<PAGE>

                                  FORM 10-K

                      SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C.  20549

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                 FOR THE FISCAL YEAR ENDED:  DECEMBER 31, 1996

                       COMMISSION FILE NUMBER: 0-27214

                                GYNECARE, INC.
            (Exact name of registrant as specified in its charter)

          DELAWARE                                          94-3197941          
      --------------------------------------------------------------------
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                          Identification No.)

                235 CONSTITUTION DRIVE, MENLO PARK, CA  94025
                ---------------------------------------------
         (Address of principal executive offices, including zip code)

      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  (415) 614-2500

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                        COMMON STOCK, $0.001 PAR VALUE
                        ------------------------------
                               (Title of class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  / /
 
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale  price of the Common Stock on March 12,
1997 as reported on the Nasdaq National Market, was approximately
$19,027,000.  Shares of Common Stock held by each executive officer and 
director and by each person who owns 5% or more of the outstanding Common 
Stock have been excluded in that such persons may be deemed to be affiliates. 
This determination of affiliate status is not necessarily a conclusive 
determination for other purposes.  As of March 12, 1997, the registrant had 
outstanding 8,298,000 shares of Common Stock.


<PAGE>

                     DOCUMENTS INCORPORATED BY REFERENCE

     The Registrant has incorporated by reference into Part II of this 
Form 10-K certain portions of its 1997 Annual Report to Stockholders (the 
"Annual Report").  In addition, the Registrant has incorporated by reference 
into Part III of this Form 10-K portions of its Proxy Statement for 
Registrant's Annual Meeting of Stockholders to be held on May 28, 1997.

     THE BUSINESS SECTION AND OTHER PARTS OF THIS ANNUAL REPORT ON FORM 10-K 
CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.  THE 
REGISTRANT'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS 
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.  FACTORS THAT MIGHT CAUSE SUCH A 
DIFFERENCE INCLUDE THOSE DISCUSSED IN THE SECTION ENTITLED "BUSINESS -- 
FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK" COMMENCING ON 
PAGE 18.

     THE THERMACHOICE UTERINE BALLOON THERAPY SYSTEM IS AN INVESTIGATIONAL 
DEVICE AND HAS NOT BEEN APPROVED BY THE FDA FOR MARKETING IN THE UNITED 
STATES. THE SYSTEM IS AVAILABLE FOR SALE IN CERTAIN MARKETS INTERNATIONALLY.

                                    PART I

                               ITEM 1. BUSINESS

OVERVIEW

     Gynecare, Inc. ("Gynecare" or the "Company") designs, develops and 
markets minimally invasive and cost-effective medical devices for the 
treatment of uterine disorders.  The Company's first product, the 
ThermaChoice-TM- Uterine Balloon Therapy-TM- system is used to treat women 
who experience dysfunctional uterine bleeding.  ThermaChoice is designed as a 
minimally invasive procedure that can be performed in eight minutes in a 
clinic or physician's office. The system is currently under investigation in 
the U.S. and approved for marketing in Canada and in over 30 other countries. 
Gynecare's second product, the VersaPoint-TM- Bipolar Electrosurgery system, 
is used to treat women diagnosed with benign uterine pathologies including 
fibroids, polyps, adhesions and divided septa.  The VersaPoint microelectrode 
vaporizes, cuts and desiccates tissue through the use of proprietary bipolar 
technology. In November 1996, Gynecare received 510(k) clearance from the FDA 
to market the VersaPoint system in the United States.

     Based on a World Health Organization study and the Company's market 
research, the Company believes that approximately 19 percent of all 
menstruating women age 30 to 50 who live in the United States, Europe, Canada 
and Japan perceive their menstrual bleeding to be excessive.  Women who 
perceive their menstrual bleeding to be excessive, including women who are 
clinically diagnosed with dysfunctional or excessive menstrual bleeding 
("menorrhagia"), may seek treatment if this condition interferes with their 
work, family and social commitments and sexual activity.  Based on Gynecare's 
market research and industry sources, it is estimated that benign uterine 
pathologies, such as fibroids, occur in 20 to 30 percent of women age 30 and 
older.  Symptoms of benign uterine pathologies include increased menstrual 
bleeding, pain or pressure in the abdomen, and infertility problems.  
Existing treatment options for dysfunctional uterine bleeding and fibroids 
have been limited to long-term drug therapy, temporary treatment by 
dilatation and curettage ("D&C") and procedures such as surgical ablation, 
surgical resection or hysterectomy.

     Gynecare's patented ThermaChoice Uterine Balloon Therapy system consists of
a disposable balloon catheter which is inserted vaginally into the uterus to
ablate the endometrial lining to a depth sufficient to inhibit its regrowth
during the menstrual cycle, thereby reducing or eliminating dysfunctional
uterine bleeding.  The catheter is designed to be approximately 5 millimeters in
diameter, enabling insertion into the uterus through the cervix without
dilation, in most cases.  This design enables physicians in many cases to treat
patients in an outpatient


                                       2
<PAGE>
setting using local anesthesia and intravenous (IV) sedation.  The system 
also includes a controller that continuously monitors pressure, regulates 
fluid temperature and controls therapy time.  Since the procedure is not 
technique-dependent, the Company believes most gynecologists will be able to 
perform the procedure without specialized training.  Gynecare commenced 
commercial shipments of the ThermaChoice system in Europe and Canada in March 
1995.

     In June 1994, the Company initiated international clinical trials to 
treat patients with dysfunctional uterine bleeding using the ThermaChoice 
Uterine Balloon Therapy system.  In October 1995, the FDA granted the Company 
an Investigational Device Exemption ("IDE") to begin a multi-center, 
randomized, comparative clinical trial to treat approximately 250 patients 
diagnosed with menorrhagia.  A twelve month follow-up with additional patient 
contact after 24 and 36 months will be required on all patients.  Gynecare 
began its U.S. clinical trials in January 1996 and completed the patient 
treatment phase in October 1996.  The Company is currently collecting patient 
follow-up data and plans to submit a Pre-Market Approval (PMA) application to 
the FDA in 1997.*

     Gynecare's proprietary VersaPoint system consists of a bipolar 
electrosurgical generator and a disposable microelectrode, which is inserted 
vaginally to cut, desiccate or vaporize uterine fibroids, polyps, adhesions 
and divided septa.  The microelectrodes are designed to be used with a 5 
millimeter operative hysteroscope which can be inserted into the uterus 
through the cervix without having to dilate the cervix, in most cases.  This 
design enables physicians in many cases to treat patients in an outpatient 
setting using local anesthesia and IV sedation.  Additionally, the VersaPoint 
Bipolar Electrosurgery system operates in a normal saline solution, thus 
reducing the risk associated with certain fluids used with conventional 
monopolar electrosurgery of electrolyte imbalance in the patient's 
bloodstream.  In November 1996, Gynecare received 510(k) marketing clearance 
from the FDA.  The Company plans to begin marketing the system in the United 
States during 1997.*

     Gynecare's goal is to become the worldwide leader in developing and 
marketing minimally invasive and cost-effective medical devices for the 
treatment of uterine disorders.  Gynecare initially plans to establish the 
ThermaChoice Uterine Balloon Therapy system as the preferred therapy for 
treating women who experience dysfunctional uterine bleeding. The Company 
also plans to conduct clinical trials for new indications for the 
ThermaChoice Uterine Balloon Therapy system, including treatment of women 
whose menstrual bleeding adversely affects their lifestyle, treatment of 
postmenopausal women who experience uterine bleeding as a side effect of 
hormone replacement therapy and treatment of women who have dysfunctional 
uterine bleeding caused by small submucosal uterine fibroids.*  Additionally, 
the Company intends to establish the VersaPoint system as the preferred 
therapy for treating women with benign uterine pathologies including 
fibroids, polyps, adhesions and divided septa.*  During fiscal 1997, Gynecare 
intends to develop the VersaPoint system for use in laparoscopic applications 
for the treatment of gynecological conditions such as serosal uterine 
fibroids and endometriosis, as well as general surgical indications.*

     In connection with the Company's incorporation in March 1994, Origin 
Medsystems, Inc. ("Origin"), a subsidiary of Guidant Corporation, assigned to 
Gynecare its license to patents and technology covering the ThermaChoice 
Uterine Balloon Therapy system developed through the date of assignment.  
Guidant, through Origin, owned approximately 31% of the Common Stock of the 
Company at December 31, 1996.  In July 1995, the Company entered into an 
exclusive license and OEM supply agreement with Gyrus Medical, Ltd. ("Gyrus") 
of Cardiff, Wales, for the VersaPoint system for hysteroscopic applications 
in gynecology.  This agreement was extended to include the field of 
laparoscopy during the first quarter of 1996.

---------------
* This is a forward-looking statement reflecting current expectations of the 
Company.  Such forward-looking statement involves risks and uncertainties and 
actual results may differ materially from those in such statement.  As such, 
there can be no assurance that the Company's actual future performance will 
meet the Company's current expectations.  Investors are strongly encouraged to 
review the section entitled "Factors Affecting Operating Results and Market 
Price of Stock" commencing on page 18, for a discussion of factors that could 
affect future performance.
                                       3
<PAGE>

BACKGROUND

     MENSTRUATION

     The normal menstrual cycle, which is controlled by the pituitary and 
ovarian hormones, begins at the onset of menstruation (typically between the 
ages of 11 and 14) and ends at the onset of menopause (typically between the 
ages of 45 and 55).  The endometrial lining of the uterus builds up each 
month in preparation for pregnancy, sheds if no pregnancy occurs, and then 
regenerates for another 28 day cycle.  Shedding of the endometrial lining of 
the uterus results in menstrual bleeding which usually lasts four to seven 
days within a 28 day cycle.  Normal blood loss during menstruation is 
considered to be 25 to 79 milliliters per cycle.

     The diagram below depicts a woman's reproductive system with a normal 
uterine cavity.








  [Inserted here is a diagram of a woman's uterine and reproductive anatomy.]









     EXCESSIVE MENSTRUAL BLEEDING

     Abnormal menstrual bleeding includes menstrual bleeding in excess of the 
normal amount, prolonged bleeding beyond seven days duration at the expected 
time of menstruation or bleeding more frequently than 24-day intervals.  
Menstrual irregularities occur across the entire age span of menstruating 
women.  From the onset of menstruation to menopause, menorrhagia is most 
often due to hormonal imbalances or uterine fibroids.  Excessive menstrual 
bleeding, or menorrhagia, is clinically defined as total blood loss exceeding 
80 milliliters per cycle.  Any bleeding in postmenopausal women is abnormal 
and is commonly a side effect of hormone replacement therapy.
     
     Women who perceive their menstrual bleeding to be excessive, including 
women who are clinically diagnosed with menorrhagia, may seek treatment if 
this condition interferes with their work, family and social commitments and 
sexual activity.  A World Health Organization survey of menstrual perceptions 
and patterns among 5,322 women in ten countries found that approximately 19% 
of women consider their menstruation to be abnormally heavy.  Additionally, 
based on its United States survey of 400 women over the age 30, the Company 
believes that 19% of women in the United States also perceive their menstrual 
bleeding to be excessive.

     FIBROIDS AND OTHER BENIGN UTERINE PATHOLOGY

     A fibroid is the most common benign pathology found inside a woman's 
pelvis.  Based on Gynecare's market research and industry sources, it is 
estimated that fibroids occur in 20-30% of women age 30 and older.  A fibroid 
is a benign growth made up of fibrous and muscular tissue and occurs in the 
wall of the uterus (intramural), on the inside wall of the uterus 
(submucosal), or on the outside wall of the uterus (serosal).  A polyp is a 
small, benign mass of tissue that projects out of the uterine lining.  An 
adhesion is a band of fibrous scar tissue adhering to the endometrial lining, 
which may interfere with fertility or pregnancy.  A divided septate is a 
uterus in which the


                                       4
<PAGE>

septum (a thin wall) abnormally divides the uterus into two separate 
cavities, thereby preventing a normal pregnancy.  Benign uterine pathology 
can cause increased menstrual bleeding, pain or pressure in the abdomen, and 
infertility problems. 

     The diagram below depicts a woman's uterus with benign uterine pathology, 
such as fibroids, polyps, and adhesions.






      [Inserted here is a diagram of a uterus with the benign pathologies:
                          fibroids, adhesions and polyps.]





CURRENT THERAPIES AND THEIR LIMITATIONS

     Successful treatment for dysfunctional uterine bleeding is usually 
defined by gynecologists as a reduction from a condition of excessive 
menstrual bleeding to normal bleeding ("eumenorrhea"), light bleeding or 
spotting ("hypomenorrhea") or no bleeding at all ("amenorrhea"). Success in 
the treatment of benign uterine pathology is defined as relief of the 
symptoms experienced by the patient, such as menstrual bleeding, pain or 
pressure in the abdomen or infertility.  Current therapy for dysfunctional 
uterine bleeding and fibroids typically begins with drug therapy.  For 
patients who do not respond to or cannot tolerate the side effects of drug 
therapy, a second treatment option is frequently dilatation and curettage 
("D&C").  In cases where drug therapy and D&C are not effective in reducing 
menstrual flow, surgical ablation, surgical resection or hysterectomy are the 
only therapeutic alternatives.

     DRUG THERAPY

     Drug therapy using estrogen-progesterone medications, such as oral 
contraceptives, or other drugs such as GnRH agonists, is the most widely 
prescribed medical treatment for dysfunctional uterine bleeding and fibroids. 
Estrogen-progesterone medications are used to regulate the menstrual cycle 
and to reduce bleeding.  GnRH agonists shrink the size of fibroids, thereby 
alleviating symptoms and reducing the amount of bleeding from fibroids.  
However, drug therapy is effective only in approximately 60% of patients.  In 
addition, an estimated 40% of patients on drug therapy experience adverse 
side effects.  Drug therapy may be prescribed by any physician, is normally 
reimbursable by third parties and does not result in infertility or involve 
the disadvantages of a surgical procedure. Side effects from drug therapy 
include nausea, bloating, weight gain, depression and mood swings.  In many 
instances, drug therapy must continue until the onset of menopause.

     DILATATION AND CURETTAGE

     Dilitation and curettage is generally used in conjunction with drug 
therapy and is performed as a diagnostic or therapeutic procedure in which 
the uterine contents are either scraped away by an instrument or removed 
through vacuum aspiration.  The 15 to 30 minute procedure is typically 
performed in a hospital operating room or outpatient surgery center using a 
general anesthetic or, less frequently, a local anesthetic which may be 
combined with IV sedation.  The patient is usually discharged from the 
hospital or clinic on the day of surgery.  The Company estimates that the 
average third-party reimbursement for hospital and physician charges for a 
D&C in the United States ranges from approximately $1,600 to $2,900.  Based 
on its 1995 survey of 200 gynecologists in the United States, the Company 
believes that over 90% of gynecologists are trained to perform the procedure. 
Based on the same survey, the Company believes that D&C is effective in 
reducing bleeding in approximately 43% of cases.  The


                                       5
<PAGE>

procedure must be repeated periodically, as it is usually effective only 
during the first few menstrual cycles after the procedure, and consequently 
subjects the patient to the risks of uterine perforation, infection and the 
complications of general anesthesia each time it is performed.
     
     SURGICAL ABLATION AND RESECTION

     Surgical ablation is a less invasive monopolar electrosurgical procedure 
using a resectoscope, a video monitor, a fluid distention medium such as 
glycine or sorbitol, and a surgical ablation device such as a rollerball 
electrode or laser to surgically ablate the endometrial lining of the uterus. 
Surgical resection is a monopolar electrosurgical procedure that involves 
cutting the benign uterine tissue, such as a fibroid, with an electrode loop 
and removing the pieces.  Resection produces fibroid "chips," which can 
obstruct the physician's field of vision.  The physician must repeatedly 
withdraw the resectoscope utilized in the procedure to remove the resected 
tissue, which results in increased procedure time.  These procedures require 
approximately 30 to 60 minutes to complete in a hospital or outpatient 
surgery center, typically under general anesthesia, and can result in patient 
infertility. Hospitalization frequently lasts one to two days with full 
patient recovery ranging from several days to several weeks.  The Company 
believes that in the United States average third-party reimbursement is 
approximately $2,000 to $4,200 for hospital and physician charges.

     Surgical ablation for dysfunctional uterine bleeding and resection for 
fibroids are effective treatments in 70% to 90% of cases, with the success 
rate being highly dependent upon the surgeon's skill level.  Since their 
introduction in the mid-1980s, these procedures have only been adopted by a 
small number of highly trained surgical gynecologists.  Adoption has been 
limited due to the high surgeon skill level required and the risks and 
complications associated with the procedure.  This highly technique-dependent 
procedure may require the physician to complete over 100 cases to reach 
proficiency.

     The rate of complications from surgical ablation and resection is 
approximately 6.5%.  Uterine perforation is one of the most commonly recorded 
complications and is serious when it results in damage to the internal iliac 
vessels, ureter, bowel or bladder. Other complications include major 
hemorrhaging from uterine vessels, air embolus from gas-cooled lasers, 
post-operative intrauterine or tubal infection, complications associated with 
general anesthesia and fluid overload due to use of glycine and sorbitol.  
Fluid overload caused by glycine and sorbitol, if allowed to build up beyond 
certain levels, can cause abnormally low concentrations of sodium ions in the 
blood ("hyponatremia"), inducing seizures, congestive heart failure, brain 
damage, or even death.

     HYSTERECTOMY

     The most common surgical procedure for definitive treatment of 
dysfunctional uterine bleeding or fibroids is hysterectomy, the surgical 
removal of the uterus through the vagina or abdominal wall, which results in 
permanent infertility. Hysterectomy is the second most commonly performed 
major surgical procedure for women in the United States. Approximately 50% of 
the estimated 600,000 procedures in the United States each year are performed 
to treat dysfunctional uterine bleeding and fibroids.  A hysterectomy 
involves surgical risk, hospitalization, a lengthy recovery period and 
significant expense.  Minimally invasive surgery techniques, such as 
laparoscopically assisted vaginal hysterectomy, are also being used in a 
small percentage of cases in the United States.

     A hysterectomy typically requires between 30 to 90 minutes in the 
operating room under general anesthesia, three to four days of 
hospitalization, and two to eight weeks of recovery time, depending on the 
type of hysterectomy performed.  The average third-party reimbursement for 
hospital and physician charges in the United States for hysterectomy ranges 
from approximately $5,100 to $10,200.

     The rate of serious complications from hysterectomy is approximately 3%. 
Such complications include hemorrhaging requiring blood transfusions, injury 
to the bowel or bladder, intestinal obstruction, life-threatening 
cardiopulmonary events and death.  Other minor complications, which occur in 
up to 40% of patients, include post-operative fever and infections.  The 
range of long-term adverse effects of hysterectomy include urinary dysfunction,


                                       6
<PAGE>

surgically induced menopause, constipation, fatigue, changes in sexual 
interest and function, depression and other psychiatric morbidity.

STRATEGY

     The Company's goal is to become the worldwide leader in developing and 
marketing minimally invasive and cost-effective medical devices to treat 
uterine disorders.  The Company initially plans to establish the ThermaChoice 
Uterine Balloon Therapy system as the preferred therapy for treating women 
who experience dysfunctional uterine bleeding, and the VersaPoint system as 
the preferred therapy for treating women diagnosed with benign pathology 
including fibroids, polyps, adhesions and divided septa.  In order to achieve 
this goal, the Company's marketing strategy is designed to promote the 
safety, efficacy, cost-effectiveness and ease of use of its products. A key 
element of this strategy is to employ patient and physician educational 
programs designed to increase awareness of the Company's products in both the 
female and physician population as alternatives to drug therapy and surgery.  
Additionally, the Company plans to market its products initially to surgical 
gynecologists who can serve as reference centers and who could publish papers 
on the clinical benefits of the procedures.

     The Company then plans to leverage its relationships with gynecologists 
to expand the indications for the ThermaChoice Uterine Balloon Therapy system 
and introduce the VersaPoint system. As part of this strategy, the Company is 
evaluating new indications for the ThermaChoice Uterine Balloon Therapy 
system, including treatment of women whose menstrual bleeding adversely 
affects their lifestyle, treatment of postmenopausal women who experience 
uterine bleeding as a side effect of hormone replacement therapy and 
treatment of women who have excessive menstrual bleeding caused by small 
submucosal uterine fibroids.  The Company plans to conduct pilot studies 
outside the United States to evaluate the safety and efficacy of the 
procedure for such other indications and to determine if expanded studies, 
including studies in the United States, are justified.*  In addition, the 
Company intends to begin development of laparoscopic applications of the 
VersaPoint system for the treatment of gynecological conditions such as serosal 
uterine fibroids and endometriosis, as well as general surgical indications.*





--------------
* This is a forward-looking statement reflecting current expectations of the 
Company.  Such forward-looking statement involves risks and uncertainties and 
actual results may differ materially from those in such statement.  As such, 
there can be no assurance that the Company's actual future performance will 
meet the Company's current expectations.  Investors are strongly encouraged 
to review the section entitled "Factors Affecting Operating Results and 
Market Price of Stock" commencing on page 18, for a discussion of factors 
that could affect future performance.


                                       7
<PAGE>

THE THERMACHOICE UTERINE BALLOON THERAPY SYSTEM

     Gynecare's ThermaChoice Uterine Balloon Therapy system includes a 
disposable balloon catheter and a controller that ablate the endometrial 
lining of the uterus using a patented process known as thermal balloon 
ablation.  The disposable balloon catheter, which contains heating and 
sensing elements, is connected to a controller that continuously monitors and 
displays catheter pressure, regulates fluid temperature and controls therapy 
time.

                 THERMACHOICE UTERINE BALLOON THERAPY SYSTEM




   [Inserted here is a drawing of the Uterine Balloon Therapy system and its
components, which include the controller, catheter, balloon, cable and syringe.]




     ThermaChoice Uterine Balloon Therapy is designed as an eight minute, 
outpatient procedure that most gynecologists will be able to perform without 
specialized training.  The physician inserts the flexible, small diameter 
balloon catheter vaginally, through the cervix and into the uterus without 
first dilating the cervix in most cases.  Next the physician inflates the 
balloon with a small amount of sterile fluid from a syringe until the 
pressure reaches approximately 160-170 millimeters of mercury.  The elastic 
balloon material is designed to enable the inflated balloon surface to 
conform to the shape of each patient's uterus.  Once the balloon is properly 
inflated, the physician presses the start button on the controller and a 
heating element inside the balloon automatically raises the temperature of 
the fluid to approximately 87 degrees Celsius and maintains it at such 
temperature for approximately eight minutes.

THERMACHOICE UTERINE BALLOON THERAPY




      [Inserted here is a drawing of the balloon catheter inserted in the
         uterus with the balloon expanded to fill the uterine cavity.]




     The controller continuously monitors and displays catheter pressure, 
regulates fluid temperature and controls therapy time throughout the 
procedure.  To ensure patient safety, if any of the preset parameters are 
exceeded, the device is automatically deactivated and the procedure 
immediately terminated.  When the controller indicates that the treatment is 
complete, the physician deflates the balloon by withdrawing the fluid and 
removes the disposable balloon catheter.

     The Company's thermal balloon ablates the endometrial lining to a depth 
sufficient to inhibit its regrowth during the menstrual cycle, thereby 
reducing or eliminating excessive menstrual bleeding.  Similar to a 
hysterectomy or surgical ablation and surgical resection, the procedure will 
likely result in infertility.


                                       8
<PAGE>

STATUS OF THERMACHOICE UTERINE BALLOON THERAPY CLINICAL TRIALS

     Since June 1994, the Company has conducted international clinical trials 
at 14 clinical sites in Australia, Canada and Europe. As of December 1996, 
physicians in these centers had treated over 300 patients, with no 
intraoperative complications and approximately 2% of patients reporting minor 
post-operative complications.  In these international studies, success for 
ThermaChoice Uterine Balloon Therapy has been defined in substantially the 
same manner that gynecologists define success of other current therapies, 
which is reducing menstrual bleeding from a condition of excessive bleeding 
to normal bleeding, light bleeding or spotting or no bleeding at all.  As of 
December 1996, clinicians conducting the Company's clinical trials reported a 
90% success rate in the 251 patients who had at least six months follow-up.

     In October 1995, the Company received FDA approval to begin a 
multi-center clinical trial to treat approximately 250 patients diagnosed 
with menorrhagia.  This trial was conducted at 12 sites in the United States 
and two in Canada and will require 12 month follow-up on all patients, with 
additional patient contact after 24 and 36 months.  Patient treatment began 
in January 1996 and was completed in October 1996.  The randomized clinical 
trial compared ThermaChoice Uterine Balloon Therapy to surgical ablation 
using a rollerball electrode.  Successful treatment is defined in the 
protocol as a reduction in menstrual blood loss to somewhat less than normal 
bleeding and overall improvement in lifestyle and, as such, is not the same 
measure of success defined in the international studies.  The Company is 
currently collecting patient follow-up data and plans to submit a PMA 
application to the FDA in 1997.*

THE VERSAPOINT BIPOLAR ELECTROSURGERY SYSTEM

     Gynecare's VersaPoint Bipolar Electrosurgery system consists of a 
bipolar electrosurgical generator and a disposable microelectrode used to 
cut, desiccate or vaporize benign uterine pathologies including fibroids, 
polyps, adhesions and divided septa. This disposable microelectrode is 
connected to the electrosurgical generator which delivers energy to the 
microelectrode, enabling it to vaporize tissue on contact.  Throughout 
therapy, the bipolar electrosurgical generator displays the power and 
electrosurgical mode of action.

                              VERSAPOINT SYSTEM




        [Inserted here is a drawing of the VersaPoint system with its
    components, which include the generator, handpiece and microelectrode.]




     The VersaPoint system is designed as a safe, minimally invasive 
treatment for benign uterine pathology.  The physician passes the 
microelectrode through a 5 millimeter operative hysteroscope which is 
inserted into the uterus through the cervix without first dilating the 
cervix, in most cases.  Next, the physician distends the uterus with normal 
saline solution in order to form a working space in the uterine cavity.  
Using the hysteroscope, the physician then visualizes the fibroid and 
activates the microelectrode. Through the delivery of energy to the 

--------------
* This is a forward-looking statement reflecting current expectations of the 
Company.  Such forward-looking statement involves risks and uncertainties and 
actual results may differ materially from those in such statement.  As such, 
there can be no assurance that the Company's actual future performance will 
meet the Company's current expectations.  Investors are strongly encouraged to 
review the section entitled "Factors Affecting Operating Results and Market 
Price of Stock" commencing on page 18, for a discussion of factors that could 
affect future performance.


                                       9
<PAGE>

microelectrode from the bipolar electrosurgical generator, the VersaPoint 
system enables the physician to vaporize, cut or dessicate the fibroid 
tissue.  This process is continued until the entire fibroid is vaporized or 
removed.
     
VERSAPOINT BIPOLAR ELECTROSURGERY




           [Inserted here is a drawing of a microelectrode inserted
                           in the uterus to treat a fibroid.]




     The VersaPoint product's bipolar technology allows the use of normal 
saline, which is generally considered the optimal medium for hysteroscopic 
procedures because it does not affect normal blood chemistry and reduces the 
risk of developing electrolyte imbalance.  Unlike monopolar electrosurgical 
tools which require that a return pad be placed on the patient's thigh or 
buttock in order to create an electrical path to the return electrode, the 
VersaPoint system localizes energy by positioning the active and return 
electrode on the same axis.  This proprietary technology prevents any "stray" 
current from traveling through the patient's body by drawing the electricity 
back to the return electrode through saline, which acts as an electrical 
conductor.

VERSAPOINT BIPOLAR ELECTRODE



     [Inserted here is a drawing of an electrode and its electrical path to
      illustrate how energy is delivered from the generator to the tissue
                           through the electrode.]



     Once the fibroid has been vaporized, the physician removes the 
microelectrode and withdraws the saline from the uterus.  The hysteroscope is 
then removed, and after a short recovery period, the patient is able to 
return home the same day and can typically resume normal activity within one 
or two days.   

OTHER INDICATIONS

     The Company has identified three additional potential indications for 
the ThermaChoice Uterine Balloon Therapy system: treatment of women age 30 to 
50 whose menstrual bleeding adversely affects their lifestyle, treatment of 
postmenopausal women who experience uterine bleeding as a side effect of 
hormone replacement therapy and treatment of women who have excessive 
menstrual bleeding caused by small submucosal uterine fibroids.  In 1996, the 
Company completed a small study involving nine patients in Canada who were 
treated with the ThermaChoice Uterine Balloon Therapy for excessive or 
prolonged uterine bleeding caused by hormone replacement therapy (HRT).  
There were no complications from the procedure.  The Company plans to expand 
this study in 1997 to include up to 30 patients.*  Additionally, the Company 
plans to conduct pilot international clinical studies in 1997 to explore using 
ThermaChoice Uterine Balloon Therapy to treat patients for lifestyle 
indications.

--------------
* This is a forward-looking statement reflecting current expectations of the 
Company.  Such forward-looking statement involves risks and uncertainties and 
actual results may differ materially from those in such statement.  As such, 
there can be no assurance that the Company's actual future performance will meet
the Company's current expectations.  Investors are strongly encouraged to 
review the section entitled "Factors Affecting Operating Results and Market 
Price of Stock" commencing on page 18, for a discussion of factors that could 
affect future performance.


                                      10
<PAGE>

Clinical trials for safety and efficacy, and a premarketing approval ("PMA") 
would be required before the Company could market its products for each of 
these indications in the United States. There can be no assurance that the 
Company will conduct the required clinical trials and receive a PMA for these 
indications, or any other indications, on a particular schedule or at all.

     In 1995, the Company retained an independent market research firm to 
conduct surveys which questioned women and gynecologists on uterine 
disorders, including these new indications.  These surveys included random 
telephone interviews of 400 women over age 30 throughout the United States, 
approximately 300 of whom were between the ages of 30 and 50 and 
approximately 100 of whom were over age 50.  The Company's physician survey 
included randomized telephone interviews of 200 gynecologists throughout the 
United States.
     
     MENSTRUATION ADVERSELY AFFECTING LIFESTYLE.  Based on its market 
research, the Company believes as many as 10% of women between the ages of 30 
and 50 in the United States with normal menstrual bleeding may wish to reduce 
menstrual bleeding for lifestyle reasons.  There are approximately 32 million 
menstruating women age 30 to 50 in the United States and approximately 65 
million menstruating women age 30 to 50 in Europe, Canada and Japan.  The 
Company believes that women in some international markets may be motivated by 
the same lifestyle considerations.

     POSTMENOPAUSAL BLEEDING.  Postmenopausal women may experience uterine 
bleeding after cessation of menstrual function.  One of the most frequently 
cited causes of postmenopausal bleeding is hormone replacement therapy 
prescribed for reduction of menopausal symptoms and prevention of 
osteoporosis and cardiovascular disease.  There are approximately 10 million 
postmenopausal women in the United States receiving hormone replacement 
therapy, of which approximately 2 million experience uterine bleeding.  Based 
on its market research, the Company believes a significant percentage of 
these women may be candidates for ThermaChoice Uterine Balloon Therapy.

     UTERINE BLEEDING DUE TO FIBROIDS.  The Company believes that the 
ThermaChoice Uterine Balloon Therapy system may also be an effective 
alternative to drug therapy and surgery for the treatment of small submucosal 
fibroids which can cause excessive menstrual bleeding.  In addition, the 
ThermaChoice Uterine Balloon Therapy system may be used in combination with 
the current VersaPoint system or other surgical methods to treat excessive 
menstrual bleeding in patients with large submucosal fibroids.

VERSAPOINT BIPOLAR ELECTROSURGERY SYSTEM

     During the first quarter of fiscal 1996, Gynecare extended its license 
and OEM supply agreement with Gyrus to include use of the VersaPoint 
technology in the field of laparoscopy.  Under the terms of the new 
agreement, the Company intends to develop the VersaPoint system for 
laparoscopic use in the treatment of gynecological conditions such as serosal 
uterine fibroids and endometriosis, as well as general surgical indications.* 
The Company intends to develop the VersaPoint system for laparoscopic 
indications and, based on the results of this research, may submit a 510(k) 
application to the FDA for clearance to market the VersaPoint system in the 
United States for laparoscopic indications.*

--------------
* This is a forward-looking statement reflecting current expectations of the
Company.  Such forward-looking statement involves risks and uncertainties and 
actual results may differ materially from those in such statement.  As such, 
there can be no assurance that the Company's actual future performance will meet
the Company's current expectations.  Investors are strongly encouraged to review
the section entitled "Factors Affecting Operating Results and Market Price of 
Stock" commencing on page 18, for a discussion of factors that could affect 
future performance.


                                      11
<PAGE>

RESEARCH AND DEVELOPMENT

     Gynecare's primary research and development programs involve developing 
new generations of the ThermaChoice Uterine Balloon Therapy system including 
new catheter configurations and new versions of the controller in order to 
increase the efficacy of the procedure, increase manufacturing reliability 
and reduce manufacturing costs.  The Company is also engaged in the ongoing 
development of the VersaPoint system, including research for laparoscopic use 
in the treatment for gynecological applications, such as serosal uterine 
fibroids and endometriosis, as well as general surgical indications.  In 
addition, the Company is exploring the use of a radio frequency ("RF") 
balloon catheter to ablate endometrial tissue using a technology licensed 
exclusively to the Company for such application.

MANUFACTURING

     The ThermaChoice Uterine Balloon Therapy system's disposable balloon 
catheter is currently manufactured in-house at the Company's facility in 
Menlo Park, California.  The Company believes that production of this balloon 
catheter in-house may improve control of and flexibility in product supply 
and cost.  Although most of the components of the disposable balloon catheter 
are available from more than one vendor, certain of the components used in 
manufacturing the disposable balloon catheter have relatively few alternative 
sources of supply and establishing additional or replacement suppliers for 
such components cannot be accomplished quickly. Although the Company 
maintains sufficient levels of inventory to avoid any material disruption 
resulting from the scale-up of its facility and utilization of in-house 
manufacturing, no assurance can be given that the Company will be able to 
manufacture and supply sufficient products to meet its anticipated 
demand.*

     The Company's controller is currently manufactured pursuant to a supply 
agreement with SeaMED Corporation ("SeaMED"). Pursuant to the agreement, the 
Company issues purchase orders to SeaMED for controllers at fixed prices, 
which prices are subject to review on a periodic basis.  The term of the 
agreement currently extends through January 1998 and can be automatically 
renewed for additional one-year periods unless notice is given by either 
party.  The Company believes that alternative suppliers are available for the 
controller and plans to qualify additional suppliers and to begin to evaluate 
the benefits of manufacturing the controller at its facility as production 
volumes increase.*

     The Company's VersaPoint system, including the bipolar electrosurgical 
generator and disposable microelectrodes, is currently manufactured pursuant 
to an OEM supply and manufacturing agreement with Gyrus.  Pursuant to this 
agreement, Gynecare obtained an exclusive, worldwide, royalty-free license to 
use and sell products with the licensed technology for hysteroscopic 
applications. Subject to the terms and conditions of the agreement, Gyrus 
manufactures the bipolar generator and microelectrodes of the VersaPoint 
system and sells them to Gynecare at prices based on a formula set forth in 
the agreement.  If, at any time and subject to certain conditions, Gyrus is 
unable to support Gynecare's product requirements, Gynecare may manufacture 
the products under a worldwide royalty-free license.  The supply and 
manufacturing agreement continues until the later of the expiration date of 
the last patent, whose rights Gynecare has obtained under the agreement, to 
expire, or the abandonment of the last patent application included in the 
patent rights obtained by Gynecare.  In the first quarter of 1996, the 
Company extended its license and OEM supply agreement with Gyrus to include 
the field of laparoscopy.  The development of laparoscopic products is a 
collaborative effort with Gyrus which involves the completion of a series of 
milestones.  A $400,000 deposit on this OEM agreement was made in March 1996, 
and additional deposits of up to $600,000 will be due over the next 12 to 24 
months. 

--------------
* This is a forward-looking statement reflecting current expectations of the 
Company.  Such forward-looking statement involves risks and uncertainties and 
actual results may differ materially from those in such statement.  As such, 
there can be no assurance that the Company's actual future performance will meet
the Company's current expectations.  Investors are strongly encouraged to review
the section entitled "Factors Affecting Operating Results and Market Price of 
Stock" commencing on page 18, for a discussion of factors that could affect 
future performance.


                                      12
<PAGE>
MARKETING AND SALES 

     The Company commenced international sales of the ThermaChoice Uterine 
Balloon Therapy system in March 1995.  To date, the ThermaChoice Uterine 
Balloon Therapy system has been shipped to approximately 22 countries.  
Distributors in such countries then sell the system to customers.  For the 
year ended December 31, 1996, OY Nikomed Finland AB, Guidant Canada, TD 
Medical BV, Xinya S&T Company, and Inter-Medical A/S accounted for 14%, 13%, 
10%, 10% and 10%, respectively, of the Company's sales.  Only limited 
shipments of the VersaPoint system have been made to Canada and the UK in the 
last quarter of fiscal 1996.  In general, the Company has chosen to operate 
through small distribution companies because of its belief that these 
companies will devote greater attention to the Company's products.  There are 
no formal written agreements with many of such distributors.  Instead, the 
Company ships product to them based on purchase orders.  In addition, certain 
of these sales to distributors have not yet resulted in sales to customers.  
Sales to distributors are made on open credit terms and may include volume 
purchase discounts and extended payment terms.  Therefore, distributors may 
purchase several months of inventory at one time to take advantage of 
discounts and extended payment terms.
     
     During 1996, the Company began implementation of a targeted marketing 
program in three European countries and Canada.  In each country, Gynecare 
has engaged a territory manager to work with local gynecologists and 
distributors to develop the market for the ThermaChoice Uterine Balloon 
Therapy system.  The Company plans to begin a similar targeted marketing 
program in the United States for the VersaPoint product during 1997 and has 
identified five key metropolitan areas in which to focus initial sales and 
marketing efforts for the VersaPoint system.  Gynecare plans to hire a 
territory manager in these target markets who will be responsible for 
physician training, symposia and patient education.  The success of these 
targeted marketing efforts and the timing of FDA approval for the 
ThermaChoice Uterine Balloon Therapy system in the United States will 
determine how quickly the Company expands its targeted marketing efforts in 
the United States and Europe.

     The Company's marketing strategy is designed to promote the safety, 
efficacy, cost-effectiveness and ease of use of the ThermaChoice Uterine 
Balloon Therapy and VersaPoint systems.  Gynecare also intends to increase 
the awareness in the female population and the physician community of 
ThermaChoice Uterine Balloon Therapy and VersaPoint treatment as alternatives 
to drug therapy and surgery.  In order to achieve these objectives, the 
Company employs patient and physician educational programs including 
pamphlets, brochures and video tapes, articles in physician journals, women's 
magazines and the popular press, and news releases on network and local 
television both in the United States and internationally.

LICENSES, PATENTS AND PROPRIETARY TECHNOLOGY

     The Company's policy is to protect its proprietary position by, among 
other methods, filing United States and foreign patent applications to 
protect technology, inventions and improvements that are important to the 
development of its business.  The Company holds one issued United States 
patent and an exclusive license to three issued United States patents 
covering the ThermaChoice Uterine Balloon Therapy system and has either filed 
for or acquired rights under a number of patent applications for the 
ThermaChoice Uterine Balloon Therapy system and other products in the United 
States.  Corresponding applications have been filed in certain foreign 
countries.  The Company's one issued United States patent was assigned to the 
Company by Origin pursuant to a royalty-bearing agreement covering potential 
future modifications to the ThermaChoice Uterine Balloon Therapy system.  
Additionally, pursuant to such agreement, the Company granted to Origin a 
non-exclusive, royalty-free license under such patent for use in fields other 
than gynecology.  In addition to royalty obligations, the Company paid Origin 
a one-time fee of $45,000.  The Company's policy is to generally file patent 
applications in foreign countries where rights are available and the Company 
believes it is commercially advantageous to do so.  The three licensed 
patents relate to the design of the Company's disposable balloon catheter and 
method of thermal ablation of the endometrial lining of the uterus.  In 
connection with the formation of Gynecare, Origin assigned to the Company its 
license to patents, applications and confidential information developed 
through the assignment date relating to the ThermaChoice Uterine Balloon 
Therapy system.  Origin retained the exclusive right to use the assigned 
technology for ablation of the gall bladder worldwide.  The exclusive, 
worldwide license assigned to the Company requires the Company to make 
certain minimum royalty payments and to pay a royalty based on net sales of 
products using ThermaChoice Uterine Balloon Therapy technology to the 
original inventors of the technology.  No assurance can

                                      13

<PAGE>

be given that any patents will be issued from pending patent applications or 
from any future patent applications, that the scope of any patent protection 
will exclude competitors or provide competitive advantages to the Company, 
that any of the Company's patents will be held valid if subsequently 
challenged or that others will not claim rights in or ownership of the 
patents and other proprietary rights held by the Company.  For example, one 
of the Company's competitors filed a third party observation investigating 
prior art patents as they relate to a European patent application licensed to 
the Company for the ThermaChoice product.  As a result, the claims were 
amended and the patent will be issued. This competitor has filed a similar 
action in connection with the Company's prosecution of corresponding patents 
in Australia, the resolution of which is still pending.  Further, the Company 
believes such competitor recently filed in the U.S. Patent Trademark Office a 
request for re-examination of two issued patents related to the Company's 
ThermaChoice product which request for re-examination has been granted by the 
Patent Trademark Office based on certain prior art references presented to 
such office, certain of which were the subject of the European observation.  
There can be no assurance that these patents will be held valid after the 
re-examination proceeding or, that if held invalid, would not have a material 
adverse effect on the Company's business, financial condition or results of 
operations.
     
     In July 1995, Gynecare entered into an exclusive, worldwide, 
royalty-free license to certain pending patent applications and a supply and 
development agreement with Gyrus.  The agreement requires the Company to make 
certain minimum payments and to purchase quantities of products based on a 
rolling forecast.  Under the agreement, Gyrus retained the rights to use the 
invention and associated technology for applications other than uterine 
fibroid and tissue removal.  During the first quarter of fiscal 1996, the 
Company extended its license and OEM supply agreement with Gyrus for the 
VersaPoint technology to include the field of laparoscopy.  

     In December 1994, Gynecare obtained an exclusive, worldwide, 
royalty-bearing license from Stuart D. Edwards to certain patents relating to 
a device and method of use of RF energy to perform endometrial ablation.  The 
license requires the Company to make certain minimum payments and to pay a 
royalty based on net sales of products utilizing the licensed technology.  
This license extends for the life of the patents unless terminated earlier in 
the event of the Company's breach of certain covenants or agreements, 
including failure to market the device within specified periods after 
obtaining regulatory approval.  Under the license, Mr. Edwards retained the 
rights to use the invention and associated technology for use outside the 
field of gynecology.  

     The Company believes that it is currently in compliance with the terms 
of these licenses.  In the event of a material breach of the Company's 
license agreements, including the failure to purchase minimum quantities 
under one of such agreements, the licensed rights revert back to the 
licensors.  The reversion of rights under the Company's license agreements 
could have a material adverse effect on the Company's business and results of 
operations.

     In addition to patents, the Company relies on trade secrets and 
proprietary know-how, which it seeks to protect, in part, through proprietary 
information agreements with employees, consultants and advisors, including 
members of the medical advisory board. The Company's proprietary information 
agreements with its employees and consultants contain industry standard 
provisions requiring such individuals to assign to the Company without 
additional consideration any inventions conceived or reduced to practice by 
them while employed or retained by the Company, subject to customary 
exceptions.  There can be no assurance that proprietary information 
agreements with employees, consultants and advisors will not be breached, 
that the Company will have adequate remedies for any breach or that the 
Company's trade secrets will not otherwise become known to or independently 
developed by competitors.  See "Factors Affecting Future Results - Dependence 
on Licenses, Patents and Proprietary Technology."

GOVERNMENT REGULATION

     The manufacture and sale of medical devices, including the ThermaChoice 
Uterine Balloon Therapy and VersaPoint systems, are subject to extensive 
regulation by numerous government authorities in the United States and other 
countries.  The ThermaChoice Uterine Balloon Therapy system is regulated as a 
medical device and is also subject to the FDA's PMA requirements.  As a 
result, the Company will not be able to commence marketing and commercial 
sales of the ThermaChoice Uterine Balloon Therapy system in the United States 
unless and until it
                                      14
<PAGE>
receives a PMA for marketing of such product from the FDA.  The first step in 
the PMA process is the submission to the FDA an IDE which includes the 
results of bench tests and laboratory studies, a complete description of the 
device and its components, and a detailed description of the methods, 
facilities and controls used for manufacturing, including the method of 
sterilization and its assurance.  Upon receiving approval of the IDE, the 
Company can conduct a clinical study to collect safety and efficacy data.  
Upon completion of the clinical study under an IDE, the Company can submit a 
PMA application to the FDA to receive approval to market the product in the 
United States.  After completion of the FDA's preliminary review of the PMA 
submission, the submission is sent to an FDA selected scientific advisory 
panel composed of physicians and scientists with expertise in the particular 
field. The FDA scientific advisory panel issues a recommendation to the FDA 
that includes conditions for approval of the PMA.  Toward the end of the PMA 
review process, the FDA will conduct an inspection of the manufacturer's 
facilities to ensure that they are in compliance with the applicable GMP 
requirements.  If the FDA evaluation of both the PMA application and the 
manufacturing facilities is favorable, the FDA will issue an approval letter, 
which usually contains a number of conditions which must be met in order to 
secure final approval.  If those conditions have been fulfilled to the 
satisfaction of the FDA, the agency will issue a PMA authorizing commercial 
marketing of the device.  The PMA review and approval process generally 
requires more than a year to complete from the date of filing.

     In 1996, the Company received an IDE from the FDA to conduct a study of 
the ThermaChoice Uterine Balloon Therapy system and completed the patient 
treatment phase of its U.S. clinical trials in the October 1996.  The Company 
is currently collecting patient follow-up data and plans to submit a PMA in 
1997.*  However, there can be no assurance as to whether safety and efficacy 
data collected during the clinical trials will be sufficient to support a PMA 
filing or whether the Company will receive a PMA for any of its products.  In 
addition, if approval is received, there can be no assurance that it will not 
be for a more limited indication than the Company has requested, which could 
limit the addressable market of the ThermaChoice Uterine Balloon Therapy 
system and have a material adverse effect on the Company's business, 
financial condition and results of operations.  In addition, changes in 
existing regulations or adoption of new government regulations or policies 
could prevent or delay regulatory approval of the Company's products.  
Furthermore, if a PMA is granted, subsequent modifications to the approved 
device or manufacturing process may require a supplemental PMA or may require 
the submission of a new PMA application, which could require substantial 
additional clinical efficacy data and FDA review.  Failure to obtain a PMA or 
to obtain such approval on a timely basis would have a material adverse 
effect on the Company's business, financial condition and results of 
operations.  In addition, FDA enforcement policy strictly prohibits the 
marketing of approved medical devices for unapproved uses. Failure to comply 
with applicable regulatory requirements, including marketing products for 
unapproved uses, could result in, among other things, FDA warning letters, 
fines, injunctions, civil penalties, recall or seizure of products, total or 
partial suspension of production, refusal of the government to grant 
premarket clearance or premarket approval for devices, withdrawal of 
approvals and criminal prosecution, which would have a material adverse 
effect on the Company's business, financial condition and results of 
operations.

     In the United States, the VersaPoint system is also regulated as a 
medical device and is subject to extensive regulation by numerous government 
authorities in the United States and other countries.  The Company received 
notification of FDA clearance to market the system in the United States for 
fibroids, polyps, adhesions and divided septa.  However, if the Company 
wished to propose modifications or enhancements to the VersaPoint system or 
use the system for other indications such as laparoscopic indications, and 
such major changes could affect the safety or effectiveness of the device, a 
new 510(k) submission would be required.  If the Company believes that its 
modifications to the device do not require the submission of a new 510(k) 
notice, there can be no assurance that the FDA will agree with any of the 
Company's determinations not to submit a new 510(k) notice for any of the 
changes
--------------
* This is a forward-looking statement reflecting current expectations of the 
Company.  Such forward-looking statement involves risks and uncertainties and 
actual results may differ materially from those in such statement.  As such, 
there can be no assurance that the Company's actual future performance will meet
the Company's current expectations.  Investors are strongly encouraged to review
the section entitled "Factors Affecting Operating Results and Market Price of 
Stock" commencing on page 18, for a discussion of factors that could affect 
future performance.
                                      15
<PAGE>
or will not require the Company to submit a new 510(k) notice for any of the 
changes made to the product.  If the FDA requires the Company to submit a new 
510(k) notice for any product modification, the Company may be prohibited 
from marketing the modified product until the 510(k) notice is cleared by the 
FDA.  Such a prohibition could have a material adverse effect on the 
Company's business, financial condition and results of operations.

     Every company that manufactures or assembles medical devices is required 
to register with the FDA and adhere to applicable FDA regulations regarding 
Good Manufacturing Practices ("GMP") and similar regulations in other 
countries, which include testing, control and documentation requirements.  
Ongoing compliance with GMP and other regulatory requirements will be 
monitored through periodic inspections by state and federal agencies, 
including the FDA. The Company believes that its design, manufacturing and 
quality control procedures will comply with the FDA's GMP regulations.  In 
addition, marketed products are subject to continuing FDA scrutiny for 
compliance with the FDA's requirements relating to promotional activities.  
The Company has obtained a license as a medical device manufacturer from the 
Food and Drug Branch of the California Department of Health Services.  State 
agencies' regulations impose certain procedural and documentation 
requirements upon the Company with respect to manufacturing and quality 
assurance activities.

     In 1995, the Company implemented policies and quality systems which 
allowed the Company to receive ISO 9001 and EN 46001 certification.  These 
standards for certification have been developed to ensure that companies 
know, on a worldwide basis, the standards of quality to which they will be 
held.  The European Union has promulgated rules which require that medical 
products receive a CE mark by mid-1998, an international symbol of quality 
and compliance with applicable European medical device directives.  EN 46001 
certification is one of the CE mark certification requirements.  Beginning in 
November 1995, the Company's quality assurance systems were audited by TUV, a 
European Community-approved notified body.  Upon a satisfactory review by TUV 
in January 1996, the Company was awarded EN 46001, ISO 9001 and CE mark 
certification for the ThermaChoice Uterine Balloon Therapy system.  To retain 
such certification, the Company must adequately maintain its quality 
assurance systems and undergo an annual audit by TUV.  In August 1996, the 
Company passed a TUV surveillance inspection to extend the validity of its 
ISO certificate until February 1999.
     
     Sales of medical devices outside of the United States are subject to 
international regulatory requirements that vary widely from country to 
country. The requirements for approval for sale internationally differ from 
those required for FDA approval.  In 1996, the Company obtained the CE mark 
for the ThermaChoice Uterine Balloon Therapy system.  The Company will need 
to obtain CE mark certification for Europe in order to sell the VersaPoint 
system within the European Economic Area.  There can be no assurance, 
however, that the Company will be able to achieve or maintain compliance 
required for CE marking.  Failure to do so would mean that the Company cannot 
sell the VersaPoint system in the European Economic Area, which could have a 
material adverse effect upon the Company's business, financial condition and 
results of operations.  

THIRD-PARTY REIMBURSEMENT

     In the United States, health care providers, such as hospitals and 
physicians that purchase medical devices for treatment of their patients, 
generally rely on third-party payors, principally Medicare, Medicaid and 
private health insurance plans, to reimburse all or part of the costs and 
fees associated with the procedures performed with these devices.

     The Company's success will be dependent upon, among other things, its 
ability to obtain satisfactory reimbursement from health care payors for the 
ThermaChoice Uterine Balloon Therapy and VersaPoint systems.  The Company 
does not expect that third-party reimbursement will be available, if at all, 
for use of the ThermaChoice Uterine Balloon Therapy system in the United 
States unless and until FDA approval is received.  If FDA approval is 
received, third-party reimbursement for the ThermaChoice Uterine Balloon 
Therapy system will be dependent upon decisions by the Health Care Financing 
Administration ("HCFA") for Medicare, as well as by individual health 
maintenance organizations, private insurers and other payors.  While the 
Company believes the ThermaChoice Uterine Balloon Therapy procedure may be 
reimbursed in the United States under existing procedure codes for surgical 
ablation and the VersaPoint procedure may be reimbursed under existing 
procedure codes for surgical resection, there can be no assurance that this 
will occur or that the reimbursement under these codes will be

                                      16
<PAGE>
adequate.  Given the efforts to control and decrease health care costs in recent
years, there can be no assurance that any reimbursement will be sufficient to 
ensure profitability.

     Reimbursement systems in international markets vary significantly by 
country, and by region within some countries, and reimbursement approvals 
must be obtained on a country by country basis.  Many international markets 
have government managed health care systems that govern reimbursement for new 
devices and procedures.  In most markets, there are private insurance systems 
as well as government managed systems.  Large scale market acceptance of the 
ThermaChoice Uterine Balloon Therapy and VersaPoint systems will depend on 
the availability and level of reimbursement in international markets targeted 
by the Company.  Currently, neither the ThermaChoice Uterine Balloon Therapy 
system nor the VersaPoint system has been approved for reimbursement in any 
international market. Obtaining reimbursement approvals can require 12 to 18 
months or longer.  There can be no assurance that the Company will obtain 
reimbursement in any country within a particular time, for a particular 
amount, or at all.

     Regardless of the type of reimbursement system, the Company believes 
that physician advocacy of the ThermaChoice Uterine Balloon Therapy and 
VersaPoint systems will be required to obtain reimbursement.  Availability of 
reimbursement will depend not only on the clinical efficacy and procedure 
cost, but also on the duration of the relief provided by the procedure.  
There can be no assurance that reimbursement for the Company's products will 
be available in the United States or in international markets under either 
government or private reimbursement systems, or that physicians will support 
and advocate reimbursement for use of the ThermaChoice Uterine Balloon 
Therapy and VersaPoint systems.  Failure by physicians, hospitals and other 
users of the Company's products to obtain sufficient reimbursement from 
health care payors or adverse changes in government and private third-party 
payors' policies toward reimbursement for procedures employing the Company's 
products would have a material adverse effect on the Company's business, 
financial condition and results of operations.

COMPETITION

     At present, the Company considers its primary competition to be current 
therapies for the treatment of uterine disorders, including drug therapy, 
D&C, surgical ablation, surgical resection and hysterectomy.  The Company 
will also compete against other minimally invasive techniques under 
development for the treatment of dysfunctional uterine bleeding, including 
other ablation techniques which employ thermal fluid, RF energy or freezing 
techniques ("cryoablation").  The ThermaChoice Uterine Balloon Therapy system 
may compete with other systems manufactured and marketed by companies outside 
of the United States, although such products are not currently approved by 
the FDA for marketing in the United States.

     There are many large companies with significantly greater financial, 
manufacturing, marketing, distribution and technical resources and clinical 
experience than Gynecare.  Such companies are developing and marketing 
devices for surgical removal of the uterus, uterine fibroids, the endometrial 
lining of the uterus and other uterine tissue or non-surgical methods such as 
drug therapy. Additionally, there are companies developing alternative 
methods of uterine tissue ablation that compete with the Company.  These 
include the Valley Lab division of Pfizer, Inc., U.S. Surgical Corporation, 
FemRx, Inc. and Wallsten Medical.  There can be no assurance that these 
companies will not succeed in developing technologies and products that are 
more effective than any which have been or are being developed by the Company 
or that would render the Company's technologies or products obsolete or 
non-competitive. The Company also competes with such other companies for 
clinical sites to conduct trials.  Such competition could have a material and 
adverse effect on the Company's business, financial condition and results of 
operations.

     As a result of the entry of large and small companies into the market, 
the Company expects competition for devices and systems used to treat uterine 
disorders to increase.  The Company believes that the primary competitive 
factors in the market for treatment of uterine disorders are safety, 
efficacy, ease of use, reliability and cost-effectiveness. The Company 
believes that ThermaChoice Uterine Balloon Therapy and VersaPoint systems 
will be substantially less costly than highly-invasive, traditional surgical 
procedures and may ultimately replace these procedures in some applications.  
The Company's products may also enable the physician to perform procedures 
less invasively with reduced patient trauma in a shorter period of time.  As 
a result, the Company believes that its

                                      17
<PAGE>

products compete favorably with respect to these factors, although no assurance 
can be given that it will be able to continue to do so.

EMPLOYEES

     As of December 31, 1996, the Company employed 44 individuals, of which 
18 are engaged directly in research, development and regulatory activities, 9 
in manufacturing and 17 in marketing, sales and administrative positions.  
The Company is dependent on its ability to attract and retain qualified 
scientific, technical and key management personnel.  None of the Company's 
employees are covered by a collective bargaining agreement.  Gynecare 
believes that it maintains good relations with its employees.

PRODUCT LIABILITY AND INSURANCE

     The Company's business involves the risk of product liability claims.  
The Company has not experienced any product liability claims to date.  
Although the Company maintains product liability insurance with coverage 
limits of $3,000,000 per occurrence and an annual aggregate maximum of 
$3,000,000, there can be no assurance that product liability claims will not 
exceed such insurance coverage limits, which could have a material adverse 
effect on the Company, or that such insurance will continue to be available 
on commercially reasonable terms or at all.

FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK

     Gynecare operates in a rapidly changing environment that involves a 
number of uncertainties, some of which are beyond the Company's control.  In 
addition to the uncertainties described elsewhere in this report, these 
uncertainties include the following:
     
     DEPENDENCE ON A LIMITED NUMBER OF PRODUCTS.  Currently, the ThermaChoice 
Uterine Balloon Therapy and VersaPoint systems are the only products being 
marketed by the Company.  The Company will be required to obtain regulatory 
approvals, including PMA approval from the FDA, before the ThermaChoice 
Uterine Balloon Therapy system can be marketed in the United States and in 
certain foreign countries, including Japan.  There can be no assurance that 
the Company's efforts will be successful or that the ThermaChoice Uterine 
Balloon Therapy system will be safe or effective, capable of being 
manufactured in commercial quantities at acceptable costs, approved by 
appropriate regulatory or reimbursement authorities or successfully marketed. 
The Company's VersaPoint system has only recently received FDA clearance for 
marketing in the United States, and the Company has made limited shipments of 
the system internationally. Furthermore, because the ThermaChoice Uterine 
Balloon Therapy and VersaPoint systems represent the Company's principal 
near-term focus, the Company could be required to cease operations if these 
products are not successfully commercialized.  In addition, the continuing 
follow-up phase of the U.S. clinical trials of the ThermaChoice Uterine 
Balloon Therapy system may identify significant technical or other obstacles 
to be overcome prior to obtaining necessary regulatory or reimbursement 
approvals. Although there has been a significant success rate in the  
patients treated to date under the current protocol for the ThermaChoice 
Uterine Balloon Therapy system, there is only limited follow-up data for such 
patients.  As a result, there can be no assurance that the success rate of 
the procedure will be sustainable or will not decrease over time.  If the 
ThermaChoice Uterine Balloon Therapy system does not prove to be safe and 
effective in long-term follow up of clinical trials, there would be a 
material adverse effect on the Company's business, financial condition and 
results of operations.

     LIMITED OPERATING HISTORY AND REVENUES; ANTICIPATED FUTURE LOSSES.  The 
Company has generated only limited revenues to date and has experienced net 
losses since its inception.  As of December 31, 1996, the Company had an 
accumulated deficit of $16.8 million. The Company expects its operating 
losses to continue for at least the next several years. In addition, the 
Company expects that it will continue to expend substantial resources in 
funding clinical trials in support of regulatory and reimbursement approvals, 
expansion of marketing and sales activities and research and development.  
There can be no assurance that the ThermaChoice Uterine Balloon Therapy and 
VersaPoint systems will be successfully commercialized or that the Company 
will achieve significant revenues from


                                      18
<PAGE>
either international or domestic sales.  In addition, there can be no 
assurance that the Company will achieve or sustain profitability in the 
future.

     UNCERTAINTY OF MARKET ACCEPTANCE.  The Company's success is dependent 
upon acceptance of the ThermaChoice Uterine Balloon Therapy and VersaPoint 
products by the medical community as reliable, safe and cost-effective 
treatments for dysfunctional uterine bleeding and benign pathology. The 
Company is unable to predict how quickly, if at all, its products will be 
accepted by the medical community or, if accepted, the number of procedures 
that will be performed. The medical indications that can be treated with the 
ThermaChoice Uterine Balloon Therapy and VersaPoint systems can also be 
treated by surgery, drugs or other medical devices.  Although the Company 
believes that its products have certain advantages over competing products 
and technologies, the Company does not have long-term clinical data 
demonstrating such advantages. There can be no assurance that any such 
advantages will be clinically significant.  The ThermaChoice Uterine Balloon 
Therapy and VersaPoint systems are designed to be used with a local 
anesthetic in a clinic or physician's office.  If physicians recommend or 
require that the procedures using the ThermaChoice or VersaPoint products be 
performed under general anesthesia in a hospital or outpatient surgery center 
instead of under local anesthesia in a clinic or physician's office, market 
acceptance of the products would be adversely affected, which would have a 
material adverse effect on the Company's business, financial condition and 
results of operations.  Although the Company believes that the ThermaChoice 
system may be adaptable to other uterine bleeding disorders, there can be no 
assurance that the product will be clinically effective for any other 
indications, that regulatory approval of the product for such other 
indications could be obtained, that treatment of such conditions would be 
commercially feasible or that additional markets for any such indications 
will develop.  Obtaining FDA approval to market the ThermaChoice Uterine 
Balloon Therapy system for other indications is likely to require a long 
period of time and considerable expense. Patient population estimates are 
subject to inherent uncertainties, and the Company is unable to determine 
with any degree of certainty the number of patients for any indication or the 
number of patients who are suitable for treatment. 

     POTENTIAL FLUCTUATIONS IN FUTURE QUARTERLY RESULTS.  The Company expects 
that its operating results will fluctuate significantly from quarter to 
quarter in the future and will depend on a number of factors, many of which 
are outside the Company's control.  These factors include actions relating to 
regulatory and reimbursement matters, the extent to which the Company's 
products gain market acceptance, the rate at which the Company establishes 
its network of distributors and direct sales personnel in the U.S. and 
internationally, the timing and size of customer purchases, which may be 
influenced by volume purchase discounts and extended payment terms, the 
progress of  the Company's PMA application to the FDA for the ThermaChoice 
Uterine Balloon Therapy system, and competition.
     
     LIMITED MANUFACTURING EXPERIENCE; DEPENDENCE ON SINGLE CONTRACT 
MANUFACTURERS AND SOLE SOURCE SUPPLIERS; SCALE-UP RISK.  The Company only 
recently commenced manufacture of certain components of its products and 
depends on contract manufacturers for the production of certain components of 
the ThermaChoice Uterine Balloon Therapy system and the entire VersaPoint 
system.  The Company expects to continue to depend on such manufacturers for 
the forseeable future.  The integration of the Company's operations into new 
facilities, which occurred in November 1995, has resulted and may continue to 
result in inefficiencies.  Specifically, manufacturers often encounter 
difficulties in production of new products, including problems involving 
production yields, quality control and assurance, component supply and 
shortages of qualified personnel.  The Company may experience a shortage of 
manufacturing capacity if the new facility fails to operate as planned.  
Although the Company intends to maintain sufficient levels of inventory to 
avoid any material disruption resulting from the continuing scale-up of the 
new facility and transition to in-house manufacturing, there can be no 
assurance that the Company will be able to manufacture and supply sufficient 
quantities of products to meet product requirements for commercial sales.  
Additionally, any delay or difficulty in continuing manufacturing activities 
at the new facility, or the inability of the Company's contract manufacturers 
to supply required materials and the Company subsequently not being able to 
successfully find an alternative source of supply in a timely manner, may 
have a material adverse effect on the Company's business, financial condition 
and results of operations.  For the forseeable future, the Company expects 
that manufacturing start-up and overhead costs spread over low production 
volumes combined with the cost of using contract manufacturers to produce the 
ThermaChoice controller and VersaPoint system will continue to have an 
adverse effect on gross margins.
                                      19
<PAGE>
LIMITED INTERNATIONAL DISTRIBUTION; NO U.S. DISTRIBUTION.  To date, all of the 
Company's sales have been outside the United States, and the Company anticipates
that a significant portion of its revenues for the next year will continue to 
be derived from international sales.  The Company currently markets and sells 
its products internationally through a network of distributors.  The Company's 
international sales are dependent upon the marketing efforts of, and sales by, 
these distributors.  The Company may also rely on these distributors to assist 
it in obtaining reimbursement approvals from both government and private 
insurers in certain international markets.  In general, the Company has chosen 
to operate through small distribution firms because of its belief that these 
firms will devote greater attention to the Company's products. The use of small 
distributors increases the risks associated with financial instability, which 
includes the risk that distributors will cease operations or will be unable to 
satisfy financial obligations to the Company. If a distributor were to fail to 
invest adequate capital promoting the Company's products or were to cease 
operations, the Company would likely be unable to achieve significant sales 
in the territory.  Gynecare also does not currently have any distribution in 
the United States.  There can be no assurance that the Company will establish 
U.S. distribution networks for the ThermaChoice Uterine Balloon Therapy and 
VersaPoint systems in a timely manner.  The failure to establish such 
distribution would have a material adverse effect on the Company's business, 
financial condition and results of operations.

     A number of other risks are inherent in international operations and 
transactions.  International sales and operations may be limited or disrupted 
by the imposition of government controls, export license requirements, 
political instability, trade restrictions, changes in tariffs, difficulties 
in managing international operations and fluctuations in foreign currency 
exchange rates.  There can be no assurance that the Company will be able to 
successfully commercialize the ThermaChoice Uterine Balloon Therapy system, 
VersaPoint system, or any future product in any market.

     UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT.  The Company's 
success will be dependent upon, among other things, its ability to obtain 
satisfactory reimbursement from health care payors for the ThermaChoice 
Uterine Balloon Therapy and VersaPoint systems.  The Company does not expect 
that third-party reimbursement will be available, if at all, for use of the 
ThermaChoice Uterine Balloon Therapy system in the United States unless and 
until FDA approval is received. Third-party reimbursement for the VersaPoint 
system and the ThermaChoice Uterine Balloon Therapy system, once FDA approval 
is received, would be dependent upon decisions by the HCFA for Medicare, as 
well as by individual health maintenance organizations, private insurers and 
other payors.  While the Company believes that the ThermaChoice Uterine 
Balloon Therapy procedure may be reimbursed in the United States under 
existing procedure codes for endometrial ablation and that the VersaPoint 
procedure may be reimbursed under existing procedure codes for surgical 
resection, there can be no assurance that this will occur or that the 
reimbursement under these codes will be adequate.  Given the efforts to 
control and decrease healthcare costs in recent years, there can be no 
assurance that any reimbursement will be sufficient to assure profitability.

     Reimbursement systems in international markets vary significantly by 
country, and by region within some countries, and reimbursement approvals 
must be obtained on a country by country basis.  Many international markets 
have government managed health care systems that govern reimbursement for new 
devices and procedures. In most markets, there are private insurance systems 
as well as government managed systems. Large scale market acceptance of the 
ThermaChoice Uterine Balloon Therapy and VersaPoint systems will depend on 
the availability and level of reimbursement in international markets targeted 
by the Company.  Currently, neither the ThermaChoice Uterine Balloon Therapy 
system nor the VersaPoint system has been approved for reimbursement in any 
international market. Obtaining reimbursement approvals can require 12 to 18 
months or longer.  There can be no assurance that the Company will obtain 
reimbursement in any country within a particular time, for a particular 
amount, or at all.

     GOVERNMENT REGULATION.  The manufacture and sale of medical devices, 
including the ThermaChoice Uterine Balloon Therapy and VersaPoint systems, 
are subject to extensive regulation by numerous government authorities in the 
United States and other countries. The ThermaChoice Uterine Balloon Therapy 
system is subject to the FDA's PMA requirements.  As a result, the Company 
will not be able to commence marketing and commercial sales of the 
ThermaChoice Uterine Balloon Therapy system in the United States unless and 
until it receives PMA approval for marketing of such product from the FDA.  
In October 1996, the Company completed the patient treatment phase of its 
U.S. clinical study for the ThermaChoice Uterine Balloon Therapy system and 
the
                                      20
<PAGE>
follow-up data collected to-date has indicated overall success in patient 
treatment.  However, there can be no assurance as to whether long-term safety 
and efficacy data collected during clinical trials will be sufficient to 
support a PMA filing or whether the Company will receive PMA approval for the 
ThermaChoice system. In addition, if approval is received, there can be no 
assurance that it would not be for a more limited indication than the Company 
has requested, which could limit the addressable market of the ThermaChoice 
Uterine Balloon Therapy system and have a material adverse effect on the 
Company's business, financial condition and results of operations.  There can 
be no assurance that the Company will not be required to conduct additional 
clinical trials for the ThermaChoice Uterine Balloon Therapy system which may 
result in substantial costs and delays.  In addition, changes in existing 
regulations or adoption of new government regulations or policies could 
prevent or delay regulatory approval of the Company's products. Furthermore, 
if PMA approval is granted, subsequent modifications to the approved device 
or manufacturing process may require a PMA supplement or may require the 
submission of a new PMA, which could require substantial additional clinical 
efficacy data and FDA review.  Failure to obtain PMA approval or to obtain 
such approval on a timely basis would have a material adverse effect on the 
Company's business, financial condition and results of operations.

     In the United States, the VersaPoint system required clearance from the 
FDA under a 510(k) application.  This application was filed in June 1996 and 
cleared in November 1996.  However, if the Company wished to propose 
modifications or enhancements to the VersaPoint system or use the system for 
other indications such as laparoscopic indications, and such major changes 
could affect the safety or effectiveness of the device, a new 510(k) 
submission would be required.  In such a case, the Company may be prohibited 
from marketing the modified product until the 510(k) notice is cleared by the 
FDA.  Such a prohibition could have a material adverse effect on the 
Company's business, financial condition and results of operations.
     
     The Company will be required to adhere to applicable FDA regulations 
regarding Good Manufacturing Practices (GMP) and similar regulations in other 
countries, which include testing, control and documentation requirements.  
The Company's success will depend in part on its ability to manufacture its 
products in compliance with GMP and EN 46001 and other regulatory 
requirements, in sufficient quantities and in a timely manner, while 
maintaining product quality and acceptable manufacturing costs.  Failure to 
increase production volumes in a timely or cost-effective manner or to 
maintain compliance with GMP and EN 46001 and other regulatory requirements 
could have a material adverse effect on the Company's business, financial 
condition and results of operations.

     Regulatory approvals, if granted, may include significant limitations on 
the indicated uses for which the products may be marketed.  FDA enforcement 
policy strictly prohibits the marketing of approved medical devices for 
unapproved uses.  Failure to comply with applicable regulatory requirements, 
including marketing products for unapproved uses, could result in, among 
other things, FDA warning letters, fines, injunctions, civil penalties, 
recall or seizure of products, total or partial suspension of production, 
refusal of the government to grant premarket clearance or premarket approval 
for devices, withdrawal of approvals and criminal prosecution, which would 
have a material adverse effect on the Company's business, financial condition 
and results of operations.

     Sales of medical devices outside of the United States are subject to 
international regulatory requirements that vary from country to country.  The 
requirements for approval for sale internationally may differ from those 
required for FDA approval.  In Europe, the Company will be required to obtain 
the certifications necessary to enable the CE mark to be affixed to the 
Company's products by mid-calendar 1998 in order to continue commercial sales 
in member countries of the European Union.  Although the Company has obtained 
all such certifications for its ThermaChoice Uterine Balloon Therapy system, 
there can be no assurance that it will be able to obtain certifications for 
its VersaPoint product or other future products in a timely manner, if at 
all. A failure to obtain any such certifications could have a material 
adverse effect on the Company's business, financial condition and results of 
operations.

     DEPENDENCE ON LICENSES, PATENTS AND PROPRIETARY TECHNOLOGY.  The 
Company's success depends in part on its ability to retain licenses, obtain 
patent protection for products and processes, and preserve its trade secrets 
and proprietary technology.  The Company's one issued United States patent 
was assigned to the Company by Origin pursuant to a royalty-bearing agreement 
covering potential future modifications to the ThermaChoice Uterine Balloon 
Therapy system. Additionally, pursuant to such agreement, the Company granted 
to Origin a non-exclusive,
                                      21
<PAGE>

royalty-free license under such patent for use in fields other than 
gynecology. The validity and breadth of claims covered in medical device 
technology patents involve complex legal and factual questions and, 
therefore, may be highly uncertain. No assurance can be given that any 
patents will be issued from pending patent applications or from any future 
patent applications, that the scope of any patent protection will exclude 
competitors or provide competitive advantages to the Company, that any of the 
Company's patents will be held valid if subsequently challenged or that 
others will not claim rights in or ownership of the patents and other 
proprietary rights held by the Company.  For example, one of the Company's 
competitors filed a third party observation investigating prior art patents 
as they relate to a European patent application licensed to the Company for 
the ThermaChoice product. As a result, the claims were amended and the patent 
will be issued. This competitor has filed a similar action in connection with 
the Company's prosecution of corresponding patents in Australia, the 
resolution of which is still pending. Further, the Company believes such 
competitor recently filed in the U.S. Patent Trademark Office a request for 
re-examination of two issued patents related to the Company's ThermaChoice 
product which request for re-examination has been granted by the Patent 
Trademark Office based on certain prior art references presented to such 
office, certain of which were the subject of the European observation.  There 
can be no assurance that these patents will be held valid after the 
re-examination proceeding or, that if held invalid, would not have a material 
adverse effect on the Company's business, financial condition or results of 
operations.  Furthermore, certain of the Company's licenses provide that the 
license rights revert back to the licensors in the event of material breach 
of the license agreements, including failure to pay minimum royalty amounts 
or milestone payments when due, or failure to purchase certain quantities of 
product from the licensor.  To the extent license rights are involved, the 
Company is dependent upon technology licensors to prosecute their patents in 
the United States and in foreign countries. The reversion of rights under the 
Company's license agreements or failure of the licensors to fully prosecute 
patents would have a material adverse effect on the Company's business, 
financial condition and results of operations.

     There has been substantial litigation regarding patent and other 
intellectual property rights in the medical device industry. Litigation, 
which could result in substantial cost to and diversion of effort by the 
Company, may be necessary to enforce patents issued or licensed to the 
Company, protect trade secrets or know-how owned by the Company, defend the 
Company against claimed infringement of the rights of others or determine the 
ownership, scope or validity of the proprietary rights of the Company and 
others. An adverse determination in any such litigation could subject the 
Company to significant liabilities to third parties, require the Company to 
seek licenses from third parties and prevent the Company from manufacturing, 
selling or using its products, any of which could have a material adverse 
effect on the Company's business, financial condition and results of 
operations. In the event of such an adverse determination, there can be no 
assurance whether a license would be offered on terms acceptable to the 
Company, or at all.
     
     POTENTIAL VOLATILITY OF STOCK PRICE.  The securities markets have, from 
time to time, experienced significant price and volume fluctuations that may 
be unrelated to the operating performance of particular companies.  The 
market prices of the Common Stock of many publicly-held medical device 
companies have in the past been, and can in the future be expected to be, 
especially volatile. Announcements of technological innovations or new 
products by the Company or its competitors, developments or disputes 
concerning patents or proprietary rights, regulatory developments, the 
issuance of new or changed stock market analyst reports and recommendations, 
and economic and other external factors, as well as period-to-period 
fluctuations in the Company's financial results, may have a significant 
impact on the market price of the Common Stock.

     FUTURE CAPITAL NEEDS.  The Company's capital requirements depend on a 
number of factors, including the timing of FDA approval of the ThermaChoice 
Uterine Balloon Therapy system and demand for and market acceptance of the 
Company's products, the progress of the Company's clinical research and 
product development programs, the receipt of and the time required to obtain 
regulatory clearances and approvals, the resources the Company devotes to 
developing, manufacturing and marketing its products, the resources required 
to hire and develop a direct sales force in the United States, the resources 
required to expand manufacturing capacity and facilities requirements, the 
costs of obtaining reimbursement for use of the Company's ThermaChoice 
Uterine Balloon Therapy and VersaPoint systems in new and existing markets, 
and other factors.  Consequently, although there can be no assurance that the 
Company will not require additional financing prior to the end of 1997, the 
Company believes that its cash, cash equivalents and short-term investments 
together with interest thereon will
                                      22
<PAGE>

be sufficient to fund its operations and capital requirements through 
December 31, 1997.  The estimate of this time period is a forward-looking 
statement involving risks and uncertainties and actual results may differ 
materially as a result of a number of factors including those noted above.  
Should additional be required, such funding may not be available when needed 
or on terms acceptable to the Company, which would have a material adverse 
effect on the Company's business, financial condition and results of 
operations.

     CONTROL BY DIRECTORS AND PRINCIPAL STOCKHOLDERS.  The directors and 
principal stockholders of the Company, and certain of their affiliates, own 
approximately 64% of the Company's outstanding Common Stock. Accordingly, 
these persons, individually and as a group, may be able to effectively 
control the Company and direct its affairs and business, including any 
determination with respect to the acquisition or disposition of assets by the 
Company, future issuances of Common Stock or other securities by the Company, 
declaration of dividends on the Common Stock and the election of directors.  
Such concentration of ownership may also have the effect of delaying, 
deferring or preventing a change in control of the Company.

EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY

     Information concerning executive officers and directors is set forth below.

Name                          Age      Position

A. Lad Burgin, Ph.D.          51       President, Chief Executive Officer and 
                                       Director

Steve Adams                   49       Vice President of International Sales

Malcolm M. Farnsworth, Jr.    45       Vice President, Chief Financial Officer 
                                       and Secretary

Augustine Y. Lien             52       Vice President of Operations

Milton B. McColl, M.D.        37       Vice President and Medical Director

Vahid Saadat                  35       Vice President of Research and 
                                       Development

Elizabeth B. Connell, M.D.    71       Director

David L. Douglass             44       Director

A. Grant Heidrich             44       Director

Alan Levy, Ph.D.              59       Director

Mary Lake Polan, M.D., Ph.D.  53       Director

F. Thomas Watkins, III        44       Director

     DR. BURGIN was engaged by the Company as a consultant in January 1996, 
became President and Chief Executive Officer in July 1996 and a director of 
the Company in March 1997.  Dr. Burgin has twenty-seven years of experience 
as a business executive and consultant.  Since September 1988, Dr. Burgin 
served as President and Chief Executive Officer of HRMG, Inc., a management 
consulting firm specializing in assisting clients to achieve competitive 
advantage by building and sustaining high performance organizations.  Prior 
to joining HRMG, Dr. Burgin served for ten years with Transamerica Life 
Companies and Vice President of Human Resources with Transamerica 
Corporation.  Dr. Burgin is a graduate of Ohio State University from which he 
holds B.S., MBA and Ph.D. degrees.

     MR. ADAMS joined the Company in July 1995 as Vice President of 
International Sales and has over 20 years of international sales experience 
in the medical device industry.  Prior to joining the Company, he was 
Director, International, from 1984 to 1991 and Vice President, International 
Operations, from 1992 to 1995 with Advanced


                                      23
<PAGE>

Cardiovascular Systems, Inc., a leading supplier of balloon angioplasty 
systems.  Mr. Adams holds a B.S. degree in General Studies from the 
University of Iowa.

     MR. FARNSWORTH has served as Vice President, Chief Financial Officer and 
Secretary of the Company since its inception in March 1994.  From December 
1991 to December 1994, he was Vice President and Chief Financial Officer of 
Origin, a manufacturer of minimally invasive surgical devices.  From March 
1994 to December 1994, he served as an officer of both Gynecare and Origin.  
From August 1990 to December 1991, Mr. Farnsworth was a consultant to several 
medical device companies including Cardiac Pathways, Inc., Cardiometrics, 
Inc., and Origin.  Mr. Farnsworth, a certified public accountant, holds an 
M.B.A. degree from the University of California at Berkeley.

     MR. LIEN joined the Company in March 1995 as Vice President of 
Operations.  From 1989 until joining the Company, he was Vice President of 
Operations for Menlo Care, Inc., a manufacturer of critical care catheters.  
From 1985 to 1989, Mr. Lien was employed as Director of Operations of 
Nellcor, Inc., a manufacturer of high performance electronic patient 
monitoring systems.  Mr. Lien holds an M.S. degree in Operations Research 
from Stanford University and an M.B.A. degree from the University of Santa 
Clara.

     DR. MCCOLL joined the Company in April 1994 as Vice President and 
Medical Director.  From 1989 until joining the Company, he served as Director 
of Marketing for Origin.  From 1981 to 1988, Dr. McColl was a member of the 
National Football League's San Francisco 49ers.  Dr. McColl holds an M.D. 
from Stanford University Medical School and three issued U.S. patents in the 
medical device field.

     MR. SAADAT joined the Company in July 1995 as Vice President of Research 
and Development.  From 1987 until joining the Company, Mr. Saadat served in 
various engineering and management positions at Trimedyne, Inc., a 
manufacturer of surgical laser systems, most recently as Senior Vice 
President of R & D and Manufacturing.  He holds an M.S. degree in Biomedical 
Engineering from the University of Texas at Austin.  Mr. Saadat holds five 
issued and three pending U.S. patents in the field of medical laser and 
related catheter systems.

     DR. CONNELL has been a Director of the Company since December 1994 and 
has been a professor of Gynecology and Obstetrics at Emory University School 
of Medicine since 1981.  She has served as a Chairperson of the FDA 
Obstetrics and Gynecology Devices Panel from 1988 to 1992; as a member of the 
FDA Panel on Review of Obstetrical and Gynecological Devices from 1976 to 
1979; and as a member of the FDA Obstetrics and Gynecology Advisory Committee 
from 1970 to 1978.  Dr. Connell is a director of UroMed Corp., a medical 
device company.  Dr. Connell received her M.D. from the University of 
Pennsylvania.

     MR. DOUGLASS has been a Director of the Company since March 1994.  Mr. 
Douglass has been a general partner of Delphi Ventures, a venture capital 
fund, since 1990 and has been a general partner of Matrix Partners II, L.P., 
a venture capital fund, since 1986.  Mr. Douglass serves as a director of 
VidaMed, Inc., a medical device company.  He holds an M.A. in Administration 
and Policy Analysis and an M.B.A. from Stanford University.

     MR. HEIDRICH has been a Director of the Company since March 1994 and has 
been a general partner of Mayfield Fund, a venture capital firm, since 1983.  
Mr. Heidrich is a director of Vivus, Inc., which produces therapeutic 
products for the treatment of human disease.  He received an M.B.A. from 
Columbia University, and a B.A. from Stanford University.

     DR. LEVY has been a Director of the Company since March 1995.  Since 
November 1993, Dr. Levy has been President, Chief Executive Officer and a 
director of Heartstream, Inc., a company that develops, manufacturers and 
markets devices for performing external cardiac defibrillation.  From 1989 to 
1993, he was President of Heart Technology, Inc., a manufacturer of 
atherosclerosis treatment devices.  Before joining Heart Technology, Dr. Levy 
 was Vice President of Research and New Product Development and a member of 
the board of the Ethicon division of Johnson & Johnson.  Dr. Levy received 
his Ph.D. in Organic Chemistry from Purdue University.

     DR. POLAN has been a Director of the Company since June 1995 and was a 
member of the Company's Medical Advisory Board from May 1994 to June 1995.  
She is Chairperson of the Department of Gynecology and


                                      24
<PAGE>

Obstetrics at Stanford University School of Medicine, which she joined in 
1990.  In 1991, Dr. Polan served as Co-chair of the Task Force on 
Opportunities for Women's Health of the National Institutes of Health.  She 
has been a member of the Board of Health Sciences Policy of the Institute of 
Medicine, a unit of the National Academy of Sciences, since 1992.  Dr. Polan 
is also a director of Quidel Corporation, American Home Products Corporation 
and Metra Biosystems, Inc.  Dr. Polan received her M.D. from Yale University 
School of Medicine, where she also received a doctorate degree in biophysics 
and biochemistry.

     MR. WATKINS has been a Director of the Company since August 1995.  Since 
May 1995, he has served as a Vice President of Guidant Corporation and 
President of its subsidiary, Origin.  Mr. Watkins served as President of 
another Guidant subsidiary, Heart Rhythm Technologies, from May 1995 through 
September 1995.  From July 1989 to May 1995, Mr. Watkins held various senior 
management positions with Origin.  Prior to that, he served in management 
positions in several start-up companies, including Microgenics Corporation, 
and was a consultant with the international consulting firm of McKinsey & 
Company, Inc.  He received an M.B.A. degree from Harvard University.

MEDICAL ADVISORY BOARD

     The Company has established a seven-member Medical Advisory Board, 
consisting of experts in the field of gynecology.  Each member is reimbursed 
for expenses in connection with serving on the advisory board.  Each member, 
except for Dr. London and Dr. Wood, has received nonstatutory stock options 
to purchase 2,632 shares of Common Stock of the Company, which options vest 
over a four-year period and have a ten-year term.  The members of the 
Company's Medical Advisory Board are as follows:

     BERNARD BLANC, MD is a professor of Obstetrics and Gynecology at the 
University of Marseilles, France.  Dr. Blanc has been treating patients with 
the ThermaChoice Uterine Balloon Therapy system since the fourth quarter of 
1994 and serves as one of the Company's clinical investigators in France.

     ALAN DECHERNEY, MD is a professor and the Chairman of the Department of 
Obstetrics and Gynecology at the University of California at Los Angeles.  
Dr. DeCherney is one of the pioneers in hysteroscopic surgery in the United 
States and has published numerous papers on treatment of uterine disorders 
and other gynecological issues.

     FRANKLIN LOFFER, MD is in the private practice of gynecology, holds a 
teaching appointment at the Maricopa Medical Center in Phoenix, Arizona and 
is one of the first gynecologists in the world to perform endometrial 
ablation using a laser.  Dr. Loffer serves as one of the Company's clinical 
investigators in the United States.  Dr. Loffer has published numerous papers 
on treatment of uterine disorders and other gynecological issues.

     ROBERT LONDON, MD is the Senior Medical Director of NYLcare/Health Plus, 
New York Life's managed care subsidiary for the mid-Atlantic states.  Prior 
to that, he was the Regional Manager of Women's Health Care and Special 
Projects at Mid-Atlantic Kaiser Permanente, one of the leading health 
maintenance organizations in the United States.

     ROBERT NEUWIRTH, MD is the Babcock Professor in the Department of 
Obstetrics and Gynecology, Columbia University College of Physicians and 
Surgeons, and Director Emeritus at St.  Luke's-Roosevelt Hospital Center in 
New York City.  He is one of the inventors of the ThermaChoice Uterine 
Balloon Therapy system and will receive royalty payments from Gynecare from 
sales of the ThermaChoice Uterine Balloon Therapy system.  Dr. Neuwirth 
serves as one of the investigators for the Company's current clinical trial 
in the United States.  He has published numerous papers on uterine disorders, 
including two investigative papers on the ThermaChoice Uterine Balloon 
Therapy system.

     GEORGE VILOS, MD is a practicing physician in London, Ontario, Canada 
and has conducted clinical trials in Canada.  Dr. Vilos has treated over 60 
patients with the ThermaChoice Uterine Balloon Therapy system without 
complication since June 1994.


                                      25
<PAGE>

     CARL WOOD, MD, Professor of Gynecology at Monarch University, is in 
private practice in Australia and is conducting clinical trials at a clinical 
site in Australia.  Dr. Wood and his associate, Peter Maher, M.D., began 
treating patients with the ThermaChoice Uterine Balloon Therapy system in 
March 1995.

                              ITEM 2. PROPERTIES

     The Company leases a facility consisting of approximately 24,000 square 
feet in Menlo Park, California. This facility is expected to accommodate the 
Company's planned growth for several years. The Company has obtained a 
manufacturing license from the State of California in order to manufacture 
its products and has registered this facility with the FDA in order to 
commence commercial product sales of the VersaPoint system within the United 
States.


                          ITEM 3. LEGAL PROCEEDINGS

     None.

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

     None.





                                      26
<PAGE>
                                   PART II

          ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                             STOCKHOLDER MATTERS

     The Company's Common Stock is traded in the over-the-counter market 
under the NASDAQ symbol GYNE.  The following table sets forth the range of 
the high and low prices by quarter as reported by the NASDAQ National Market 
System since November 22, 1995, the date the Common Stock commenced trading.

                                            High       Low
                                            ----       ----

         1995: Fourth Quarter               10.25      6.25
       (from November 22, 1995)

         1996: First Quarter                11.25      7.63

         1996: Second Quarter               10.25      7.75

         1996: Third Quarter                 7.50      3.50

         1996: Fourth Quarter                9.06      5.38

         1997: First Quarter                 8.12      6.69
       (through March 12, 1997)

     As of March 12, 1997, the number of common stockholders of record was 94.
The Company has not paid any dividends since its inception and does not intend 
to pay any cash dividends in the foreseeable future.  Future cash dividends, 
if any, shall be determined by the Board of Directors.  Additionally, the 
Company's secured credit facility contains covenants restricting the payment of 
dividends.




                                      27
<PAGE>

                       ITEM 6. SELECTED FINANCIAL DATA

     Incorporated herein by reference from the Annual Report under the caption 
"Selected Financial Data."

                 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Incorporated herein by reference from the Annual Report under the caption 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations."

              ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required by Item 8 is incorporated by reference herein from
Part IV Item 14(a)(1) and (2).

           ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                     ACCOUNTING AND FINANCIAL DISCLOSURE

     None.





                                      28
<PAGE>

                                   PART III

     Certain information required by Part III is omitted from this Report in 
that the registrant will file a definitive Proxy Statement pursuant to 
Regulation 14A (the "Proxy Statement") no later than 120 days after the end 
of the fiscal year covered by this Report, and certain information included 
therein is incorporated herein by reference.

                ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY

     Certain information regarding the directors and officers of the Company 
is contained herein under Item 1, "Executive Officers and Directors of the 
Company."

     Information regarding directors appearing under the caption "Election of 
Directors -- Directors and Nominees for Director" in the Proxy Statement is 
hereby incorporated by reference.

     Information regarding compliance with Section 16(a) of the Securities 
Exchange Act of 1934, as amended, is hereby incorporated herein by reference 
from the section entitled "Election of Directors -- Section 16(a) Beneficial 
Ownership Reporting Compliance" in the Proxy Statement.

                       ITEM 11. EXECUTIVE COMPENSATION

     The information required by this Item is incorporated herein by 
reference from the Proxy Statement under the captions "Election of Directors -- 
Directors and Nominees for Director," "Election of Directors -- Director 
Compensation," "Election of Directors -- Compensation Committee Interlocks 
and Insider Participation" and "Executive Compensation."

    ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item is incorporated herein by 
reference from the Proxy Statement under the caption "Election of Directors -- 
Security Ownership."

           ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item is incorporated herein by 
reference from the Proxy Statement under the caption "Election of Directors -- 
Compensation Committee Interlocks and Insider Participation," "Election of 
Directors -- Certain Transactions" and "Executive Officer Compensation."





                                      29
<PAGE>

                                   PART IV

   ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  The following documents are filed as part of this Report or incorporated
     herein by reference:

     1.   CONSOLIDATED FINANCIAL STATEMENTS

          The consolidated financial statements of Gynecare, Inc. required to
be filed as part of this Report, are incorporated herein by reference from the 
Annual Report under the caption "Financial Overview."

          The following financial statements of Uterine Balloon Therapy 
Business Operations of Origin Medsystems, Inc. are filed as part of this 
Report:

           INDEX TO FINANCIAL STATEMENTS OF UTERINE BALLOON THERAPY
                BUSINESS OPERATIONS OF ORIGIN MEDSYSTEMS, INC.

                                                                           Page

Report of Independent Accountants of the Uterine Balloon Therapy 
Operations of Origin Medsystems, Inc. (UBTO)                                F-1

Balance Sheet of UBTO at December 31, 1993                                  F-2

Statement of Operations of UBTO for the period from 
January 1, 1994 to March 7, 1994 and for the year ended December 31, 1993   F-3

Statement of Cash Flows of UBTO for the period from January 1, 1994 to 
March 7, 1994 and for the year ended December 31, 1993                      F-4

Notes to Financial Statements of UBTO                                       F-5

     2.   FINANCIAL STATEMENT SCHEDULES  

Valuation and Qualifying Accounts                                           S-1

     3.   EXHIBITS

The exhibits listed under Item 14(c) hereof are filed as part of this 
Annual Report on Form 10-K.

(b)  Reports on Form 8-K filed in the fourth quarter of 1996.

     None.



                                      30
<PAGE>

(c)  Exhibits.

     EXHIBIT
     NUMBER                                  TITLE
    ---------  -----------------------------------------------------------------
         3.1*  Restated Certificate of Incorporation of Registrant.

         3.2*  Bylaws of Registrant.

         4.1*  Form of Common Stock certificate.

       +10.1*  1994 Stock Option Plan and form of option agreement thereunder.

       +10.2*  1995 Directors' Stock Option Plan and form of option agreement 
               thereunder.

       +10.3*  1995 Employee Stock Purchase Plan and form of subscription 
               agreement thereunder.

        10.4*  Form of Indemnification Agreement entered into between Registrant
               and its directors and officers.
        10.5*  Second Amended and Restated Shareholder Rights Agreement dated 
               May 5, 1995 between Registrant and certain holders of Common 
               Stock and Preferred Stock.
        10.6*  Business Park Lease dated July 14, 1995 between Registrant and 
               David D. Bohannan Organization, relating to facility located at 
               235 Constitution Drive, Menlo Park, California.
      *10.7**  Supply Agreement between the Registrant and Origin Medsystems, 
               Inc., dated January 1, 1995.
        10.8*  Management Services Agreement between the Registrant and Origin 
               Medsystems, Inc. dated March 8, 1994.    
      *10.9**  License Agreement dated January 1993, by and among Origin, 
               Gynelab Products, Inc., Dr. Robert S. Neuwirth and Lee R. Bolduc.
       10.10*  License Assignment Agreement between Origin Medsystems, Inc. and 
               the Registrant dated March 8, 1994.
     *10.11**  Supply Agreement between the Registrant and SeaMED Corporation, 
               dated July 1, 1994.
     *10.12**  Distribution Agreement between the Registrant and Origin Canada 
               dated June 9, 1995.

       10.13*  License Assignment Agreement between Origin Medsystems, Inc. and 
               the Registrant dated October 9, 1995.
     *10.14**  Assembly Agreement dated February 1, 1995 between the Registrant 
               and Lewicki Microelectronic GmbH.
       10.15*  Distribution Agreement between the Registrant and T.D. Medical, 
               a Dutch Corporation dated March 1, 1995.
     *10.16**  Distribution Agreement between the Registrant and 
               J. Anklin A. G., a Swiss Corporation, dated February 21, 1995
    ++10.17**  Supply and Manufacturing License Agreement between Gyrus Medical,
               Ltd. and the Registrant dated July 24, 1995
    ++10.18**  Second Amendment to Supply and Manufacturing License Agreement 
               between Gyrus Medical, Ltd. and the Registrant dated March 31, 
               1996
         11.1  Statement Regarding Computation of Net Loss Per Share.

         13.1  1996 Annual Report to Stockholders

         23.1  Consent of Coopers & Lybrand, L.L.P, Independent Auditors

         24.1  Power of Attorney (See page 33)

         27.1  Financial Data Schedule


                                      31
<PAGE>

--------------
 *  Previously filed as exhibits to Registration Statement on Form SB-2 (File
    No. 33-97910-LA), declared effective by the Securities and Exchange 
    Commission on November 21,  1995.
**  Confidential treatment granted with respect to certain portions.
 +  Denotes a compensation plan in which an executive officer or director 
    participates.
++  Previously filed as an exhibit to the Registrant's Quarterly Report on 
    Form 10-Q filed with the Securities and Exchange Commission on 
    May 15, 1996.

(d) Financial Statement Schedules.

    See Item 14(a)(2) above.







                                      32
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, the Company has duly caused this Report to be signed on 
its behalf by the undersigned, thereunto duly authorized.

Dated:  March 28, 1997                GYNECARE, INC.


                                  By: /s/ A. Lad Burgin, Ph.D.
                                      ------------------------
                                      A. Lad Burgin, Ph.D.
                                      President and
                                      Chief Executive Officer

     KNOW ALL PERSON BY THESE PRESENTS, that each person whose signature 
appears below constitutes and appoints A. Lad Burgin, Ph.D., and Malcolm M. 
Farnsworth, Jr., jointly and severally, his attorneys-in-fact, each with the 
power of substitution, for him in any and all capacities, to sign any 
amendments to this Annual Report on Form 10-K, and to file the same, with 
exhibits thereto and other documents in connection therewith, with the 
Securities and Exchange Commission, hereby ratifying and confirming all that 
each of said attorneys-in-fact, or his substitute or substitutes, may do or 
cause to be done by virtue hereof.

     Pursuant to the requirement of the Securities Act of 1934, this Report 
has been signed by the following persons on behalf of the Registrant and in 
the capacities and on the dates indicated:

<TABLE>
<CAPTION>
           Signature                                       Title                        Date   
--------------------------------          --------------------------------------   --------------
<S>                                       <C>                                      <C>
/s/ A. LAD BURGIN, PH.D.                  President, Chief Executive Officer       March 28, 1997
--------------------------------          (Principal Executive Officer)
A. Lad Burgin, Ph.D.


/s/ MALCOLM M. FARNSWORTH, JR.            Vice President, Finance and Chief        March 28, 1997
--------------------------------          Financial Officer (Principal Financial
Malcolm M. Farnsworth, Jr.                and Accounting Officer)

/s/ ELIZABETH B. CONNELL, M.D.            Director                                 March 28, 1997
--------------------------------          
Elizabeth B. Connell, M.D.

/s/ DAVID L. DOUGLASS                     Director                                 March 28, 1997
--------------------------------          
David L. Douglass

/s/ A. GRANT HEIDRICH                     Director                                 March 28, 1997
--------------------------------          
A. Grant Heidrich

/s/ ALAN LEVY, PH.D.                      Director                                 March 28, 1997
--------------------------------          
Alan Levy, Ph.D.

/s/ MARY LAKE POLAN, M.D., PH.D.          Director                                 March 28, 1997
--------------------------------          
Mary Lake Polan, M.D., Ph.D.

/s/ F. THOMAS WATKINS, III                Director                                 March 28, 1997
--------------------------------          
F. Thomas Watkins, III

</TABLE>



                                      33
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors of
Origin Medsystems, Inc.:


     We have audited the accompanying balance sheet of the Uterine Balloon 
Therapy Business Operations of Origin Medsystems, Inc. as of December 31, 
1993 and the related statements of operations, and cash flows for the period 
from January 1, 1994 to March 7, 1994 and for the year ended December 31, 
1993.  These financial statements are the responsibility of the management of 
the Uterine Balloon Therapy Business Operations of Origin Medsystems, Inc.  
Our responsibility is to express an opinion on these financial statements 
based on our audit.

     We conducted our audit in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.  
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation.  We believe that our audit provides a 
reasonable basis for our opinion.

     Certain costs and expenses presented in the financial statements 
represent allocations and management's estimates of the cost of services 
provided to the Uterine Balloon Therapy Business Operations of Origin 
Medsystems, Inc.  As a result, the financial statements presented may not be 
indicative of the financial position or results of operations that would have 
been achieved had the Uterine Balloon Therapy Business Operations of Origin 
Medsystems, Inc. operated as a non-affiliated entity.

     In our opinion, the financial statements referred to above present 
fairly, in all material respects, the financial position of the Uterine 
Balloon Therapy Business Operations of Origin Medsystems, Inc. as of 
December 31, 1993 and the results of its operations and its cash flows for 
the period from January 1, 1994 to March 7, 1994 and for the year ended 
December 31, 1993, in conformity with generally accepted accounting 
principles.


                                                       COOPERS & LYBRAND L.L.P.


San Jose, California
November 9, 1995


                                       F-1
<PAGE>

                 UTERINE BALLOON THERAPY BUSINESS OPERATIONS
                          OF ORIGIN MEDSYSTEMS, INC.


                                BALANCE SHEET


                                                                    DECEMBER 31,
                                                                        1993
                                                                    ------------
                                    ASSETS

Prepaid royalties...............................................     $2,000,000
                                                                     ----------
      Total assets..............................................     $2,000,000
                                                                     ----------
                                                                     ----------
                        LIABILITIES AND NET INVESTMENT

Accounts payable................................................     $   89,000
                                                                     ----------
      Total current liabilities.................................         89,000
                                                                     ----------

Origin's net investment in the Uterine Balloon Therapy
  Business Operations...........................................      1,911,000
                                                                     ----------
      Total liabilities and net investment......................     $2,000,000
                                                                     ----------
                                                                     ----------


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



                                       F-2
<PAGE>

                 UTERINE BALLOON THERAPY BUSINESS OPERATIONS
                          OF ORIGIN MEDSYSTEMS, INC.


                           STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                               FOR THE PERIOD
                                           FROM JANUARY 1, 1994 TO  FOR THE YEAR ENDED
                                                MARCH 7, 1994        DECEMBER 31, 1993
                                           -----------------------  ------------------
<S>                                        <C>                      <C>
Operating Expenses:

  Research and development...............        $ 122,000               $ 883,000

  Selling, general and administrative....            7,000                  97,000
                                                 ---------               ---------
        Total operating expenses.........          129,000                 980,000

Loss from operations.....................         (129,000)               (980,000)
                                                 ---------               ---------
Net loss.................................        $(129,000)              $(980,000)
                                                 ---------               ---------
                                                 ---------               ---------
</TABLE>


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



                                       F-3
<PAGE>

                 UTERINE BALLOON THERAPY BUSINESS OPERATIONS
                          OF ORIGIN MEDSYSTEMS, INC.


                           STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                         FOR THE PERIOD
                                                     FROM JANUARY 1, 1994 TO  FOR THE YEAR ENDED
                                                          MARCH 7, 1994        DECEMBER 31, 1993
                                                     -----------------------  ------------------
<S>                                                  <C>                      <C>
Cash flows from operating activities:

  Net loss.......................................           $(129,000)           $  (980,000)

  Changes in operating assets and liabilities:

    Prepaid royalties............................                  --             (2,000,000)

    Accounts payable.............................             (81,000)                89,000

    Accrued expenses.............................               1,000                     --
                                                            ---------            -----------
      Net cash used in operating activities......            (209,000)            (2,891,000)
                                                            ---------            -----------
Cash flows from financing activities:
  Origin's investment in the Uterine Balloon 
    Therapy Business Operations..................             209,000              2,891,000
                                                            ---------            -----------
      Net cash provided by financing activities..             209,000              2,891,000
                                                            ---------            -----------
Net increase (decrease) in cash and cash 
  equivalents....................................                  --                     --

Cash and cash equivalents at beginning of period.                  --                     --

Cash and cash equivalents at end of period.......                  --                     --

</TABLE>


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



                                       F-4
<PAGE>

                UTERINE BALLOON THERAPY BUSINESS OPERATIONS OF
                            ORIGIN MEDSYSTEMS, INC.

                      NOTES TO THE FINANCIAL STATEMENTS

1.   FORMATION AND BUSINESS OF THE COMPANY:

     Origin Medsystems, Inc. ("Origin") competes in the market defined by a 
broad range of disposal surgical devices and equipment used in a multitude of 
applications in minimally invasive surgery.  The Uterine Balloon Therapy 
system is used to treat women experiencing excessive uterine bleeding.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     BASIS OF PRESENTATION

     The financial statements of the Uterine Balloon Therapy Business 
Operations of Origin Medsystems, Inc. (the "Business") include all necessary 
personnel costs and pro rata allocations of overhead from Origin to the 
Business on a basis which management believes represents a reasonable 
allocation of such costs.  These charges, along with amounts expended in 
transactions related to the royalty and license fee agreement (See Note 3), 
comprise Origin's net investment in the Business.

     INCOME TAXES

     The Business' operations have historically been included in the 
consolidated income tax returns filed by Eli Lilly and Company.  Income taxes 
in the accompanying financial statements have been computed based on the 
stand alone operations of the Business as if such operations had filed 
separate income tax returns.  Any net operating carryforwards generated from 
the Business would not be available for use by the Business for federal or 
state income tax purposes.

     PREPAID ROYALTIES

     Prepaid royalties are generally expensed as a percentage of the related 
net licensed product sales as determined by specific calculations included in 
the royalty agreement.

3.   ROYALTY AND LICENSE FEE COMMITMENTS:

     In January 1993, Origin entered into a license agreement with the 
original inventors of the Uterine Balloon Therapy system.  Under the license 
agreement, which was assigned to Gynecare on March 8, 1994, Origin was 
required to pay a royalty percentage of net sales for all licensed products.  
Royalties were payable each year for the ten years following written FDA 
approval with respect to certain products.  With respect to other products, 
royalties were payable until certain rights expire.  Royalties were 
calculated based on a formula defined in the license agreement, subject to 
minimum amounts, and were first applied to the prepaid royalties of 
$2,000,000.  Minimum royalties of $50,000, $100,000 and $150,000 were 
required in January 1996, 1997, and 1998, respectively, and $200,000 was 
required each January thereafter.  Additional royalty payments were not due 
and payable until aggregate royalty payments exceed $2,000,000.  The 
agreement was to remain in effect in perpetuity unless Origin defaults on its 
obligations or provides the original inventors with a notice of termination.

4.   SALE OF TECHNOLOGY:

     On March 8, 1994, Origin received 3,289,000 shares of Series A Preferred 
Stock from Gynecare in exchange for all rights and patents and confidential 
information relating to the Business.  Additionally, Origin assigned to 
Gynecare certain prepaid royalties that were paid to the original inventors 
of the Uterine Balloon Therapy system.



                                       F-5
<PAGE>

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS



<TABLE>

                                             Balance at        Additions        Deductions    Balance
                                            Beginning of       Charged to          from        at end
                                              Periods       Costs & Expenses     Reserves     of Period
                                            ------------    ----------------    ----------    ---------
<S>                                         <C>             <C>                 <C>           <C>
(In thousands)
YEAR ENDED DECEMBER 31, 1996

Accounts receivable allowances                        90                 185           124          151

YEAR ENDED DECEMBER 31, 1995

Accounts receivable allowances                        --                  90            --           90

YEAR ENDED DECEMBER 31, 1994

Accounts receivable allowances                        --                  --            --           --

</TABLE>



                                     S-1