**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM10-Q**

 

| **o**      | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934**  |
|------------|------------|------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                     |
| ** ** | ** ** | **For the  quarterly period ended June 30, 2007**                                              |
| ** ** | ** ** | ** **                                                                                     |
| ** ** | ** ** | **OR**                                                                                         |
| ** ** | ** ** | ** **                                                                                     |
| **o**      | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |

 

**Forthe transition period from              to                    .**

**CommissionFile Number:****0-27596**

**CONCEPTUS, INC.**

(Exact name ofRegistrant as specified in its charter)

| **Delaware**                     |   | **94-3170244**       |
|----------------------------------|--------|----------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer     |
| incorporation or  organization)  |   | Identification  No.) |

 

**331 EastEvelyn**

**MountainView, CA 94041**

(Address ofPrincipal Executive Offices) (Zip Code)

**(650) 962-4000**

(Registrant’sTelephone Number, Including Area Code)

(Former Name,Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for at least the past 90 days. Yes x   No o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act (Check one)

| Large accelerated  filer  o |   | Accelerated  Filer  x |   | Non accelerated filer  o |
|---------------------------------------|--------|---------------------------------|--------|------------------------------------|

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 ofExchange Act).

Yes  o   No  x

There were29,543,074 shares of Registrant’s Common Stock issued and outstanding as ofJuly 31, 2007.

 

----

**CONCEPTUS, INC.**

**FORM 10-Q for the Quarter Ended June 30, 2007**
|           | ** ** | ** **                                                                                                     | ** ** | **Page** |
|-----------|------------|----------------------------------------------------------------------------------------------------------------|------------|----------|
| Part I.   |       | Financial Information                                                                                          |       | 3        |
|      |       |                                                                                                           |       |     |
| Item 1.   |       | Condensed  Consolidated Financial Statements (Unaudited)                                                       |       | 3        |
|      |       | a) Condensed  Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006                            |       | 3        |
|      |       | b)  Condensed Consolidated Statements of Operations for the three and six months  ended June 30, 2007 and 2006 |       | 4        |
|      |       | c) Condensed  Consolidated Statements of Cash Flows for the six months ended June 30, 2007  and 2006           |       | 5        |
|      |       | d) Notes to  Condensed Consolidated Financial Statements                                                       |       | 6        |
|      |       |                                                                                                           |       |     |
| Item 2.   |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                    |       | 11       |
|      |       |                                                                                                           |       |     |
| Item 3.   |       | Quantitative  and Qualitative Disclosures About Market Risk                                                    |       | 17       |
|      |       |                                                                                                           |       |     |
| Item 4.   |       | Controls and  Procedures                                                                                       |       | 18       |
|      |       |                                                                                                           |       |     |
| Part II.  |       | Other Information                                                                                              |       | 18       |
|      |       |                                                                                                           |       |     |
| Item 1.   |       | Legal Proceedings                                                                                              |       | 18       |
|      |       |                                                                                                           |       |     |
| Item  1A. |       | Risk  Factors                                                                                                  |       | 18       |
|      |       |                                                                                                           |       |     |
| Item 4.   |       | Submission  of Matters to a Vote of Security Holders                                                           |       | 19       |
|      |       |                                                                                                           |       |     |
| Item  6.  |       | Exhibits                                                                                                       |       | 20       |

 

2

----

**PART I. FINANCIAL INFORMATION**

**ITEM 1. Condensed Consolidated Financial Statements**

**Conceptus, Inc.**

**Condensed Consolidated BalanceSheets**

**(Unaudited)**

**(In thousands, except number of shares)**
| ** **                                           | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|------------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                           | ** ** | **2007**          | ** **  | **2006**              | ** ** |
| **Assets**                                           | ** ** | ** **        | ** **  | ** **            | ** ** |
| Current assets:                                      |       |              |        |                  |       |
| Cash and cash  equivalents                           |       | $                 | 2,367       |                  | $          | 3,238 |   |
| Short-term  investments                              |       | 93,250            |        | 22,600                |       |
| Accounts  receivable, net                            |       | 10,616            |        | 6,976                 |       |
| Inventories                                          |       | 2,600             |        | 610                   |       |
| Other current  assets                                |       | 1,496             |        | 1,064                 |       |
|                                                 |       |              |        |                  |       |
| Total current  assets                                |       | 110,329           |        | 34,488                |       |
|                                                 |       |              |        |                  |       |
| Property and  equipment, net                         |       | 2,695             |        | 2,917                 |       |
| Intangible  assets, net                              |       | 1,266             |        | 1,350                 |       |
| Debt issuance  costs, net                            |       | 2,864             |        | —                |       |
| Other assets                                         |       | 560               |        | 996                   |       |
|                                                 |       |              |        |                  |       |
| **Total assets**                                     | ** ** | **$**             | **117,714** | ** **            | **$**      | **39,751** | ** ** |
|                                                 |       |              |        |                  |       |
| **Liabilities and stockholders’  equity**       | ** ** | ** **        | ** **  | ** **            | ** ** |
| Current  liabilities:                                |       |              |        |                  |       |
| Accounts payable                                     |       | $                 | 3,813       |                  | $          | 2,903 |   |
| Accrued  compensation                                |       | 2,301             |        | 3,909                 |       |
| Other accrued  liabilities                           |       | 3,235             |        | 1,597                 |       |
|                                                 |       |              |        |                  |       |
| Total current  liabilities                           |       | 9,349             |        | 8,409                 |       |
|                                                 |       |              |        |                  |       |
| Notes payable                                        |       | 86,250            |        | —                |       |
| Other accrued  liabilities                           |       | 287               |        | 328                   |       |
|                                                 |       |              |        |                  |       |
| Total  liabilities                                   |       | 95,886            |        | 8,737                 |       |
|                                                 |       |              |        |                  |       |
| Stockholders’  equity:                          |       |              |        |                  |       |
| Common stock and  additional paid-in capital         |       | 251,685           |        | 254,631               |       |
| Accumulated  deficit                                 |       | (229,857          | )           | (223,617              | )          |
| Treasury Stock,  77,863 and 91,752 shares, at cost   |       | —            |        | —                |       |
|                                                 |       |              |        |                  |       |
| Total  stockholders’ equity                     |       | 21,828            |        | 31,014                |       |
|                                                 |       |              |        |                  |       |
| **Total liabilities and  stockholders’ equity** | ** ** | **$**             | **117,714** | ** **            | **$**      | **39,751** | ** ** |

 

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

3

----

**Conceptus,Inc.**

**Condensed Consolidated Statements of Operations**

**(Unaudited)**

**(Inthousands, except per share amounts)**
| ** **                                                                      | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                      | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                                      | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net sales                                                                       |       | $                                | 15,669     |                           | $          | 10,003 |   | $ | 29,449 |   | $ | 17,965 |   |
| Cost of goods  sold (*)                                                         |       | 4,238                            |       | 3,651                          |       | 7,943 |   | 6,534 |   |
| Gross profit                                                                    |       | 11,431                           |       | 6,352                          |       | 21,506 |   | 11,431 |   |
|                                                                            |       |                             |       |                           |       |   |   |   |   |
| Operating  expenses:                                                            |       |                             |       |                           |       |   |   |   |   |
| Research and development (*)                                                    |       | 1,061                            |       | 1,069                          |       | 2,703 |   | 2,269 |   |
| Selling, general and administrative (*)                                         |       | 13,172                           |       | 10,935                         |       | 26,181 |   | 20,935 |   |
| Total operating  expenses                                                       |       | 14,233                           |       | 12,004                         |       | 28,884 |   | 23,204 |   |
| Operating loss                                                                  |       | (2,802                           | )          | (5,652                         | )          | (7,378 | ) | (11,773 | ) |
|                                                                            |       |                             |       |                           |       |   |   |   |   |
| Interest and other income                                                       |       | 662                              |       | 323                            |       | 1,138 |   | 656 |   |
| Net loss                                                                        |       | $                                | (2,140     | )                              | $          | (5,329 | ) | $ | (6,240 | ) | $ | (11,117 | ) |
| Basic and  diluted net loss per share                                           |       | $                                | (0.07      | )                              | $          | (0.18 | ) | $ | (0.21 | ) | $ | (0.38 | ) |
| Weighted-average  shares used in computing basic and diluted net loss per share |       | 29,420                           |       | 28,918                         |       | 29,340 |   | 28,890 |   |

 

----

(*) Includes thefollowing amounts related to stock-based compensation:
| ** **                           | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                           | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                           | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Cost of goods  sold                  |       | $                                | 5          |                           | $          | 71 |   | $ | 11 |   | $ | 111 |   |
| Research and  development            |       | 122                              |       | 196                            |       | 221 |   | 369 |   |
| Selling, general  and administrative |       | 1,399                            |       | 1,311                          |       | 2,747 |   | 2,552 |   |
|                                      |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |

 

*Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.*

4

----

**Conceptus,Inc.**

**Condensed Consolidated Statements of Cash Flows**

**(Unaudited)**

**(Inthousands)**
| ** **                                                                   | ** ** | **Six months ended** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                   | ** ** | **June 30,**              | ** ** |
| ** **                                                                   | ** ** | **2007**                       | ** ** | **2006** | ** ** |
| **Cash  flows from operating activities**                                    | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Net loss                                                                     |       | $                              | (6,240     | ) | $ | (11,117 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                           |       |   |   |
| Depreciation and amortization of property, plant and  equipment              |       | 650                            |       | 540 |   |
| Amortization of debt issuance costs                                          |       | 232                            |       | — |   |
| Amortization of intangibles                                                  |       | 84                             |       | 100 |   |
| Inventory write-down                                                         |       | (27                            | )          | (134 | ) |
| Stock-based compensation expense                                             |       | 2,980                          |       | 3,032 |   |
| Allowance for doubtful accounts                                              |       | 102                            |       | 42 |   |
| Loss on retirement of fixed assets                                           |       | 19                             |       | 6 |   |
| Changes in operating assets and liabilities:                                 |       |                           |       |   |   |
| Accounts receivable                                                          |       | (3,742                         | )          | (847 | ) |
| Inventories                                                                  |       | (1,962                         | )          | 1,720 |   |
| Other current assets                                                         |       | (432                           | )          | 250 |   |
| Other assets                                                                 |       | 436                            |       | 259 |   |
| Accounts payable                                                             |       | 909                            |       | (706 | ) |
| Accrued compensation                                                         |       | (1,390                         | )          | (429 | ) |
| Other accrued and long term liabilities                                      |       | 1,598                          |       | 237 |   |
| Net cash used in  operating activities                                       |       | (6,783                         | )          | (7,047 | ) |
|                                                                         |       |                           |       |   |   |
| **Cash  flows from investing activities**                                    | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Purchase of investments                                                      |       | (82,100                        | )          | (21,450 | ) |
| Maturities of investments                                                    |       | 11,450                         |       | 19,000 |   |
| Capital expenditures                                                         |       | (447                           | )          | (729 | ) |
| Net cash used in  investing activities                                       |       | (71,097                        | )          | (3,179 | ) |
|                                                                         |       |                           |       |   |   |
| **Cash  flows from financing activities**                                    | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Proceeds from issuance of long term debt, net of  issuance costs             |       | 83,154                         |       | — |   |
| Purchase of call options on convertible senior notes                         |       | (19,372                        | )          | — |   |
| Proceeds from issuance of warrants                                           |       | 10,695                         |       | — |   |
| Proceeds from exercise of stock options                                      |       | 2,532                          |       | 861 |   |
| Net cash  provided by financing activities                                   |       | 77,009                         |       | 861 |   |
|                                                                         |       |                           |       |   |   |
| Net decrease in  cash and cash equivalents                                   |       | (871                           | )          | (9,365 | ) |
| Cash and cash  equivalents at the beginning of the period                    |       | 3,238                          |       | 12,573 |   |
| Cash and cash  equivalents at end of the period                              |       | $                              | 2,367      |   | $ | 3,208 |   |

 

*Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.*

5

----

**Conceptus,Inc.**

***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS***

***(Unaudited)***

**1.****           Basis of Presentation**

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States for interim financialinformation and pursuant to the instructions to Form 10-Q and Article 10-01 ofRegulation S-X.  Accordingly, they do not include all of the informationand footnotes required by accounting principles generally accepted in theUnited States for complete financial statements. In the opinion of management,all adjustments, consisting only of normal recurring adjustments, considerednecessary for a fair statement have been included.

The condensed consolidated balance sheet at December31, 2006 has been derived from the audited consolidated financial statements atthat date, but does not include all of the information and footnotes requiredby accounting principles generally accepted in the United States for completefinancial statements. This financial data should be reviewed in conjunctionwith the audited consolidated financial statements and related notes includedin our Annual Report on Form 10-K for the year ended December 31, 2006. The results of operations for the three and six months ended June 30, 2007 maynot necessarily be indicative of the operating results for the full 2007 fiscalyear or any other future interim periods.

*Recent Accounting Pronouncements*

In July 2006, the Financial Standards Accounting Board(or “FASB”) issued Financial Interpretation No. 48, “Accounting for Uncertaintyin Income Taxes—an interpretation of FASB Statement No. 109”, or FIN 48, whichis a change in accounting for income taxes. FIN 48 specifies how tax benefitsfor uncertain tax positions are to be recognized, measured, and derecognized infinancial statements; requires certain disclosures of uncertain tax matters;specifies how reserves for uncertain tax positions should be classified on thebalance sheet; and provides transition and interim-period guidance, among otherprovisions. FIN 48 is effective for fiscal years beginning after December 15,2006 and as a result, we adopted FIN 48 beginning fiscal year 2007. Theadoption of the provisions of FIN 48 did not have a material impact on ourfinancial position or results of operations.

In September 2006, the FASB issued Statement of FinancialAccounting Standards (“SFAS”) No. 157, “Fair Value Measurement”, or SFAS 157.This standard defines fair value, establishes the framework for measuring fairvalue in accounting principles generally accepted in the United States andexpands disclosure about fair value measurements. This pronouncement appliesunder other accounting standards that require or permit fair valuemeasurements. Accordingly, this statement does not require any new fair valuemeasurement. This statement is effective for fiscal years beginning afterNovember 15, 2007 and interim periods within those fiscal years. We will berequired to adopt SFAS 157 in the first quarter of 2008. We are currentlyevaluating the requirements of SFAS 157 and have not yet determined the impacton our consolidated financial statements.

In February 2007, the FASB issued SFAS 159, “The FairValue Option for Financial Assets and Financial Liabilities”, or SFAS 159,which permits entities to choose to measure many financial instruments andcertain other items at fair value that are not currently required to bemeasured at fair value. SFAS 159 will be effective for us on January 1, 2008.We are currently evaluating the impact of adopting SFAS 159 on our consolidatedfinancial statements.

On July 25, 2007, the FASB held a meeting to discuss,among other things, the accounting method for net share settledsecurities.  As a result of the meeting, the FASB voted to adopt a methodfor accounting for net share settled securities under which the debt and equitycomponents of the security would be bifurcated and accounted forseparately.  The effect of this proposal is that the equity componentwould be included in the paid-in-capital section of stockholders’ equity on ourbalance sheet and the value of the equity component would be treated asoriginal issue discount for purposes of accounting for the debt component ofthe notes.  As a result, net loss attributable to our common stockholdersis expected to be higher by recognizing accretion of the discounted carryingvalue of our convertible debt security to its face amount as additionalinterest expense. The diluted earnings per share calculation wouldcontinue to be calculated based on the treasury stock method. Moreover, theFASB will require that the new method be implemented retrospectively. The FASBhas not yet published its final decision with respect to this proposed changeto accounting treatment so there remains uncertainty as to the full impact ofthis accounting change. We cannot predict the outcome of the FASB deliberationsand whether the FASB will require that net share settled securities beaccounted for under the existing method, the proposed method described above orsome other method, and when any change would be implemented or whether it wouldbe implemented retrospectively or prospectively.

6

----

**2.****           Summary of SignificantAccounting Policies**

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions in certain circumstances thataffect amounts reported in the accompanying consolidated financial statementsand related footnotes. In preparing these financial statements, management hasmade its best estimates and judgments of certain amounts included in thefinancial statements, giving due consideration to materiality. The primaryestimates underlying our financial statements include write-offs for obsoleteand slow moving inventory, allowance for doubtful accounts receivable, productwarranty, impairment of long-lived assets and stock-based compensation.

Our significant accounting policies are disclosed inour Annual Report on Form 10-K for the year ended December 31, 2006 that wasfiled with the Securities and Exchange Commission on March 15, 2007. Oursignificant accounting policies have not materially changed since December 31,2006.

**3.****           Inventories**

Inventories are stated at the lower of cost ormarket.  Cost is based on actual costs computed on a first-in, first-outbasis.  The components of inventories consist of the following (inthousands):
|                  | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------|------------|-------------------|------------|-----------------------|------------|
| ** **       | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Raw materials    |       | $                 | 270        |                  | $          | 159 |   |
| Work-in-progress |       | 1,158             |       | 292                   |       |
| Finished goods   |       | 1,172             |       | 159                   |       |
| **Total**        | ** ** | **$**             | **2,600**  | ** **            | **$**      | **610** | ** ** |

 

**4.****           Warranty**

We offer warranties on our product and record aliability for the estimated future costs associated with warranty claims, whichis based upon our historical experience and our estimate of the level of futurecosts. Warranty costs are reflected in the statement of operations as a cost ofgoods sold.  A reconciliation of the changes in warranty liability for thesix months ended June 30, 2007 and 2006 follows (in thousands):
|                                                   | ** ** | **Six months ended June 30,** | ** ** |
|---------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                        | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| Balance at the  beginning of the period           |       | $                                                 | 209        |   | $ | 70 |   |
| Accruals for  warranties issued during the period |       | 230                                               |       | 179 |   |
| Settlements made  in kind during the period       |       | (219                                              | )          | (136 | ) |
| **Balance at the end of the  period**             | ** ** | **$**                                             | **220**    | ** ** | **$** | **113** | ** ** |

 

**5.****           Stock-Based Compensation**

Net loss for the three and six months ended June 30,2007 included stock-based compensation expense under SFAS  123(R) of $1.5 million and $2.9 million,respectively, which consisted of stock-based compensation expense of $1.3million and $2.4 million, respectively, related to employee stock options,employee stock purchase plan and stock appreciation rights and stock-basedcompensation expense of $0.2 million and $0.5 million, respectively, related toemployee restricted stock and restricted stock units.

Net loss for the three and six months ended June 30,2006 included stock-based compensation expense under SFAS  123(R) of $1.5million and $2.9 million,respectively, which consisted of stock-based compensation expense of $1.2million and $2.3 million, respectively, related to employee stock options,employee stock purchase plan and stock appreciation rights and stock-basedcompensation expense of $0.4 million and $0.6 million, respectively, related toemployee restricted stock and restricted stock units.

Stock-based compensation arrangements to non-employeesare accounted for in accordance with EITF Issue No. 96-18, “Accounting forEquity Instruments That Are Issued to Other Than Employees for Acquiring, or inConjunction with Selling, Goods or Services,” which requires that these equityinstruments are recorded at their fair value on the measurement 

7

----

date. The measurement of stock-based compensation is subject toadjustment as the underlying equity instruments vest. Stock-based compensationexpense relating to non-employees was approximately $57,000 and $41,000 for thethree months ended June 30, 2007 and 2006, respectively, and $118,000 and$100,000 for the six months ended June 30, 2007 and 2006, respectively.

We calculated the fair value of each option on the dateof grant using the Black-Scholes model as prescribed by SFAS 123(R). Theassumptions used were as follows:
|                                  | ** ** | **Stock Option and Stock Appreciation Right Plans** | ** ** |
|----------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| ** **                       | ** ** | **Three months**                                                             | ** ** | **Six months** | ** ** |
| ** **                       | ** ** | **ended June 30, 2007**                                            | ** ** | **ended June 30, 2007** | ** ** |
| Expected term  (in years)        |       | 3.66                                                                              |       | 3.58 |   |
| Average  risk-free interest rate |       | 4.76                                                                              | %          | 4.71 | % |
| Average  volatility factor       |       | 47.1                                                                              | %          | 48.1 | % |
| Dividend yield                   |       | —                                                                            |       | — |   |

 

*Expected Term:* Ourexpected term represents the period that our stock-based awards are expected tobe outstanding and was determined based on historical exercise experience ofsimilar awards, giving consideration to the contractual terms of thestock-based awards and vesting schedules.

*Expected Volatility:*We used historical volatility based on the expected term of the awards, whichis consistent with our assessment that the historical volatility for suchperiod is more representative of future stock price trends than any other typeof volatility.

*Expected Dividends:*We have not paid and do not anticipate paying any dividends in the near future.

*Risk-Free Interest Rate:*We base the risk-free interest rate on the U.S. Treasury yield curve in effectat the time of grant based on the expected term of the underlying option.

*Forfeitures:* Asstock-based compensation expense recognized in the Condensed ConsolidatedStatement of Operations for the six months ended June 30, 2007 is based onawards ultimately expected to vest, it has been reduced for estimatedforfeitures. SFAS 123(R) requires forfeitures to be estimated at the time ofgrant and revised, if necessary, in subsequent periods if actual forfeituresdiffer from those estimates. Forfeitures were estimated based on historicalexperience.

No income tax benefit has been recognized relating to stock-based compensationexpense and no tax benefits have been realized from exercised stock options.

Stock Options and Stock Appreciation Rights: Duringthe three months ended June 30, 2007, we granted stock options and stockappreciation rights for 283,490 shares of common stock, with an estimated totalgrant-date fair value of approximately $2.2 million and a grant dateweighted-average fair value of $7.61 per share. During the three months endedJune 30, 2006, we granted stock options and stock appreciation rights for82,000 shares of common stock, with an estimated total grant-date fair value ofapproximately $0.4 million and a grant date weighted-average fair value of$4.31 per share.

As of June 30, 2007, there was unrecognized compensation cost ofapproximately $11.1 million for total stock-based compensation related to stockoptions and stock appreciation rights, before forfeitures. This cost isexpected to be recognized over a weighted-average amortization period of 2.7years.

Employee Stock Purchase Plan (ESPP): The compensationcost in connection with the ESPP for the six months ended June 30, 2007 wasapproximately $153,000 with a grant-date weighted-average fair value of $5.07.During the six months ended June 30, 2006, the compensation cost wasapproximately $128,000, with a grant-date weighted-average fair value of $4.34.This cost is amortized on a straight-line basis over the relevant subscriptionperiod.

We calculated the fair value of each share under theESPP on the date of grant using the Black-Scholes model as prescribed by SFASNo. 123(R). The assumptions used were as follows:
|                                  | ** ** | **Six months ended   June 30, 2007** | ** ** |
|----------------------------------|------------|---------------------------------------------------------------|------------|
| Expected term  (in years)        |       | 0.78                                                          |       |
| Average  risk-free interest rate |       | 5.07                                                          | %          |
| Average  volatility factor       |       | 42.0                                                          | %          |
| Dividend yield                   |       | —                                                        |       |

 

8

----

Restricted Shares and Restricted Stock Units: Inconnection with restricted shares and restricted stock units granted, werecorded stock compensation representing the difference between the exerciseprice of the shares and the fair market value of our common shares on the datesthe awards were granted. Compensation expense is being recorded on astraight-line basis over the vesting periods of the underlying stock awards.During the three months ended June 30, 2007, we granted 15,500 shares of restrictedstock units, with an grant-date fair value of approximately $0.3 million and agrant-date weighted-average fair value of $19.17. During the three months endedJune 30, 2006, we granted 14,000 shares of restricted stock and 8,500 shares ofrestricted stock units, with a grant-date fair value of approximately $0.3million and a grant-date weighted-average fair value of $13.54.

As of June 30, 2007, there was an unrecognized compensation cost ofapproximately $1.6 million related to nonvested restricted shares andrestricted stock units, before forfeitures. This cost is expected to berecognized over a weighted-average amortization period of 1.2 years forrestricted stock awards and 2.2 years for restricted stock units.

**6.****           Notes Payable**

In February 2007, we issued an aggregate principalamount of $86,250,000 of our 2.25% convertible senior notes due 2027. Thesenotes bear interest on the principal amount at 2.25% per annum, payablesemiannually in arrears on February 15 and August 15 of each year, beginning onAugust 15, 2007. Interest accrual on the notes commenced on February 12, 2007.The notes will mature on February 15, 2027, unless earlier redeemed,repurchased or purchased by us or converted.

The notes are convertible into cash and, ifapplicable, shares of our common stock based on an initial conversion rate,subject to adjustment, of 35.8616 shares per $1,000 principal amount of notes(which represents an initial conversion price of approximately $27.89 pershare), in certain circumstances described in the next paragraph. Uponconversion, a holder would receive cash up to the principal amount of the noteand shares of our common stock in respect of such note’s conversion value inexcess of such principal amount.

The notes are convertible only in the followingcircumstances: (1) during any calendar quarter after the quarter ending March31, 2007 if the closing sale price of our common stock for each of 20 or moretrading days in a period of 30 consecutive trading days ending on the lasttrading day of the immediately preceding calendar quarter exceeds 120% of theconversion price; (2) during the five consecutive business days immediatelyafter any five consecutive trading day period in which if the average tradingprice per $1,000 principal amount of the Notes is less than or equal to 97% ofthe average conversion value of the notes during such five-day period; (3) uponthe occurrence of specified corporate transactions; (4) if we call the notesfor redemption and (5) at anytime on or after December 15, 2011 to andincluding February 15, 2012 and anytime on or after February 15, 2025. Upon achange in control or termination of trading, holders of the notes may requireus to repurchase all or a portion of their notes for cash at a repurchase priceequal to 100% of the principal amount, plus any accrued and unpaid interest.

In addition, in connection with the issuance of thenotes, we entered into separate convertible note hedge transactions andseparate warrant transactions to reduce the potential dilution upon conversionof the notes ( “Call Spread Transactions”). As a result of the Call SpreadTransactions, we do not anticipate experiencing an increase in the total sharesoutstanding from the conversion of the notes unless the price of our commonstock appreciates above $36.47 per share, effectively increasing the conversionpremium to $36.47. We purchased call options to cover approximately 3.1 millionshares of our common stock, which is the number of shares underlying the notes.In addition, we sold warrants permitting the purchasers to acquire up toapproximately 3.1 million shares of our common stock.

**7.****            Income Taxes**

We adopted the provisions of FIN 48 on January 1,2007.  The adoption of the provisions of FIN 48 did not have a materialimpact on our financial position and results of operations. We have not beenaudited by the Internal Revenue Service or any state income or franchise taxagency. As of June 30, 2007, our federal returns for the years ended 2003through the current period and most state returns for the years ended 2002through the current period are still open to examination. In addition, all ofthe net operating losses and research and development credit carryforwards thatmay be used in future years are still subject to inquiry given that the statuteof limitation for these items would be from the year of the utilization.

9

----

**8.****            Computation of Net Loss Per Share**

Basic net loss per share excludes any potentialdilutive effects of options and common stock shares subject torepurchase. Diluted net loss per share includes the impact of potentiallydilutive securities.  However, due to our net loss position, basic anddiluted net loss per share are both computed using the weighted average numberof common shares outstanding.

The following table provides a reconciliation ofweighted-average number of common shares outstanding to the weighted-averagenumber common shares outstanding used in computing basic and diluted net lossper common share (in thousands):
| ** **                                                                                                            | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                                            | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Denominator:                                                                                                          |       |                                                |       |                                              |       |   |   |   |   |
| Weighted-average  number of common shares oustanding                                                                  |       | 29,457                                              |       | 29,185                                            |       | 29,393 |   | 29,154 |   |
| Less: Weighted-average unvested and restricted  common shares                                                         |       | (37                                                 | )          | (267                                              | )          | (53 | ) | (264 | ) |
| **Weighted-average  number common shares outstanding used in computing basic and diluted net loss  per common share** | ** ** | **29,420**                                          | ** ** | **28,918**                                        | ** ** | **29,340** | ** ** | **28,890** | ** ** |

 

The following outstanding options, potential employeestock purchase plan shares, warrants, stock appreciation rights, restrictedstock units and shares were excluded from the computation of diluted net lossper share, as their effect would have been antidilutive (in thousands):
|                                                           | ** ** | **_As of June 30,** | ** ** |
|-----------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                | ** ** | **2007**                           | ** ** | **2006** | ** ** |
| Outstanding  options and SARs                             |       | 4,096                              |       | 3,780 |   |
| Restricted stock                                          |       | 29                                 |       | 274 |   |
| Restricted stock  units                                   |       | 288                                |       | 70 |   |
| Employee Stock  Purchase Plan                             |       | —                             |       | 45 |   |
| Warrants issued  in connection with our convertible notes |       | 3,093                              |       | — |   |
| **Total**                                                 | ** ** | **7,506**                          | ** ** | **4,169** | ** ** |

 

Our 2.25% senior convertible notes are not included inthe calculation of net loss per share because their effect is anti-dilutive.

**9.****            Stockholders’ Equity**

As of June 30, 2007, we hold 77,863 shares of treasurystock as a result of repurchasing shares of restricted common stock at parvalue in accordance with the terms of the restricted stock agreements. Theseshares had a purchase price of $0.003 per share and are recorded as treasurystock.

In connection with the issuance of our seniorconvertible notes (see Note 6) in February 2007, we entered into the CallSpread Transactions, which have the effect of reducing the potential dilutionupon conversion of the notes. We purchased call options in private transactionsto cover approximately 3.1 million shares of our common stock at a strike priceof $27.89 per share (subject to adjustment in certain circumstances) forapproximately $19.4 million. The call options generally will allow us toreceive shares of common stock from counterparties equal to the number ofshares of common stock payable to the holders of our senior convertible notesupon conversion. These call options will terminate the earlier of the maturitydates of the related senior convertible notes or the first day all of therelated senior convertible notes are no longer outstanding due to conversion orotherwise. In addition, we sold warrants permitting the purchasers to acquireup to approximately 3.1 million shares of our common stock at an exercise priceof $36.47 per share (subject to adjustments in certain circumstances) inprivate transactions for total proceeds of approximately $10.7 million. Thewarrants provide for net share settlement. We have analyzed the Call SpreadTransactions under EITF Issue No. 00-19, “Accounting for Derivative FinancialInstruments Indexed to, and Potentially Settled In, a Company’s Own Stock,” anddetermined that they meet the criteria for classification as equitytransactions. As a

10

----

result, in the six months ended June 30, 2007, we recorded the purchaseof the call options as a reduction in additional paid-in capital and theproceeds of the warrants as an addition to paid-in capital, and we will notrecognize subsequent changes in fair value of the agreements.

**10.****     Commitments and Contingencies**

On February 27, 2007, we entered into an amendment tothe Share Purchase and Call Option Agreement dated January 17, 2004 withConceptus SAS, (or “SAS”) and into an amendment to the Distribution Agreementwith SAS, dated January 17, 2004.  Pursuant to the amendment to the SharePurchase and Call Option Agreement, we agreed not to exercise the call optionto acquire SAS in 2007 and agreed to exercise our call option to acquire SASsometime between January 1, 2008 and January 2, 2009 subject to thesatisfaction of certain closing conditions.  Pursuant to the amendment tothe Distribution Agreement, SAS agreed to increase the price they pay to us forthe *Essure* product. The difference in priceof the revised Distribution Agreement compared to the previous agreement isbeing recorded as a current liability in our consolidated balance sheet. As ofJune 30, 2007, the balance of this current liability was $1.2 million.

**Item2.  Management’s Discussion and Analysis of Financial Condition andResults of Operations**

*The following discussion of ourfinancial condition and results of operations should be read in conjunctionwith our consolidated financial statements and related notes thereto. Thisdiscussion contains forward-looking statements, including references to 2007revenues and gross margins, increased product adoption, product improvements,expanded sales force and other forecasted items, that involve risks anduncertainties such as our limited operating and sales history; the uncertaintyof market acceptance of our product; dependence on obtaining and maintainingreimbursement; effectiveness and safety of our product over the long-term; ourability to obtain and maintain the necessary governmental clearances orapprovals to market our product; our ability to develop and maintainproprietary aspects of our technology; our ability to manage our expansion; ourlimited history of manufacturing our product; our dependence onsingle source suppliers, third party manufacturers and co-marketers;intense competition in the medical device industry and in the contraceptionmarket; the inherent risk of exposure to product liability claims and productrecalls and other factors referenced in this Form 10-Q.  Our actual resultscould differ materially from those expressed or implied in theseforward-looking statements as a result of various factors, including thosediscussed in our Annual Report on Form 10-K for the year ended December 31,2006 filed with the Securities and Exchange Commission on March 15, 2007 andthose included elsewhere in this Form 10-Q.*

**Overview**

We develop, manufacture and market the *Essure*® Permanent Birth Control system, an innovativeand proprietary medical device for women that was approved for marketing in theUnited States in November 2002 by the United States Food and DrugAdministration or FDA. The *Essure* systemuses a soft and flexible micro-insert that is delivered into a woman’sfallopian tubes to provide permanent birth control by causing a benign tissuein-growth that blocks the fallopian tubes. A successfully placed  *Essure*micro-insert and the subsequent tissue growth prohibits the egg from travelingthrough the fallopian tubes and therefore prevents fertilization.

*The Essure Procedure*

The *Essure*procedure is typically performed as an outpatient procedure and is intended tobe a less invasive and a less costly alternative to tubal ligation, the leadingform of birth control in the United States and worldwide. Laparoscopictubal ligation and tubal ligation by laparotomy typically involve abdominalincisions and/or punctures, general or regional anesthesia, four to ten days ofnormal recovery time and the risks associated with an incisionalprocedure. The *Essure*procedure does not require cutting or penetrating the abdomen, which lowers thelikelihood of post-operative pain due to the incisions/punctures, and it can beperformed in an outpatient setting without general or regionalanesthesia.  In the Pivotal trial of the *Essure*system, the total procedure time averaged 35 minutes, with an average of 13minutes of hysteroscopic time to place the *Essure*micro-insert. A patient is typically discharged approximately 45 minutesafter the *Essure* procedure. No overnight hospitalstay is required.  Furthermore, the *Essure* systemis effective without drugs or hormones. There is a three-month waitingperiod after the procedure during which the woman must use another form ofbirth control while tissue in-growth occurs. At 90 days following theprocedure, the patient completes a follow-up examination called ahysterosalpingogram, or HSG, which can determine whether the device was placedsuccessfully and whether the fallopian tubes are occluded.

We believe that the *Essure*system is also an attractive alternative to tubal ligation for physicians,hospitals and payers. The  *Essure* system is a less invasive permanent birth controloption for physicians to offer to their patients; hospitals are able to utilizetheir facilities more cost effectively with the *Essure*procedure compared with tubal ligation, and payers are able to experience costreductions resulting from the elimination of overhead and procedural costsrelated to anesthesia and post-operative hospital stays associated with tuballigations. We also believe the *Essure* systemis a viable alternative to other 

11

----

temporary methods of birth control being used when there is nointention of having children in the future. In addition, payers may alsobenefit from the reduction of unplanned pregnancies associated withnon-permanent methods of birth control used by patients who have chosen toavoid the drawbacks of traditional permanent birth control methods but who mayelect to use the *Essure* system.

Published reports estimate that 700,000 tubal ligationprocedures are performed each year in the United States. We intend to tapinto this market and establish the *Essure*procedure as the gold standard for permanent birth control.

The *Essure* systemis currently being marketed in multiple countries. In November 2002 we receivedapproval from the FDA to market the *Essure* systemin the United States. In 2001, we were given approval to affix the CE Markto the *Essure* system, indicating that the *Essure* system is certified for sale throughout the EuropeanUnion, subject to compliance with local regulations such as registration withhealth ministries and/or particular requirements regarding labeling ordistribution. In Canada, we received clearance from Health Canada tomarket the *Essure* system in Canada in November2001. We currently have distributors in Australia, Canada and France,which cover Europe, Middle East, Africa, Mexico, Central America and SouthAmerica.

On February 27,2007, we entered into an amendment to the Share Purchase and Call OptionAgreement dated January 17, 2004 between Conceptus, Conceptus SAS, or SAS, andthe Purchasers party thereto and an amendment to the Distribution Agreementwith SAS, dated January 17, 2004.  Pursuant to the amendment to the SharePurchase and Call Option Agreement, we agreed not to exercise the call optionto acquire SAS in 2007 and agreed to exercise our call option to acquire SASsometime between January 1, 2008 and January 2, 2009 subject to thesatisfaction of certain closing conditions. The purchase price will bedetermined as a multiplier of yearly sales. Pursuant to the amendment to theDistribution Agreement, SAS agreed to increase the price they pay to us for the*Essure* product. The difference in priceof the revised Distribution Agreement compared to the previous agreement isbeing recorded as a current liability in our consolidated balance sheet. As ofJune 30, 2007, the balance of this current liability was $1.2 million.

*Effectiveness of the Essure System*

In July 2005, we received approval from the FDA toextend effectiveness data on the *Essure* productlabeling. The Premarket Approval, or PMA, supplement filed in late January 2005supports an extension of the effectiveness rate of the  *Essure* systemto 99.80% after four years and 99.74% after five years of follow-up, from thepreviously approved 99.80% at three years. The five-year effectiveness wasdemonstrated in a small portion of the women undergoing clinical studies. Fiveyear follow up of all patients in clinical trials is ongoing.

In September 2005, we received approval from the FDAto terminate our post-approval study with physicians who were newly trained inperforming the *Essure* procedure due to thepositive placement data obtained. The purpose of the post-approval study,required by the FDA as a condition of the November 2002 approval of the *Essure* system, was to determine the rate of successfulbilateral placements of the *Essure*micro-inserts at first attempt with a large number of newly trained physicianswho were not part of the previous clinical studies. Although treatment of thetotal number of patients required by FDA had not been completed, the dataobtained to date provided us with the opportunity to request that the FDApermit an early termination of the study. Because of the FDA ruling, the PMASupplement submitted in March 2005 has been re-classified as a Final Report.The results of the post-approval study demonstrated an improvement in placementrates from those obtained in the pivotal study and we will seek to obtain a newplacement rate claim for the product using this new data. In November 2005, wefiled a PMA supplement with the FDA in order to obtain approval to modify the *Essure* Physician and Patient labeling to reflect a 94.6%first procedure bilateral placement rate based on results of the post-approvalstudy.  In October 2006, we received such approval from the FDA.

*Penetration*

Physicians are required to be preceptored for between3 and 5 cases by a certified trainer before being able to perform the procedureindependently. As of June 30, 2007, the increase of physicians that have beentrained or that are in the process of training has been commensurate with theincrease in sales. The level of sales for the *Essure*system, particularly in this early period of adoption, is highly dependent onthe number of physicians trained to perform the procedure. However, weunderstand that a strong base of trained physicians does not necessarilycorrelate to an increase in revenue proportionately. Furthermore, there are norevenues associated with the training activities. We do not charge a fee forthe activity and no commitment arises for the physician from the preceptorship.Physician training is provided upfront and we have no obligation subsequent tothe initial training. Training costs have not been significant from inceptionto-date.

12

----

*Reimbursement of the Essure Procedure*

Market acceptance of the *Essure*system depends in part upon the availability of reimbursement within prevailinghealthcare payment systems. We believe that physician advocacy of our product willbe required to continue to obtain reimbursement. As of June 30, 2007, we havereceived positive reimbursement decisions for the *Essure*procedure from most private insurers and 43 of the 51 Medicaid programs in thecountry. We intend to continue our effort to educate payers of thecost-effectiveness of our product, and to establish further programs to helpphysicians to navigate reimbursement issues.

In July 2005, the UnitedHealthcare Group, or UHC,approved the *Essure* procedure forreimbursement. In addition, in February 2006, we received coverage from CIGNACorporation, or Cigna. As with all healthcare plans, coverage will vary and isdependent upon the individual’s specific benefit plan.

Effective January 1, 2007, the Centers for Medicareand Medicaid Services, or CMS, the Medicare National unadjusted average paymentfor hysteroscopic sterilization, the CPT code, is $433 when performed in ahospital and $2,017 when performed in a physician’s office. This compares to aMedicare national average payment for tubal ligation, the current standard ofcare for permanent female sterilization, of $370. In addition, in the CMS FinalRule for the 2007 Outpatient Prospective Payment System (or OPPS), whichassigns hospital outpatient reimbursement amounts, the CPT code was assigned aMedicare National Average of $2,642. In 2007, the CPT code was moved from Group4 which had a national average reimbursement of $633 to Group 9 which has anational average reimbursement of $1,339. We believe these values are very favorablefor the *Essure* procedure and will help inestablishing increased utilization of the device amongst doctors. We expectthat the new code, once the process to establish it at all private payers thathave given a favorable coverage decision is complete, will significantly easethe burden on a physician’s office in obtaining reimbursement for the *Essure* procedure and accelerate the coverage of the *Essure* procedure by private insurance companies andMedicaid. This process is not automatic following receipt of the new CPT code,however, and we anticipate continuing to focus on reimbursement issues forsometime in the future, both to secure our code and payment schedule into thepayers’ databases, as well as to help the physician negotiate a favorablecontract for payment off that schedule.

*Adoption of the Essure system*

The *Essure* systemis a novel product in the contraception market, which is dominated byprocedures that are well established among physicians and patients and areroutinely taught to new physicians. As a result, we believe thatrecommendations and endorsements by physicians will be essential for marketacceptance of our product. Physicians are traditionally slow to adopt newproducts 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 birthcontrol. The following discussion summarizes our program in the United Statesto increase adoption of the *Essure*procedure.

First, we are expanding our sales territories andchannels of distribution so as to increase our call frequency on physicians.During the six months ended June 30, 2007, we added a substantial number ofsales positions and are expecting to add more in the remaining of 2007. Also,we have included regional distributors of women’s gynecology products to ourmarketing efforts. Among other responsibilities, our sales representatives areattempting to increase penetration and utilization of the *Essure*procedure, as well as to facilitate the movement of the *Essure*procedure to the in the office environment.

Second, we are attempting to increase patientawareness, so as to increase the number of women that will ask for informationabout the *Essure* procedure. We may achieve thisthrough radio campaigns, direct mail and print media (magazine) advertisementsaimed at increasing consumer awareness.

Third, we are focused on obtaining favorable coveragedecisions from the remaining payers representing the private paying andstate-paying Medicaid systems that have not given a coverage decision. It isour intention to maintain our field based tactical reimbursement group aimed atobtaining coverage decisions and educating the physician and office regardingpayer procedures.

Fourth, we have entered into certain strategicagreements in the past and we may explore such opportunities in the future. Weintend for these agreements to provide us with the ability to increaseawareness, gain market presence and credibility, accelerate our ability totrain doctors, as well as expand our market opportunity by driving adoptionamong a group of physicians not previously targeted by our marketing programs.The success of these campaigns will depend upon the effectiveness of our salesforce training programs, market demand for *Essure*procedures in conjunction with the products marketed by strategic partners andthe efforts and commitment of strategic partners to the program. We cannot becertain how successful these programs will be, if at all.

Lastly, as appropriate we intend to make labelingimprovements to our product as well as physical product enhancements to enhancethe adoption of the *Essure*procedure. This may involve working with the various regulatory agencies aroundthe world that regulate the sale and labeling of medical devices to provideupdates to claims such as effectiveness and placement rates. Where appropriate,we will make physical improvements to the product for improvedmanufacturability or for the ease of use by the physician.  The FDA has recently approved the thirdgeneration of the *Essure* product for sale in theUnited States.

13

----

We have experienced significant operating losses sinceinception and, as of June 30, 2007, have an accumulated deficit of $229.9million. We will continue to expend substantial resources in the selling andmarketing of the *Essure* system in the UnitedStates and abroad. We will continue to be in a net loss position untilsufficient revenues can be generated to offset expenses. In December 2006 wefiled a Registration Statement on Form S-3, through which we may sell from timeto time any combination of debt securities, common stock, preferred stock andwarrants, in one or more offerings, with an initial offering price not toexceed $150,000,000. In February 2007, we used the shelf to complete aconvertible debt offering for an aggregate principal amount of $86,250,000 ofour 2.25% convertible senior notes due 2027. In the future, depending upon avariety of factors, we may need to raise additional funds through bankfacilities, debt or equity offerings or other sources of capital. Additionalfinancing may not be available when needed or on terms acceptable to us.

**Results of Operations - Three and Six Months EndedJune 30, 2007 and 2006**

**2007 results compared to 2006 (in thousands,except percentages)**
| ** **                                    | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007-  2006** | ** ** | **2007** | ** ** | **2006** | ** ** | **2007-  2006** | ** ** |
| ** **                                    | ** ** | **Amount**                                          | ** ** | **% (a)**                                    | ** ** | **Amount** | ** ** | **% (a)** | ** ** | **%   Change** | ** ** | **Amount** | ** ** | **% (a)** | ** ** | **Amount** | ** ** | **% (a)** | ** ** | **%   Change** | ** ** |
| Net sales                                     |       | $                                                   | 15,669     |                                              | 100        | % | $ | 10,003 |   | 100 | % | 57 | % | $ | 29,449 |   | 100 | % | $ | 17,965 |   | 100 | % | 64 | % |
| Gross profit                                  |       | 11,431                                              |       | 73                                                | %          | 6,352 |   | 64 | % | 80 | % | 21,506 |   | 73 | % | 11,431 |   | 64 | % | 88 | % |
| Research and  development expenses            |       | 1,061                                               |       | 7                                                 | %          | 1,069 |   | 11 | % | -1 | % | 2,703 |   | 9 | % | 2,269 |   | 13 | % | 19 | % |
| Selling, general  and administrative expenses |       | 13,172                                              |       | 84                                                | %          | 10,935 |   | 109 | % | 20 | % | 26,181 |   | 89 | % | 20,935 |   | 117 | % | 25 | % |
| Net loss                                      |       | (2,140                                              | )          | -14                                               | %          | (5,329 | ) | -53 | % | -60 | % | (6,240 | ) | -21 | % | (11,117 | ) | -62 | % | -44 | % |
|                                               |            |                                                     |            |                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**(a)**Expressed as a percentage of total net sales.

*NetSales*

Net sales were $15.7 million for the three monthsended June 30, 2007 as compared to $10.0 million for the three months endedJune 30, 2006, an increase of $5.7 million, or 57%. Net sales for the sixmonths ended June 30, 2007 were $29.4 million, as compared to $18.0 million forthe six months ended June 30, 2006, an increase of $11.5 million, or64%.  The increase in net sales is the result of continuedcommercialization of the*Essure*system worldwide, and reflects the increasing number of physicians entering andcompleting training in the use of the procedure and higher utilization bytrained physicians. As of June 30, 2007, the increase of physicians that havebeen trained or that are in the process of training has been commensurate withthe increase in sales. Our accomplishment in obtaining the number of physicianstrained is very important because it provides us with a strong referral basewithin major metropolitan areas we have targeted. We understand that a strongbase of trained physicians does not necessarily correlate to an increase inrevenue proportionately. Furthermore, there are no revenues associated with thetraining activities. We do not charge a fee for the activity and no commitmentarises for the physician from the preceptorship. Physician training is providedupfront and we have no obligation subsequent to the initial training. Trainingcosts have not been significant to us from inception to-date.

Net product salesby geographic region as a percentage of net sales for the three and six monthsended June 30, 2007 and 2006 are as follows (in thousands, except percentages):
| ** **                | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net sales                 |       | $                                | 15,669     |                           | $          | 10,003 |   | $ | 29,449 |   | $ | 17,965 |   |
| United States of  America |       | 13,930                           |       | 89                             | %          | 26,476 |   | 90 | % |
| Europe                    |       | 1,540                            |       | 10                             | %          | 2,718 |   | 9 | % |
| Other                     |       | 199                              |       | 1                              | %          | 255 |   | 1 | % |
|                           |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |

 

Net sales areattributed to region based on the shipping location of the external customers.

14

----

No single customer accounted for 10% or more of ournet sales during the three and six months ended June 30, 2007 and June 30,2006.  Accounts receivable from onecustomer accounted for 26% of our net accounts receivable balance as of June30, 2007. Accounts receivable from one customer accounted for 16% of our netaccounts receivable balance as of June 30, 2006.

We expect our net sales for 2007 to be approximately$62 million to $65 million, which would represent 48% to 55% growth from netsales in 2006. We expect net sales from the United States will continue to bethe major contributor of our global net sales. We have established fourprimary goals to achieve our revenue growth. We expect to increase salescoverage and with that increase physician penetration and utilization of the *Essure* device in both the hospital and the office setting.In addition, we will continue to increase our programs aimed at raising patientawareness of the *Essure*procedure, such as advertising with physicians and internet marketing, we willobtain additional payer coverage decisions or otherwise improve the public andprivate payer coverage for the  *Essure*  procedure, andbring product improvements to the *Essure* deviceto the market. We believe our revenue growth in 2007 and beyond will besignificantly influenced by how successful we are in achieving thoseobjectives. However, as we have noted elsewhere in this Form 10-Q and riskfactors from our Form 10-K referenced herein, our expected revenue growthinvolves factors that are outside of our control, such as market acceptance ofthe*Essure* system and third partyreimbursement for the device.

*GrossProfit*

Cost of goods sold for the three months ended June 30,2007 was $4.2 million as compared to $3.7 million for the three months endedJune 30, 2006. This increase of $0.6 million, or 16%, was caused by theincrease in net sales, partially offset by reductions in manufacturing costsdue to the impact of higher volumes on relatively fixed manufacturing costs.For the six months ended June 30, 2007, cost of goods sold was $7.9 million, ascompared to $6.5 million for the six months ended June 30, 2006. The increaseof $1.4 million, or 22% was caused by the same factors. Gross profit marginimproved from 64% for the three months ended June 30, 2006 to 73% for the sameperiod ended June 30, 2007. For the six months ended June 30, 2007, grossprofit margin was $21.5 million or 73%, which represents an improvement from agross profit margin of 64% for the six months ended June 30, 2006, which wasprimarily from greater volumes on relatively fixed manufacturing costs. Weanticipate gross margins will improve throughout 2007 due to lower per-unitcosts on greater volume; however, our gross profit margin will vary as oursales mix changes. Increases in sales of our devices through distributors in internationalmarkets will tend to decrease our overall gross profit margin.

*OperatingExpenses*

Research and development expenses, which includeexpenditures related to product development, clinical research and regulatoryaffairs, were $1.1 million for the three months ended June 30, 2007 and thesame amount for the three months ended June 30, 2006. Research and developmentexpenses were $2.7 million and $2.3 million for the six months ended June 30,2007 and 2006, respectively. The primary reason for the increase in researchand development expenses was due to ongoing product development. We intend tocontinue to focus our research and development efforts on the development ofnew or alternative product designs along with management of the on-goingclinical trials. It is our goal to launch new product designs over the comingyears, which are intended to result in a lower cost of the device, improvedease of use of the *Essure* systemand simplified packaging systems.

Selling, general and administrative spending for thethree months ended June 30, 2007 was $13.2 million as compared to $10.9 millionfor the three months ended June 30, 2006, which represents an increase of $2.2million, or 20%. The primary reason for the increase was higher payrollexpenditures of $0.7 million, primarily due to the expansion of our U.S. fieldsales force, which we intend will generate more selling time and focus onphysician penetration. Additionally, increases in selling, general andadministrative expenses were a result of increased advertising expenses of $0.6million, increased travel expenses of $0.2 million and increased consultingexpenditures of $0.1 million. The remainder is due to general corporateexpenses to support our growing infrastructure.

Selling, general and administrative spending for thesix months ended June 30, 2007 was $26.2 million as compared to $20.9 millionfor the six months ended June 30, 2006, which represents an increase of $5.2million, or 25%. The primary reason for the increase was higher payroll expendituresof $2.0 million, primarily due to the expansion of our U.S. field sales force,which we intend will generate more selling time and focus on physicianpenetration. Additionally, increases in selling, general and administrativeexpenses were a result of increased advertising expenses of $1.1 million,increased travel expenses of $0.7 million and increased consulting expendituresof $0.4 million. The remainder is due to general corporate expenses to supportour growing infrastructure. We expect selling, general and administrativeexpenses to increase in the future as we expect to hire additional salesprofessionals and to increase expenses in advertising to support patientawareness.

Interest and other income and expenses of$0.7 million increased by $0.3 million in the three months ended June 30,2007, compared to $0.3 million in the same period ended June 30, 2006. Forthe six months ended June 30, 2007, interest and other income and expense was$1.1 million, compared to $0.7 million for the same period ended June 30, 2006,which represents an increase of $0.5 million, or 73%. The increase is due tohigher interest income in the first six months of 2007 as a result of 

15

----

investing of proceeds from our convertible senior note offeringcompleted in February 2007, offset by amortization of debt issuance costs andinterest expense on our convertible debt. For these reasons, we expecthigher interest income in 2007 compared to the previous fiscal year.

**Liquidityand Capital Resources**

We have experienced significant operating losses sinceinception. As of June 30, 2007 we had an accumulated deficit of $229.9 million.We have financed our operations since inception primarily through equityfinancings and debt. In December 2006 we filed a shelf Registration Statementon Form S-3, through which we may sell from time to time any combination ofdebt securities, common stock, preferred stock and warrants, in one or moreofferings. The aggregate initial offering price of all securities sold will notexceed $150,000,000. After the sale of our senior convertible notes describedbelow, we had $63,750,000 remaining available for sale.

In February 2007, we issued and sold under the shelfRegistration Statement an aggregate principal amount of $86,250,000 of our2.25% convertible senior notes due 2027. These notes bear a 2.25% interest perannum on the principal amount, payable semiannually in arrears on February 15and August 15 of each year, beginning on August 15, 2007. Interest accrual onthe notes commenced on February 12, 2007. The notes will mature on February 15,2027, unless earlier redeemed, repurchased or purchased by us or converted.

The notes will be convertible into cash and, ifapplicable, shares of our common stock based on an initial conversion rate,subject to adjustment, of 35.8616 shares per $1,000 principal amount of notes(which represents an initial conversion price of approximately $27.89 pershare), in certain circumstances. Upon conversion, a holder would receive cashup to the principal amount of the note and our common stock in respect of suchnote’s conversion value in excess of such principal amount.

The notes are convertible only in the followingcircumstances: (1) during any calendar quarter after the quarter ending March31, 2007 if the closing sale price of our common stock for each of 20 or moretrading days in a period of 30 consecutive trading days ending on the lasttrading day of the immediately preceding calendar quarter exceeds 120% of theconversion price; (2) during the five consecutive business days immediatelyafter any five consecutive trading day period in which if the average tradingprice per $1,000 principal amount of the Notes is less than or equal to 97% ofthe average conversion value of the notes during such five-day period; (3) uponthe occurrence of specified corporate transaction; (4) if we call the notes forredemption and (5) at anytime on or after December 15, 2011 to and includingFebruary 15, 2012 and anytime on or after February 15, 2025. Upon a change incontrol or termination of trading, holders of the notes may require us torepurchase all or a portion of their notes for cash at a repurchase price equalto 100% of the principal amount, plus any accrued and unpaid interest.

In addition, in connection with the issuance of thenotes, we entered into separate convertible note hedge transactions andseparate warrant transactions to reduce the potential dilution upon conversionof the notes ( “Call Spread Transactions”). As a result of the Call SpreadTransactions, we do not anticipate experiencing an increase in the total sharesoutstanding from the conversion of the notes unless the price of our commonstock appreciates above $36.47 per share, effectively increasing the conversionpremium to us to $36.47. We purchased call options to cover approximately 3.1million shares of our common stock, which is the number of shares underlyingthe notes. In addition, we sold warrants permitting the purchasers to acquireup to approximately 3.1 million shares of our common stock.

As of June 30, 2007, we had cash, cash equivalents andshort-term investments of $95.6 million, compared to $25.8 million at December31, 2006. The increase of $69.8 million is primarily due to the proceeds fromof the sale of our senior convertible notes in February 2007 and cash used inour operating and investing activities. We expect cash usage in operatingactivities to decrease in the future as our net loss decreases.

*OperatingActivities*

Net cash used in operating activities was $6.8 millionin the six months ended June 30, 2007, as compared to $7.0 million in the sixmonths ended June 30, 2006. Net cash used in operating activities in the sixmonths ended June 30, 2007 was primarily related to:

·            net loss of $6.2 million;

·            non-cash related items of $4.0 millioncorresponding primarily to stock based compensation and depreciation andamortization of fixed assets;

·            planned increase of inventories of $2.0million to support our increase in sales;

·            increase in accounts receivable of $3.7million; and

·            increasesin accounts payable of $0.9 million, primarily due to planned payouts for ourinventory increases.

Wemonitor our accounts receivable turnover closely to ensure that receivables arecollected timely and have established a credit and collection policy tofacilitate our collection process and reduce our credit loss exposure.

We expect cashusage in operating activities in the future to decrease as our revenues grow.

16

----

*InvestingActivities*

Net cash used in investing activities for the sixmonths ended June 30, 2007 was $71.1 million, from sales and maturity ofshort-term investments of $82.1 million, offset by purchases of investmentsconstituting auction rate securities of $11.4 million and capital expendituresof $0.5 million. Net cash used ininvesting activities for the six months ended June 30, 2006 was $3.2 million,from sales and maturity of short-term investments of $19.0 million, offset bypurchases of investments of $21.5 million and capital expenditures of $0.7million.

*FinancingActivities*

Net cash provided by financing activities in the sixmonths ended June 30, 2007 was $77.0 million, primarily due to the net proceedsof $83.2 million from our issuance of senior convertible notes in February2007, the proceeds of $10.7 million for the issuance of warrants in connectionwith our senior convertible notes and the proceeds of $2.5 million for theissuance of common stock for our stock option programs and the ESPP, offset by$19.4 million for the cost of our purchase of call options on our convertible seniornotes. Net cash provided by financing activities was $0.9 million for the sixmonths ended June 30, 2006 from the exercise of stock options.

**CRITICALACCOUNTING ESTIMATES AND POLICIES**

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions in certain circumstances thataffect amounts reported in the accompanying consolidated financial statementsand related footnotes. A description of our critical accounting estimates andpolicies is included in our Annual Report on Form 10-K for the year endedDecember 31, 2006. In preparing these financial statements, management has madeits best estimates and judgments of certain amounts included in the financialstatements, giving due consideration to materiality. The primary estimatesunderlying the Company’s financial statements include reserves for obsolete andslow moving inventory, allowance for doubtful accounts receivable, productwarranty, impairment for long-lived assets, income taxes, stock-basedcompensation and contingent liabilities. Other accounting policies aredescribed in section “Critical Accounting Estimates and Policies” in ourFinancial Statements included in our Annual Report on Form 10-K for the yearended December 31, 2006. Application of these policies involves the exercise ofjudgment and use of assumptions as to future uncertainties and, as a result,actual results could differ from these estimates.

*RecentAccounting Pronouncements*

In September 2006, the FASB issued Statement No. 157, “FairValue Measurement”, or SFAS 157. This standard defines fair value, establishesthe framework for measuring fair value in accounting principles generallyaccepted in the United States and expands disclosure about fair valuemeasurements. This pronouncement applies under other accounting standards thatrequire or permit fair value measurements. Accordingly, this statement does notrequire any new fair value measurement. This statement is effective for fiscalyears beginning after November 15, 2007 and interim periods within those fiscalyears. We will be required to adopt SFAS 157 in the first quarter of 2008. Weare currently evaluating the requirements of SFAS 157 and have not yet determinedthe impact on our consolidated financial statements.

In February 2007, FASB issued SFAS 159, “The FairValue Option for Financial Assets and Financial Liabilities”, or SFAS 159,which permits entities to choose to measure many financial instruments and certainother items at fair value that are not currently required to be measured atfair value. SFAS 159 will be effective for us on January 1, 2008. We arecurrently evaluating the impact of adopting SFAS 159 on our consolidatedfinancial statements.

**Item3. Quantitative and Qualitative Disclosures About Market Risk**

The following discusses our exposure to market riskrelated to changes in interest rates and foreign currency exchange rates. Theseexposures may change over time as business practices evolve and could have amaterial adverse impact on our financial results.

*Interest Rate Risk*: We havebeen exposed to interest rate risk through interest earned on holdings ofavailable-for-sale marketable securities.  Interest rates that may affectthese items in the future will depend on market conditions and may differ fromthe rates we have experienced in the past. The fair value of our investmentportfolio or related income would not be significantly impacted by changes ininterest rates since we reduce the sensitivity of our results of operations tothese risks by 

17

----

maintaining an investment portfolio, which is primarily comprised ofhighly rated, marketable securities. We do not hold or issue derivatives,commodity instruments or other financial instruments for trading purposes.

The fair market value of our 2.25% senior convertible notes is subjectto interest rate risk and market risk due to their convertible feature.Generally, the fair market value of fixed interest rate debt will increase asinterest rates fall and decrease as interest rates rise. The fair market valueof our senior convertible notes will increase as the market price of our commonstock increases, and decrease as the market price falls. The interest andmarket value changes affect the fair market value of our senior convertiblenotes, but do not impact our financial position, cash flows or results ofoperations.

*Foreign Currency Exchange Risk*: All of our expenses and our revenues are denominated in United States dollars.As a result, we have low exposure for currency exchange risks and do not haveforeign exchange losses. We do not enter into forward exchange contracts tohedge exposure denominated in foreign currencies or any other derivativefinancial instruments for trading or speculative purposes. In the future, ifour assessment of our foreign currency exposure changes, we may considerhedging transactions for risk mitigation.

**Item4. Controls and Procedures**

*Evaluationof Disclosure Controls and Procedures:*

We maintain disclosure controls and procedures thatare designed to ensure that information required to be disclosed in ourExchange Act reports is recorded, processed, summarized and reported within thetime periods specified in the Securities and Exchange Commission’s rules andforms and that such information is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer,as appropriate, to allow for timely decisions regarding required disclosure. Indesigning and evaluating the disclosure controls and procedures, managementrecognized that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desiredcontrol objectives, and in reaching a reasonable level of assurance, managementis required to apply its judgment in evaluating the cost-benefit relationshipof possible controls and procedures.

As of June 30, 2007, the end of our most recent fiscalquarter, we carried out an evaluation, under the supervision and with theparticipation of our management, including our Chief Executive Officer and ourChief Financial Officer, of the effectiveness of the design and operation ofour disclosure controls and procedures. Based on the foregoing, our ChiefExecutive Officer and Chief Financial Officer concluded that our disclosurecontrols and procedures were effective.

*Changesin Internal Control Over Financial Reporting:*

There was no change in our internal control overfinancial reporting during our most recent fiscal quarter that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover financial reporting.

*InherentLimitations of Internal Controls*

Internal control over financial reporting cannotprovide absolute assurance of achieving financial reporting objectives becauseof its inherent limitations.  Internal control over financial reporting isa process that involves human diligence and compliance and is subject to lapsesin judgment and breakdowns resulting from human failures. Internal control overfinancial reporting also can be circumvented by collusion or impropermanagement override. Because of such limitations, there is a risk that materialmisstatements may not be prevented or detected on a timely basis by internalcontrol over financial reporting. However, these inherent limitations are knownfeatures of the financial reporting process. Therefore, it is possible todesign into the process safeguards to reduce, though not eliminate, this risk.

**PARTII.  OTHER INFORMATION**

**Item1. Legal Proceedings**

From time to time, we areinvolved in legal proceedings arising in the ordinary course of business. We believe there is no litigation pending that could have, individually or inthe aggregate, a material adverse effect on our financial position, result ofoperations or cash flows.

**Item1A. Risk Factors**

*The risk factors included in our Annual Report as ofDecember 31, 2006 on Form 10-K filed with the Securities and ExchangeCommission on March 15, 2007 should be considered while evaluating Conceptusand our business. In addition to those factors and to other information in thisForm 10-Q, the following updates to the risk factors as of June 30, 2007 shouldbe considered carefully while evaluating the Company and our business. ThisForm 10-Q contains forward-looking statements*

18

----

*within the meaning of section 27A of the SecuritiesAct of 1933, as amended and section 21E of the Securities Exchange Act of 1934,as amended. Some of the forward-looking statements can be identified by use offorward-looking words such as “believes,” “expects,” “anticipates,” “may,” “will,”“should,” “seeks,” “approximates,” “intends,” “plans,” or “estimates,” or thenegative of these words, or other comparable terminology. The discussion offinancial trends, strategy, plans or intentions may also includeforward-looking statements. Forward-looking statements involve risks anduncertainties that could cause actual results to differ materially from thoseprojected. Although it is not possible to predict or identify all such risksand uncertainties, they may include, but are not limited to, the risk factorsincorporated by reference and to their updates. Readers should not considerthese lists to be a complete statement of all potential risks anduncertainties.*

***The accounting method for convertible debt securities withnet share settlement, like the notes, is expected  to change.***

On July 25, 2007, the FASB held a meeting to discuss,among other things, the accounting method for net share settledsecurities.  As a result of the meeting, the FASB voted to adopt a methodfor accounting for net share settled securities under which the debt and equitycomponents of the security would be bifurcated and accounted forseparately.  The effect of this proposal is that the equity componentwould be included in the paid-in-capital section of stockholders’ equity on ourbalance sheet and the value of the equity component would be treated asoriginal issue discount for purposes of accounting for the debt component ofthe notes.  As a result, net loss attributable to our common stockholdersis expected to be higher by recognizing accretion of the discounted carryingvalue of our convertible debt security to its face amount as additionalinterest expense. The diluted earnings per share calculation wouldcontinue to be calculated based on the treasury stock method. Moreover, theFASB will require that the new method be implemented retrospectively.

The FASB has not yet published its final decision withrespect to this proposed change to accounting treatment so there remainsuncertainty as to the full impact of this accounting change.

We cannot predict the outcome of the FASBdeliberations and whether the FASB will require that net share settledsecurities be accounted for under the existing method, the proposed methoddescribed above or some other method, and when any change would be implementedor whether it would be implemented retrospectively or prospectively.

We also cannot predict any other changes in GenerallyAccepted Accounting Principles that may be made affecting accounting forconvertible debt securities. Any change in the accounting method forconvertible debt securities could have an adverse impact on our reported orfuture financial results. These impacts could adversely affect the tradingprice of our common stock and in turn negatively impact the trading price ofthe notes.

**Item4. Submission of Matters to a Vote of Security Holders**

On June 8,2007, the Annual Meeting of Stockholders of Conceptus, Inc. was held inMountain View, California. The matters voted upon and approved at the meeting,and the number of affirmative and negative votes cast with respect to eachmatter were as follows:
|                                | ** ** | **Votes for** | ** ** | **Votes**    | ** ** |
|--------------------------------|------------|--------------------|------------|--------------|------------|
| ** **                     | ** ** | **Nominee**        | ** ** | **Withheld** | ** ** |
| Proposal I                     |       |               |       |         |       |
| Election of  Class I Directors |       |               |       |         |       |
| Elected:                       |       |               |       |         |       |
| - Mark M.  Sieczkarek          |       | 24,121,759         |       | 4,033,439    |       |
| - Thomas F.  Bonadio           |       | 24,113,740         |       | 4,041,458    |       |

 
| ** **                                                                                                                                                                        | ** ** | **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|-------------|------------|-------------|------------|
| Proposal II                                                                                                                                                                       |       |       |       |        |       |        |       |
| To ratify the  appointment of PricewaterhouseCoopers LLP as the independent registered  public accounting firm of the  Company  for the fiscal year ending December 31, 2007 |       | 28,140,234 |       | 884         |       | 14,077      |       |

 

19

----

**Item6. Exhibits**
| Number | ** ** | **Description**                                                                                      |
|--------|------------|------------------------------------------------------------------------------------------------------|
| 31.1   |       | Certification of Chief Executive Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2   |       | Certification of Chief Financial Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1   |       | Certification of Chief Executive Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2   |       | Certification of Chief Financial Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |

 

20

----

SIGNATURE

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.
| Date: August 7, 2007 |
|----------------------|
|                 | /s/ Gregory E.  Lichtwardt |   |
|                 | Gregory E.  Lichtwardt |
|                 | Executive Vice  President, Treasurer  and Chief Financial Officer |

21

----

**EXHIBITINDEX**
| Number | ** ** | **Description**                                                                                      |
|--------|------------|------------------------------------------------------------------------------------------------------|
| 31.1   |       | Certification of Chief Executive Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2   |       | Certification of Chief Financial Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1   |       | Certification of Chief Executive Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2   |       | Certification of Chief Financial Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |

 

22

----