness of our product launch. If we fail to establish adequate
marketing and sales capabilities, we may be unable to commercialize Essure
successfully. Furthermore, certain factors in our relationship with GYNECARE
are outside of our control, such as the number of sales persons, their
compensation and the number of products they are selling, which could adversely
impact the revenues and market development we expect from this co-marketing
agreement. We have limited experience in manufacturing Essure in commercial
quantities and are presently outsourcing our manufacturing to a third party,
which may result in disruption to supply. In April 2004, we received FDA approval to begin manufacturing the Essure
product at UTI Venusa, LTD, our third-party subcontractor located in Mexico.
We have been transitioning our internal manufacturing operations to Venusa to
manufacture the entire processes and assemblies of our product. Third-party
manufacturers often encounter difficulties in scaling up production of new
products, including problems involving production yields, quality control and
assurance, component supply and shortages of qualified personnel, and
compliances with FDA or other health authority requirements. We and/or Venusa
may encounter manufacturing difficulties, which could negatively impact or
delay commercialization of Essure. We may not maintain regulatory approvals for Essure, our only product,
which would delay or prevent us from generating product revenues, and would
harm our business and force us to curtail or cease operations. Numerous government authorities, both in the United States and
internationally, regulate the manufacture and sale of medical devices,
including Essure. In the United States, the principal regulatory authorities
are the FDA 18




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and corresponding state agencies, such as the California Department
of Health Services. The process of obtaining and maintaining required
regulatory clearances is lengthy, expensive and uncertain. We have received FDA approval to market Essure in the United States. If
we lose that approval or fail to comply with existing or future regulatory
requirements, it could delay or prevent us from generating further product
revenues. Sales of medical devices outside of the United States are subject to
international regulatory requirements that vary widely from country to country.
The time required to obtain clearance required by foreign countries may be
longer or shorter than that required for FDA clearance, and requirements for
licensing may differ significantly from FDA requirements. Many countries in
which we currently market or intend to market Essure either do not currently
regulate medical devices or have minimal registration requirements; however,
these countries may develop more extensive regulations in the future, which
could delay or prevent us from marketing Essure in these countries. The FDA and certain foreign regulatory authorities impose numerous
requirements with which medical device manufacturers must comply in order to
maintain regulatory approvals. FDA enforcement policy strictly prohibits the
promotion of approved medical devices for uses other than those for which the
device is specifically approved by the FDA. We will be required to adhere to
applicable FDA regulations, such as the Quality System Regulation, and similar
regulations in other countries, which include testing, control and
documentation requirements. Ongoing compliance with the Quality System
Regulation and other applicable regulatory requirements will be monitored
through periodic inspections by federal and state agencies, including the FDA
and the California Department of Health Services, and by comparable agencies in
other countries. If we fail to comply with applicable regulatory requirements,
we may be subject to, among other things, warning letters, fines, injunctions,
civil penalties, recall or seizure of products, total or partial suspension of
production, refusal of the government to grant pre-market clearance or
pre-market approval for devices, withdrawal of approvals and criminal
prosecution, any of which could negatively impact our business. We are working with FDA to obtain approval for label changes in the
physician labeling that will allow a substitute for the currently required
hysterosalpingogram (HSG). As part of the original PMA approval in November
2002, physicians are required, three months post-procedure and consistent with
our pivotal trial protocol, to perform an HSG, which calls for contrast dye to
be injected into the uterus to confirm occlusion of the fallopian tubes and
proper micro-insert location. Because an HSG can be uncomfortable for women
and is perceived by patients as the least desirable aspect of the Essure
procedure, we are working with the FDA to approve a less-invasive alternative,
such as a pelvic x-ray. There can be no guarantees that we will receive
approvals on any or all of these submissions. Further, the timing of FDA
approval is not something that we control and delays in approvals could
materially impact our business. Our intellectual property rights may not provide meaningful commercial
protection for our product, which could enable third parties to use our
technology, or very similar technology, and could impair our ability to compete
in the market. We rely on patent, copyright, trade secret and trademark laws to limit the
ability of others to compete with us using the same or similar technology in
the United States and other countries. However, as described below, these laws
afford only limited protection and may not adequately protect our rights to the
extent necessary to sustain any competitive advantage we may have. The laws of
some foreign countries do not protect proprietary rights to the same extent as
the laws of the United States, and many companies have encountered significant
problems in protecting their proprietary rights abroad. These problems can be
caused by the absence of rules and methods for defending intellectual property
rights. We will be able to protect our technology from unauthorized use by third
parties only to the extent that they are covered by valid and enforceable
patents or are effectively maintained as trade secrets. The patent positions of
companies developing medical devices, including our patent position, generally
are uncertain and involve complex legal and factual questions concerning the
enforceability of such patents against alleged infringement. Recent judicial
decisions have established new case law and a reinterpretation of previous
patent case law, and consequently we cannot assure you that historical legal
standards surrounding the questions of infringement and validity will be
applied in future cases. In addition, legislation may be pending in Congress
that, if enacted in its present form, may 19




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limit the ability of medical device
manufacturers in the future to obtain patents on surgical and medical
procedures that are not performed by, or as a part of, devices or compositions
that are themselves patentable. Our ability to protect our proprietary methods
and procedures may be compromised by the enactment of this
legislation or any other limitation or reduction in the patentability of
medical and surgical methods and procedures. Changes in either the patent laws
or in interpretations of patent laws in the United States and other countries
may therefore diminish the value of our intellectual property. We own, or control through licenses, a variety of issued patents and
pending patent applications. However, the patents on which we rely may be
challenged and invalidated, and our patent applications may not result in
issued patents. Moreover, our patents and patent applications may not be
sufficiently broad to prevent others from practicing our technologies or from
developing competing products. We also face the risk that others may
independently develop similar or alternative technologies or design around our
patented technologies. We have taken security measures to protect our proprietary information,
especially proprietary information that is not covered by patents or patent
applications. These measures, however, may not provide adequate protection of
our trade secrets or other proprietary information. We seek to protect our
proprietary information by entering into confidentiality agreements with
employees, collaborators and consultants. Nevertheless, employees,
collaborators or consultants could still disclose our proprietary information
and we may not be able to protect our trade secrets in a meaningful way. If we
lose any employees we may not be able to prevent the unauthorized disclosure or
use of our technical knowledge or other trade secrets by those former employees
despite the existence of a nondisclosure and confidentiality agreement and
other contractual restrictions designed/intended to protect our proprietary
technology. In addition, others may independently develop substantially
equivalent proprietary information or techniques or otherwise gain access to
our trade secrets. Our ability to compete effectively will depend substantially on our
ability to develop and maintain proprietary aspects of our technology. Our
issued patents, any future patents that may be issued as a result of our United
States or foreign patent applications, or the patents under which we have
license rights may not offer any degree of protection against competitive
products. Any patents that may be issued or licensed to us or any of our patent
applications could be challenged, invalidated or circumvented in the future. If we cannot operate our business without infringing third-party
intellectual property rights, our prospects will suffer. Our success will also depend on our ability to operate without infringing
or misappropriating the proprietary rights of others. We may be exposed to
future litigation by third parties based on claims that our product infringes
the intellectual property rights of others. There are numerous issued patents
in the medical device industry and, as described in the next risk factor, the
validity and breadth of medical device patents involve complex legal and
factual questions for which important legal principles remain unresolved. Our
competitors may assert that our product and the methods we employ may be
covered by United States or foreign patents held by them. In addition, because
patent applications can take many years to issue, there may be currently
pending patent applications of which we are unaware that may later result in
issued patents that our product may infringe. There could also be existing
patents of which we are unaware that our product may inadvertently infringe. If
we lose a patent infringement lawsuit, we could be prevented from selling our
product unless we can obtain a license to use technology or ideas covered by
that patent or are able to redesign the product to avoid infringement. A
license may not be available to us on terms acceptable to us, or at all, and we
may not be able to redesign our product to avoid any infringement. If we are
not successful in obtaining a license or redesigning our product, we may be
unable to sell our product and our business would suffer. We have been, and may in the future, be a party to patent litigation,
which could be expensive and divert our managements attention. The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and companies in the
industry have used intellectual property litigation to gain a competitive
advantage. We may become a party to patent infringement claims and litigation
or interference proceedings declared by the United States Patent and Trademark
Office (PTO), to determine the priority of inventions. The defense and
prosecution of these matters are both costly and time consuming. We may need to 20




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commence proceedings against others to enforce our patents, to protect our
trade secrets or know-how or to determine the enforceability, scope and
validity of the proprietary rights of others. These proceedings would result in
substantial expense to us and significant diversion of effort by our technical
and management personnel. A third party, Ovion, Inc., brought to our attention a patent and certain
claims from a pending patent application owned by it. Ovion indicated it
believes that the claims of its patent and application cover Essure and its
use. On October 23, 2003, we entered into a settlement agreement with Ovion
pursuant to which we received a sole, worldwide license to Ovions patent
rights relative to the Essure system, and Ovion may not grant any additional
such licenses to other parties. The settlement agreement provided for the
payment of a royalty to Ovion that will be equal to 3.25% of the cumulative net
sales of Essure in excess of $75.0 million for a period of no longer than ten
years. In addition, the settlement agreement provided for a cash payment of
$2.0 million in the fourth quarter of 2003 as a prepaid royalty, and a license
fee of $2.0 million payable in our common stock in equal installments in the
first and second quarters of 2004. Ovion was not granted any rights to our
intellectual property pursuant to the settlement agreement. The settlement
agreement was approved by the U.S. District Court for the Northern District of
California on November 6, 2003. Although we have reached a settlement agreement with Ovion, we still
believe that some or all of Ovions claims should be included within our own
patents and we have requested that the PTO declare an interference. An
interference is a proceeding within the PTO to determine which party was the
first to invent, and which party is thereby entitled to ownership of, the
claims. We believe that we filed our patent applications for Essure before
Ovion filed the application that issued as its patent, and that we are entitled
to any patentable claims now appearing in their patent that cover our product.
We do not know whether the PTO will declare an interference, whether we
invented our product prior to Ovions date of invention, or whether we will
prevail in an interference proceeding if it is declared by the PTO. If the PTO
declares an interference in our favor and we are found to have priority of
invention, we may avoid having to pay Ovion future royalties on the sales of
our product. An adverse determination in litigation or interference proceedings to
which we are or may become a party could subject us to significant liabilities
to third parties or require us to seek licenses from third parties. Although
patent and intellectual property disputes in the medical device area have often
been settled through licensing or similar arrangements, costs associated with
such arrangements may be substantial and could include ongoing royalties. We
may be unable to obtain necessary licenses on satisfactory terms, if at all.
Adverse determinations in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent us from manufacturing and selling
Essure. One of the patents included in our license from Target Therapeutics, a
division of Boston Scientific Corporation, has been the subject of
reexamination proceedings in the PTO and an infringement lawsuit by Target
Therapeutics. The patent is directed to variable stiffness catheters for use
with guidewires, as might be used in our future products. Although the PTO
reaffirmed the patent with amended claims and the lawsuit was settled, the
patent could be challenged or invalidated in the future. If this patent is
invalidated, our ability to prevent others from using this proprietary
technology would be compromised. If we fail to manage our expansion, our business could be impaired. Although we have no current plans to do so, we may in the future acquire
one or more technologies, products or companies that complement our business.
We may not be able to effectively integrate these into our business. If we fail
to manage our growth and expansion, our business could be impaired. Our third-party manufacturer and we will depend upon third party and
single source suppliers for raw materials and finished goods and we do not have
forward contracts with many of these suppliers. We and our third party manufacturer purchase both raw materials used in
our product and finished goods from various suppliers, and we rely on a single
source for one component of our product, the polyester fiber. We do not have
formal supply contracts with several key vendors and, accordingly, these firms
may not continue to supply us or our third party manufacturer with raw
materials or finished goods in sufficient quantities, or at all. Delays
associated with any future raw materials or finished goods shortages could
delay commercialization of Essure, 21




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particularly as our third-party manufacturer
scales up its manufacturing activities in support of United States and
international commercial sales of Essure. Health care reform may limit our return on our product. The levels of revenue and profitability of medical device companies may be
affected by the efforts of government and third party payors to contain or
reduce the costs of health care through various means. In the United States,
there have been, and we expect that there will continue to be, a number of
federal, state and private proposals to control health care costs. These
proposals may contain measures intended to control public and private spending
on health care as well as to provide universal public access to the health care
system. If enacted, these proposals may result in a substantial restructuring
of the health care delivery system. Significant changes in the United States
health care system are likely to have a substantial impact over time on the
manner in which we conduct our business and could have a material adverse
effect on our business, financial condition and results of operations. We may be exposed to product liability claims, and we have only limited
insurance coverage. The manufacture and sale of medical products involve an inherent risk of
exposure to product liability claims and product recalls. Although we have not
experienced any product liability claims to date, we cannot assure you that we
will be able to avoid significant product liability claims and potential
related adverse publicity. We currently maintain product liability insurance
with coverage limits of $10.0 million per occurrence and an annual aggregate
maximum of $10.0 million, which we believe is comparable to that maintained by
other companies of similar size serving similar markets. However, we cannot
assure you that product liability claims in connection with clinical trials or
commercial sales of Essure will not exceed such insurance coverage limits or
that such insurance will continue to be available on commercially reasonable
terms, or at all. Insurance is expensive and in the future may not be available
on acceptable terms, if at all. A successful product liability claim or series
of claims brought against us in excess of our insurance coverage, or a recall
of our product, could cause our stock price to fall. We may not be able to attract and retain additional key management, sales
and marketing and technical personnel or we may lose existing key management,
sales and marketing or technical personnel, which may delay our development and
marketing efforts. We depend on a number of key management, sales and marketing and technical
personnel. The loss of the services of one or more key employees could delay
the achievement of our development and marketing objectives. Our success will
also depend on our ability to attract and retain additional highly qualified
management, sales and marketing and technical personnel to meet our growth
goals. We face intense competition for qualified personnel, many of whom are
often subject to competing employment offers, and we do not know whether we
will be able to attract and retain such personnel. We face intense competition, and if we are unable to compete effectively,
demand for Essure may be reduced. The medical device industry is highly competitive and is characterized by
rapid and significant technological change. The length of time required for
product development and regulatory approval plays an important role in a
companys competitive position. As we commercialize Essure, we expect to
compete with:  
    
    other methods of permanent contraception, in particular tubal
ligation;
    
    other methods of non-permanent contraception, including
devices such as intrauterine devices, or IUDs, vaginal rings,
condoms and prescription drugs such as the birth control pill,
injectable and implantable contraceptives and patches; and
    
    other companies that may develop permanent contraception
devices that are similar to or otherwise compete with Essure. We are aware of a company that is in the earlier stages of development for
non-incisional permanent contraception devices, and other companies may develop
products that could compete with Essure. Competitive factors may render Essure
obsolete or noncompetitive or reduce demand for Essure. 22




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Our future liquidity and capital requirements are uncertain. As we commercialize Essure on a wide-scale basis, we may require
additional financing and therefore may in the future seek to raise additional
funds through bank facilities, debt or equity offerings or other sources of
capital. Any additional equity financing may be dilutive to stockholders, and
debt financing, if available, may involve restrictive covenants. Additional
funding may not be available when needed or on terms acceptable to us. If we
are unable to obtain additional capital, we may be required to delay, reduce
the scope of or eliminate our selling and marketing activities. We expect to
have negative cash flows from operations into at least 2005. Our future
liquidity and capital requirements will depend upon many factors, including,
among others:  
    
    the rate of product adoption by doctors and patients;
    
    obtaining government and third-party reimbursement for Essure;
    
    the resources devoted to increasing manufacturing capacity to meet commercial demands;
    
    our ability to reduce our cost of sales;
    
    the resources devoted to developing and conducting sales and
marketing and distribution programs; and
    
    the progress and cost of product development programs. Our future quarterly results may fluctuate. Our future revenues and results of operations may fluctuate significantly
from quarter to quarter and will depend upon, among other factors:  
    
    the rate at which new physicians are trained;
    
    actions relating to reimbursement matters;
    
    the rate at which we establish United States and
international distributors or marketing partners and the degree of
their success;
    
    the extent to which Essure gains market acceptance;
    
    the timing and size of distributor purchases; and
    
    introduction of competitive products. Investor confidence and share value may be adversely impacted if we and
our independent registered public accounting firm are unable to provide
adequate attestation over the adequacy of our internal controls over financial
reporting as of December 31, 2004, as required by Section 404 of the
Sarbanes-Oxley Act of 2002. The Securities and Exchange Commission, as directed by Section 404 of the
Sarbanes-Oxley Act of 2002, adopted rules requiring public companies to include
a report of management on the companys internal controls over financial
reporting in its annual reports on Form 10-K that contain an assessment by
management of the effectiveness of the companys internal controls over
financial reporting. In addition, the companys independent registered public
accounting firm must attest to and report on managements assessment of the
effectiveness of the companys internal controls over financial reporting. This
requirement will first apply to our Annual Report on Form 10-K for the fiscal
year ending December 31, 2004. Although we intend to diligently and vigorously
review our internal controls over financial reporting in order to ensure
compliance with the Section 404 requirements, if our independent registered
public accounting firm are not satisfied with our internal controls over
financial reporting or the level at which these controls are documented,
designed, operated or reviewed, or if the independent registered public
accounting firm interpret the requirements, rules or regulations differently
from us, then they may decline to attest to managements assessment or may
issue a report that is qualified. This could result in an adverse reaction in
the financial marketplace due to a loss of investor confidence in the
reliability of our financial statements, which ultimately could negatively
impact the market price of our shares. 23




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Changes in stock option accounting rules may adversely impact our reported
operating results prepared in accordance with generally accepted accounting
principles, our stock price and our competitiveness in the employee
marketplace. Technology companies like ours have a history of using broad based
employee stock option programs to hire, incentivize and retain our workforce in
a competitive marketplace. Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123) allows companies the
choice of either using a fair value method of accounting for options, which
would result in expense recognition for all options granted, or using an
intrinsic value method, as prescribed by Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25), with a pro forma
disclosure of the impact on net income (loss) of using the fair value option
expense recognition method. We have elected to apply APB 25 and accordingly we
generally do not recognize any expense with respect to employee stock options
as long as such options are granted at exercise prices equal to the fair value
of our common stock on the date of grant. During March 2004 the FASB issued an Exposure Draft (proposed statement)
Share-Based Payment, an amendment of FASB Statements No. 123 and 95. The
proposed statement eliminates the treatment for share-based transactions using
APB 25 and generally would require share-based payments to employees be
accounted for using a fair-value-based method and recognized as expenses in our
statements of operations. The proposed standard would require the modified
prospective method be used, which would require that the fair value of new
awards granted from the beginning of the year of adoption plus unvested awards
at the date of adoption be expensed over the vesting term. In addition, the
proposed statement encourages companies to use the binomial approach to value
stock options, as opposed to the Black-Scholes option-pricing model that we
currently use for the fair value of our options under SFAS 123 disclosure
provisions. The effective date the proposed standard was recommended for fiscal years
beginning after December 15, 2004. Although a final statement is expected to
be issued in the December 2004 quarter, the Board still needs to complete its
assessment, which may impact the proposed effective date. Should this proposed
statement be finalized, it will have a significant impact on our consolidated
statement of operations as we will be required to expense the fair value of our
stock options rather than disclosing the impact on our consolidated result of
operations within our footnotes in accordance with the disclosure provisions of
SFAS 123 (see Note 8 of the Notes to the condensed consolidated financial
statements). This will result in lower reported earnings per share, which could
negatively impact our future stock price. In addition, should the proposal be
finalized, this could impact our ability to utilize broad based employee stock
plans to reward employees and could result in a competitive disadvantage to us
in the employee marketplace. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk The following discusses our exposure to market risk related to changes in
interest rates and foreign currency exchange rates. These exposures may change
over time as business practices evolve and could have a material adverse impact
on our financial results. Interest Rate Risk: We have been exposed to interest rate risk as it
applies to interest earned on holdings of short-term marketable investments.
Interest rates that may affect these items in the future will depend on market
conditions and may differ from the rates we have experienced in the past. A
10% change in interest rates would not be material to our results of
operations. We reduce the sensitivity of our results of operations to these
risks by maintaining an investment portfolio, which is primarily comprised of
highly rated, short-term investments. We do not hold or issue derivative,
commodity instruments or other financial instruments for trading purposes. Foreign Currency Exchange Risk: Our expenses, except for those related to
Australia, were denominated in United States dollars. Our revenues, 3% and 25%
of which were in foreign currencies in the three months ended June 30, 2004 and
2003, respectively, and 3% and 29% for the six months ending June 30, 2004 and
2003, respectively, were immaterial in relation to our overall financial
position. As a result, we have relatively little exposure for currency
exchange risks and foreign exchange losses have been minimal to date. We do
not currently enter into forward exchange contracts to hedge exposure
denominated in foreign currencies or any other derivative financial instruments
for trading or speculative purposes. In the future, if we feel our foreign
currency exposure has 24




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increased, we may consider entering into hedging
transactions to help mitigate that risk. As of June 30, 2004, a fluctuation in
exchange rates of 10% in the foreign currencies to which we are exposed
would not have a material impact on our results of operations or financial
condition. 
 Item 4. Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. As required by SEC Rule 13a-15(b), we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
the period covered by this report. Based on the foregoing, our Chief Executive
Officer and our Chief Financial Officer concluded that our disclosure controls
and procedures were effective at the reasonable assurance level. There has been no change in our internal controls over financial reporting
during our most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting. 25




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PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings From time to time, we are involved in legal proceedings arising in the
ordinary course of business. We believe there is no other litigation pending
that could have, individually or in the aggregate, a material adverse effect on
its financial position, result of operations or cash flows. 
 Item 2. Changes in Securities and Use of Proceeds On April 30, 2004, we issued an additional 74,967 shares of our common
stock to Ovion, Inc. pursuant to the Settlement and License Agreement, dated
October 22, 2003, between us and Ovion, Inc., William S. Tremulis and Jeffrey
P. Callister. The securities are exempt from registration pursuant to Section
3(a)(10) of the Securities Act because they were issued in exchange for Ovion
and Messrs. Tremulis and Callister entering into the settlement agreement,
which was approved by the court after a hearing on the fairness of the terms of
the settlement. 
 Item 3. Defaults upon Senior Securities None. 
 Item 4. Submission of Matters to a Vote of Security Holders On June 1, 2004, the Annual Meeting of Stockholders of Conceptus, Inc. was
held in Redwood City, California. The matters voted upon and approved at the
meeting, and the number of affirmative and negative votes cast with respect to
each matter were as follows (votes in thousands): Votes for
    
    VotesNominee
    
    WithheldProposal 1Nomination of Class I Directors
    
    
    20,100
    
    
    
    155
 For
    
    Against
    
    AbstainProposal 2Ratify the appointment of
PricewaterhouseCoopers LLP as
independent registered public
accounting firm of the Company
for the fiscal year ending
December 31, 2004.
    
    
    20,138
    
    
    
    105
    
    
    
    12Proposal 3Approve the Amended and
Restated 2001 Equity Incentive
Plan to reduce the size of
automatic grants of stock
options to non-employee
directors and to provide
automatic grants of restricted
stock to non-employee
directors.
    
    
    9,013
    
    
    
    3,866
    
    
    
    41Proposal 4Approve the amendment of the
Amended and Restated 2001
Equity Incentive Plan to
increase the number of shares
of Common Stock reserve for
issuance by 500,000 shares.
    
    
    8,166
    
    
    
    4,702
    
    
    
    51Proposal 5Approve the amendment of the
Companys 1995 Employee Stock
Purchase Plan to increase the
number of shares of Common
Stock reserved for issuance by
150,000 shares, effective July
1, 2004.
    
    
    12,240
    
    
    
    488
    
    
    
    192
 26




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Item 5. Other Information None. 
 Item 6. Exhibits and Reports on Form 8-K (a)   Exhibits.  4.1
    
    Conceptus, Inc. Deferred Fee Plan for Directors (incorporated
by reference to the Companys Registration Statement on Form S-8,
Registration No. 333-116960, filed with the Securities and Exchange
Commission on June 29, 2004).4.2
    
    Employment Commencement Nonstatutory Stock Option
(incorporated by reference to the Companys Registration Statement
on Form S-8, Registration No. 333-116960, filed with the Securities
and Exchange Commission on June 29, 2004).4.3
    
    Stand  Alone Restricted Stock Purchase Agreement
(incorporated by reference to the Companys Registration Statement
on Form S-8, Registration No. 333-116960, filed with the Securities
and Exchange Commission on June 29, 2004).4.4
    
    First Amendment to Conceptus, Inc. 1995 Employee Stock
Purchase Plan (incorporated by reference to the Companys
Registration Statement on Form S-8, Registration No. 333-116959,
filed with the Securities and Exchange Commission on June 29, 2004).4.5
    
    Second Amendment to Conceptus, Inc. 1995 Employee Stock
Purchase Plan (incorporated by reference to the Companys Definitive
Proxy Statement on Schedule 14A (File No. 000-27596) filed with the
Securities and Exchange Commission on April 29, 2004).4.6
    
    Conceptus, Inc. Amended and Restated 2001 Equity Incentive
Plan (incorporated by reference to the Companys Definitive Proxy
Statement on Schedule 14A (File No. 000-27596) filed with the
Securities and Exchange Commission on April 29, 2004).4.7
    
    Amendment to Amended and Restated 2001 Equity Incentive Plan
(incorporated by reference to the Companys Definitive Proxy
Statement on Schedule 14A (File No. 000-27596) filed with the
Securities and Exchange Commission on April 29, 2004).  31.1
    
    Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K.  On April 6, 2004, the Company filed a current report on Form 8-K under
Item 5 (Other events) reporting that it had issued a press release
on April 1, 2004 announcing that it had hired Ric Cote as Vice
President, Sales.On April 21, 2004, the Company filed a current report on Form 8-K
under Item 5 (Other events) reporting that it had issued a press
release on April 15, 2004 announcing that the Food and Drug
Administration (FDA) has granted approval for the Company to begin
manufacturing the Essure® System at UTI Venusa, Ltd. in Ciudad
Juarez, Mexico. 27




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On April 22, 2004, the Company filed a current report on Form 8-K
under Item 5 (Other events), Item 7 (Financial Statements, Pro
Forma Financial Information and Exhibits) and Item 12 (Disclosure of
Results of Operations and Financial Condition) reporting that it had
issued a press release announcing certain financial results for the
three months ended March 31, 2004.On June 17, 2004, the Company filed a current report on Form 8-K under
Item 5 (Other events) reporting that it had issued a press release
on June 14, 2004 announcing that the U.S. Food and Drug Administration
had approved new labeling claims for the Companys non-incisional
permanent birth control procedure Essure®,extending the labeled
effectiveness rate of 99.80% after three years of follow-up, from two
years previously. 28




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SIGNATURE 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. CONCEPTUS, INC. By:
    
    /s/ Gregory E. LichtwardtGregory E. LichtwardtExecutive Vice President, Treasurer andChief Financial OfficerDate: August 9, 2004
 29




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##### Table of Contents



EXHIBIT
INDEX.4.1
    
    Conceptus, Inc. Deferred Fee Plan for Directors (incorporated
by reference to the Companys Registration Statement on Form S-8,
Registration No. 333-116960, filed with the Securities and Exchange
Commission on June 29, 2004).4.2
    
    Employment Commencement Nonstatutory Stock Option
(incorporated by reference to the Companys Registration Statement
on Form S-8, Registration No. 333-116960, filed with the Securities
and Exchange Commission on June 29, 2004).4.3
    
    Stand  Alone Restricted Stock Purchase Agreement
(incorporated by reference to the Companys Registration Statement
on Form S-8, Registration No. 333-116960, filed with the Securities
and Exchange Commission on June 29, 2004).4.4
    
    First Amendment to Conceptus, Inc. 1995 Employee Stock
Purchase Plan (incorporated by reference to the Companys
Registration Statement on Form S-8, Registration No. 333-116959,
filed with the Securities and Exchange Commission on June 29, 2004).4.5
    
    Second Amendment to Conceptus, Inc. 1995 Employee Stock
Purchase Plan (incorporated by reference to the Companys Definitive
Proxy Statement on Schedule 14A (File No. 000-27596) filed with the
Securities and Exchange Commission on April 29, 2004).4.6
    
    Conceptus, Inc. Amended and Restated 2001 Equity Incentive
Plan (incorporated by reference to the Companys Definitive Proxy
Statement on Schedule 14A (File No. 000-27596) filed with the
Securities and Exchange Commission on April 29, 2004).4.7
    
    Amendment to Amended and Restated 2001 Equity Incentive Plan
(incorporated by reference to the Companys Definitive Proxy
Statement on Schedule 14A (File No. 000-27596) filed with the
Securities and Exchange Commission on April 29, 2004).  31.1
    
    Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.