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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                               ----------------

                                   Form 10-K

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

                 For the Fiscal Year Ended December 31, 1999 or


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

                For the Transition period from        to

                         Commission File Number: 0-27596



                                CONCEPTUS, INC.
             (Exact name of Registrant as specified in its charter)

           Delaware                                      97-3170244
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

                               1021 Howard Avenue
                              San Carlos, CA 94070
                    (Address of principal executive offices)
       Registrant's telephone number, including area code: (650) 802-7240

                               ----------------

        Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered pursuant to Section 12(g) of the Act:

                    Common Stock, $0.003 par value per share

                               ----------------

     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  than 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 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 nonaffiliates of the
Registrant based on the closing sale price of the  Registrant's  Common Stock on
the Nasdaq National Market on February 29, 2000 was approximately $57,366,527 as
of such date.  Shares of Common  Stock held by each  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.

     There  were  9,661,731  shares of  Registrant's  Common  Stock  issued  and
outstanding as of February 29, 2000.

                      DOCUMENTS INCORPORATED BY REFERENCE

                                     None

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<PAGE>

         The  following  information  should  be read in  conjunction  with  the
Consolidated  Financial Statements and the notes thereto.  This annual report on
Form 10-K,  and in  particular  the  Management's  Discussion  and  Analysis  of
Financial  Condition  and  Results  of  Operations,   contains  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of  1995.  In this  report,  the  words  "believes,"  "anticipates,"  "intends,"
"expects" and words of similar import, identify forward-looking statements. Such
forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors that may cause the actual results,  performance or achievements of
Conceptus to be materially  different  from any future  results,  performance or
achievements  expressed or implied by such  forward-looking  achievements.  Such
factors  include,  among  others,  the  following:  the  uncertainty  of  market
acceptance  of the  Company's  products;  the limited  operating  history of the
Company;  the ability of the Company to develop and maintain proprietary aspects
of  its  technology;  the  ability  of  the  Company  to  obtain  the  necessary
governmental clearances or approvals to market its products; intense competition
in the  medical  device  industry;  the  inherent  risk of  exposure  to product
liability claims and product recalls;  and other factors referenced in this Form
10-K.  Certain of these factors are discussed in more detail below.  Given these
uncertainties, persons evaluating the Company and its business are cautioned not
to place undue reliance on such forward-looking  statements. The Company assumes
no  obligation  to update these  forward-looking  statements  to reflect  actual
results or changes in factors  or  assumptions  affecting  such  forward-looking
statements.

                                     PART I

ITEM 1. BUSINESS

THE COMPANY

         Conceptus,  Inc.  ("Conceptus"  or the "Company")  designs and develops
minimally invasive devices for reproductive  medical  applications.  The Company
was formed in 1992 in response to reports by physicians of the successful use of
products  manufactured  by Target  Therapeutics,  Inc.,  to access the fallopian
tubes.  Conceptus  has an  exclusive,  worldwide,  royalty-free  license  to the
reproductive applications of the technology developed by Target. In 1997, Target
became a separate business unit of Boston Scientific  Corporation ("BSC").

Conceptus' focus is to develop its STOP(TM) non-surgical permanent contraception
device for women. STOP is designed to be a less-invasive, safer, and less costly
alternative to surgical  sterilization,  more commonly known as tubal  ligation.
The STOP device is  designed to achieve  contraception  by  elliciting  a tissue
response  which occludes the fallopian  tubes. A STOP  micro-coil is placed into
each fallopian tube in a procedure that is usually performed in 20 minutes, does
not require  general  anesthesia,  and does not require any cutting of the body.
The STOP device does not contain any drugs and is intended to provide  permanent
long-term contraception.

The Company has  demonstrated  the feasibility of the STOP(TM) device in a Phase
II study of preliminary safety and effectiveness and plans to commence a pivotal
trial in the  U.S.,  Europe,  and  Australia  in the  first  half of  2000.  The
pre-market  portion of the pivotal trial will study 400 patients with  bilateral
placement  of STOP  devices  through  twelve  months of  effectiveness  testing.
Conceptus  believes the pre-market portion of the pivotal trial may be completed
in 2002 and FDA  approval to market the STOP device in the United  States may be
obtained in 2003. Prior to FDA approval, however, the Company plans to introduce
the STOP  device in certain  international  markets  upon  clearance  from local
governmental  bodies.  The Company may raise additional  capital to complete the
pivotal trial and to execute a significant marketing launch of the STOP product.


                                       2

<PAGE>

CONTRACEPTION OVERVIEW

Market Overview

The  following  facts  are  useful  to  gain  perspective  on  the  size  of the
contraception market:

o    Data from the United Nations  indicates that 57% of reproductive  couples
     worldwide use some form of contraception.

o    The Population  Council estimates that there were  approximately 16 million
     sterilization procedures annually worldwide during the 1990's.

o    Data from the  Centers  for  Disease  Control  found  that  surgical  tubal
     ligation  is the  number  one form of  contraception  in the  U.S.  Chart 1
     illustrates U.S. contraceptive use among 60.2 million women of reproductive
     age 14 - 44.

                 Chart 1: U.S. Contraceptive Use -- Women 14-44

                               [GRAPHIC OMITTED]



Tubal ligation is a highly  effective means of achieving  female  sterilization.
The difficulty in accessing the fallopian tubes,  however, has made it necessary
to perform surgery in order to accomplish tubal ligation.  Typically,  fallopian
tubes are  ligated  by  cutting  or  cauterizing  the  tubes,  or by  mechanical
occlusion  of the  fallopian  tube using clips or rings in a surgical  procedure
such  as a  laparoscopy  or  laparotomy.  The  risks  associated  with  surgical
procedures are primarily  unintended  injury to the patient and risks associated
with general anesthesia.  Surgical procedures have overall complication rates of
about 2% and 6% for  laparoscopy  and  laparotomy,  respectively.  Additionally,
procedures  performed under general  anesthesia have a complication rate that is
five times higher than procedures  performed with local  anesthesia.  Because of
these risks,  92% of these  procedures  are  performed in a hospital  setting to
ensure access to emergency equipment,  facilities, and personnel.  Therefore the
cost of surgical  tubal  ligation has a range of $2,500 to $8,000,  depending on
the degree of invasiveness.  The typical surgical procedure takes  approximately
45  minutes  and is  followed  by 4 - 5 hours  of  recovery  time in a  hospital
setting. Additionally,  women typically take 3 - 4 days off work convalescing at
home. Despite the risks,


                                       3

<PAGE>

long recovery time,  and high costs  associated  with surgical  tubal  ligation,
women  throughout the world have made surgical tubal ligation the most prevalent
form of contraception worldwide.

In  summary,  surgical  female  tubal  ligation  is the most  prevelant  form of
contraception in the U.S. due to the combination of four strong drivers:

     1.       very high effectiveness
     2.       no recurring user compliance
     3.       very low risk of long-term side-effects
     4.       decreasing prevalence of vasectomy

STOP(TM), the Non-surgical Approach to Permanent Contraception

STOP is designed to be a less-invasive,  safer,  and less costly  alternative to
surgical  sterilization,  more commonly known as tubal ligation. The STOP device
is designed to achieve  contraception  by occluding the fallopian  tubes. A STOP
micro-coil  is placed  into each  fallopian  tube in usually a 20 minute  office
procedure  that does not  require  general  anesthesia  and does not require any
cutting of the body.  The STOP device does not contain any drugs and is intended
to  provide  permanent  contraception.  The  major  differences  between  a STOP
procedure and surgical tubal ligation are summarized in Table 1:

                  Table 1:  STOP vs Surgical Tubal Ligation

----------------------------- --------------------- -------------------------
Attribute                             STOP                  Surgical

----------------------------- --------------------- -------------------------

Where Performed                      Office              Operating room

----------------------------- --------------------- -------------------------

Patient Sedation                     Local                   General

----------------------------- --------------------- -------------------------

Procedure Time                    20 minutes*             45 minutes

----------------------------- --------------------- -------------------------

Recovery Time                       1 Hour*               4 - 5 Hours

----------------------------- --------------------- -------------------------

Days off Work                     Under 1 Day*            3 - 4 Days

----------------------------- --------------------- -------------------------

Global Cost                         $1,500*              $2,500-$8,000

----------------------------- --------------------- -------------------------
* Estimated by Conceptus, Inc.

The STOP device is designed to provide the  benefits of tubal  ligation  without
the  risks   associated   with  general   anesthesia  and  incisional   surgery.
Additionally, STOP may reduce time away from work and family obligations and may
reduce  the cost of a tubal  ligation  by about  44%.  Conceptus  believes  that
approximately 90% of surgical tubal ligation  procedures  performed  annually in
the U.S. may be replaced with STOP procedures.


                                       4

<PAGE>

Mechanism of Contraception

The mechanism of  contraception  of the STOP device is a  combination  of: (a) a
tissue response which occludes the fallopian tube, and (b) transformation of the
fallopian tube architecture to an environment that does not support  conception.
Interim results from the Company's  on-going  histology study provides  evidence
that  tissue  response  to the STOP  device is  occlusive  in nature  and should
provide for long-term anchoring as well as pregnancy  prevention.  Additionally,
the histology  study  demonstrates  that the tissue  reaction is predictable and
localized to the STOP device.

In the Phase II and  pivotal  clinical  trials  there is a  three-month  waiting
period after device placement before STOP can be relied upon for  contraception.
During  this time  alternative  contraception  must be used.  At the three month
follow-up  visit, an x-ray and a pressurized dye test is performed to see if the
tubes have been occluded by the STOP  devices.  If all criteria have been met, a
doctor can recommend that a woman may rely on STOP for  contraception.  Based on
histology data gathered to date, Conceptus believes that the three month waiting
period is a sufficient amount of time required for the STOP device to effectuate
its mechanism of contraception.

Significant Existing Market & Large Potential Market

The  Company  estimates  that there are  approximately  800,000  surgical  tubal
ligations  performed  annually.  The  following  graphic  illustrates  how these
procedures may represent just a portion of a much larger potential market.




                               [GRAPHIC OMITTED]




The top of the cone represents the current  demonstrated market of approximately
800,000  surgical  tubal  ligations.  These women are  willing to  tolerate  the
surgical  requirements  in order to  reliably  and  conveniently  control  their
fertility  with a low risk of  side-effects.  Among these women,  the  strongest
predictor  of tubal  ligation is the number of children  with 90% of these women
having two or more children.


                                       5

<PAGE>

Among the 23.7 million women using reversible  methods of  contraception,  there
are 7.5 million women with two or more  children.  Conceptus  believes these 7.5
million women  represent a group of women with the highest  propensity to switch
their method of contraception to STOP. Conceptus believes these women may have a
propensity  to switch to STOP  because  data  from the 1995  National  Survey of
Family Growth, indicates that there is considerable switching between reversible
methods of  contraception.  The survey found that 44% of women using  reversible
methods  discontinue  use for a  method-related  cause  within 12 months,  which
increases  to 61% by 24 months.  Researchers  believe  this may reflect the fact
that women are not  overwhelmingly  satisfied  with  long-term use of reversible
methods  and  would   welcome  a  more   reliable  and   convenient   method  of
contraception.

Existing Reversible Methods are Not Ideal

Existing methods of reversible  contraception  may have drawbacks that make them
less than ideal as long-term  methods of  contraception.  Table 2 summarizes the
failure  rates,  user  compliance,  and published side effects  associated  with
various methods of contraception.
<TABLE>
Table 2:  Method Failure Rates,  User Compliance, Side Effects
<CAPTION>
-------------------------- -------------------- -------------------- ---------------------------------------
         Method             1st Year Failure        Compliance                   Side Effects
                                  Rate
-------------------------- -------------------- -------------------- ---------------------------------------
<S>                          <C>                 <C>                 <C>
Tubal Ligation                    .5%                 None           Post operative complications

-------------------------- -------------------- -------------------- ---------------------------------------
                                                                     Hormonal changes, stroke, heart
        Oral Pill                6.9%                 Daily          attack, ovarian cysts, pulmonary
                                                                     embolism
-------------------------- -------------------- -------------------- ---------------------------------------

         Condom                  8.7%               Occurrence                  Cervical cancer

-------------------------- -------------------- -------------------- ---------------------------------------

        Diaphragm                8.1%               Occurrence             Vaginal infection, bladder
                                                                          infection, cervical cancer,
-------------------------- -------------------- -------------------- ---------------------------------------

           IUD                 .5%-2%             Monthly self exam        Uterine perforation, anemia,
                                                                                 Irregular menses
-------------------------- -------------------- -------------------- ---------------------------------------

      Injectables /          3.2% / 2.3%         3 months / 3 years            Hormonal changes,
      Implantables                                                             Irregular menses
-------------------------- -------------------- -------------------- ---------------------------------------
</TABLE>
As shown in Table 2, tubal sterilization has the lowest failure rate of .5%. The
pill,  condom,  and diaphragm have much higher failure rates of 6.9%,  8.7%, and
8.1% in the first year,  respectively.  These reversible methods have relatively
high failure  rates because they have the burden of imperfect  user  compliance,
which is inherent in most reversible methods of contraception.

The reliance on tubal  ligation is due in part to concerns  about the safety and
reliability of those birth control methods that are readily  accepted by younger
women. Consequently, despite recent favorable clinical studies, patient concerns
about the long-term


                                       6

<PAGE>

effects of oral contraceptives have limited their acceptance among women 30 - 44
where only 6.2% of these women use oral contraceptives.  Use of IUDs among women
in the United  States age 15 - 44 is less than 1%.  Other  long-term  reversible
methods such as injectables and  implantables  have low failure rates,  but have
undesirable  side effects and  disadvantages  that may make these methods poorly
accepted. For these reasons, Conceptus believes women may be seeking new methods
of permanent contraception.

What About Vasectomy?

Vasectomy is a highly effective  method of contraception  that is performed in a
doctor's office with local anesthesia and typically takes about 20 minutes.  The
vas deferens is ligated or resected and the cut ends are  typically  cauterized.
Patients are observed for about 20 minutes  before release and are encouraged to
use an ice pack for  about 4 hours  to  reduce  swelling.  Support  devices  are
recommend  for two days.  Before  relying on the  vasectomy  for  contraception,
however,  men must be tested for two successive  months to ensure no presence of
sperm.  The potential  risks of vasectomy  include an increased risk of erectile
dysfunction,  chronic pain syndrome,  and a theoretical risk of prostate cancer.
The number of vasectomies  performed in the U.S. has decreased to  approximately
200,000  procedures per year in the 1990's,  predominately as a result of female
tubal ligation becoming more safe and prevalent.  Conceptus  believes this trend
may be continued if STOP is proven safe and effective.

Clinical & Regulatory Status

In 1997,  the  Company  commenced  a Phase II clinical  study in  Australia  and
expanded  this study  into the U.S.  and  Europe in 1998.  Table 3  provides  an
interim summary of this Phase II clinical study.

<TABLE>
                            Table 3: Interim Phase II Clinical Trial Summary
<CAPTION>
                                                                                     Gamma & Beta
                                                               Gamma Design        Designs Combined
                                                             February 4, 2000       March 31, 2000
---------------------------------------------------------- --------------------- ---------------------
<S>                                                                <C>                   <C>
Women with successful placements                                   123                   133
---------------------------------------------------------- --------------------- ---------------------

Placement rate                                                     90%                    *
---------------------------------------------------------- --------------------- ---------------------

Average procedure time                                          20 minutes                *
---------------------------------------------------------- --------------------- ---------------------

Woman months of wearing                                            778                  1,214
---------------------------------------------------------- --------------------- ---------------------

Woman months of effectiveness                                      369                   710
---------------------------------------------------------- --------------------- ---------------------

Percentage of women who rate tolerance to wearing
STOP device as "good", "very good", or "excellent"
for follow-up reported                                              99%                   *
---------------------------------------------------------- --------------------- ---------------------

Adverse events                                                       6%                   *
---------------------------------------------------------- --------------------- ---------------------

Reported pregnancies                                               None                  None

---------------------------------------------------------- --------------------- ---------------------
<FN>
* Data is not relevant as the Beta design was discontinued in 1998.
</FN>
</TABLE>

                                       7

<PAGE>

STOP is  designed  to be a permanent  method of  contraception  capable of being
placed in an office  setting  with  minimal  patient  sedation.  To support  the
feasibility  of an office based  placement  Conceptus is collecting  data in its
Phase  II and  pivotal  trials  regarding  the time  required  to  complete  the
procedure,  the use of analgesia  and/or  anesthesia,  patient  tolerance of the
placement procedure, and patient tolerance of wearing the device.

In the Phase II trial,  94% of the  procedures  were performed  without  general
anesthesia, and 91% of patients have reported "good" to "excellent" tolerance of
the  procedure.  Post  procedure  discomfort  was  reported in 78% of  patients.
Further analysis of this post procedure discomfort revealed that 56% of patients
reported  resolution  of pain  within  one day,  and 100% of  patients  reported
resolution  of  discomfort  within  14  days.  In  about  half of  these  cases,
discomfort was treated with non-prescription medication. Additionally, Conceptus
has gathered data from its Phase II trial that suggests the STOP device does not
significantly alter menstruation patterns.

Adverse events have occurred in about 6% of Phase II cases. These adverse events
were due to  placement  errors  in 4% of cases,  and in 2% of cases  were due to
technical difficulties with the device. Surgical retrieval of the STOP device in
conjunction  with a tubal  ligation was  performed  in about 2% of patients.  In
response to these  events,  the Company has revised its  physician  training and
clinical  protocol and  implemented  design  changes to reduce the potential for
these types of adverse events.

U.S.  regulatory  clearance of the STOP device is subject to Pre-Market Approval
("PMA") by the FDA. In March 2000, Conceptus obtained FDA approval to commence a
400 patient international pivotal trial of the STOP device. The Company plans to
conduct the pivotal trial with 10-20  clinical  sites in the U.S.,  Europe,  and
Australia.  In the pivotal trial,  Conceptus will place devices in a minimum 400
women. In the first three months after placement of the STOP device,  women will
use an alternative form of contraception.  After this three month period,  women
will have an office visit to ensure proper placement of the STOP device and with
physician  approval,  will  begin  relying  solely  on STOP  for  contraception.
Conceptus  will then follow these women  through the end of the study.  Clinical
endpoints of the pivotal  trial  include  pregnancy  prevention,  and safety and
comfort during and after the STOP procedure.

Infertility Products

The Company's  proprietary  transcervical  tubal access  technology  consists of
specially designed,  micro-catheters and guidewires,  designed to be atraumatic,
which  provide  non-surgical  access  through the cervix and uterus and into the
fallopian  tubes.  These  components  are  combined  with  the  Company's  other
procedure-specific   products   to  produce  the  TTAC  system  and  the  STARRT
Falloposcopy  system.  Both the TTAC and STARRT  products have produced  limited
revenues  since approval by the FDA and are not actively  marketed.  The Company
continues to consider various licensing and/or distribution strategies to market
these products, but does not intend to expend significant resources on marketing
activities on these products.

Electro-Surgical Products

Conceptus'  electro-surgical products consist of the ERA and FUTURA Resectoscope
Sleeves, for use in therapeutic  resection procedures in gynecology and urology,
respectively.   These  products  were  acquired  by  the  Company   through  its
acquisition of Microgyn, Inc.,a privately held company, in November 1996.

                                       8

<PAGE>

These  products  increase  the  safety  of  resectoscope  procedures,  including
therapeutic procedures,  which remove abnormal tissue in the uterus or prostate.
In performing these procedures,  traditionally a  non-conductive/non-physiologic
distention medium is employed. Unfortunately,  these fluids are electrolyte-free
(hypotonic)  and can  change  levels  of  vital  electrolytes  such  as  sodium,
potassium, and chloride in the blood stream of the patient.  Significant risk to
the patient is incurred by over-absorption of hypotonic solutions, which include
serious heart,  lung, and brain  disorders,  which  sometimes  result in coma or
death.

The Company's ERA and FUTURA products  consist of a simple,  disposable  sleeve,
when  installed on a standard  hysteroscope,  permits the use of normal  saline,
which is physiologically  compatible with the patient. The Company believes that
the  ability  to  effectively  use  isotonic   solutions  during   hysteroscopic
procedures reduces the potential of serious  electrolyte  disturbances and their
associated  complications.  Both the ERA and FUTURA and products  have  produced
limited  revenues since approval by the FDA and are not actively  marketed.  The
Company continues to consider various licensing and/or  distribution  strategies
to market these products, but does not intend to expend significant resources on
marketing activities on these products.

Research and Development

The Company's research and development activities are performed by a combination
of internal employees and external consultants.  The Company intends to continue
to focus its research and  development  efforts on the  development  of the STOP
device.  Research and  development  expenses in 1999,  1998,  and 1997 were $4.3
million, $4.3 million, and $5.4 million, respectively.

Manufacturing

The Company  currently  manufactures  the STOP device in its  facilities at 1021
Howard  Ave.,  San Carlos  California.  The Company was  inspected by the FDA in
March  1997,  and  was in  substantial  compliance  with  all  FDA  requirements
including FDA Good  Manufacturing  Practices  ("GMP") for medical  devices.  The
Company has also been  inspected  in the past by the  California  Department  of
Health  Services  ("CDHS") and is  registered  with the State of  California  to
manufacture its medical devices and drugs. The State of California Food and Drug
Branch  conducted a two-day  inspection  of the San Carlos  facility in February
1997 and as a result of that inspection,  recommended that Conceptus be issued a
drug license by the State of California Department of Health Services. Conceptus
purchases  materials  from various  suppliers and may rely on single sources for
some of these items. The Company does not have a formal supply contract with key
vendors and, accordingly, no assurance can be made that such firms will continue
to supply the Company with such materials in sufficient  quantities,  or at all.
Delays  associated with any future  shortages of materials could have a material
adverse effect on the Company's business,  financial  condition,  and results of
operations.  See "Risk  Factors-Dependence  Upon Sole Source Suppliers;  Lack of
Contractual Arrangements" and -"Limited Manufacturing Experience and Third Party
Manufacturers."

Marketing & Distribution

Because the STOP device is still in clinical trials, the Company is not actively
marketing  or  distributing  the STOP  device.  As the STOP  product  progresses
through various clinical trials, the


                                       9

<PAGE>

Company  will  evaluate  various   distribution   strategies   including  direct
distribution,   use  of  local  and/or  regional  distributors,   and  strategic
partnerships.

There can be no assurance that any of the Company's future distribution partners
will successfully  market the Company's  products for applications in radiology,
gynecology,   or  urology.  See  "Risk  Factors-Limited   Sales,  Marketing  and
Distribution Experience; Emerging Market."

Patents, Trade Secrets and Licenses

The Company's  policy is to aggressively  protect its  proprietary  position by,
among other  things,  filing United States and foreign  patent  applications  to
protect  technology,  inventions  and  improvements  that are  important  to the
development  of its business.  The  Company's  strategy  includes  extending the
patent  protection  of  its  in-licensed  technology  (from  Target)  by  filing
procedure-specific method patents wherever possible for the use of the Company's
products in new clinical applications,  as well as aggressively pursuing patents
for  all its  other  inventions  and  developments.  As of  February  29,  2000,
Conceptus had applied for multiple  United States  patents,  seven of which have
been issued to the Company,  and has filed 25 foreign patents, two of which have
been  issued  to the  Company.  The  Company's  issued  patents  contain  claims
regarding  guidewire  manipulation,  a novel  guidewire  design  and a  delivery
mechanism for a tubal occlusion device.

The pending  applications  cover various  aspects of the  Company's  proprietary
tubal access  platform  technology,  including  certain  claims  specific to the
Company's  STOP  device.  Conceptus  is also  the  licensee  (from  Target)  for
exclusive use in the field of reproductive physiology  of substantial technology
developed by Target as described  below,  and has granted to Target an exclusive
license in certain  fields of  interventional  medicine  outside of the field of
reproductive  physiology to certain Conceptus technology.  Conceptus's exclusive
license of Target's technology is applicable to all technology  available to the
Company as of February 1, 1996.  Conceptus does not have any preferential rights
for Target  technology  developed  following that date.  Target's issued patents
relate to the design of Target's  micro-catheters,  the initial patent for which
expires in June 2006,  certain  aspects of guidewire  design and other important
aspects of Target's micro-catheter,  guidewire and micro-coil  technologies.  In
the event that such Target  patents are at any time  invalidated,  the Company's
proprietary  position  in the  marketplace  would be  severely  compromised.  In
addition,  should  the Target  technology  licensed  to the  Company be found to
infringe upon a third party's  technology,  the Company's sale of products based
on such infringing  Target  technology could be limited.  Finally,  in the event
that the  Company  materially  breaches  the terms of its license  from  Target,
Target will have the right to terminate  the license.  Any such  termination  of
this license  would deprive the Company of the right


                                       10

<PAGE>

to develop or sell products based on the licensed technology, which would have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.  See "Risk Factors  Reliance on Patents and Protection of
Proprietary Technology."

Government Regulation

United States

The research, development,  manufacture, labeling, distribution and marketing of
the Company's  products are subject to extensive and rigorous  regulation by the
FDA and, to varying  degrees,  by state and  foreign  regulatory  agencies.  The
Company's  products are regulated in the United States as medical devices by the
FDA under the Federal Food,  Drug,  and Cosmetic Act (the "FDC Act") and require
clearance  or  approval  by the FDA  prior to  commercialization.  In  addition,
material  changes  or  modifications  to  medical  devices  also are  subject to
regulatory  review  and  clearance  or  approval.  Under  the FDC  Act,  the FDA
regulates the  research,  clinical  testing,  manufacturing,  safety,  labeling,
storage,  record  keeping,  advertising,  distribution,  sale and  promotion  of
medical  devices in the United  States.  The  testing  for,  preparation  of and
subsequent review of applications by the FDA and foreign regulatory  authorities
is an expensive,  lengthy and uncertain  process.  The failure by the Company to
comply  with  FDA  requirements   could  result  in  warning   letters,   fines,
injunctions,  civil penalties,  recall or seizure of products,  total or partial
suspension of production,  the government's refusal to grant premarket clearance
or premarket approval for devices, and criminal prosecution.

The FDA also has the authority to require  clinical  testing of certain  medical
devices.  If clinical testing of a device is required and if the device presents
a "significant  risk," an IDE  application  must be approved prior to commencing
clinical  trials.  The IDE  application  must be  supported  by data,  typically
including the results of laboratory and animal  testing.  If the IDE application
is  approved  by the FDA,  clinical  trials  may begin at a  specific  number of
investigational  sites with a maximum  number of  patients,  as  approved by the
agency.  Sponsors  of  clinical  trials  are  permitted  to sell  those  devices
distributed  in the  course  of the  study  provided  such  costs do not  exceed
recovery of the costs of manufacture,  research,  development and handling.  The
clinical  trials must be conducted  under the auspices of an IRB pursuant to FDA
regulations.

Generally,  before a new device can be introduced  into the market in the United
States,  the  manufacturer  or distributor  must obtain  premarket  notification
clearance  under  Section  510(k) of the Federal  Food,  Drug,  and Cosmetic Act
("510(k)") or a PMA. In addition,  material  changes to medical devices are also
subject  to  FDA  review  and  clearance  or  approval.   If  a  medical  device
manufacturer or distributor can establish,  among other things, that a device is
"substantially equivalent" in intended use and technological  characteristics to
certain legally marketed devices,  for which the FDA has not required a PMA, the
manufacturer or distributor may seek clearance from the FDA to market the device
by filing a 510(k).  Though  generally  believed  to be a shorter,  less  costly
regulatory  path than a PMA, the 510(k) may need to be supported by  appropriate
data  establishing  to the  satisfaction  of the FDA the  claim  of  substantial
equivalence to the predicate device. In addition,  the FDA may require review by
an  advisory  panel as a  condition  for 510(k)  clearances,  which can  further
lengthen the regulatory  process.  In recent years, the FDA has been requiring a
more rigorous demonstration of substantial equivalence.


                                       11

<PAGE>

Following  submission of the 510(k),  the  manufacturer  or distributor  may not
place the  device  into  commercial  distribution  unless  and until an order is
issued  by the FDA  finding  the  product  to be  substantially  equivalent.  In
response  to a 510(k),  the FDA may  declare  that the  device is  substantially
equivalent to another  legally  marketed device and allow the proposed device to
be  marketed  in the  United  States.  The FDA,  however,  may  require  further
information,   including  clinical  data,  to  make  a  determination  regarding
substantial  equivalence,  or may  determine  that the  proposed  device  is not
substantially  equivalent  and  require  a PMA.  Such a request  for  additional
information or  determination  that the device is not  substantially  equivalent
would delay  market  introduction  of the  products  that are the subject of the
510(k).

If a  manufacturer  or distributor  of medical  devices cannot  establish that a
proposed device is substantially  equivalent to a legally  marketed device,  the
manufacturer or distributor must seek premarket  approval of the proposed device
through  submission  of a PMA.  A PMA  must  be  supported  by  extensive  data,
including,  laboratory,  preclinical and clinical trial data to prove the safety
and effectiveness of the device as well as extensive manufacturing  information.
Following  receipt  of a PMA,  if the FDA  determines  that the  application  is
sufficiently  complete to permit a substantive  review,  the FDA will "file" the
application.  The PMA approval process can be lengthy,  expensive and uncertain.
FDA review of a PMA  generally  takes  approximately  1-2 years from the date of
filing to complete.  If granted, the approval of the PMA may include significant
limitations on the indicated  uses for which a product may be marketed.  The PMA
process can take several years from initial  filing and requires the  submission
of extensive supporting data and clinical information. There can be no assurance
that any future  products or  applications  developed  by the  Company  will not
require approval under the more lengthy and expensive PMA process.

The Company is also required to register as a medical device  manufacturer  with
the FDA and state  agencies,  such as the CDHS and to list its products with the
FDA. As such,  the Company  will be  periodically  inspected by both the FDA and
CDHS for compliance with GMP and other applicable regulations. These regulations
require that the Company  manufacture its products and maintain its documents in
a  prescribed  manner.  In July 1994,  the  Company's  San Carlos  facility  was
inspected  by the CDHS with no  observations,  and the Company was  subsequently
granted a California medical device manufacturing license. In February 1997, the
Company's  San  Carlos  facility  was  inspected  by the  CDHS,  and  granted  a
California drug manufacturing  license. In March 1997, the Company was inspected
by the FDA, with no action indicated.

The Company is required  to provide  information  to the FDA on death or serious
injuries that its medical  devices have allegedly  caused or contributed  to, as
well as product  malfunctions  that would likely cause or contribute to death or
serious injury if the malfunction  were to recur. In addition,  the FDA strictly
prohibits  the  marketing  of  approved   devices  for  uses  other  than  those
specifically  cleared  for  marketing  by the FDA.  If the FDA  believes  that a
company  is not in  compliance  with the law or  regulations,  it can  institute
proceedings  to  detain  or  seize  products,  issue  a  recall,  enjoin  future
violations  and assess civil and  criminal  penalties  against the company,  its
officers and its employees.  Failure to comply with the regulatory  requirements
could  have a  material  adverse  effect on the  Company's  business,  financial
condition and results of operations.

The promotion of most  products  regulated by the FDA is subject to both FDA and
Federal  Trade  Commission  jurisdictions.   The  Company  is  also  subject  to
regulation by the  Occupational  Safety


                                       12

<PAGE>

and  Health  Administration  and  by  other  government  entities.   Regulations
regarding  the  manufacture  and sale of the  Company's  products are subject to
change.  The Company cannot predict what impact, if any, such changes might have
on its business, financial condition or results of operations. See "Risk Factors
Government Regulations."

International

Export  sales  of  investigational  PMA  devices  or  devices  not  cleared  for
commercial distribution in the United States to certain countries are subject to
FDA export permit  requirements.  In order to obtain such a permit,  the Company
must  provide  the FDA with  documentation  from the medical  device  regulatory
authority  of the country in which the  purchaser  is located,  stating that the
sale of the device is not a violation  of that  country's  medical  device laws.
Recent regulations  eliminate export approval  requirements for  investigational
devices  subject  to an  approved  IDE  which are being  imported  into  certain
countries.

The European Union has promulgated  rules that require  manufacturers of medical
products  to  obtain  the  right  to affix to  their  products  the CE Mark,  an
international  symbol of adherence to quality assurance standards and compliance
with applicable European Union Medical Device Directives. The ISO 9000 series of
standards for quality  operations  has been  developed to ensure that  companies
know the  standards  of quality to which  they must  adhere to receive  European
Union certification.  ISO 9000 certification is one of the CE mark certification
requirements.  The Company  plans to become ISO  compliant in late 2000 and also
plans to obtain the "CE Mark" for the STOP device in late 2000.

Many  countries  in which the Company  currently  operates or intends to operate
either do not currently  regulate  medical devices or have minimal  registration
requirements; however, these countries may develop more extensive regulations in
the future  which could  adversely  affect the  Company's  ability to market its
products.  In  addition,  significant  costs  and  requests  by  regulators  for
additional  information  may be  encountered  by the  Company in its  efforts to
obtain  regulatory  approvals.  Any such  events  could  substantially  delay or
preclude  the  Company  from  marketing  its  products  in the United  States or
internationally. See "Risk Factors Government Regulations."

Third-Party Reimbursement

Market  acceptance  of the  Company's  products  in the U.S.  and  international
markets may be dependent in part upon the availability of  reimbursement  within
prevailing  healthcare payment systems.  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 determine
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  Company's  STOP  and  other  products  will  depend  on the
availability and level of reimbursement in international markets targeted by the
Company. 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.
Failure to obtain such approvals could have a material  adverse effect on market
acceptance of the Company's  products in the international  markets in which the
Company is seeking  approvals  and could have a material  adverse  effect on the
Company's sales, business, financial condition and results of operations.


                                       13

<PAGE>

Regardless  of the type of  reimbursement  system,  the  Company  believes  that
physician  advocacy of its  products  will be required to obtain  reimbursement.
Availability of reimbursement  will depend on the clinical  efficacy and cost of
the Company's  products. 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  Company's
systems for all  indications  intended by the  Company.  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.  See "Risk
Factors Uncertainty Relating to Third Party Reimbursement."

Competition

Currently,  fallopian  tubes are ligated by cutting or cauterizing the tubes, or
by  mechanical  occlusion  of the tubal lumen using clips or rings in a surgical
procedure such as a laparoscopy  or laparotomy.  The Company is aware of several
attempts  to  develop a  non-surgical  trans-cervical  method of tubal  ligation
including radio frequency coagulation,  intratubal cryogenic freezing, polymeric
embolic agents, nitenol stents, silicone plugs, and hydrogelic plugs.

Competition  will also come from  existing  and  future  methods  of  reversible
contraception.  There can be no assurance that STOP will be able to successfully
compete against these methods.

In the therapeutic hysteroscopy market, there are four major endoscope companies
(Karl Storz Endoscopy,  Inc., Olympus, Inc., Circon Corporation and Richard Wolf
Medical  Instruments  Corporation) that account for the majority of sales of the
equipment and instruments used to perform these procedures. Although the Company
believes it has significant  intellectual  property protection for its products,
there can be no assurance that these  companies or others (e.g.  electrosurgical
generator  manufacturers) will not develop technology to enable  electrosurgical
therapeutic  hysteroscopy  to be performed  with  isotonic  solution.  The major
endoscope  companies and others also market cutting loops and coagulating roller
balls which would be directly  competitive with those  manufactured and marketed
by the  Company.  There are also a number of  companies  developing  devices  to
perform endometrial ablation using different energy sources.

The Company  believes that its products have distinct  advantages  over those of
its competitors based on the Company's advanced  proprietary  micro-catheter and
guidewire   technologies   and  its  proprietary   resectoscope   safety  sheath
technology.  However,  many  of the  Company's  competitors  have  substantially
greater  name  recognition  and  financial  resources  than the Company and have
greater   resources  and  expertise  in  research  and  development,   obtaining
regulatory  approvals,  manufacturing and marketing.  Certain of these companies
are  developing  and  marketing  devices  for the  diagnosis  and  treatment  of
disorders of the female  reproductive system and others may choose to enter this
market  at  a  later  date.  See  "Risk   Factors-


                                       14

<PAGE>

Competition;  Uncertainty of Technological Change" and "-Reliance on Patents and
Protection of Proprietary Technology."

Product Liability and Insurance

The  manufacture  and sale of  medical  products  involve  an  inherent  risk of
exposure to product  liability claims and product recalls.  Although the Company
has not  experienced  any  product  liability  claims  to date,  there can be no
assurance that the Company will be able to avoid  significant  product liability
claims and potential related adverse publicity.  The Company currently maintains
product  liability  insurance with coverage  limits of $5,000,000 per occurrence
and an annual  aggregate  maximum of $5,000,000,  which the Company  believes is
comparable to that maintained by other companies of similar size serving similar
markets.  However,  there can be no assurance that product  liability  claims in
connection  with  clinical  trials or sale of the  Company's  products  will not
exceed such insurance  coverage limits,  or that such insurance will continue to
be available  on  commercially  reasonable  terms,  or at all. In addition,  the
Company may require increased product liability coverage as more of its products
are  commercialized.  Such  insurance is expensive  and in the future may not be
available on acceptable  terms, if at all. A successful  product liability claim
or series of claims  brought  against  the  Company  in excess of its  insurance
coverage,  or a recall of the Company's products,  could have a material adverse
effect on the Company's business, financial condition and results of operations.
See  "Risk  Factors-Product   Liability  Risk  and  Recalls;  Limited  Insurance
Coverage."

Employees

As of February  29, 2000 the Company  employed 33  individuals,  25 of whom were
engaged directly in product development,  regulatory/clinical  affairs,  quality
assurance,  and pilot  manufacturing.  The Company is dependent upon several key
management and technical personnel.  The loss of the services of one or more key
employees  could  have a  material  adverse  effect on the  Company's  business,
financial  condition and results of operations.  The Company's success will also
depend  on its  ability  to  attract  and  retain  additional  highly  qualified
management and technical  personnel.  The Company faces intense  competition for
qualified  personnel,  many of whom are often  subject to  competing  employment
offers,  and there can be no assurance  that the Company will be able to attract
and retain  such  personnel.  None of the  Company's  employees  is covered by a
collective  bargaining  agreement.  Conceptus  believes  that it maintains  good
relations with its employees. See "Risk Factors-Dependence Upon Key Personnel."

Executive Officers of the Company
<TABLE>
The executive officers of the Company, and their ages, as of February 29, 2000, are as follows:
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Name                                Age     Position
-------------------------------------------------------------------------------------------------------------
<S>                                  <C>    <C>
Steven Bacich..............          38     President, CEO, and Director
-------------------------------------------------------------------------------------------------------------

Cynthia M. Domecus.........          40     Senior Vice President, Clinical Research and Regulatory Affairs
-------------------------------------------------------------------------------------------------------------

Stan Van Gent..............          39     Vice President, Marketing
-------------------------------------------------------------------------------------------------------------

Ashish Khera...............          30     Vice President, Research and Development
-------------------------------------------------------------------------------------------------------------
</TABLE>

                                       15

<PAGE>

Mr.  Bacich  was  promoted  to  President  and CEO in  January  2000 and  joined
Conceptus in March 1997 as Vice President,  Research and  Development.  Prior to
joining Conceptus,  Mr. Bacich spent seven years as a Co-founder and Director of
New Product Development for Imagyn Medical,  Inc., a medical device manufacturer
of gynecological products for infertility and enodscopic procedures. From August
1987 to September  1989, Mr. Bacich held  engineering  positions in research and
development  and served as Senior Staff Engineer,  Business  Development for the
Edwards Less Invasive Surgery Division of Baxter.  From 1985 to 1987, Mr. Bacich
held research and development positions at Mentor Corporation,  a reconstructive
surgery and urology  company.  From 1983 to 1985,  Mr.  Bacich held research and
development  positions at American Medical Optics, an ophthalmic  medical device
manufacturer and Division of American  Hospital Supply  Corporation.  Mr. Bacich
holds a B.S. in Biomedical  Engineering  from the University of California,  San
Diego.

Ms. Domecus has served as Senior Vice President, Clinical and Regulatory Affairs
of  Conceptus  since May 1994.  From March 1992 to May 1994 she served as Senior
Director  and  Director of  Regulatory  and  Quality  Affairs  for  Systemix,  a
biotechnology  firm. From 1986 to 1992, Ms. Domecus served in varying regulatory
affairs capacities with Collagen Corporation,  a biomedical device manufacturer,
serving as Director of Regulatory  Affairs from January 1991 to March 1992.  Ms.
Domecus has been certified by the Regulatory Affairs  Certification Board of the
Regulatory Affairs  Professional  Society. In 1995, Ms. Domecus was appointed by
the FDA to its OB/GYN Advisory Panel as the industry representative. Ms. Domecus
holds a B.A. in Psychology from the University of the Pacific.

Mr. Van Gent joined  Conceptus  in February  2000 as Vice  President  Marketing.
Prior to joining Conceptus, Mr. Van Gent was Director of International marketing
for Valley Lab,  and was  responsible  for  international  market  introduction,
reimbursement,  strategic  positioning,  and branding for $70 million of product
revenues.  Mr. Van Gent also held various  positions in  marketing,  sales,  and
engineering over the past 10 years for Allergan Medical Optics,  Imagyn Medical,
and Cabot Medical.  Mr. Van Gent holds a B.S.  degree in Biomedical  Engineering
from the University of California, San Diego.

Mr. Khera was promoted to Vice  President,  Research and  Development in January
2000 and joined  Conceptus  in April 1995 as a Sr.  Project  Engineer.  Prior to
joining Conceptus,  Mr. Khera was employed as a Project Engineer by Pfizer, Inc.
from 1992-1995 where he developed medical devices for use in cardiovascular  and
cancer  treatment  applications.  Mr.  Khera holds a B.S.  degree in  Mechanical
Engineering from Carnegie Mellon University.


ITEM 2. PROPERTIES

The  Company is  currently  occupying  approximately  14,000  square feet in San
Carlos,  California.  The  facility  is  subject  to a lease  which  expires  in
December,  2001.  The  Company  has  leased  additional  space in the  amount of
approximately  16,397  square  feet,  also in San  Carlos,  California  which is
subject to a lease which  expires in May,  2002.  This larger  facility has been
sub-leased at amounts  greater than the Company's lease  obligation  through the
entire lease term. The Company believes that it will be able to lease additional
space or renew its existing leases as necessary.


                                       16

<PAGE>

ITEM 3. LEGAL PROCEEDINGS

A complaint alleging sexual harassment was filed against the Company and certain
named officers of the Company in the Superior Court of San Mateo on December 17,
1997.  In December, 1999,  the Company was  exonerated  of all charges from this
proceeding.  Please  see  footnote  11 in the  Consolidated  Notes to  Financial
Statements.

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

No matters were  submitted to a vote of  stockholders  of the Company during the
fourth quarter of the fiscal year ended December 31, 1999.

                                     PART II

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

The Company's  Common Stock has been traded on the Nasdaq  National Market under
the  symbol  CPTS  since the  effective  date of the  Company's  initial  public
offering on February 1, 1996.  Prior to the initial public  offering,  no public
market existed for the Common Stock.  The following  table presents the high and
low closing sale prices for the Company's Common Stock as reported in the Nasdaq
National Market for the period indicated.

                                                           High             Low
                                                           ----             ---

October 1, 1999 - December 31, 1999                       $3.75            $1.31

July 1, 1999 - September 30, 1999                         $1.75            $1.00

April 1, 1999 - June 30, 1999                             $1.53            $0.78

January 1, 1999 - March 31, 1999                          $1.94            $0.97


October 1, 1998 - December 31, 1998                       $2.25            $0.66

July 1, 1998 - September 30, 1998                         $1.75            $0.53

April 1, 1998 - June 30, 1998                             $3.50            $1.25

January 1, 1998 - March 31, 1998                          $5.25            $3.50


As of February 29, 2000 there were approximately 119 stockholders of record.

The  Company  has never paid cash  dividends  on its  Common  Stock and does not
anticipate paying cash dividends in the foreseeable  future. The Company intends
to retain any future  earnings  for  reinvestment  in its  business.  Any future
determination  to pay cash  dividends  will be at the discretion of the Board of
Directors and will


                                       17

<PAGE>

be dependent  upon the Company's  financial  condition,  results of  operations,
capital  requirements  and such other  factors as the Board of  Directors  deems
relevant.

In October 1998, the Company received notification from the National Association
of Securities  Dealer's  Inc.  ("NASD") that due to the decline of the Company's
stock price, the Company was not in compliance,  throughout the third quarter of
1998,  with certain  listing  maintenance  requirements  of the Nasdaq  National
Market. In November 1998, the Company's Common Stock satisfied these maintenance
requirements  with a  closing  bid  price of at least  $1.00  per  share for ten
consecutive  trading days. While these  maintenance  requirements were satisfied
within the  required  ninety-day  period  required by the NASD,  there can be no
assurance  that  Company's  Common Stock will stay in compliance  with these and
other listing maintenance requirements.  If delisting were to occur, the Company
expects  that trading of its Common Stock would be conducted on the OTC Bulletin
Board.  The closing price of the Company's Common Stock on December 31, 1999 was
$3.75 per share.


                                       18

<PAGE>

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
The  following  table  presents  selected  consolidated  financial  data  of the
Company.  This historical  data should be read in conjunction  with the attached
consolidated   Financial   Statements   and  the  related   notes   thereto  and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" appearing in Item 7 of this Form 10-K.
<CAPTION>
(In thousands, except per share data)

                                                               Year Ended December 31,
                                       ----------------------------------------------------------------------
                                           1995          1996         1997            1998           1999
                                       ------------  ------------- -------------  -------------   -----------
<S>                                    <C>            <C>           <C>           <C>             <C>
Statement of Operations Data:
Net sales                              $    243       $      664    $    1,426    $      449      $      95
Cost of sales                             1,021            1,208         3,516         1,702            137
                                       ------------  ------------- -------------  -------------   -----------
Gross profit (loss)                        (778)            (544)       (2,090)       (1,253)           (42)

Operating costs and expenses:
   Research and development               2,589            8,509         5,429         4,317          4,251
   Selling, general and  admin            2,805            4,824         6,323         5,349          3,729
                                       ------------  ------------- -------------  ---------------------------
        Total operating expenses          5,394           13,333        11,752         9,666          7,980
                                       ------------  ------------- -------------  ---------------------------
Loss from operations                     (6,172)         (13,877)      (13,842)      (10,919)        (8,022)
Interest & investment income, net           323            2,185         1,784         1,254            723
                                       ------------  ------------- -------------  -------------   -----------
        Net loss                       $ (5,849)      $  (11,692)   $  (12,058)   $   (9,665)     $  (7,299)
                                       ============  ============= =============  =============   ===========

Basic and diluted net loss per share                  $    (1.39)   $    (1.29)   $    (1.01)     $   (0.76)
                                                     ============= =============  =============   ===========
Shares used in computing basic and
diluted net loss per share                                 8,396         9,381         9,562          9,662
                                                     ============= =============  =============   ===========
Pro forma basic and diluted net
   loss per share (1)                   $(1.37)
                                        =======
Shares used in computing pro forma
   basic and diluted net loss per
   share (1)                              4,273
                                        =======


                                                                     Year Ended December 31,
                                              -------------------------------------------------------------------
                                                 1995           1996           1997         1998         1999
                                              -----------   ------------  ------------  ------------  -----------
Balance Sheet Data:
Cash, cash equivalents and short-term
   investments............................... $    5,082    $   39,021    $   27,058      $  17,071   $   10,769
Working capital..............................      4,407        37,078        26,608         16,500       10,030
Total assets.................................      6,092        40,093        29,480         19,031       11,903
Long-term portion of debt and capital lease
   obligations...............................        153            34             1            -            -

Redeemable convertible preferred stock.......     16,624           -             -              -            -
Accumulated deficit..........................    (11,981)      (23,673)      (35,731)       (45,396)     (52,695)
Total stockholders' equity...................    (11,877)       37,595        27,504         18,014       10,914

</TABLE>

(1)  Pro  forma  basic and  diluted  net loss per  share  has been  computed  as
     described  above and also gives  effect to common  equivalent  shares  from
     convertible  preferred  shares issued prior to the initial public  offering
     that converted to preferred shares upon completion of the Company's initial
     public offering.


                                       19

<PAGE>

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


Overview

Since its  inception  on  September  18,  1992,  the Company has been  primarily
engaged in the design,  development and marketing of minimally  invasive devices
for reproductive medical  applications.  Conceptus,  Inc. is developing STOP, an
innovative  medical  device  designed to provide a  non-surgical  alternative to
surgical tubal ligation, the leading form of contraception worldwide.  Data from
the United  Nations  show that  worldwide,  30% of  reproductive  couples  using
contraception rely on surgical tubal ligation. A survey performed by the Centers
for Disease Control indicates that surgical tubal ligation is the most prevalent
form of  contraception  in the U.S.,  and that 35% of women age 35-44 have had a
tubal ligation. An estimated 800,000 surgical tubal ligations are performed each
year in the U.S., of which 93% are performed in a hospital or  surgi-center  and
require general anesthesia.

The Company has a limited history of operations and has experienced  significant
operating losses since inception.  Operating losses are expected to continue for
at least the next several years as the Company  continues to expend  substantial
resources to fund  clinical  trials in support of regulatory  and  reimbursement
approvals,  to conduct  research  and  development,  and to develop  appropriate
marketing and distribution systems for the STOP device.

The Company continues to devote significant financial and human resources on the
development of its STOP non-surgical  permanent  contraception device for women.
STOP is designed to be a less-invasive,  safer,  and less costly  alternative to
tubal  ligation.  A STOP  micro-coil is placed into each  fallopian tube in a 20
minute  procedure,  which can be performed in an office  setting.  The procedure
does not  require  general  anesthesia  and does not  require any cutting of the
body.  Additionally,  STOP does not employ  hormones or drugs for  contraception
thus  it  is  intended  to  be  an   alternative   to  long-term   use  of  oral
contraceptives,  IUDs or  hormonal  implants.  The STOP  device is  intended  to
provide  permanent  contraception,  and the  feasibility  of device  removal and
possible return to fertility has not been investigated.

The mechanism of  contraception  of the STOP device is a  combination  of: (a) a
tissue response which occludes the fallopian tube, and (b) transformation of the
fallopian tube architecture to an environment that does not support  conception.
Interim results from the Company's  on-going  histology study provides  evidence
that tissue reponse to the STOP device is occlusive in nature and should provide
for  long-term  anchoring as well as  pregnancy  prevention.  Additionally,  the
histology  study  demonstrates  that the  tissue  reaction  is  predictable  and
localized to the STOP device.

In July 1997,  the Company  commenced a Phase II clinical  study of  preliminary
safety and  effectiveness  of STOP. The Phase II study involves device placement
in fertile women who desire permanent  contraception and will be monitored for a
minimum  of two  years.  In the  current  Phase  II  clinical  trial  there is a
three-month  waiting period after  placement of the STOP device before it can be
relied upon for contraception.  During this time, alternative contraception must
be used. At the  three-month  follow-up  visit, an x-ray is taken and a pressure
test is performed to see if the tubes have been occluded by the STOP devices. If
all  criteria  have  been met,  a doctor  can  recommend  that a woman can begin
relying on STOP for  contraception.  Based on histology  data  gathered to date,
Conceptus believes that the three month waiting period is a sufficient amount of
time required for the STOP device to effectuate


                                       20

<PAGE>

its  mechanism  of  contraception.

As of March  31,  2000,  the women in the Phase II study  have  accumulated  710
woman-months of effectiveness with no reported pregnancies.  Additionally, these
women in the Phase II study have accumulated  1,214  woman-months of wear with a
low rate of adverse events. Adverse events have occurred in about 6% of Phase II
cases with the gamma design.  These adverse events were due to placement  errors
in 4% of cases, and in 2% of cases were due to technical  difficulties  with the
device.  Surgical  retrieval  of the STOP  device  in  conjunction  with a tubal
ligation was performed in about 2% of patients. In response to these events, the
Company has revised  physician  training and clinical  protocol and  implemented
design changes to reduce the potential for these types of adverse events.

U.S.  regulatory  clearance  of the STOP  device is  subject  to the Food & Drug
Administration   ("FDA")  Pre-Market  Approval  ("PMA")  process.   Accordingly,
Conceptus intends to complete an international pivotal trial with clinical sites
in the U.S., Europe,  and Australia.  The Company expects to conduct the pivotal
trial in 10 - 20 sites.  In March 2000, the Company  obtained  approval from the
FDA to  commence a 400 patient  pivotal  trial of the STOP  device.  The Company
estimates  that PMA  approval of the STOP  device may be  obtained in 2003.  The
Company also plans to seek  regulatory  clearance for the STOP device in certain
international markets before and after FDA approval. The Company intends to seek
the "CE Mark" for STOP in 2000.

The Company's other products, the TTAC product line, STARRT Falloposcopy system,
and the ERA and FUTURA  resectoscope  sleeves have  generated  limited  sales to
date. Prior to the July 1998 restructuring, the Company had sought to license or
acquire products that were complementary to these products in order to develop a
critical  mass of medical  devices to justify the hiring of a direct,  specialty
sales  force.  Failing  to  build a line of  products  that  would  enable  cost
effective, direct marketing to the interventional gynecology market, the Company
implemented a restructuring plan in July 1998 when the Company assessed that the
near-term market potential of these products did not justify a direct, specialty
salesforce.  This restructuring reduced the number of employees by approximately
fifty from  seventy-two  at the beginning of 1998 by  eliminating  all sales and
marketing  personnel,   the  manufacturing  function,  and  most  administrative
personnel.  As a result  of these  actions  the  Company  recorded  an  one-time
restructuring charge of about $1.0 million in the second quarter of 1998.

Prior to the 1998  restructuring  the  Company  sold its  products  to U.S.  and
international  markets  through a limited number of  distributors  who resell to
physicians and hospitals.  Sales to distributors  were made on open credit terms
and may include purchase discounts.  Sales in 1997 and 1998 were through a small
direct sales force (which was  eliminated in July,  1998) and  distributors,  on
open credit terms and consisted of commercial shipments of TTAC, STARRT, ERA and
FUTURA products.

The ERA and FUTURA  Resectoscope  Sleeve allow the use of  physiologic  solution
when  performing  gynecological  and urologic  procedures,  which  increases the
safety  of  resection   procedures  by   eliminating   the  risk  of  dilutional
hyponatremia,  a complication  that can lead to


                                       21

<PAGE>

serious heart, lung, and brain disorders.  The Company received 510(k) clearance
for its FUTURA Resectoscope Sleeve for urology applications in the first quarter
of 1997. In September 1997, the Company  received  510(k)  clearance for its ERA
Resectoscope  Sleeve for gynecological  procedures.  Also in September 1997, the
Company  entered  into a  marketing  and  distribution  agreement  with  Imagyn,
formerly  UroHealth,  Inc.,  granting Imagyn an exclusive,  worldwide license to
distribute  products for urological  applications  of the  resectoscope  sleeve.
Since December 31, 1997, Imagyn has not purchased any of the Company's products.
As of June 30, 1998, this  distribution  agreement with Imagyn was terminated by
Imagyn.  The  Company  is  actively  seeking  sales and  marketing  partners  to
distribute  the ERA  Resectoscope  Sleeve for  gynecologic  applications  in the
United States and internationally.

Given the  Company's  focus on the STOP  product,  the  Company is not  actively
marketing the TTAC, STARRT,  and the ERA and FUTURA products.  Until the Company
is successful in establishing  marketing and sales partners to distribute  these
products,  revenues  are  expected to  decrease  from 1999  levels.  The Company
continues to evaluate possible marketing arrangements for these products.

Future  revenues and results of  operations  may  fluctuate  significantly  from
quarter to quarter and will depend upon, among other factors,  the rate at which
the Company  establishes  domestic and  international  distributors or marketing
partners,  actions relating to regulatory and reimbursement  matters, the extent
to which the Company's products gain market  acceptance,  the timing and size of
distributor purchases,  the progress of clinical trials, and the introduction of
competitive  products for  diagnosis  and  treatment of the female  reproductive
system.  The Company believes that  development of the TAC, STARRT,  and ERA and
FUTURA products has reached a logical stage sufficient to enable distribution to
the marketplace.  Therefore,  the Company does not expect to expend  significant
resources on further  development of these products nor does the Company plan on
expending  significant  resources marketing these products without a significant
marketing and distribution partner.  Future sales of the T-TAC, STARRT, ERA, and
FUTURA  products  are expected to be very low or decrease  from  current  levels
until effective distribution partners are secured.

In October 1998, the Company received notification from the National Association
of Securities  Dealer's  Inc.  ("NASD") that due to the decline of the Company's
stock price, the Company was not in compliance,  throughout the third quarter of
1998,  with certain  listing  maintenance  requirements  of the Nasdaq  National
Market. In November 1998, the Company's Common Stock satisfied these maintenance
requirements  with a  closing  bid  price of at least  $1.00  per  share for ten
consecutive  trading days. While these  maintenance  requirements were satisfied
within the  required  ninety-day  period  required by the NASD,  there can be no
assurance  that Company's  Common Stock will stay in compliance the  maintenance
requirements.  If delisting were to occur,  the Company  expects that trading of
its  Common  Stock  would  be  conducted  on the OTC  Bulletin  Board  or in the
over-the-market in what is commonly referred to as the "pink sheets".

Results of Operations

Years Ended December 31, 1999, 1998 and 1997

In 1999,  sales  decreased  to an  immaterial  level as the  Company  ceased all
marketing and distribution of the TTAC,  STARRT,  and ERA and FUTURA products to
focus  solely  on the STOP  product.  The  Company  expects  revenues  to remain
immaterial in 2000 as the Company  continues to seek regulatory  approval of the
STOP device in various  countries.  Sales in 1998  decreased  by $1.0 million to
$0.4  million  from $1.4  million in 1997 as a result of the lack of orders from
significant  distribution partners combined with the elimination,  in July 1998,
of all sales and marketing  personnel.  Sales to domestic customers  represented
100%, 33%, and 83% of sales in 1999, 1998, and 1997, respectively.


                                       22

<PAGE>

In 1999,  Cost of Sales  decreased to an immaterial  level as the Company ceased
all marketing and distribution of the TTAC,  STARRT, and ERA and FUTURA products
to focus  solely on the STOP  product.  The  Company,  expects  cost of sales to
remain immaterial in 2000 as the Company  continues to seek regulatory  approval
of the STOP device in various  countries.  In 1998, cost of sales decreased $1.8
million  to $1.7  million  from  $3.5  million  in 1997  due to the  absence  of
approximately  $1.1  million of expenses  incurred  in 1997 for the  purchase of
manufacturing  rights  for  the  Microgyn  sleeve  products  combined  with  the
elimination of all manufacturing activities in July 1998.

Research and development ("R&D") expenses,  which include clinical,  regulatory,
and quality assurance  expenses were $4.3 million in 1999 and 1998 and were $5.4
million in 1997. R&D expenses are expected to increase  significantly in 2000 as
the Company  commences  the pivotal  trial of the STOP device and  scales-up its
pilot manufacturing operations.  The decrease in R&D expenses in 1998 was due to
reduced development and clinical activities associated with the Microgyn,  TTAC,
and STARRT products.

Selling,  general and administrative  ("SG&A") expenses were $3.7 million,  $5.3
million and $6.3 million in 1999,  1998, and 1997,  respectively.  SG&A expenses
decreased in 1999 and 1998 as a result of the corporate  restructuring  effected
in July  1998,  where all sales and  marketing  functions  were  eliminated  and
administrative  personnel were significantly  reduced.  However,  as the Company
implements  its  international  marketing  efforts  for the  STOP  device,  SG&A
expenses are expected to increase significantly from the current levels.

Net  interest and  investment  income were $0.7  million,  $1.3 million and $1.8
million in 1999, 1998, and 1997, respectively. The decrease is a result of lower
average cash balances due to the utilization of cash for operations.

As a result of the items discussed  above, net loss decreased to $7.3 million in
1999 from $9.7 million in 1998. Net loss was $12.1 million in 1997.

At  December  31,  1999 the Company had net  operating  loss  carryforwards  for
federal and state income tax purposes of  approximately  $42.0 million and $15.2
million,   respectively.   In  addition,   the  Company  had   research   credit
carryforwards  of  approximately  $750,000  as of  December  31,  1999.  The net
operating  loss and credit  carryforwards  described  above will expire,  if not
utilized, at various dates beginning in the years 2000 through 2019. Utilization
of the net operating  losses and credits may be subject to a substantial  annual
limitation  due to the change of ownership  provisions  of the Internal  Revenue
Code of 1986, as amended.  The annual limitation may result in the expiration of
net operating losses and credits before utilization.  See "Risk  Factors-Limited
Operating History; Anticipated Future Losses."


                                       23

<PAGE>

Liquidity and Capital Resources

         Since inception,  the Company's cash  expenditures  have  significantly
exceeded its sales,  resulting  in an  accumulated  deficit of $52.0  million at
December 31, 1999. At December 31, 1999,  Conceptus had cash,  cash  equivalents
and investments of  approximately  $10.8 million  compared with $17.1 million at
December 31, 1998.  The decrease in 1999 was  primarily due to $6.4 million used
in  operations,  to fund  increasing  levels of research and  development of the
Company's STOP non-surgical permanent  contraception device and expansion of the
STOP Phase II clinical study.

Capital expenditures in 1999 were immaterial.  In 1998 capital expenditures were
$0.9 million and were primarily leasehold improvements and related furniture and
fixtures for a new building. As a result of the Company's  restructuring in July
1998,  the  Company  subleased  this new  building  and  related  furniture  and
fixtures,  for the  entire  lease  term,  at  amounts  greater  than the cost of
improvements and related  furniture and fixtures.  Capital  expenditures in 1997
were $1.0 million.

For the full year 2000, the Company expects to incur a net loss of approximately
$12 million for product development,  pilot manufacturing,  and the STOP pivotal
trial. Conceptus believes that its existing capital resources will be sufficient
to complete  enrollment in the STOP pivotal  trial but does not  currently  have
sufficient capital resources to fund completion of the pivotal trial nor does it
have sufficient funds to successfully commercialize the STOP product.

However,  the Company's  future liquidity and capital  requirements  will depend
upon numerous factors, including the progress of the Company's clinical research
and product  development  programs,  execution and  implementation of partnering
arrangements,  the  receipt  of and  the  time  required  to  obtain  regulatory
clearances and approvals, and the resources devoted to developing, manufacturing
and  marketing  the  Company's  products.  Accordingly,  the Company may require
additional financing and, therefore,  may in the future seek to raise additional
funds  through bank  facilities,  debt or equity  offerings or other  sources of
capital.  Furthermore,  any  additional  equity  financing  may be  dilutive  to
stockholders,   and  debt  financing,  if  available,  may  involve  restrictive
covenants.  Additional  funding  may not be  available  when  needed or on terms
acceptable  to the Company,  which would have a material  adverse  effect on the
Company's business, financial condition and results of operations.

Impact of Year 2000

In prior years the  Company  discussed  the nature and  progress of its plans to
become  Year 2000  compliant.  In 1999,  the Company  completed  its testing and
remediation of critical information systems and as of February 29, 2000, has not
experienced  any  disruptions  in  information  systems due to the  inability of
systems to properly  process the year 2000. The Company will continue to monitor
critial information systems to ensure continued operation of such systems.


RISK FACTORS

In addition to the other  information in this Form 10-K,  the following  factors
should be considered carefully in evaluating the Company and its business.  This
Form  10-K   contains   forward-looking   statements   that  involve  risks  and
uncertainties.  The Company's actual results could differ  materially from those
anticipated in these forward-looking  statements as a result of certain factors,
including those set forth below and elsewhere in this Form 10-K.

Early State of STOP Development - Uncertainty of Product Development and Lack of
Long Term Follow-Up  Data. The Company has not yet completed  development of the
STOP  contraception  device and expects to  increase  research  and  development
expenditures  as  the  Company   implements  design  changes  in  pursuit  of  a
commercially  viable design. To obtain revenues from the STOP device the Company
must successfully develop, obtain regulatory approval of, manufacture and market
the STOP device. The Company has demonstrated  technical  feasiblity in Phase II
clinical trials of the STOP device and anticipates significantly more


                                       24

<PAGE>

expenditures   to   complete  a  large   pivotal   clinical   trial,   prior  to
commercialization.  There can be no assurance  that the  Company's  research and
development  efforts will be  successfully  completed.  Additionally,  until the
development  and  clinical  testing  processes  are  complete,  there  can be no
assurance  the STOP device will perform in the manner  anticipated,  or that the
results  observed in animal and human  clinical  trials will be  experienced  in
long-term  use. The first Phase II placement of the device was in July 1997, and
as of  February  29,  2000 a total  of 133  women  have  had a  successful  STOP
procedure, thus the Company has obtained limited clinical data on the safety and
efficacy of the product.  Because the Company has not yet obtained any long-term
safety or efficacy  data there can be no  assurance  that  long-term  safety and
efficacy data when  collected  will be consistent  with the results  obtained in
early  Phase II  clinical  trials nor can there be any  assurance  that the STOP
device can be successfully used by a wide range of patients on a long-term basis
as a safe and effective permanent contraceptive method.

Uncertainty of Market Acceptance.  The Company's products have generated limited
revenue to date. There can be no assurance that any of the Company's existing or
future  products will gain any  significant  degree of market  acceptance  among
physicians,  patients and healthcare payors, even if reimbursement and necessary
international and United States regulatory  approvals are obtained.  The Company
believes that  recommendations  and endorsements by physicians will be essential
for market acceptance of the Company's  products,  and there can be no assurance
that any such  recommendations  or  endorsements  will be obtained.  The Company
believes  that  physicians  will  not use the  Company's  products  unless  they
determine,  based on clinical data and other factors,  that these systems are an
attractive  alternative to other means of diagnosing  and treating  diseases and
disorders of the female reproductive system and that the products offer clinical
utility in a cost-effective manner. Acceptance among physicians will also depend
upon the  Company's  ability  to train  interventional  gynecologists  and other
potential users of the Company's products in new  interventional  techniques and
upon the willingness of such persons to learn these new  techniques.  Failure of
the Company's  products to achieve  significant  market  acceptance would have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

Limited Sales,  Marketing and  Distribution  Experience;  Emerging  Market.  The
Company has only  limited  experience  marketing  and  selling  its  products in
commercial quantities.  Interventional  gynecology is an emerging medical market
with  widely  varying  practice   patterns.   Therefore,   there  is  no  proven
distribution  channel for marketing the Company's current and future products in
the  United  States  or  internationally.  While the  Company  is  committed  to
establishing an effective distribution channel for its products, there can be no
assurance  that the  Company  will be  successful  in doing so.  The  failure to
establish  and maintain an effective  worldwide  distribution  for the Company's
current or future  products,  or to retain  qualified sales personnel to support
commercial sales of the Company's products, would have a material adverse effect
on the Company's business, financial condition and results of operations.

Dependence Upon Transcervical  Tubal Access and  Catheterization  Products.  The
Company's initial commercial products, the TTAC and STARRT Falloposcopy systems,
have generated  limited sales to date.  Current  applications  for these systems
include  accessing,  diagnosing  and  treating  diseases  and  disorders  of the
fallopian  tubes.  Expanding the number of applications  for these products will
require  additional  development  and,  in certain  cases,  clinical  trials and
regulatory approvals.

Limited Operating History;  Anticipated Future Losses. The Company has a limited
history of  operations.  Since its inception in September  1992, the Company has
been  engaged   primarily  in  research  and  development  of  its  TTAC, STARRT
Falloposcopy and STOP systems


                                       25

<PAGE>

and, since 1996,  the ERA and FUTURA  product  lines.  The Company has generated
only  limited  revenues  and  has  only  limited  experience  in  manufacturing,
marketing  or selling its  products in  commercial  quantities.  The Company has
experienced significant operating losses since inception and, as of December 31,
1999,  had an  accumulated  deficit of  52.7 million. The  Company  expects  its
operating losses to continue for at least the next several years as it continues
to expend  substantial  resources  in  funding  clinical  trials in  support  of
regulatory and reimbursement  approvals,  expansion of manufacturing,  marketing
and sales activities and research and product development or acquisition. Due to
the  expense  and  unpredictable  nature  of these  activities,  there can be no
assurance that the Company will achieve or sustain  profitability in the future.
Whether the Company can  successfully  manage the  transition  to a  large-scale
commercial enterprise will depend upon a number of factors,  including obtaining
selected  regulatory and reimbursements  approvals for its existing or potential
products,  establishing its commercial manufacturing capability,  developing its
U.S.  marketing  and selling  capabilities  and  establishing  an  international
network.  Failure to make such a transition  successfully  would have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

Reliance on Patents and  Protection  of  Proprietary  Technology.  The Company's
ability to compete  effectively  will  depend  substantially  on its  ability to
develop and  maintain  proprietary  aspects of its  technology.  There can be no
assurance  that the Company's  issued  patents,  any future  patents that may be
issued  as  a  result  of  the  Company's   United  States  or  foreign   patent
applications,  or the patents under which the Company has license  rights,  will
offer any degree of  protection to the Company's  products  against  competitive
products.  There  can be no  assurance  that any  patents  that may be issued or
licensed to the Company or any of the Company's patent  applications will not be
challenged, invalidated or circumvented in the future. In addition, there can be
no assurance that competitors,  many of whom have substantial resources and have
made substantial investments in competing  technologies,  will not seek to apply
for and obtain patents that will prevent,  limit or interfere with the Company's
ability to make,  use or sell its  products  either in the  United  States or in
international markets.

The medical  device  industry has been  characterized  by  extensive  litigation
regarding patents and other  intellectual  property rights, and companies in the
industry have employed  intellectual  property  litigation to gain a competitive
advantage.  There can be no  assurance  that the Company  will not in the future
become  subject to patent  infringement  claims and  litigation or  interference
proceedings  declared by the United States Patent and Trademark Office ("USPTO")
to  determine  the  priority  of  inventions.  The defense  and  prosecution  of
intellectual  property suits, USPTO  interference  proceedings and related legal
and  administrative  proceedings are both costly and time consuming.  Litigation
may be  necessary  to enforce  patents  issued to the  Company,  to protect  the
Company's  trade secrets or know-how or to determine the  enforceability,  scope
and validity of the proprietary rights of others.

Any litigation or interference  proceedings involving the Company will result in
substantial  expense to the Company and  significant  diversion of effort by the
Company's  technical  and  management  personnel.  An adverse  determination  in
litigation or  interference  proceedings to which the Company may become a party
could subject the Company to significant liabilities to third parties or require
the  Company  to  seek  licenses  from  third  parties.   Although   patent  and
intellectual  property  disputes  in the  medical  device  area have  often been
settled through  licensing or similar  arrangements,  costs associated with such
arrangements   may  be  substantial   and  could  include   ongoing   royalties.
Furthermore,  there  can  be no  assurance  that  necessary  licenses  would  be
available  to  the  Company  on   satisfactory   terms,   if  at  all.   Adverse
determinations in a judicial or  administrative  proceeding or failure to obtain
necessary licenses


                                       26

<PAGE>

could prevent the Company from  manufacturing  and selling its  products,  which
would  have a  material  adverse  effect on the  Company's  business,  financial
condition and results of operations.

A patent issued to Target Therapeutics,  a unit of Boston Scientific Corporation
("BSC"),  and subject to Target's license to the Company,  which contains claims
relating to the design of the Company's Variable Softness  micro-catheters  (the
"Target patent"), has been the subject of four reexamination  proceedings in the
USPTO.  Following  the  completion of the first of such  proceedings,  the USPTO
issued a reexamination  certificate and confirmed the  patentability.  After the
USPTO's review of petitions for second, third and fourth re-examinations, Target
received notice from the USPTO that it had reaffirmed the  patentability  of the
claims of the Target  patent.  In  addition,  in November  1994,  Target filed a
lawsuit in United  States  District  Court  against  SciMed Life  Systems,  Inc.
("SciMed"),   a  subsidiary  of  BSC,  and  Cordis  Endovascular  Systems,  Inc.
("Cordis"),  a subsidiary of Johnson & Johnson, Inc., alleging infringement of a
Target  patent  relating to variable  stiffness in  microcatheters,  and seeking
damages and  preliminary and permanent  injunctive  relief against sales of such
companies'  products believed to be infringing the Target patent. The defendants
responded by challenging the validity of the Target patent, denying infringement
and raising other  defenses.  In May 1996, the District  Court granted  Target's
motion for an injunction  prohibiting the defendants from continuing to sell the
products  alleged to infringe the patent.  In July 1996, the United States Court
of Appeals for the Federal  Circuit stayed the  injunction  pending an appeal by
the  defendants.  Upon the  merger  between  Target  and BSC,  the  lawsuit  was
dismissed  as  to  SciMed.  Subsequently,  the  Court  of  Appeals  vacated  the
preliminary  injuction.  The lawsuit was  dismissed  as to Cordis  pursuant to a
settlement  agreement  signed in January 1998.  Any  invalidation  of the Target
patent could have a material adverse effect on the Company's business, financial
condition and results of operations.

Legislation is pending in Congress  that, if enacted in its present form,  would
limit the  ability  of  medical  device  manufacturers  in the  future to obtain
patents on surgical and medical  procedures  that are not  performed by, or as a
part of,  devices or  compositions  that are  themselves  patentable.  While the
Company cannot predict  whether the  legislation  will be enacted,  or precisely
what  limitations  will  result  from  the law if  enacted,  any  limitation  or
reduction in the  patentability  of medical and surgical  methods and procedures
could have a material  adverse  effect on the  Company's  ability to protect its
proprietary methods and procedures.

In addition  to  patents,  the  Company  relies on trade  secrets and  technical
know-how and  continuing  technological  innovation  to develop and maintain its
competitive position. The Company typically requires its employees,  consultants
and advisors to execute appropriate confidentiality and assignment of inventions
agreements  in  connection  with  their   employment,   consulting  or  advisory
relationship  with the  Company.  These  agreements  generally  provide that all
confidential  information  developed  or made  known  to the  individual  by the
Company during the course of the individual's  relationship  with the Company is
to be kept  confidential and not disclosed to third parties,  except in specific
circumstances.  The  agreements  also  generally  provide  that  all  inventions
conceived by the  individual in the course of rendering  services to the Company
shall be the  exclusive  property  of the  Company.  There can be no  assurance,
however,  that these  agreements  will not be breached or that the Company  will
have adequate  remedies for any breach.  Furthermore,  no assurance can be given
that  competitors  will  not  independently  develop  substantially   equivalent
proprietary information and techniques or otherwise gain access to the Company's
proprietary technology, or that Conceptus can meaningfully protect its rights in
unpatented proprietary technology.

Government  Regulation.  The manufacture and sale of medical devices,  including
the medical  devices used in the Company's  STOP,  TTAC,  and STARRT and ERA and
FUTURA


                                       27

<PAGE>

products,   are  subject  to  extensive   regulation   by  numerous   government
authorities,  both in the  United  States  and  internationally.  In the  United
States,   the   principal   regulatory   authorities   are  the  Food  and  Drug
Administration ("FDA") and corresponding state agencies,  such as the California
Department of Health Services ("CDHS"). The process of obtaining and maintaining
required  regulatory  clearances is lengthy,  expensive and  uncertain.  The FDA
requires  companies  that wish to  market a new  medical  device or an  existing
medical  device  for use for a new  indication  to  obtain  either  a  premarket
notification  clearance  under  Section  510(k) of the Federal Food,  Drug,  and
Cosmetic  Act  ("510(k)")  or  a  premarket   approval   ("PMA")  prior  to  the
introduction of such product into the market.  In addition,  material changes to
medical  devices are also subject to FDA review and clearance or approval.  If a
medical device  manufacturer or distributor  can establish,  among other things,
that a device is  "substantially  equivalent" in intended use and  technological
characteristics  to certain legally marketed devices,  for which the FDA has not
required a PMA, the  manufacturer or distributor may seek clearance from the FDA
to market  the  device by filing a 510(k).  Though  generally  believed  to be a
shorter,  less  costly  regulatory  path than a PMA,  the  510(k) may need to be
supported by appropriate  data  establishing to the  satisfaction of the FDA the
claim of substantial  equivalence to the predicate device. In addition,  the FDA
may require  review by an advisory  panel as a condition for 510(k)  clearances,
which can further lengthen the regulatory process.  The PMA approval process can
take several years from initial  filing and requires the submission of extensive
supporting  data and clinical  information.  There can be no assurance  that any
future  products  or  applications  developed  by the  Company  will not require
approval  under the more lengthy and  expensive  PMA process.  If the Company is
required to obtain  approval for any products  pursuant to the PMA procedure or,
if  the  510(k)  process  with  respect  to  any  products  is  extended  for  a
considerable  length  of  time,  the  commencement  of  commercial  sales of the
Company's products will be delayed substantially.

There can be no  assurance  that the  Company  will be able to obtain  necessary
510(k)  clearances  or PMA or other  approvals  to market its  products  for the
intended uses on a timely basis,  if at all, and delays in receipt of or failure
to  receive  such  clearances  or  approvals,  the loss of  previously  received
clearances or approvals, or failure to comply with existing or future regulatory
requirements  could have a material  adverse  effect on the Company's  business,
financial condition and results of operations.  Moreover, regulatory clearances,
if granted, may include significant  limitations on the indicated uses for which
a product may be marketed.

Sales  of  medical   devices  outside  of  the  United  States  are  subject  to
international  regulatory requirements that vary widely from country to country.
The time  required  to obtain  clearance  required by foreign  countries  may be
longer or shorter than that required for FDA  clearance,  and  requirements  for
licensing may differ significantly from FDA requirements.

The European Union has promulgated rules which require  manufacturers of medical
products  to  obtain  the  right  to affix to  their  products  the CE mark,  an
international  symbol of adherence to quality assurance standards and compliance
with applicable European Union Medical Device Directives. The ISO 9000 series of
standards for quality  operations  has been  developed to ensure that  companies
know the  standards  of quality to which  they must  adhere to receive  European
Union certification.  ISO 9000 certification is one of the CE mark certification
requirements.  Failure to receive  the right to affix the CE mark will  prohibit
the Company from selling such product in member  countries of the European Union
after 1998. In conjunction  with the Company's  restructuring  in July 1998, the
Company  elected to let its ISO9000  certification  lapse.  The Company plans to
become ISO 9000 compliant and obtain the CE mark in late 2000.

                                       28

<PAGE>

Regulatory  approvals,  if granted,  may include significant  limitations on the
indicated uses for which the Company's products may be marketed. In addition, in
order for  companies  to obtain  such  approvals,  the FDA and  certain  foreign
regulatory  authorities  impose  numerous  additional  requirements  with  which
medical  device  manufacturers  must comply.  FDA  enforcement  policy  strictly
prohibits  the promotion of approved  medical  devices for uses other than those
specifically  cleared for  marketing by the FDA. 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.  Ongoing  compliance with GMP and other
applicable   regulatory   requirements   will  be  monitored   through  periodic
inspections by federal and state  agencies,  including the FDA and the CDHS, and
by comparable  agencies in other  countries.  Failure to comply with  applicable
regulatory  requirements,  could result in, among other things, warning letters,
fines,  injunctions,  civil penalties,  recall or seizure of products,  total or
partial  suspension of production,  refusal of the government to grant premarket
clearance  or  premarket  approval for  devices,  withdrawal  of  approvals  and
criminal  prosecution.  Changes  in  existing  regulations  or  adoption  of new
government regulations or policies could prevent or delay regulatory approval of
the Company's  products.  The Company  cannot  predict the impact,  if any, such
changes  might  have  on  its  business,   financial  condition  or  results  of
operations.

Uncertainty  Relating  to  Third-Party  Reimbursement.  In  the  United  States,
hospitals,  physicians  and other  healthcare  providers  that purchase  medical
devices generally rely on third-party  payors,  such as private health insurance
plans,  to reimburse  all or part of the cost  associated  with the treatment of
patients. Although reimbursement for catheterization and hysteroscopy procedures
has generally  been  available in the United  States,  there can be no assurance
that such  reimbursement  will  continue to be  available.  If FDA  clearance or
approval is  received  for new  products,  third-party  reimbursement  for these
products  will be dependent  upon  decisions by  individual  health  maintenance
organizations,  private  insurers  and other  payors.  However,  there can be no
assurance  that  such  procedure  codes  will  remain   available  or  that  the
reimbursement  under these codes will be 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 permit  the  Company  to  achieve or
maintain profitability.  The Company could also be adversely affected by changes
in  reimbursement   policies  of  government  or  private   healthcare   payors,
particularly  to the  extent  that any such  changes  affect  reimbursement  for
therapeutic or diagnostic  catheterization procedures or hysteroscopy procedures
in which the Company's products are used.  Failure by physicians,  hospitals and
other users of the Company's  products to obtain sufficient  reimbursement  from
healthcare  payors for  procedures in which the Company's  products are used, or
adverse changes in government and private  third-party  payors'  policies toward
reimbursement  for such procedures,  could have a material adverse effect on the
Company's business, financial condition and results of operations.

Market  acceptance of the  Company's  products in  international  markets may be
dependent  in part upon the  availability  of  reimbursement  within  prevailing
healthcare payment systems.  Reimbursement systems in international markets vary
significantly  by country,  and include  both  government-sponsored  and private
healthcare  insurance.  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. Failure to obtain such approvals could have a material adverse effect
on market acceptance of the Company's  products in the international  markets in
which the Company is seeking


                                       29

<PAGE>

approvals  and could  have a material  adverse  effect on the  Company's  sales,
business, financial condition and results of operations.

Competition; Uncertainty of Technological Change. The medical device industry is
highly competitive.  The Company expects competition for devices to diagnose and
treat  female  reproductive  disorders  to  increase.   Many  of  the  Company's
competitors have substantially  greater name recognition and financial resources
than the  Company and have  greater  resources  and  expertise  in research  and
development,   obtaining  regulatory  approvals,  manufacturing  and  marketing.
Certain  of  these  companies  are  developing  and  marketing  devices  for the
diagnosis  and  treatment  of disorders  of the female  reproductive  system and
others may choose to enter this  market at a later date.  Additionally,  certain
smaller  companies are  developing  alternative  catheter-based  systems for the
diagnosis  and  treatment  of female  reproductive  disorders  that may  compete
directly  with  the  Company's  systems.  There  can be no  assurance  that  the
Company's  competitors will not succeed in developing  technologies and products
that are more  effective  or less costly than those  developed by the Company or
that  would  render  the   Company's   products   obsolete  or   noncompetitive.
Additionally, there can be no assurance that the Company will be able to compete
effectively  against such  competitors  based on its  abilities to  manufacture,
market and sell its products.

As the Company  commercializes  its STOP system,  it expects to compete  against
other surgical  procedures for permanent  contraception,  mechanical devices and
other contraceptive  methods. The Company also competes with other companies for
clinical sites to conduct trials.  The medical device industry is  characterized
by rapid and significant  technological  change. The length of time required for
product  development  and  regulatory  approval  plays  an  important  role in a
company's competitive position.  Consequently, the Company's success will depend
in part on its ability to respond quickly to medical and  technological  changes
through  the  development  and   commercialization  of  new  products.   Product
development  involves a high degree of risk and there can be no  assurance  that
the  Company's  research and  development  efforts  will result in  commercially
successfully  products.  The Company  believes that it competes  favorably  with
respect  to these  factors,  although  there  can be no  assurance  that it will
continue to do so and that  competition  will not have a material adverse effect
on the Company's business, financial condition and results of operations.

Limited Manufacturing Experience and Reliance on Third Party Manufacturers.  The
Company has limited  experience  in  manufacturing  its  products in  commercial
quantities. If the Company is successful in estabilishing  distribution partners
for its products the Company plans to increase internal maufacturing  operations
as well as utilize third party  manufacturers  to manufacture the products.  The
Company has identified  candidates that it believes could adequately produce the
products with the appropriate  quality and sufficient  volumes.  However,  third
party manufacturers often encounter difficulties in scaling up production of new
products,  including problems involving  production yields,  quality control and
assurance,  component supply and shortages of qualified personnel.  There can be
no  assurance  that the  Company  and its  third  party  manufacturers  will not
encounter manufacturing difficulties, which could have a material adverse effect
on the Company's business, financial condition and results of operations.

Dependence  Upon  Sole  Source  Suppliers;  Lack  of  Contractual  Arrangements.
Conceptus  purchases  both raw materials used in its products and finished goods
from  various  suppliers  and may rely on single  sources  for some  items.  The
Company  does not have formal  supply  contracts  with  several key vendors and,
accordingly,  no assurance  can be made that such firms will  continue to supply
the Company with such raw materials or finished goods in

                                       30

<PAGE>

sufficient  quantities,  or at  all.  Delays  associated  with  any  future  raw
materials or finished goods  shortages  could have a material  adverse effect on
the  Company's   business,   financial  condition  and  results  of  operations,
particularly as the Company scales up its manufacturing activities in support of
international  commercial  sales  and,  to the  extent  that FDA  approvals  are
received, United States commercial sales.

Possible  Future  Capital  Requirements.  Conceptus  believes  that its existing
capital  resources  will be  sufficient  to fund its  operations  through  2000.
However,  the Company's  future liquidity and capital  requirements  will depend
upon numerous factors, including 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,  and the resources  devoted to developing,
manufacturing  and  marketing  the Company's  products.  The  Company's  capital
requirements will also depend on, among other things,  the resources required to
expand  manufacturing  capacity and  facilities  requirements  and the extent to
which the Company's products generate market acceptance and demand. Accordingly,
there can be no assurance that the Company will not require additional financing
within  this  time  frame  and,  therefore,  may in the  future  seek  to  raise
additional  funds  through bank  facilities,  debt or equity  offerings or other
sources of capital. Furthermore, any additional equity financing may be dilutive
to  stockholders,  and debt  financing,  if available,  may involve  restrictive
covenants.  Additional  funding  may not be  available  when  needed or on terms
acceptable  to the Company,  which would have a material  adverse  effect on the
Company's business, financial condition and results of operations.

Product Liability Risk and Recalls;  Limited Insurance Coverage. The manufacture
and sale of medical  products  involve an  inherent  risk of exposure to product
liability claims and product  recalls.  Although the Company has not experienced
any product liability claims to date, there can be no assurance that the Company
will be able to avoid significant product liability claims and potential related
adverse publicity.  The Company currently  maintains product liability insurance
with  coverage  limits of  $5,000,000  per  occurrence  and an annual  aggregate
maximum  of  $5,000,000,  which  the  Company  believes  is  comparable  to that
maintained by other companies of similar size serving similar markets.  However,
there can be no  assurance  that product  liability  claims in  connection  with
clinical trials or sale of the Company's products 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.  In  addition,  the Company  may  require  increased  product
liability  coverage  as its  products  are  commercialized.  Such  insurance  is
expensive and in the future may not be available on acceptable terms, if at all.
A successful  product  liability  claim or series of claims brought  against the
Company  in  excess of its  insurance  coverage,  or a recall  of the  Company's
products,  could  have a  material  adverse  effect on the  Company's  business,
financial condition and results of operations.

Dependence  Upon Key  Personnel.  The Company is dependent  upon a number of key
management and technical personnel.  The loss of the services of one or more key
employees  could  have a  material  adverse  effect on the  Company's  business,
financial  condition and results of operations.  The Company's success will also
depend  on its  ability  to  attract  and  retain  additional  highly  qualified
management and technical  personnel.  The Company faces intense  competition for
qualified  personnel,  many of whom are often  subject to  competing  employment
offers,  and there can be no assurance  that the Company will be able to attract
and retain such  personnel.  Furthermore,  the Company relies on the services of
several  medical  and  scientific  consultants,  all of whom are  employed  on a
full-time  basis  by  hospitals  or  academic  or  research  institutions.  Such
consultants  are  therefore not available to devote their full time or attention
to the Company's affairs.


                                       31

<PAGE>

Reliance on Target Therapeutic's  License. BSC may be able to exercise influence
over the  business and  financial  affairs of the  Company.  In April 1997,  BSC
completed  the  acquisition  of  Target,  by  merging  Target as a wholly  owned
subsidiary.  Certain of the Company's  products are based upon patents and other
intellectual  property  licensed from Target,  on an exclusive  basis within the
field of reproductive  physiology.  In the event that such Target patents are at
any time  invalidated,  the Company's  proprietary  position in the  marketplace
would be  severely  compromised  and the  Company's  competitors  could have the
ability to incorporate  the Target  technology in their  products.  In addition,
should the Target technology licensed to the Company be found to infringe upon a
third  party's  technology,  the  Company's  sale  of  products  based  on  such
infringing  Target technology could be limited.  Finally,  in the event that the
Company  materially  breaches the terms of its license from Target,  Target will
have the right to terminate the license.  Any such  termination  of this license
would deprive the Company of the right to develop or sell products  based on the
licensed technology, which would have a material adverse effect on the Company's
business, financial condition and results of operations.

Potential Fluctuations in Future Quarterly Results.  Future revenues and results
of  operations  may  fluctuate  significantly  from  quarter to quarter and will
depend  upon,   among  other  factors,   actions   relating  to  regulatory  and
reimbursement  matters,  the extent to which the Company's  products gain market
acceptance,   progress  of  clinical  trials  and  introduction  of  competitive
products.

Volatility  of Stock Price.  The stock market has from time to time  experienced
significant  price and volume  fluctuations  that are unrelated to the operating
performance of particular  companies.  The Company's stock price has in the past
been,  and will  likely in the future be,  subject  to  significant  volatility,
particularly  on a quarterly  basis.  Any  shortfall in revenue or earnings from
levels  expected by securities  analysts could have an immediate and significant
adverse  effect on the trading price of the Company's  Common Stock in any given
period.  Finally, the Company  participates in a highly dynamic industry,  which
often  results in  significant  stock price  volatility.  In October  1998,  the
Company  received  notification  from the  National  Association  of  Securities
Dealer's Inc. ("NASD") that due to the decline of the Company's stock price, the
Company  was not in  compliance,  throughout  the third  quarter  of 1998,  with
certain  listing  maintenance  requirements of the Nasdaq  National  Market.  In
November  1998,  the  Company's   Common  Stock  satisfied   these   maintenance
requirements  with a  closing  bid  price of at least  $1.00  per  share for ten
consecutive  trading days. While these  maintenance  requirements were satisfied
within the  required  ninety-day  period  required by the NASD,  there can be no
assurance  that Company's  Common Stock will stay in compliance the  maintenance
requirements.  If delisting were to occur,  the Company  expects that trading of
its  Common  Stock  would  be  conducted  on the OTC  Bulletin  Board  or in the
over-the-counter market.

In addition, 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.  Factors such as fluctuations  in the Company's  operating
results,  announcements  of  technological  innovations  or new  products by the
Company or its competitors, FDA and international regulatory actions, changes in
reimbursement  levels,  developments  with  respect to  patents  or  proprietary
rights,  public concern as to the safety of products developed by the Company or
others,  changes in healthcare policy in the United States and  internationally,
changes in stock market  analyst  recommendations  regarding  the  Company,  its
competitors or the medical device


                                       32

<PAGE>

industry  generally,  and  changes  in  general  market  conditions  may  have a
significant impact on the market price of the Company's Common Stock.

Effect of Certain Charter and Bylaw Provisions; Shareholder Rights Plan. Certain
provisions of the Company's Certificate of Incorporation and Bylaws may have the
effect  of  making  it  more  difficult  for a third  party  to  acquire,  or of
discouraging a third party from  attempting to acquire,  control of the Company.
Such provisions could limit the price that certain investors might be willing to
pay in the future for shares of the  Company's  Common  Stock.  Certain of these
provisions  allow the  Company  to issue  Preferred  Stock  without  any vote or
further action by the stockholders, provide for a classified board of directors,
eliminate the right of  stockholders to act by written consent without a meeting
and eliminate cumulative voting in the election of directors.  In addition,  the
Company has adopted a stockholder  rights plan. The stockholder rights plan, and
the charter and bylaw provisions described above, may make it more difficult for
stockholders  to take  certain  corporate  actions  and could have the effect of
delaying or preventing a change in control of the Company.

                                       33

<PAGE>


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's cash balances in excess of short-term operating needs are invested
in highly liquid,  short-term  government securities and high quality commercial
paper.  However,  due to  the  short-term  and  high  quality  nature  of  these
instruments,  the Company believes these financial  instruments are exposed to a
low level of interest rate risk.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's  financial  statements are set forth in this Annual Report on Form
10-K beginning on page 53.

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

     None.


                                       34

<PAGE>


                                    PART III

Certain  information  required by Part III is incorporated by reference from the
Company's  proxy  statement  (the "Proxy  Statement")  for its annual meeting of
stockholders to be held May 25, 2000, which Proxy Statement will be filed within
120 days after the end of the Company's  fiscal year pursuant to Regulation 14A,
and the information  included therein is incorporated by reference to the extent
detailed below.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information  required by this item as to the Company's executive officers is
set forth in "Item 1 - Business -  Executive  Officers  of the  Company" in this
Form 10-K. The information  required by this item as to the Company's  directors
is incorporated by reference from the  information  under the caption  "Proposal
No. 1 Election of Directors" in the Proxy Statement. The information required by
this item as to  compliance  with Section 16 of the  Securities  Exchange Act of
1934 is  incorporated  by  reference  from the  information  under  the  caption
"Section  16(a)  Beneficial   Ownership  Reporting   Compliance"  in  the  Proxy
Statement.

ITEM 11.  EXECUTIVE COMPENSATION

The  information  required by this item is  incorporated  by reference  from the
information under the caption "Executive Compensation" in the Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

The  information  required by this item is  incorporated  by reference  from the
information under the caption "Security  Ownership of Certain  Beneficial Owners
and Management" in the Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required by this item is  incorporated  by reference  from the
information under the caption "Certain  Relationships and Related  Transactions"
in the Proxy Statement.


                                       35

<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:

         (1)      Consolidated  Financial Statements and Report of Ernst & Young
                  LLP, Independent Auditors

                  Consolidated Balance Sheets at December 31, 1999 and 1998

                  Consolidated Statements of Operations Years Ended December 31,
                  1999, 1998 and 1997

                  Consolidated  Statements  of Changes in  Stockholders'  Equity
                  Years Ended December 31, 1999, 1998 and 1997

                  Consolidated Statements of Cash Flows Years Ended December 31,
                  1999, 1998, and 1997

                  Notes to Consolidated Financial Statements

         (2)      Financial Statement Schedules

                  Schedules have been omitted because the  information  required
                  to be set forth  therein is not  applicable or is shown in the
                  financial statements or notes thereto.

         (3)      Exhibits  (numbered in accordance  with Item 601 of Regulation
                  S-K)


         Exhibit
         Number                               Description
         --------                             -----------

          3.1(1)        Amended and Restated  Certificate  of  Incorporation  of
                        Registrant.
          3.2(1)        Bylaws of Registrant.
         10.1(1)        Form of  Indemnification  Agreement  for  directors  and
                        officers.
         10.2(2)(12)    1993 Stock Plan and forms of agreements thereunder.
         10.3(1)(2)     1995   Employee   Stock   Purchase   Plan  and  form  of
                        subscription agreement.
         10.4(2)(4)     1995  Directors'  Stock  Option  Plan  and form of stock
                        option agreement.
         10.6(1)(3)     Supplier  Agreement  dated  March 29,  1995  between the
                        Registrant and Advanced Cardiovascular Systems, Inc.
         10.7(1)(3)     License  Agreement  dated  December 28, 1992 between the
                        Registrant and Target Therapeutics, Inc.
         10.8(1)        Secured  Note  Purchase  Agreement  dated March 30, 1994
                        between the Registrant and Target Therapeutics, Inc.
         10.9(1)        Master Lease  Agreement dated March 30, 1994 between the
                        Registrant and Target Therapeutics, Inc.
         10.10(1)       Second Amended and Restated  Rights  Agreement dated May
                        26, 1995.


                                       36

<PAGE>

         10.11(1)(2)    Sun Life Assurance Company of Canada Standardized 401(K)
                        Profit Sharing Plan and Trust, as amended.
         10.12(3)(5)    Distribution  Agreement  dated July 1, 1996  between the
                        Registrant and Mallinckrodt Group, Inc.
         10.13(6)       Lease Agreement with Dani Investment Partners.
         10.14(7)       Agreement and Plan of  Reorganization  dated October 29,
                        1996  between the  Registrant,  Microgyn,  Inc. and CPTS
                        Acquisition  Corporation (a  wholly-owned  subsidiary of
                        the Registrant), as amended November 7, 1996.
         10.15(8)       Preferred Shares Rights Agreement,  dated as of February
                        27,  1997,   between  the  Registrant  and   ChaseMellon
                        Shareholder Services,  L.L.C., including the Certificate
                        of Designation of Rights,  Preferences and Privileges of
                        Series  A  Participating  Preferred  Stock,  the form of
                        Rights  Certificate  and the Summary of Rights  attached
                        thereto as Exhibits A, B and C, respectively.
         10.16(9)       Third Addendum to Lease  Agreement with Dani  Investment
                        Partners.
         10.17(9)       Lease  Agreement  with Three Sisters  Ranch  Enterprises
                        dated April 15, 1997
         10.18(10)(2)   Change of Control  Agreement dated as of May 13, 1997 by
                        and between Registrant and Kathryn A. Tunstall.
         10.19(10)(2)   Change of Control  Agreement dated as of May 13, 1997 by
                        and between Registrant and Sanford Fitch.
         10.20(10)(2)   Form of Senior Management Change of Control Agreement
         10.21(11)      Marketing  and  Distribution  Agreement,   dated  as  of
                        September 16, 1997,  between the  Registrant  and Imagyn
                        Medical Technologies.
         10.22(2)       Loan Agreement with Steve Bacich dated April 24, 1997.
         10.23(2)       Promissory Note with Steve Bacich dated April 24, 1997.
         10.24(2)       Master  Consulting  Agreement with Florence Comite dated
                        September 10, 1997.
         10.25(2)       Manufacturing    Transition   Agreement   with   Medical
                        Scientific, Inc. dated October 1, 1997.
         10.26(2)       Royalty  Agreement with Medical  Scientific,  Inc. dated
                        October 1, 1997.
         10.27(2)       Master  Consulting  Agreement with Howard Palefsky dated
                        October 15, 1997.
         10.28(2)       Sublease Agreement with Avio Digital, Inc. dated October
                        1, 1998.
         10.29(2)       Severance  Agreement  dated  May 29,  1998  between  the
                        Registrant and James Messemer.
         10.30(2)       Severance  Agreement  dated October 21, 1998 between the
                        Registrant and Sanford Fitch.
         11.1           Statement of computation of net loss per share.
         23.1           Consent of Ernst & Young LLP.
         24.1           Power of Attorney (See Page 58 of this Report).
         27.1           Financial Data Schedule.

         ----------------

         (1)  Incorporated by reference to identically  numbered  exhibits filed
              in  response  to  Item   16(a),"Exhibits,"   of  the  Registrant's
              Registration   Statement  on  Form  SB-2,   as  amended  (File  No
              33-99890-LA), which became effective on February 1, 1996.


                                       37

<PAGE>

         (2)  Management contract or compensatory plan or arrangement.

         (3)  Confidential  treatment  has been  granted with respect to certain
              portions of this Exhibit by order from the Securities and Exchange
              Commission or requested.

         (4)  Incorporated by reference to an identically numbered exhibit filed
              in response  to Item 14(a) of the  Registrant's  Annual  Report on
              Form 10-K for the year ended December 31, 1995.

         (5)  Incorporated by reference to an identically numbered exhibit filed
              in response to Item 6(a) of the  Registrant's  Quarterly Report on
              Form 10-Q for the quarter ended June 30, 1996.

         (6)  Incorporated by reference to an identically numbered exhibit filed
              in response to Item 6(a) of the  Registrant's  Quarterly Report on
              Form 10-Q for the quarter ended September 30, 1996.

         (7)  Incorporated by reference to Exhibit 2.1 filed in response to Item
              7(c) of the Registrant's  Report on Form 8-K filed on December 10,
              1996.

         (8)  Incorporated by reference to Exhibit 1 filed in response to Item 2
              of the Registrant's Form 8-A filed on February 28, 1997.

         (9)  Incorporated by reference to an identically numbered exhibit filed
              in response to Item 6(a) of the  Registrant's  Quarterly Report on
              Form 10-Q for the quarter ended April 30, 1997.

         (10) Incorporated by reference to an identically numbered exhibit filed
              in response to Item 6(a) of the  Registrant's  Quarterly Report on
              Form 10-Q for the quarter ended June 30, 1997.

         (11) Incorporated  by reference  to Exhibit  10.16 filed in response to
              Item 6(a) of the  Registrant's  Quarterly  Report on Form 10-Q for
              the quarter ended September 30, 1997.

         (12) Incorporated by reference to an identically numbered exhibit filed
              in response  to item 14(a) of the  registrant's  Annual  Report on
              Form 10-K for the year ended December 31, 1996.

(b)      Reports on Form 8-K

         No reports on Form 8-K were filed during the quarter ended December 31,
         1999.


                                       38

<PAGE>


                                 CONCEPTUS, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Auditors ............................................   40

Audited Financial Statements
Consolidated Balance Sheets ...............................................   41
Consolidated Statement of Operations ......................................   42
Consolidated Statement of Stockholders' Equity ............................   43
Consolidated Statements of Cash Flows .....................................   44
Consolidated Notes to Financial Statements ................................   45


                                       39

<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Conceptus, Inc.

We have audited the accompanying  consolidated balance sheets of Conceptus, Inc.
as of December 31, 1999 and 1998,  and the related  consolidated  statements  of
operations,  stockholders'  equity and cash flows for each of the three years in
the  period  ended  December  31,  1999.  These  financial  statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of Conceptus, Inc. at
December 31, 1999 and 1998, and the  consolidated  results of its operations and
its cash flows for each of the three years in the period ended December 31, 1999
in  conformity  with  accounting  principles  generally  accepted  in the United
States.


Palo Alto, California                            Ernst & Young, LLP
January 20, 2000


                                       40

<PAGE>

<TABLE>
                                                         Conceptus, Inc.

                                                   Consolidated Balance Sheets
                                       (In thousands, except share and per share amounts)
<CAPTION>


                                                                              December 31, 1999      December 31, 1998
                                                                              ------------------     ------------------
<S>                                                                           <C>                    <C>
Assets
  Current assets:
    Cash and cash equivalents                                                 $           3,494      $          11,503
    Short-term investments                                                                7,275                  5,568
    Accounts receivable, net of allowance for doubtful accounts
      of $579 and $661 at December 31, 1999 and 1998, respectively                           18                    139
    Other current assets                                                                     94                     65
                                                                              ------------------     ------------------
  Total current assets                                                                   10,881                 17,275

  Property and equipment, net                                                               845                  1,391

  Other assets                                                                              177                    365
                                                                              ------------------     ------------------
Total assets                                                                  $          11,903      $           19,031
                                                                              ==================     ==================



Liabilities and stockholders' equity Current liabilities:
  Current liabilities:
    Accounts payable                                                          $             130      $             165
    Clinical trial accruals                                                                 259                      -
    Accrued compensation                                                                    235                    421
    Other accrued liabilities                                                               130                     92
    Current portion of deferred revenue                                                      97                     97
                                                                              ------------------     ------------------

  Total current liabilities                                                                 851                    775
  Long-term portion of deferred revenue                                                     138                    242

  Commitments

  Stockholders' equity:
    Common stock, $0.003 par value, 30,000,000 shares authorized,                        63,609                 63,570
      9,661,731 and 9,620,205 shares issued and outstanding at
      December 31, 1999 and 1998, respectively
    Stockholder notes receivable                                                              -                    (54)
    Deferred compensation                                                                     -                   (106)
    Accumulated deficit                                                                 (52,695)               (45,396)
                                                                              ------------------     ------------------
  Total stockholders' equity                                                             10,914                 18,014
                                                                              ------------------     ------------------

                                                                              $          11,903      $          19,031
                                                                              ==================     ==================


<FN>
                                                  See accompanying notes.
</FN>
</TABLE>

                                                              41

<PAGE>

<TABLE>
                                 Conceptus, Inc.

                      Consolidated Statements of Operations
                    (In thousands, except per share amounts)
<CAPTION>


                                                                Years Ended December 31,
                                                           ----------------------------------
                                                              1999       1998         1997
                                                           --------    ---------    ---------
<S>                                                        <C>         <C>          <C>
Net sales                                                  $    95     $    449     $  1,426
Cost of sales                                                  137        1,702        3,516
                                                           --------    ---------    ---------

Gross profit (loss)                                            (42)      (1,253)      (2,090)

Operating expenses:
  Research and development                                   4,251        4,317        5,429
  Selling, general and administrative                        3,729        5,349        6,323

                                                           --------    ---------    ---------
Total operating expenses                                     7,980        9,666       11,752
                                                           --------    ---------    ---------


Operating loss                                              (8,022)     (10,919)     (13,842)

Interest, and investment income, net                           723        1,254        1,784
                                                           --------    ---------    ---------
Net loss                                                   $(7,299)    $ (9,665)    $(12,058)
                                                           ========    =========    =========

Basic and diluted net loss per share                       $ (0.76)    $  (1.01)    $  (1.29)
                                                           ========    =========    =========

Shares used in computing basic
  and diluted net loss per share                             9,662        9,562        9,381
                                                           ========    =========    =========

<FN>
                                  See accompanying notes.
</FN>
</TABLE>

                                            42

<PAGE>


<TABLE>
                                             Conceptus, Inc.
                              Consolidated Statement of Stockholders' Equity
                            (In thousands, except share and per share amounts)

<CAPTION>
                                                                           Common Stock     Stockholder
                                                                       --------------------     Note
                                                                        Shares     Amount    Receivable
                                                                       ---------  ---------  ----------
<S>                                                                    <C>          <C>          <C>
Balances at December 31, 1996                                          9,206,795    $61,876      $  (49)
Issuance of common stock for cash in 1997 at $0.30 to $10.50
  per share, pursuant to exercise of options                             158,265        172           -
Issuance of common stock for cash in 1997 at $4.25 to $7.86
  per share, pursuant to employee stock purchase plan                     25,285        140           -
Issuance of common stock to former shareholders of
  Microgyn Inc.                                                          104,708      1,000           -
Extension of stockholder note receivable                                       -          -          (5)
Amortization of deferred compensation, net of reversal of
  forfeited shares                                                             -        317           -
Net loss and comprehensive loss                                                -          -           -
                                                                       ---------  ---------  ----------
Balances at December 31, 1997                                          9,495,053    $63,505      $  (54)
Issuance of common stock for cash at $0.30 - $.075
  per share, pursuant to exercise of options                              95,785         44           -
Issuance of common stock for cash at $1.22 - $1.381
  per share, pursuant to the employee stock purchase plan                 29,367         37           -
Amortization of deferred compensation, net of reversal of
  forreited shares                                                             -        (16)          -
Net loss and comprehensive loss                                                -          -           -
                                                                       ---------  ---------  ----------
Balances at December 31, 1998                                          9,620,205    $63,570      $  (54)
Issuance of common stock for cash at $0.30 - $.075
  per share, pursuant to exercise of options                              11,111          1           -
Issuance of common stock for cash at $1.22 - $1.381
  per share, pursuant to the employee stock purchase plan                 30,415         38           -
Amortization of deferred compensation, net of reversal of
  forreited shares                                                             -                      -
Repayment of notes receivable                                                                        54
Net loss and comprehensive loss                                                -          -           -
                                                                       ---------  ---------  ----------
Balances at December 31, 1999                                          9,661,731    $63,609      $    -
                                                                       =========  =========  ==========
</TABLE>



<TABLE>
                                             Conceptus, Inc.
                              Consolidated Statement of Stockholders' Equity
                            (In thousands, except share and per share amounts)
<CAPTION>

                                                                                                      Total
                                                                         Deferred      Deficit    Stockholders'
                                                                       Compensation  Accumulated     Equity
                                                                       ------------  -----------  ------------
<S>                                                                          <C>       <C>            <C>
Balances at December 31, 1996                                                ($559)    ($23,673)      $37,595
Issuance of common stock for cash in 1997 at $0.30 to $10.50
  per share, pursuant to exercise of options                                     -            -           172
Issuance of common stock for cash in 1997 at $4.25 to $7.86
  per share, pursuant to employee stock purchase plan                            -            -           140
Issuance of common stock to former shareholders of
  Microgyn Inc.                                                                  -            -         1,000
Extension of stockholder note receivable                                         -            -            (5)
Amortization of deferred compensation, net of reversal of
  forfeited shares                                                             343            -           660
Net loss and comprehensive loss                                                  -      (12,058)      (12,058)
                                                                       ------------  -----------  ------------
Balances at December 31, 1997                                                ($216)    ($35,731)      $27,504
Issuance of common stock for cash at $0.30 - $.075
  per share, pursuant to exercise of options                                     -            -            44
Issuance of common stock for cash at $1.22 - $1.381
  per share, pursuant to the employee stock purchase plan                        -            -            37
Amortization of deferred compensation, net of reversal of
  forreited shares                                                             110            -            94
Net loss and comprehensive loss                                                  -       (9,665)       (9,665)
                                                                       ------------  -----------  ------------
Balances at December 31, 1998                                                ($106)    ($45,396)      $18,014
Issuance of common stock for cash at $0.30 - $.075
  per share, pursuant to exercise of options                                     -            -             1
Issuance of common stock for cash at $1.22 - $1.381
  per share, pursuant to the employee stock purchase plan                        -            -            38
Amortization of deferred compensation, net of reversal of
  forreited shares                                                             106            -           106
Repayment of notes receivable                                                                              54
Net loss and comprehensive loss                                                  -       (7,299)       (7,299)
                                                                       ------------  -----------  ------------
Balances at December 31, 1999                                                 $  -     ($52,695)      $10,914
                                                                       ============  ===========  ============

<FN>
                                         See accompanying notes.
</FN>
</TABLE>
                                                   43
<PAGE>

<TABLE>
                                              Conceptus, Inc.
                                   Consolidated Statements of Cash Flows
                             Increase (Decrease) in Cash and Cash Equivalents
                                              (In thousands)
<CAPTION>



                                                                       Years Ended December 31,
                                                                   1999         1998          1997
                                                               -----------   -----------  ------------
<S>                                                            <C>           <C>          <C>
Cash flows used in operating activities
Net loss                                                       $   (7,299)   $   (9,665)  $   (12,058)
Adjustments to reconcile net loss to net
   cash used in operating activities:
   Depreciation and amortization                                      604           599           498
   Allowance for doubtful accounts                                    (82)          444            39
   Amortization of deferred compensation                              106            94           523
   Recognition of deferred revenue                                   (104)          (98)          (48)
   Changes in operating assets and liabilities
     Accounts receivable                                              203           (43)         (474)
     Inventories                                                        -           355          (173)
     Other current assets                                             (29)          225           (56)
     Account payable                                                  (35)         (534)          111
     Clinical trial accrual                                           259             -             -
     Accrued compensation                                            (186)         (249)          215
     Other accrued liabilities                                         38           (43)          (30)
                                                               -----------   -----------  ------------
Net cash (used in) provided by operating activities                (6,525)       (8,915)      (11,453)
                                                               -----------   -----------  ------------

Cash flows used in investing activities
   Purchase of investments                                         (4,555)       (4,555)      (61,785)
   Maturities of investments                                        2,848        16,795        64,078
   Sales of investments                                                 -             -         1,981
   Capital expenditures                                               (58)         (875)       (1,030)
   Investment in Advanced Reproductive                                  -          (256)            -
   Change in other assets                                             188            13          (154)
                                                               -----------   -----------  ------------
Net cash used in (provided by) investing activities                (1,577)       11,122         3,090
                                                               -----------   -----------  ------------

Net cash provided by financing activities
   Proceeds from distributor agreement                                  -             -           485
   Proceeds from issuance of common stock                              39            81           312
   Repayment (issuance) of stockholders note                           54             -            (5)
   Principal payments on debt and capital lease obligations             -           (35)         (118)
                                                               -----------   -----------  ------------
Net cash provided by financing activities                              93            46           674
                                                               -----------   -----------  ------------

Net (decrease) increase in cash and cash equivalents               (8,009)        2,253        (7,689)
Cash and cash equivalents at beginning of year                     11,503         9,250        16,939
                                                               -----------   -----------  ------------
Cash and cash equivalents at end of year                       $    3,494    $   11,503   $     9,250
                                                               ===========   ===========  ============

Supplemental schedule of noncash financing activities
Issuance of common stock to Microgyn shareholders              $        -    $        -   $     1,000
                                                               ===========   ===========  ============

<FN>
                                         See accompanying notes
</FN>
</TABLE>

                                                   44

<PAGE>

                                Conceptus, Inc.
                         Notes to Financial Statements
                               December 31, 1999

1. Summary of Significant Accounting Policies

Organization, Ownership and Business

Conceptus,  Inc. ("Conceptus" or the "Company") was incorporated in the State of
Delaware on September 18, 1992 to design,  develop and market minimally invasive
devices for reproductive medical applications. The Company's focus is to provide
a  non-surgical  approach  to  fallopian  tube  sterilization.  The  Company has
developed proprietary micro-catheter and guidewire systems that allow physicians
to  transcervically  (through the cervix) access and navigate the full length of
the fallopian tubes in a nonsurgical  approach.  The Company's  catheter systems
are based on technology  initially  developed  and used by Target  Therapeutics,
Inc. ("Target"),  a business unit of Boston Scientific  Corporation ("BSC"), and
licensed exclusively to Conceptus in the field of reproductive physiology.

Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its wholly owned  subsidiary,  Microgyn,  Inc.  ("Microgyn").  All  intercompany
accounts and transactions have been eliminated.

Use of Estimates

The  preparation  of the  financial  statements in  conformity  with  accounting
principles  generally accepted in the United States requires  management to make
estimates  and  assumptions  that  affect  amounts  reported  in  the  financial
statements  and  accompanying  notes.  Actual  results  could  differ from those
estimates.

Revenue Recognition

The Company recognizes  revenue at the time products are shipped.  In 1999, 1998
and 1997, net sales include  direct sales within the United  States,  as well as
through  international  and  domestic  distributors.  These  customers  have  no
contractual right of return.

Net Loss Per Share


                                       45

<PAGE>

                                 Conceptus, Inc.
                          Notes to Financial Statements
                                December 31, 1999

Basic and  diluted  net loss per share is computed  using the  weighted  average
number of common  shares  outstanding  during the  period.  Diluted net loss per
share is computed on the weighted  average  number of shares of common stock and
common stock  equivalent  shares (stock options and warrants to purchase  common
stock) if dilutive.  Basic and diluted net loss per share are equivalent for all
periods  presented  due  to the  Company's  net  loss  position  in all  periods
presented.

Stock-Based Compensation

The  Statement  of  Financial  Accounting  Standards  No. 123,  "Accounting  for
Stock-Based   Compensation"   ("Statement  123"),  provides  an  alternative  to
Accounting  Principles  Board's Opinion No. 25 ("APB 25")  "Accounting for Stock
Issued to  Employees",  in accounting  for  stock-based  compensation  issued to
employees.  The Company  has  elected to  continue  to account  for  stock-based
compensation  using the intrinsic value method  prescribed in APB 25 and related
Interpretations.  Accordingly,  compensation  costs for stock options granted to
employees and directors is measured as the excess,  if any, of the quoted market
price of the  Company's  stock  at the date of the  grant  over  the  amount  an
employee must pay to acquire the stock.

Cash, Cash Equivalents and Investments

The Company considers all highly liquid investments with a maturity from date of
purchase of three months or less to be cash  equivalents.  The Company maintains
deposits with a financial institution in the U.S. and invests its excess cash in
money market funds and U.S. corporate notes, which bear minimal risk.

Management    considers   all   their    investments   as    available-for-sale.
Available-for-sale  securities  are carried at  estimated  fair value,  with the
unrealized  gains and losses reported in stockholders'  equity.  The fair values
for marketable  debt  securities are based on quoted market prices.  At December
31, 1999 and 1998, the fair value of  investments  approximates  cost.  Realized
gains and losses and  declines  in value  judged to be  other-than-temporary  on
available-for-sale  securities are included in interest and  investment  income.
The cost of  securities  sold is based on the  specific  identification  method.
Interest and  dividends  on  securities  classified  as  available-for-sale  are
included in interest and investment income.


                                       46

<PAGE>

                                 Conceptus, Inc.
                          Notes to Financial Statements
                                December 31, 1999

Concentration of Credit Risk

The Company  invests  cash that is not required for  immediate  operating  needs
principally  in a  diversified  portfolio  of  financial  instruments  issued by
institutions  with  strong  credit  ratings.  By  policy,  the  amount of credit
exposure to any one institution,  with the exception of U.S.  government  backed
securities, is limited.

The Company's  revenues to date consist of product  revenues  from  distributors
located in Europe,  Australia and the United States, and direct sales within the
United  States.  The  Company  does not  require  collateral  and  provides  for
estimated credit losses based on a customer credit assessment.

Customers comprising more than 10% of net sales at December 31 are as follows:

                                   Percentage of Net Sales
                 ---------------------------------------------------------------
                       1999                  1998                 1997
                 --------------------- -------------------- --------------------
Customer 1              --                    18%                   --
Customer 2              41%                   11%                   --
Customer 3              --                    --                    63%
Customer 4              --                    --                    27%
Customer 5              13%                   --                    --


Inventories

Inventories  are stated at the lower of cost or market.  Cost is based on actual
costs computed on a first-in, first-out basis.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation which is
calculated using the straight-line method over the estimated useful lives of the
respective  assets,  generally three to five years.  Leasehold  improvements are
amortized over the lesser of the lease term or the estimated useful lives of the
related assets.

Reporting Comprehensive Income (Loss)

Conceptus  adopted  Statement  of  Financial   Accounting   Standards  No.  130,
"Reporting Comprehensive Income,"("Statement 130) in the year ended December 31,
1998.  Statement  130  establishes  new rules for the  reporting  and display of
comprehensive


                                       47

<PAGE>

                                 Conceptus, Inc.
                          Notes to Financial Statements
                                December 31, 1999

income (loss) and its  components.  Statement 130 requires  unrealized  gains or
losses on the Company's  available  for-sale  securities to be included in other
comprehensive  income (loss).  Comprehensive  loss approximates net loss for the
periods presented.

Segment Information

The  Company  adopted  Statement  of  Financial  Accounting  Standards  No. 131,
"Disclosure  about  Segments  of an  Enterprise  and  Related  Information,"  at
December  31,  1998.  Statement  131  establishes  annual and interim  reporting
standards for an enterprise's  operating segments and related  disclosures about
its products,  services,  geographic areas and major customers.  Under Statement
131, the Company's  operations  are treated as one operating  segment as it only
reports profit and loss information on an aggregate basis to the chief operating
decision makers of the Company.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting  for  Derivative  Instruments  and Hedging  Activities"  ("Statement
133"),  which is required to be adopted for the year ending  December  31, 2001.
The Company does not  anticipate  that the adoption of Statement 133 will have a
significant effect on the results of operations or the financial position of the
Company.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin no. 101,  "Revenue  Recognition in Financial  Statements"  ("SAB 101").
This  summarizes  certain  areas  of the  staff's  views in  applying  generally
accepted accounting  principles to revenue recognition in financial  statements.
The Company believes that its current revenue recognition principles comply with
SAB 101.

2. Acquisition

On November 26, 1996,  the Company  completed  the  acquisition  of Microgyn,  a
privately held medical device company  developing  products  designed to improve
the safety and performance of  resectoscope  procedures,  including  therapeutic
hysteroscopy.  The  Company  acquired  all of the  outstanding  common  stock of
Microgyn in exchange for $3.0 million in cash on the  acquisition  date and $1.0
million in cash or stock (at the option of  Conceptus)  payable six months after
the acquisition date, plus $752,000 due to assumption of certain liabilities and
related  acquisition  expenses.  In May 1997,  the  Company  satisfied  the $1.0
million  accrued  acquisition  cost by issuing  104,708  shares of the Company's
Common  Stock.  Additional  contingent  consideration  in cash or stock,  at the
option of Conceptus,  is payable to the former  shareholders  of Microgyn


                                       48

<PAGE>

                                Conceptus, Inc.
                         Notes to Financial Statements
                               December 31, 1999

based upon meeting certain future  milestones.  No additional  consideration has
been paid subsequent to the May 1997 stock issuance.



                                       49

<PAGE>

                                 Conceptus, Inc.
                          Notes to Financial Statements
                                December 31, 1999

3. Related Party Transactions

Financing Arrangement

In March 1994, the Company entered into an equipment lease line (see Note 6) and
secured loan agreement with Target,  which allows for borrowings of $300,000 and
$209,000, respectively. The borrowings are secured by capital equipment and bear
interest at 8.5% per year.  The notes are payable  over a 36-month  and 48-month
period. As of December 31, 1998 both notes were paid in full. As of December 31,
1997  $40,000 was payable on one note.  In  connection  with these  secured loan
agreements,  Target  was  issued a  warrant  to  purchase  12,000  shares of the
Company's  Common Stock.  The exercise price for 5,000 of these shares was $3.00
per share and the  remaining  7,000  shares had an  exercise  price of $4.80 per
share. As a result of the Company's  initial public  offering,  Target exercised
its warrant at an aggregate price of $48,600.
<TABLE>
4. Balance Sheet Information
<CAPTION>
                                                                     December 31,
                                                                1999             1998
                                                                   (In thousands)
<S>                                                         <C>               <C>
Property and equipment:
   Machinery and equipment                                  $    752          $   719
   Office equipment and furniture and fixtures                 1,616            1,591
   Leasehold improvements                                        625              625
                                                       -----------------------------------
                                                               2,993            2,935
   Less accumulated depreciation and                          (2,148)          (1,544)
     amortization
                                                       -----------------------------------
   Property and equipment, net                              $    845          $ 1,391
                                                       ===================================
</TABLE>

5. Investments
<TABLE>
The following is a summary of available-for-sale securities as of:
<CAPTION>

                                                                 Estimated Fair Value
                                                       -----------------------------------
                                                                     December 31,
                                                                1999             1998
                                                       -----------------------------------
                                                                  (In thousands)
<S>                                                         <C>               <C>
   Cash equivalents:
      Money market funds                                    $     14          $10,008
      Corporate notes                                          3,310            1,004
                                                       -----------------------------------
                                                            $  3,324          $11,012
                                                       ===================================
   Short-term investments:
      Corporate notes                                       $  7,265          $ 5,568
                                                       ===================================
</TABLE>

                                       50

<PAGE>

                                Conceptus, Inc.
                         Notes to Financial Statements
                               December 31, 1999

6. Commitments

The Company leases its current  facility under an operating  lease which expires
in December  2001.  The Company has also leased an additional  facility under an
operating  lease,  effective May 1997, which expires May 2002. The total minimum
annual  rental  commitments  under the  leases as of  December  31,  1999 are as
follows:

                                                            (In thousands)
Year ending December 31,

   2000                                                     $      568
   2001                                                            620
   2002                                                            102
                                                            ---------------
Total minimum rental commitment                             $    1,290
                                                            ===============


As of October 15, 1998 the Company  entered  into a sublease  agreement  for its
additional  facility  which expires May 2002.  The total  minimum  annual rental
commitments  will be  offset  by the  following  sublease  rental  income in the
following years:

                                                            (In thousands)
Year ending December 31,

   2000                                                     $      487
   2001                                                            507
   2002                                                            217
                                                            ---------------
Total minimum sublease commitment                           $    1,211
                                                            ===============

Rent expense for the years ended December 31, 1999,  1998, and 1997 was $533,000
$515,000, and $347,000, respectively.


                                       51

<PAGE>

                                 Conceptus, Inc.
                          Notes to Financial Statements
                                December 31, 1999

7. Stockholder's Equity

1993 Stock Plan

The 1993  Stock  Plan  ("1993  Plan")  was  adopted  in July 1993 and allows the
granting of options and restricted stock purchases for up to 1,575,000 shares of
Common Stock to employees,  distributors,  consultants and directors.  Effective
May 1997,  the shares of Common Stock  reserved for issuance  were  increased by
1,000,000 shares to 2,575,000 shares.  The Company has reserved 2,033,158 shares
of its Common Stock which may be issued with respect to  outstanding  options at
December 31, 1999 under the 1993 Plan.

Stock options granted under the 1993 Plan may be either  incentive stock options
or  nonqualified  stock  options.  Incentive  stock  options  may be  granted to
employees  with  exercise  prices of no less than the fair  market  value of the
Common  Stock on the date of grant and  nonqualified  options  may be granted at
exercise prices of no less than 85% of the fair market value of the Common Stock
on the date of grant. The options expire no more than 10 years after the date of
grant. Options may be granted with different vesting terms from time to time but
generally  provide for vesting of at least 25% of the total number of shares per
year. The options may include provisions permitting exercise of the option prior
to full vesting. Any unvested shares so purchased shall be subject to repurchase
by the Company at the original  exercise  price of the option.  Such  repurchase
rights  generally  lapse at a  minimum  rate of 25% per  year  from the date the
option was granted.
<TABLE>
Activity under the 1993 Plan is as follows:
<CAPTION>
                                                                          Options Outstanding
                                                 Options        -------------------------------------------
                                                Available           Number of              Price
                                                for Grant            Shares              Per Share
                                            ---------------------------------------------------------------
<S>                                                 <C>               <C>              <C>
Balance at December 31, 1996                          222,793          1,064,415        $0.30-$19.75
   Additional authorized                            1,000,000                  -                   -
   Options granted                                   (755,000)           755,000        $7.00-$13.625
   Options exercised                                        -           (158,265)       $0.30-$10.50
   Options cancelled                                  172,388           (172,388)       $0.30-$19.75
                                            ---------------------------------------------------------------
Balance at December 31, 1997                          640,181          1,488,762        $0.30-$19.75
   Options granted                                 (1,228,082)         1,228,082        $1.25-$4.63
   Options exercised                                       --            (95,785)       $0.30-$10.50
   Options cancelled                                1,207,777         (1,207,777)       $0.30-$19.75
                                            ---------------------------------------------------------------
Balance at December 31, 1998                          619,876          1,413,282        $0.30-$19.75
   Options granted                                   (424,500)           424,500       $1.219-$1.875
   Options exercised                                       --            (11,111)       $0.48-$0.51
   Options cancelled                                   51,267            (51,267)       $0.51-$11.625
                                            ---------------------------------------------------------------
Balance at December 31, 1999                          246,643          1,775,404        $0.30-$19.75
                                            ===============================================================
</TABLE>

                                       52

<PAGE>

                                 Conceptus, Inc.
                          Notes to Financial Statements
                                December 31, 1999

At December 31, 1999, 1998, and 1997,  options to purchase  1,226,462,  576,736,
and  652,982  common  shares,  respectively,  were  exercisable.  There  were no
restricted  stock  issuances  for 1999,  1998 and 1997. At December 31, 1999 and
1998,  there were no common shares subject to repurchase by the Company  (12,500
shares  subject to  repurchase  at December 31,  1997).  On July 21,  1998,  all
employee  grants of stock options under the 1993 Stock Plan issued were repriced
(a total of 486,932  options) to reflect an exercise price of $1.25.  Any option
holder  who  elected to reprice an option  was not  permitted  to  exercise  the
repriced  option,  even if  vested,  for one  year.  The  repriced  options  are
reflected as both granted and forfeited options in the 1993 Plan table.

On April 7, 1998,  employee  grants of stock  options  under the 1993 Stock Plan
issued were repriced (a total of 63,300 options) to reflect an exercise price of
$3.50. The repriced options are reflected as both granted and forfeited  options
in the 1993 Plan table.

1995 Directors Stock Option Plan

On November 29, 1995, the board approved the 1995  Director's  Stock Option Plan
("Directors'  Plan"),  which  allows the  granting  of options for up to 100,000
shares of Common  Stock to outside  directors.  Stock  options may be granted to
outside  directors with exercise  prices of no less than fair market value.  The
options  expire no more than 10 years after the date of grant.  Options  granted
under the  Directors'  Plan will vest over one or three  years.  The options are
only exercisable while the outside director remains a director.  No options were
granted  during  1999.  During  1998,  1997 and 1996,  7,500,  32,000 and 12,000
options, respectively, were granted.

1995 Employee Stock Purchase Plan

On November 29, 1995,  the board  approved the 1995 Employee Stock Purchase Plan
("ESPP"),  under which  employees may purchase  shares of the  Company's  Common
Stock, subject to certain  limitations,  at no less than 85% of the lower of the
fair market value at the beginning or end of a six-month purchase period.  Under
the terms of the ESPP, employees can choose each year to have up to 10% of their
annual base  earnings  withheld to purchase the Company's  Common Stock.  During
1999, 1998, and 1997,  30,415,  29,367,  and 25,285 shares,  respectively,  were
issued.  The Company has  reserved  200,000  shares of Common Stock for issuance
under the ESPP.


                                       53

<PAGE>

                                Conceptus, Inc.
                         Notes to Financial Statements
                               December 31, 1999

Pro Forma Valuation of Options

The Company  applies APB 25 and related  Interpretations  in accounting  for its
plans (see Note 1).  Accordingly,  no compensation  cost has been recognized for
its fixed stock option plans and its stock purchase plan.

Pro forma  information  regarding net loss and net loss per share is required by
Statement  123 and has been  determined  as if the Company had accounted for its
employee  stock options  granted  subsequent to December 31, 1994 under the fair
value method of Statement  123. The fair value of each option grant is estimated
on the date of grant  using  the  Black-Scholes  option-pricing  model  with the
following   weighted-average   assumptions:   no  expected  dividend,   expected
volatility  factor of 1.0 for 1999,  0.6 for 1998 and 1997,  risk-free  interest
rate of 6% and an  expected  life of 5 years for 1999,  4 years for 1998,  and 5
years  for  1997.  Compensation  cost is  recognized  for the fair  value of the
employees'  purchase rights,  which was estimated using the Black-Scholes  model
with the following  assumptions:  no expected dividend; an expected life of five
years for 1999, four years for 1998, and one year for 1997,  expected volatility
factor of .7 and risk-free interest rate of 5% for 1999, 6% for 1998, and 5% for
1997. The weighted average fair values of those purchase rights granted in 1999,
1998,  and 1997 were  $0.47,  $0.87,  and $3.09,  respectively.  The  effects of
applying FAS 123 for  recognizing  compensation  expense and providing pro forma
disclosures in 1999, 1998, and 1997 are not likely to be  representative  of the
effects on reported net income in future years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  model does not  necessarily  provide a reliable  single
measure of the fair value of its employee stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the option's  vesting  period.  The  Company's  pro
forma  information  follows  (in  thousands  except  for the net loss per  share
information):

                                                   1999        1998       1997
                                                   ----        ----       ----

Proforma net loss                                $(7,970)   $(10,229)  $(12,908)
Proforma basic and diluted net loss per share    $ (0.82)   $  (1.06)  $  (1.38)
<TABLE>

                                       54

<PAGE>

                                Conceptus, Inc.
                         Notes to Financial Statements
                               December 31, 1999

A summary of the activity of the Company's 1993 Plan and the Directors' Plan for
the years ended December 31, are as follows:

<CAPTION>
                                                            1999                            1998
                                                            ----                            ----
                                                                Weighted-Avg                       Weighted-Avg
Fixed Options                                     Shares       Exercise Price        Shares       Exercise Price
-------------                                     ------       --------------        ------       --------------
<S>                                             <C>                <C>            <C>                  <C>
Outstanding at beginning of year                1,680,200          $ 3.22         1,532,792            $ 7.96
Granted                                           424,500          $ 1.70           685,850            $ 2.15
Exercised                                         (11,111)         $ 0.49           (95,785)           $ 0.46
Forfeited                                         (59,768)         $ 8.58          (442,657)           $ 8.93
                                               -----------                       -----------
Outstanding at end of year                      2,033,821          $ 6.83         1,680,200            $ 3.22
                                               ===========                       ===========
Options exercisable at year-end                 1,233,227                           576,736
                                               ===========                       ===========
Weighted-average  fair  value  of  option
granted during the year                            $ 1.27                            $ 5.01
                                                   ======                            ======
</TABLE>
<TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1999:
<CAPTION>

                                           Weighted-Avg.
                                Number       Remaining    Weighted-Avg.       Number
Range of Exercise           Outstanding at  Contractual     Exercise        Exercisable     Weighted-Avg.
     Prices                   12/31/99      Life (years)      Price         at 12/31/99    Exercise Price
------------------------ ---------------- --------------- --------------- -------------- ----------------
<S>    <C>                       <C>           <C>          <C>              <C>              <C>
$0.300-$0.510                    218,929       4.75         $ 0.45           218,929          $  0.45
$1.063-$1.500                    989,742       7.76         $ 1.25           613,580          $  1.25
$1.625-$2.625                    388,500       9.88         $ 1.78             6,719          $  2.63
$3.000-$4.625                    164,800       8.09         $ 4.42           152,800          $  4.49
$7.000-$11.130                   246,500       7.16         $ 9.61           215,849          $  9.63
$19.250-$19.750                   25,350       6.32         $19.35            25,350          $ 19.35
                         ----------------                                 --------------

$0.300-$19.750                 2,033,821       7.63         $ 6.83         1,233,227          $  8.14
                         ================                                 ==============
</TABLE>

                                                    55

<PAGE>

                                Conceptus, Inc.
                         Notes to Financial Statements
                               December 31, 1999

8. Income Taxes

As of December 31, 1999,  the Company had net operating loss  carryforwards  for
federal and state income tax purposes of approximately $44.2 million,  and $15.2
million,  respectively.  In  addition,  at December  31,  1999,  the Company had
research  credit  carryforwards  for  federal and state  income tax  purposes of
approximately  $750,000 and $650,000,  respectively.  The net operating loss and
credit  carryforwards  described above will expire at various dates beginning in
the years 2000 through 2019, if not utilized.  Utilization  of the net operating
losses and credits may be subject to a substantial  annual limitation due to the
ownership  change  provisions of the Internal  Revenue Code of 1986, as amended.
The annual  limitation may result in the expiration of net operating  losses and
credits before utilization.

Deferred income taxes reflect the net effects of tax carryforwards and temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amount used for income tax purposes.


                                       56

<PAGE>

                                Conceptus, Inc.
                         Notes to Financial Statements
                               December 31, 1999

<TABLE>
Significant  components of the  Company's  deferred tax assets as of December 31
are as follows:
<CAPTION>
                                                            1999                  1998
                                                     ---------------------------------------------
                                                                  (In thousands)
<S>                                                                                <C>
Net operating loss carryforwards                           $15,900                 $13,800
Research credits (expiring 2000-2019)                        1,100                     900
Capitalized R&D                                              1,100                     900
Other - net                                                    300                       -
                                                     ---------------------------------------------
Total deferred tax assets                                   18,400                  15,600
Valuation allowance for deferred tax assets                (18,400)                (15,600)
                                                     ---------------------------------------------
Net deferred tax assets                                    $       -             $       -
                                                     =============================================
</TABLE>

Because of the Company's lack of earnings history,  the deferred tax assets have
been fully  offset by a  valuation  allowance.  The  increase  in the  valuation
allowance was approximately $ 2,800,000 during 1999.

9. Restructuring Accrual

In July 1998, the Company  announced a restructuring  to  significantly  reduced
spending   levels   through  the   elimination   of  all  sales  and  marketing,
manufacturing,  and most  administrative  personnel.  The Company has eliminated
fifty-three positions worldwide since January 1, 1998, through natural attrition
and employee  layoffs.  As of December 31, 1999, all severance  expense had been
paid. At December 31, 1998,  $46,000 remains related  primarily to severance and
cobra payments. This restructuring resulted in an additional charge to operating
expense in 1998 of $920,000  comprised of $725,  000 related to the reduction in
workforce and $195,000 to fully reserve all remaining inventory.

10.  Litigation

The Company is also subject to other legal  proceedings and claims that arise in
the ordinary course of its business.  While  management  currently  believes the
amount of ultimate  liability,  if any,  with respect to these  actions will not
materially affect the financial position, results of operations, or liquidity of
the Company,  the  ultimate  outcome of any  litigation  is  uncertain.  Were an
unfavorable outcome to occur, the impact could be material to the Company.

11.  Subsequent Event (Unaudited)

In March 2000, the Company was reimbursed $453,000 from the Company's Directors'
and Officers'  liability  insurance policy for legal defense costs in connection
with a sexual harassment lawsuit filed against the Company on December 17, 1997.
On December 8, 1999, the Company and all defendants were found not guilty on all
charges and no appeals have been filed by the plaintiff as of February 29, 2000.


                                       57

<PAGE>

                                Conceptus, Inc.
                         Notes to Financial Statements


                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized  in the City of San
Carlos, California on this 30th day of March 2000.

                                         CONCEPTUS, INC.

                                         By: /s/ Steven Bacich
                                             -----------------------------------
                                                 Steven Bacich, President
                                                 and Chief Executive Officer


                                POWER OF ATTORNEY
<TABLE>
         KNOW ALL PERSONS BY THESE  PRESENTS,  that each person whose  signature
appears   below   constitutes   and   appoints   Steven   Bacich,   his  or  her
attorney-in-fact,  each with the power of  substitution,  for him in any and all
capacities,  to sign any amendments to this 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
said  attorney-in-fact,  or his substitute or substitutes  may do or cause to be
done by virtue hereof.  Pursuant to the requirements of the Securities  Exchange
Act of 1934,  this Report has been signed below by the following  persons in the
capacities and on the dates indicated
<CAPTION>
             Signature                                    Title                                Date
             ---------                                    -----                                ----
<S>                                   <C>                                             <C>
/s/ Steven Bacich                     President, Chief Executive Officer and
-----------------                     Director (Principal Executive Officer)          March 30, 2000
(Steven Bacich)

/s/ Oliver Brouse                     Director Finance, (Principal Financial and
-----------------                     Accounting Employee)                            March 30, 2000
(Oliver Brouse)

/s/  Florence Comite
--------------------
(Florence Comite)                     Director                                        March 30, 2000

/s/  Sanford Fitch
------------------
(Sanford Fitch)                       Director                                        March 30, 2000

/s/  Howard D. Palefsky
-----------------------
(Howard D. Palefsky)                  Director                                        March 30, 2000

/s/  Richard D. Randall
-----------------------
(Richard D. Randall)                  Director                                        March 30, 2000

/s/  Kathryn Tunstall
-----------------------
(Kathryn Tunstall)                    Director                                        March 30, 2000
</TABLE>

                                                    58

<PAGE>

<TABLE>
<CAPTION>
CORPORATE INFORMATION
-------------------------------------------
<S>                                           <C>
Board of Directors                            Corporate Headquarters
                                              1021 Howard Avenue
Kathryn A. Tunstall                           San Carlos, California 94070
Chairman of the Board                         650-802-7240 (phone)
                                              650-508-7600 (fax)
Howard Palefsky,
Vice Chairman of the Board                    Legal Counsel
Private Investor                              Latham & Watkins
                                              Menlo Park, California
Steven Bacich
President and Chief Executive Officer         Registar and Transfer Agent
                                              ChaseMellon Shareholder Services L.L.C.
Florence Comite                               85 Challenger Road
Director                                      Overpack Centre
                                              Ridgefield Park, New Jersey 07660
Sanford Fitch                                 800-522-6645 (phone)
Director                                      www.chasemellon.com

Richard D. Randall                            Independent Auditors
Director                                      Ernst & Young LLP
                                              Palo Alto, California

                                              Inquiries
                                              Communications concerning stock transfer
                                              requirements, lost certificates and changes of address
-------------------------------------------   should be directed to the Transfer Agent.

Officers                                      Inquiries regarding company financial information
                                              should be directed to:
Steven Bacich                                     Investor Relations
President and Chief Executive Officer             1021 Howard Avenue
                                                  San Carlos, CA 94070
                                                  (650) 802-7240
Cynthia M. Domecus
Senior Vice President, Clinical Research,
   Regulatory Affairs

Ashish Khera
Vice President, Research and Development

Stan Van Gent
Vice President Marketing
-------------------------------------------
Stock Market Information                      Form 10-K
As of February 29, 2000 there were            A copy of the Company's 1999 Form 10-K is filed
approximately 119 shareholders of record      with the Securities and Exchange Commission and is
of the Company's common stock. The Company    available, without charge, by calling or writing the
has not paid dividends on its common stock.   Company at the address under Inquiries.

                                              Trademarks
                                              STOP(TM), C logo design, Conceptus, Foot design, Pirouette(R)
                                              Robust(R), VS(R) and Soft Torque(R), are registered
                                              trademarks of the Company. Soft Seal(TM), Minicerv(TM),
                                              Coaxess(TM), Stargate(TM), and FUTURA(TM) designs are
                                              trademarks of the Company.






</TABLE>