##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
      FOR ANNUAL AND TRANSITION
    REPORTS PURSUANT TO
 SECTIONS 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2007; oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Transition period
    from          to   Commission File Number
    001-15063
  Endocare, Inc.
 (Exact name of registrant as
    specified in its charter)
  Delaware

33-0618093(State of
    incorporation)

(I.R.S. Employer Identification
    No.)201 Technology, Irvine, CA(Address
    of principal executive offices)

92618(Zip
    Code)   Registrants telephone number, including area code:
    (949) 450-5400
  Securities registered pursuant to Section 12(b) of the
    Act: None
  Securities registered pursuant to Section 12(g) of the
    Act:
 Common Stock, $.001 par value
  Rights to Purchase Shares of Series A Junior
    Participating Preferred Stock
 (Title of Class)
  o þ
  o þ
  þ o þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE
  Form 10-K.
  Forms 10-K, 8-K 10-Q Form 10-K.




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##### 





Endocare,
    Inc.
  Form 10-K
  For the
    Fiscal Year Ended December 31, 2007
  TABLE OF
    CONTENTS
   
 PagePART IItem 1.


Business


1Item 1A.


Risk Factors


14Item 1B.


Unresolved Staff Comments


21Item 2.


Properties


21Item 3.


Legal Proceedings


21Item 4.


Submission of Matters to a Vote of Security
    Holders


21PART IIItem 5.


Market For Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


22Item 6.


Selected Consolidated Financial Data


22Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


23Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


40Item 8.


Financial Statements and Supplementary Data


40Item 9.


Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure


40Item 9A.


Controls and Procedures


40Item 9B.


Other Information


43PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


43Item 11.


Executive Compensation


43Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


43Item 13.


Certain Relationships and Related Transactions
    and Director Independence


43Item 14.


Principal Accountant Fees and Services


43PART IVItem 15.


Exhibits and Financial Statement Schedules


44Signatures


45Financial Statements


F-1EXHIBIT 10.40EXHIBIT 10.41EXHIBIT 10.42EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2   i




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##### Table of Contents



PART I  Form 10-K Form 10-Q. Form 10-K, Form 10-Q.
  ® tm ® ® ® ® tm ® tm ® ® tm tm tm ® ® tm tm ® tm ® tm tm ® ® ® ® Form 10-K Form 10-K
  Item 1.
    Business  Overview
      (949) 450-5400. Form 10-K, page F-1.
  Advent of
    Cryoablation
   1




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tm
  Existing
    Markets for Cryoablation
        Potential
    Future Markets
       2




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tm
  Endocare
    Cryoablation Technology Development
      Our
    System Solution: Cryocare CS
     3




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Key
    Clinical Advantages of Our Cryocare CS System
    
    High quality of life following treatment.  Our
    minimally invasive procedure typically offers patients a short
    recovery period for prostate cancer therapy and may result in a
    lower incidence of certain side effects, including incontinence.
    Treatment of patients who have failed radiation therapy.Patients who have failed radiation therapy have limited
    options. Cryoablation is an option that can be used to treat
    these patients effectively with potentially fewer side effects
    than radical surgery.
    Treatment can be performed more than
    once.  Regardless of what therapy is chosen, there
    is always a chance that the cancer will recur. Unlike radiation
    therapy or surgery, cryoablation can be repeated without
    increased morbidity.
    Focal or partial gland treatment.  Focal
    cryoablation is a prostate cancer treatment in which the
    ablation is confined to the known tumor location, thereby
    sparing surrounding tissue.  Marketing
    and Strategy
  Cryoablation
    Products
           4




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##### Table of Contents




    Increasing awareness in the urological community regarding the
    clinical benefits of cryoablation through our presence at major
    technical meetings and trade shows, publication of numerous
    scientific papers and articles on cryoablation and formation of
    a scientific advisory board to provide guidance and counsel to
    us regarding clinical matters and physician education;
    Conducting post-market clinical studies to further demonstrate
    the safety and efficacy of cryoablation as a primary treatment
    of prostate cancer;
    Conducting post-market clinical studies to further demonstrate
    the safety and efficacy of cryoablation as a salvage treatment
    for prostate cancer patients who have failed radiation
    treatments;
    Conducting post-market clinical studies to further demonstrate
    the safety and efficacy of cryoablation as a treatment for renal
    tumors which is another important component of the urology
    market for cryoablation;
    Creating a significant number of new practicing cryosurgeons
    each year through our physician education program;
    Endeavoring to ensure that reimbursement for cryoablation by
    Medicare and other payers is appropriate given the costs and
    benefits of the treatment;
    Driving patient awareness through our direct-to-consumer
    marketing programs; and
    Marketing our products to physicians and hospitals through our
    direct sales force.      
    Conducting key clinical studies to demonstrate the safety and
    efficacy of cryoablation as a primary treatment for lung and
    liver tumors as well as for palliative intervention (treatment
    of pain associated with metastases), and 5




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
    Formation of a dedicated sales group focused on the
    opportunities for cryoablation treatment approaches in these new
    markets.  Products
    Prostate and Renal Cancer:
  
    Cryocare Surgical System  A cryoablation system with
    eight cryoprobe capability.
    Cryocare CS System  A Cryocare Surgical System with
    onboard ultrasound.
    CryoGuide  A computerized cryoprobe placement,
    simulation and guidance system for cryoablation.
    Cryoprobes  Disposable probes used with the Cryocare
    Surgical System.
    FasTrac  Percutaneous access device that allows
    one-step insertion of cryoprobes.
    Urethral Warming Catheter  Disposable catheter used
    in prostate cryoablation procedures.  Additional
    Cryoablation Markets:
  
    Cryocare Surgical System  A cryoablation system with
    eight cryoprobe capability specially configured for
    interventional radiology and oncology.  Raw
    Materials
    Patents
    and Intellectual Property
       6




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Research
    Strategy
      Sales
    2005


2006


2007Cryoablation and urological products:Cryocare Surgical Systems


*



*



*Cryoprobes, disposables and procedures


94
%


94
%


93
%Cardiac products (CryoCath)


*



*



*     *
    
    These products account for less than 15 percent of total
    revenues.     7




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2005


2006


2007(In thousands)United States

$
26,322


$
26,379


$
27,548International:China


567



451



690Canada


1,015



796



892Other


370



364



557Total international


1,952



1,611



2,139Total revenues

$
28,274


$
27,990


$
29,687   Reimbursement
                Backlog
   8




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Manufacturing
      Government
    Regulation
              
    quality system regulation, which requires manufacturers to
    follow design, testing, control, documentation and other quality
    assurance procedures during the manufacturing process; 9




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
    labeling regulations, which prohibit the promotion of products
    for unapproved or off-label uses and impose other
    restrictions on labeling; and
    medical device reporting regulations, which require that
    manufacturers report to the FDA if their device may have caused
    or contributed to a death or serious injury or malfunctioned in
    a way that would likely cause or contribute to a death or
    serious injury if it were to recur.    
    fines, injunctions, and civil penalties;
    recall or seizure of our products;
    operating restrictions, partial suspension or total shutdown of
    production;
    refusing our request for 510(k) clearance or premarket approval
    of new products;
    withdrawing 510(k) clearance or premarket approvals that are
    already granted; and
    criminal prosecution.      Health
    Care Regulatory Issues
      and/or and/or
  Anti-Kickback
    Laws
   10




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
    Physician-owned subcontractors are not compensated or otherwise
    treated differently than non-physician-owned entities;
    The per procedure payments under the subcontracts are intended
    to reflect fair market value for the products and services
    provided by the subcontractors;
    Subcontracts are in writing and typically include a number of
    representations regarding health care regulatory compliance
    issues, including requiring the subcontractor to represent that
    distributions to physician owners of the subcontractor are not
    based on referrals; and 11




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
    Physicians must make significant investments in order to
    purchase our equipment. The fact that the physicians have
    assumed bona fide business risk is an important factor in
    demonstrating that the arrangement is not simply a way for
    physicians to profit from their referrals.  Patient
    Referral Laws
      Fair Market Value Compensation.
  Written Contract.
  Anti-Kickback Law Compliance.
        HIPAA and
    Other Privacy Laws
   12




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Other
    United States Regulatory Requirements
    Seasonality
    Competition
        
    the safety and efficacy of treatment alternatives;
    acceptance of a procedure by physicians and patients;
    technology leadership and superiority;
    price;
    availability of government or private insurance
    reimbursement; and
    speed to market.  Employees
   13




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Available
    Information
  Form 10-K, Form 10-Q, Form 8-K,
  Item 1A.
    Risk
    Factors  The risks and uncertainties described below are not the only
    ones we face. Additional risks and uncertainties not presently
    known to us or that we currently deem immaterial may also impair
    our operations. The occurrence of any of the following risks
    could harm our business. In that case, the trading price of our
    common stock could decline, and you may lose all or part of your
    investment.
  Risks
    Associated With our Business
  We have a
    limited operating history with significant losses and expect
    losses to continue for the foreseeable future.
    We may
    require additional financing in the future to sustain our
    operations and without it we may not be able to continue
    operations.
          and/or
 14




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The sale
    of our common stock to Fusion Capital may cause dilution and the
    sale of the shares of common stock acquired by Fusion Capital
    could cause the price of our common stock to decline.
    Our
    business may be materially and adversely impacted by the loss of
    our largest customer or the reduction, delay or cancellation of
    orders from this customer; in addition, our business may be
    materially and adversely impacted if this customer delays
    payment or fails to pay for products sold to this
    customer.
    We may be
    required to make tax payments that exceed our settlement
    estimates.
   15




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We may
    incur significant expenses in the future as a result of our
    obligation to pay legal fees for and otherwise indemnify former
    officers and former directors.
    Our
    success will depend on our ability to attract and retain key
    personnel.
    Our
    success is reliant on the acceptance by doctors and patients of
    the Cryocare Surgical System as a preferred treatment for tumor
    ablation.
    We are
    faced with intense competition and rapid technological and
    industry change, which may make it more difficult for us to
    achieve significant market penetration.
   16




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If we are
    unable to continue to enhance our Cryocare Surgical System, our
    business will suffer.
    There is
    uncertainty relating to third-party reimbursement, which is
    critical to market acceptance of our products.
        If we
    fail to protect our intellectual property rights, our
    competitors may take advantage of our ideas and compete directly
    against us.
   17




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Because
    the medical device industry is litigious, we may be sued for
    allegedly violating the intellectual property rights of
    others.
          If we
    fail to obtain or maintain necessary regulatory clearances or
    approvals for products, or if approvals are delayed or
    withdrawn, we will be unable to commercially distribute and
    market our products or any product modifications.
   18




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Our
    products may be subject to product recalls even after receiving
    FDA clearance or approval, which would harm our reputation and
    our business.
    We could
    be negatively impacted by future interpretation or
    implementation of the federal anti-kickback and Stark laws and
    other federal and state anti-self-referral and anti-kickback
    laws.
    If we
    become subject to product liability claims, we may be required
    to pay damages that exceed our insurance coverage.
    Our
    intangible assets could become impaired.
   19




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Our
    facilities and systems are vulnerable to natural disasters or
    other catastrophic events.
    Risks
    Associated with an Investment in Our Common Stock.
  The
    market price of our common stock is highly volatile.
    Future
    sales of shares of our common stock may negatively affect our
    stock price.
         20




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We could
    be difficult to acquire due to anti-takeover provisions in our
    charter, our stockholders rights plan and Delaware
    law.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings    Governmental
    Legal Proceedings
    Form 8-K
  Item 4.
    Submission
    of Matters to a Vote of Security Holders   21




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PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Market
    Information
      High


LowYear Ended December 31, 2007:First Quarter

$
7.02


$
4.86Second Quarter


8.85



5.25Third Quarter


8.79



5.91Fourth Quarter


10.00



6.65Year Ended December 31, 2006:First Quarter

$
10.50


$
8.04Second Quarter


10.65



7.05Third Quarter


8.40



4.50Fourth Quarter


6.15



4.71   Holders
    Dividends
    Recent
    Sales of Unregistered Securities
  Form 10-Q Form 8-K.
  Issuer
    Purchases of Equity Securities
    Item 6.
    Selected
    Consolidated Financial Data  Form 10-K. Managements Discussion and Analysis of Financial
    Condition and Results of Operations, Share
 22




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2003


2004


2005


2006


2007Revenues from continuing operations

$
19,604


$
24,181


$
28,274


$
27,990


$
29,687Loss from continuing operations(a),(b)

$
(24,963
)

$
(31,901
)

$
(14,838
)

$
(11,076
)

$
(8,941
)Net loss per share of common stock  basic and diluted
    (continuing operations)

$
(3.09
)

$
(3.93
)

$
(1.54
)

$
(1.10
)

$
(0.80
)Weighted-average shares of common stock outstanding


8,054



8,088



9,659



10,084



11,122Balance Sheet Data:Total assets

$
71,997


$
34,374


$
32,237


$
16,246


$
21,261Common stock warrant liability(c)

$



$



$
5,023


$
1,307


$
     (a)
    
    Loss from continuing operations in 2003 includes a
    $10.0 million gain from the sale of our cardiac arrhythmias
    product line to CryoCath Technologies, Inc.(b)
    
    Loss from continuing operations in 2004 includes a
    $9.9 million impairment charge in the third quarter to
    write-off the goodwill ($9.8 million) and covenant not to
    compete ($0.1 million) related to our mobile prostate
    treatment businesses and a loss of $0.7 million in the
    fourth quarter upon the final sale of these businesses.(c)
    
    Common stock warrants were issued in conjunction with our March
    2005 private placement. The warrants were accounted for as
    derivatives and reported as non-current liabilities at
    December 31, 2005 and 2006. Effective January 1, 2007,
    we adopted the provisions of FASB Staff Position (FSP) EITF
    No. 00-19-2, Accounting for Registration Payment
    Arrangements, and reclassified the warrants into
    stockholders equity. Item 7.  Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  The following discussion should be read in conjunction with
    Item 1  Business,
    Item 1A  Risk Factors,
    Item 6  Selected Consolidated Financial
    Data and Item 8  Financial
    Statements and Supplementary Data, as well as our
    consolidated financial statements and related notes contained
    elsewhere in this Annual Report on
    Form 10-K.
    This discussion contains forward-looking statements based on our
    current expectations. There are various factors  many
    beyond our control  that could cause our actual
    results or the occurrence or timing of expected events to differ
    materially from those anticipated in these forward-looking
    statements. Some of these factors are described below and other
    factors are described elsewhere in this Annual Report on
    Form 10-K,
    including above under Risks Factors in Item 1A
    of this Annual Report on
    Form 10-K.
    In addition, there are factors not described in this Annual
    Report on
    Form 10-K
    that could cause our actual results or the occurrence or timing
    of expected events to differ materially from those anticipated
    in these forward-looking statements. All forward-looking
    statements included in this Annual Report on
    Form 10-K
    are based on information available to us as of the date hereof,
    and we assume no obligation to update any such forward-looking
    statements.
  Overview
     23




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Strategy
    and Key Metrics
             24




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##### Table of Contents



Year Ended December 31,


Three Months Ended December 31,2005


2006


2007


2006


2007Estimated domestic cryoablation procedures


6,407



7,802



9,373



2,220



2,269Number of cryoprobes soldStraight probes


29,943



33,598



38,909



9,180



9,057Right-angle probes


2,803



4,590



6,308



1,391



1,671Total


32,746



38,188



45,217



10,571



10,728     Results
    of Operations
    Year Ended December 31,2005


2006


2007(In thousands)Revenues:Product sales:Cryoablation disposable products

$
6,790


$
13,948


$
21,157Cryocare Surgical Systems


743



1,096



1,5737,533



15,044



22,730Cryoablation procedure fees


19,780



12,298



6,418Cardiac royalties


889



604



386Other


72



44



153$
28,274



27,990



29,687Cost of revenues:Cryoablation disposable products and procedure fees

$
15,278



11,541



9,006Cryocare Surgical Systems


460



802



774$
15,738


$
12,343


$
9,780      25




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Share Based Payment Accounting for Stock-Based
    Compensation Accounting
    for Stock Issued to Employees
 26




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Year Ended December 31,2005


2006


2007(In thousands)Cost of revenues

$
15,738


$
12,343


$
9,780Research and development


2,283



2,781



2,555Selling and marketing


13,001



15,195



14,855General and administrative


13,858



13,107



12,506Goodwill impairment and other charges


26







Gain on legal settlement










(677
)Total costs and expenses

$
44,906


$
43,426


$
39,019Interest income, net

$
308


$
452


$
391Interest expense related to common stock warrants

$
657


$
3,716


$
   Year
    Ended December 31, 2007 Compared to Year Ended
    December 31, 2006
  Revenues
  Year EndedDecember 31,2007


2006


$ Change


% Change(Dollars in thousands)Cryoablation disposable products

$
21,157


$
13,948


$
7,209



51.7
%Cryocare Surgical Systems


1,573



1,096



477



43.5
%22,730



15,044



7,686



51.1
%Cryoablation procedure fees


6,418



12,298



(5,880
)


(47.8
)%Cardiac royalties


386



604



(218
)


(36.1
)%Other


153



44



109



247.7
%$
29,687


$
27,990


$
1,697



6.1
%          27




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##### Table of Contents



Cost
    of Revenues
  Year EndedDecember 30,2007

2006

$ Change(Dollars in thousands)Cost of Revenues

$
9,780


$
12,343


$
(2,563
)Percent of revenues


32.9
%


44.1
%     Gross
    Profit and Gross Margin
  Year EndedDecember 31,2007


2006


$ Change(Dollars in thousands)Cryoablation disposable products and procedure fees

$
18,569


$
14,705


$
3,864Cryocare surgical systems


799



294



505Cardiac royalties and other


539



648



(109
)$
19,907


$
15,647


$
4,260   Year EndedDecember 31,


Percentage Point2007


2006


Change(Percent of revenues)Cryoablation disposable products and procedure fees


62.6
%


52.5
%


10.1
%Cryocare surgical systems


2.7
%


1.1
%


1.6
%Cardiac royalties and other


1.8
%


2.3
%


(0.5
)%67.1
%


55.9
%


11.2
%     Research
    and Development Expenses
  Year EndedDecember 31,2007

2006

$ Change

% Change(Dollars in thousands)Research and development expenses

$
2,555


$
2,781


$
(226
)


(8.1
)%Percent of total revenues


8.6
%


9.9
%    28




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Selling
    and Marketing Expenses
  Year EndedDecember 31,2007

2006

$ Change

% Change(Dollars in thousands)Selling and marketing expenses

$
14,855


$
15,195


$
(340
)


(2.2
)%Percent of total revenues


50.0
%


54.3
%     General
    and Administrative Expenses
  Year EndedDecember 31,2007

2006

$ Change

% Change(Dollars in thousands)General and administrative expenses

$
12,506


$
13,107


$
(601
)


(4.6
)%Percent of total revenues


42.1
%


46.8
%       Gain
    on Legal Settlement
  Year EndedDecember 31,2007

2006

$ Change

% Change(Dollars in thousands)Gain on legal settlement

$
(677
)

$



$
(677
)


100.0
%Percent of total revenues


(2.2
)%


0.0
%    29




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Interest
    Income, Net
  Year EndedDecember 31,2007

2006

$ Change

% Change(Dollars in thousands)Interest income, net

$
391


$
452


$
(61
)


(13.5
)%Percent of total revenues


1.3
%


1.6
%     Interest
    Expense Related to Common Stock Warrants
  Year EndedDecember 31,2007

2006

$ Change

% Change(Dollars in thousands)Interest expense related to common stock warrants

$



$
(3,716
)

$
3,716



(100
)%Percent of total revenues






(13.3
)%   No. 00-19-02, Accounting for Registration Payment Arrangements Private Placement of Common
    Stock and Warrants
  Loss
    from Continuing Operations
  Year EndedDecember 31,2007

2006

$ Change

% Change(Dollars in thousands)Loss from continuing operations

$
(8,941
)

$
(11,076
)

$
(2,135
)


(19.3
)%Percent of total revenues


(30.1
)%


(39.6
)%    30




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Income
    from Discontinued Operations
  Year EndedDecember 31,2007

2006

$ Change

% Change(Dollars in thousands)Income from discontinued operations

$



$
311


$
(311
)


(100.0
)%Percent of total revenues






1.1
%     Net
    Loss
  Year EndedDecember 31,2007

2006

$ Change

% Change(Dollars in thousands)Net loss

$
(8,941
)

$
(10,765
)

$
(1,824
)


(16.9
)%Percent of total revenues


(30.1
)%


(38.5
)%     Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005
  Revenues
  Year EndedDecember 31,2006


2005


$ Change


% Change(Dollars in thousands)Cryoablation disposable products

$
13,948


$
6,790


$
7,158



105.4
%Cryocare Surgical Systems


1,096



743



353



47.5
%15,044



7,533



7,511



99.7
%Cryoablation procedure fees


12,298



19,780



(7,482
)


(37.8
)%Cardiac royalties


604



889



(285
)


(32.1
)%Other


44



72



(28
)


(38.9
)%$
27,990


$
28,274


$
(284
)


(1.0
)%    31




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Cost
    of Revenues
  Year EndedDecember 31,2006

2005

$ Change(Dollars in thousands)Cost of Revenues

$
12,343


$
15,738


$
(3,395
)Percent of revenues


44.1
%


55.7
%     Gross
    Profit and Gross Margin
  Year EndedDecember 31,2006


2005


$ Change(Dollars in thousands)Cryoablation disposable products and procedure fees

$
14,705


$
11,292


$
3,413Cryocare surgical systems


294



283



11Cardiac royalties and other


648



961



(313
)$
15,647


$
12,536


$
3,111   Year EndedDecember 31,


Percentage Point2006


2005


Change(Percent of revenues)Cryoablation disposable products and procedure fees


52.5
%


39.9
%


12.6
%Cryocare surgical systems


1.1
%


1.0
%


0.1
%Cardiac royalties and other


2.3
%


3.4
%


(1.1
)%55.9
%


44.3
%


11.6
%    32




---



##### Table of Contents



Research
    and Development Expenses
  Year EndedDecember 31,2006

2005

$ Change

% Change(Dollars in thousands)Research and development expenses

$
2,781


$
2,283


$
498



21.8
%Percent of total revenues


9.9
%


8.1
%     Selling
    and Marketing Expenses
  Year EndedDecember 31,2006

2005

$ Change

% Change(Dollars in thousands)Selling and marketing expenses

$
15,195


$
13,001


$
2,194



16.9
%Percent of total revenues


54.3
%


46.0
%     General
    and Administrative Expenses
  Year EndedDecember 31,2006

2005

$ Change

% Change(Dollars in thousands)General and administrative expenses

$
13,107


$
13,858


$
(751
)


(5.4
)%Percent of total revenues


46.8
%


49.0
%      33




---



##### Table of Contents



Interest
    Income, Net
  Year EndedDecember 31,2006

2005

$ Change

% Change(Dollars in thousands)Interest income, net

$
452


$
308


$
144



46.8
%Percent of total revenues


1.6
%


1.1
%     Interest
    Expense Related to Common Stock Warrants
  Year EndedDecember 31,2006

2005

$ Change

% Change(Dollars in thousands)Interest expense related to common stock warrants

$
(3,716
)

$
(657
)

$
(3,059
)


(465.6
)%Percent of total revenues


(13.3
)%


(2.3
)%     Loss
    from Continuing Operations
  Year EndedDecember 31,2006

2005

$ Change

% Change(Dollars in thousands)Loss from continuing operations

$
(11,076
)

$
(14,838
)

$
(3,762
)


(25.4
)%Percent of total revenues


(39.6
)%


(52.5
)%     Income
    from Discontinued Operations
  Year EndedDecember 31,2006

2005

$ Change

% Change(Dollars in thousands)Income from discontinued operations

$
311


$
1,159


$
(848
)


(73.1
)%Percent of total revenues


1.1
%


4.1
%    34




---



##### Table of Contents



Net
    Loss
  Year EndedDecember 31,2006

2005

$ Change

% Change(Dollars in thousands)Net loss

$
(10,765
)

$
(13,679
)

$
(2,914
)


(21.3
)%Percent of total revenues


(38.5
)%


(48.4
)%     Off
    Balance Sheet Financing
    Liquidity
    and Capital Resources
    Commitments and
    Contingencies
    Private
    Placement of Common Stock and Warrants
 35




---



##### Table of Contents



Contractual
    Obligations
    36




---



##### Table of Contents



Payments Due by PeriodTotal


2008


2009-2010


2011-2012(In thousands)Non-cancelable operating leases(1)

$
1,261


$
549


$
704


$
8Non-cancelable capital lease(2)


136



34



68



34Purchase commitments(3)


624



624







$
2,021


$
1,207


$
772


$
42     (1)
    
    We enter into operating leases in the normal course of business.
    We lease office space as well as other property and equipment
    under operating leases. Some lease agreements provide us with
    the option to renew the lease at the end of the original term.
    Our future operating lease obligations would change if we
    exercise these renewal options and if we enter into additional
    operating lease agreements. For more information, see
    Note 12 Commitments and Contingenciesto
    our Consolidated Financial Statements.(2)
    
    During 2007, we leased certain office equipment under a capital
    lease agreement. We recorded the equipment at fair market value
    and recorded a corresponding lease obligation. For more
    information, see Note 12 Commitments and
    Contingenciesto our Consolidated Financial Statements.(3)
    
    These purchase commitments relate to agreements to purchase
    goods or services. These obligations are not recorded in our
    consolidated financial statements until contract payment terms
    take effect. We expect to fund these commitments with operating
    cash flows and from cash balances on hand. The obligations shown
    in the above table are subject to change based on, among other
    things, our manufacturing operations not operating in the normal
    course of business, the demand for our products, and the ability
    of our suppliers to deliver the products or services as promised.      Critical
    Accounting Policies
  Form 10-K.
  Revenue Recognition. Revenue
    Recognition in Financial Statements No. 00-21 ,
    Revenue Arrangements with Multiple Deliverables
   37




---



##### Table of Contents



Impairment of Long-Lived Assets. Accounting for the
    Impairment or Disposal of Long Lived Assets,
  Legal and Other Loss Contingencies. Accounting for Contingencies,
 38




---



##### Table of Contents



Other Investments. The Equity Method of Accounting of
    Investments in Common Stock, EITF 00-31, The Meaning of Other-Than-Temporary Impairment and Its
    Application to Certain Investments, Consolidation of
    Variable Interest Entities, an interpretation of ARB
    No. 51.
  Income Taxes. ,
    Accounting for Uncertainty in Income Taxes, an interpretation of
    SFAS No. 109
  Stock based compensation. Share-Based Payments. Accounting for Stock Issued to Employees Share-Based Payment.
  Inflation
   39




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk        Item 8.
    Financial
    Statements and Supplementary Data  Form 10-K page F-1.
  Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure   Item 9A.  Controls
    and Procedures  Evaluation of Disclosure Controls and
    Procedures.
  Rule 13a-15(b)
  Managements Annual Report on Internal Control
    Over Financial Reporting. Rules 13a-15(f) 15d-15(f)
 40




---



##### Table of Contents



Changes in Internal Controls.
 41




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                 Ernst &
    Young llp
    42




---



##### Table of Contents



Item 9B.
    Other Information   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Item 11.
    Executive
    Compensation   Item 12.  Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters   Item 13.  Certain
    Relationships and Related Transactions, and director
    independence    Item 14.
    Principal
    Accountant Fees and Services   43




---



##### 



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules (a)(1) Financial Statements:  Form 10-K
   
 PageConsolidated Financial Statements of the Company:Report of Independent Registered Public
    Accounting Firm


F-1Consolidated Statements of Operations for the
    Years Ended December 31, 2005, 2006 and 2007


F-2Consolidated Balance Sheets as of
    December 31, 2006 and 2007


F-3Consolidated Statements of Stockholders
    Equity for the Years Ended December 31, 2005, 2006 and
    2007


F-4Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2005, 2006 and 2007


F-5Notes to the Consolidated Financial Statements


F-6 to F-38    (2)
    Financial
    Statement Schedules:  page F-39.
  (3)
    Exhibits:  Form 10-K Form 10-K,
  Supplemental
    Information
  Form 10-K. Form 10-K,
 44




---



##### Table of Contents



SIGNATURES    Endocare, Inc.
   By:
    /s/  Craig
    T. Davenport   Chairman, Chief Executive Officer and President
  POWER OF
    ATTORNEY
  Form 10-K,
    Signature

Title

Date/s/  Craig
    T. DavenportCraig
    T. Davenport

Chairman, Chief Executive Officer and 
    President (principal executive officer)

March 6, 2008/s/  Michael
    R. RodriguezMichael
    R. Rodriguez

Senior Vice President, Finance and Chief 
    Financial Officer (principal financial and accounting officer)

March 7, 2008/s/  John
    R. Daniels, M.D.John
    R. Daniels, M.D.

Director

March 6, 2008/s/  David
    L. GoldsmithDavid
    L. Goldsmith

Director

March 6, 2008/s/  Eric
    S. KentorEric
    S. Kentor

Director

March 6, 2008/s/  Terrence
    A. NoonanTerrence
    A. Noonan

Director

March 7, 2008/s/  Thomas
    R. TestmanThomas
    R. Testman

Director

March 6, 2008  45




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           No. 00-19-2, Accounting for Registration Payment Arrangements
    
    F-1




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Years Ended December 312005


2006


2007(In thousands, except per share data)Product sales

$
7,533


$
15,044


$
22,730Service revenues


19,780



12,298



6,418Other


961



648



53928,274



27,990



29,687Costs and expenses:Cost of revenues


15,738



12,343



9,780Research and development


2,283



2,781



2,555Selling and marketing


13,001



15,195



14,855General and administrative


13,858



13,107



12,506Gain on legal settlement










(677
)Goodwill impairment and other charges


26







Total costs and expenses


44,906



43,426



39,019Loss from operations


(16,632
)


(15,436
)


(9,332
)Interest income, net


308



452



391Interest expense related to common stock warrants


657



3,716



Loss from continuing operations before taxes


(15,667
)


(11,268
)


(8,941
)Tax benefit on continuing operations


829



192



Loss from continuing operations


(14,838
)


(11,076
)


(8,941
)Income from discontinued operations, net of taxes


1,159



311



Net loss

$
(13,679
)

$
(10,765
)

$
(8,941
)Net income (loss) per share of common stock  basic
    and diluted Continuing operations

$
(1.54
)

$
(1.10
)

$
(0.80
)Discontinued operations

$
0.12


$
0.03


$
Weighted-average shares of common stock outstanding


9,659



10,084



11,122    F-2




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  CONSOLIDATED
    BALANCE SHEETS
  December 312006


2007(In thousands, except share and per share data)ASSETSCurrent assets:Cash and cash equivalents

$
1,811


$
7,712Accounts receivable less allowances for doubtful accounts and
    sales returns of $84 and $90 at December 31, 2006 and 2007,
    respectively


4,161



3,530Inventories


2,260



3,022Prepaid expenses and other current assets


1,284



2,081Total current assets


9,516



16,345Property and equipment, net


1,040



850Intangibles, net


3,613



3,077Investments and other assets


2,077



989Total assets

$
16,246


$
21,261LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
3,393


$
2,194Accrued compensation


3,000



3,895Other accrued liabilities


3,594



3,034Loan payable






880Obligations under capital lease, current portion






28Total current liabilities


9,987



10,031Common stock warrants


1,307



Deferred compensation


74



227Obligations under capital lease  less current portion






84Stockholders equity:Preferred stock, $0.001 par value; 1,000,000 shares
    authorized; none issued and outstanding






Common stock, $0.001 par value; 50,000,000 shares
    authorized; 10,226,392 and 11,761,562 shares issued and
    outstanding at December 31, 2006 and 2007, respectively


10



12Additional paid-in capital


181,310



200,663Accumulated deficit


(176,442
)


(189,756
)Total stockholders equity


4,878



10,919Total liabilities and stockholders equity

$
16,246


$
21,261    F-3




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
  TotalCommon Stock


Additional


Accumulated


StockholdersShares


Amount


Paid-In Capital


Deficit


Equity(In thousands)Balance as of December 31, 2004


8,114


$
8


$
169,416


$
(151,998
)

$
17,426Net loss and comprehensive loss














(13,679
)


(13,679
)Stock options exercised


37







116







116Stock-based compensation expense










51







51Sale of common stock


1,878



2



8,914







8,916Balance as of December 31, 2005


10,029


$
10


$
178,497


$
(165,677
)

$
12,830Net loss and comprehensive loss














(10,765
)


(10,765
)Stock options exercised


29







108







108Stock-based compensation expense










2,797







2,797Sale of common stock


168







(92
)






(92
)Balance as of December 31, 2006


10,226


$
10


$
181,310


$
(176,442
)

$
4,878Net loss and comprehensive loss














(8,941
)


(8,941
)Stock options exercised


167







1,125







1,125Stock-based compensation expense










3,950







3,950Sale of common stock


1,369



2



8,598







8,600Reclassification of common stock warrants to equity










5,680



(4,373
)


1,307Balance as of December 31, 2007


11,762


$
12


$
200,663


$
(189,756
)

$
10,919    F-4




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  For the Years Ended December 31,2005


2006


2007(In thousands)Cash flows from operating activities:Net loss

$
(13,679
)

$
(10,765
)

$
(8,941
)Adjustments to reconcile net loss to net cash used in operating
    activities:Depreciation and amortization


3,054



1,576



1,126Reserve for uncollectible notes






695



Gain on divestitures, net


(609
)


(524
)


Stock-based compensation


51



2,845



3,901Goodwill impairment and other charges


26







Loss on sale of placement units and other fixed assets


107



47



52Minority interests


(214
)






Extinguishment of payroll tax liabilities


(182
)


(891
)


(121
)Interest expense on common stock warrants


(657
)


(3,716
)


Changes in operating assets and liabilities, net of effects from
    divestitures:Accounts receivable


(354
)


(407
)


632Inventories


(318
)


112



(993
)Prepaid expenses and other current assets


(454
)


(83
)


291Accounts payable


(337
)


(1,409
)


(1,199
)Accrued compensation


429



281



1,217Other accrued liabilities


(1,581
)


(1,364
)


(560
)Net cash used in operating activities


(14,718
)


(13,603
)


(4,595
)Cash flows from investing activities:Purchases of property and equipment


(423
)


(158
)


(109
)Purchases of intangibles


(330
)






Proceeds from divestitures


850



7,480



Net cash provided by (used in) investing activities


97



7,322



(109
)Cash flows from financing activities:Stock options and warrants exercised


116



108



1,125Borrowings on line of credit






250



13,450Payments on line of credit






(250
)


(12,570
)Proceeds from sale of stock and warrants, net


14,596



(92
)


8,600Net cash provided by financing activities


14,712



16



10,605Net increase (decrease) in cash and cash equivalents


91



(6,265
)


5,901Cash and cash equivalents, beginning of year


7,985



8,108



1,811Less: Cash of discontinued operations


32



(32
)


Cash and cash equivalents, end of year

$
8,108


$
1,811


$
7,712Non cash activities:Transfer of inventory to property and equipment for placement at
    customer sites

$
532


$
587


$
334Transfer from property and equipment to inventory for sale of
    Cryocare Surgical Systems






470



103Capital lease obligation










112Adoption of FSP EITF
    No. 00-19-2Increase in paid-in capital










5,680Reduction of retained earnings










(4,373
)Reduction in warrant liability










(1,307
)Other supplemental information:Interest paid

$
36


$
19


$
151Income taxes paid

$
22


$
55


$
69    F-5




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Organization
    and Operations of the Company    Dispositions
    and Discontinued Operations
  one-for-three
  2.
    Recent
    Operating Results and Liquidity    Commitments and
    Contingencies
     F-6




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Private Placement of Common
    Stock and Warrants,
        Line of
    Credit,
   F-7




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  3.
    Summary
    of Significant Accounting Policies  Principles
    of Consolidation
    Comprehensive
    Income
  Reporting Comprehensive Income
  Use of
    Estimates
    Revenue
    Recognition
  set-up,
   F-8




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Year Ended December 31,2005


2006


2007(In thousands)Revenues:Product sales:Cryoablation disposable products

$
6,790


$
13,948


$
21,157Cryocare Surgical Systems


743



1,096



1,5737,533



15,044



22,730Cryoablation procedure fees


19,780



12,298



6,418Cardiac royalties


889



604



386Other


72



44



153$
28,274



27,990



29,687Cost of revenues:Cryoablation disposable products and procedure fees

$
15,278



11,541



9,006Cryocare Surgical Systems


460



802



774$
15,738


$
12,343


$
9,780     rent-to-own No. 00-21, Revenue Arrangements with Multiple Deliverables,
   F-9




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Inventories
  work-in-process first-in,
    December 31,2006


2007(In thousands)Raw materials

$
1,750


$
2,331Work in process


300



227Finished goods


778



958Total inventories


2,828



3,516Less inventory reserve


(568
)


(494
)Inventories, net

$
2,260


$
3,022   Property
    and Equipment
      December 31,2006


2007(In thousands)Equipment and computers

$
1,825


$
1,899Cryoablation systems placed at customer sites


5,019



5,169Furniture and fixtures


908



1,040Leasehold improvements


321



321Total property and equipment, at cost


8,073



8,429Accumulated depreciation and amortization


(7,033
)


(7,579
)Property and equipment, net

$
1,040


$
850  F-10




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Long-Lived
    Assets, Goodwill and Intangible Assets Subject to
    Amortization
  Goodwill and other Intangible Assets Impairment of Goodwill and
    Other Intangible Assets.
    Trade names (discontinued operations)

15 yearsDomain names

5 yearsCovenants not to compete

3 to 5 yearsDeveloped technology (discontinued operations)

15 yearsPatents

3 to 15 years     Accounting for the
    Impairment or Disposal of Long-Lived Assets,
 F-11




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008

$
5012009


5012010


5012011


5012012


501Thereafter


572$
3,077       December 31,2006


2007(In thousands)Domain name

$
435


$
435Covenant not to compete


352



352Patents


6,205



6,205Total intangibles


6,992



6,992Accumulated amortization


(3,379
)


(3,915
)Intangibles, net

$
3,613


$
3,077   Investments
  other-than-temporary.
  Product
    Warranties
    Research
    and Development
   F-12




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Advertising
    Shipping
    and Handling Costs
    Cash and
    Cash Equivalents
    Concentrations
    of Credit Risk
      Dispositions and Discontinued Operations Related Party
    Transactions
 F-13




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Fair
    Value of Financial Instruments
    Risks and
    Uncertainties
    Reclassification
    Off-Balance
    Sheet Financings and Liabilities
    Other
    Accrued Liabilities
    Capital
    Stock and Earnings Per Share
   F-14




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Taxes
    Accounting for
    Uncertainty in Income Taxes, an interpretation of
    SFAS No. 109, Accounting for Income Taxes Income Taxes Accounting for Contingencies.
    Stock-Based
    Compensation
   Stock-Based Compensation Plans. Equity Incentive
    Plans, catch-up
  Accounting for Stock Issued to Employees Accounting for Stock Based Compensation.
 F-15




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Share Based Payment
    Share-Based Payment.
    Form 10-Q,
       F-16




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2005


2006


2007(In thousands)Cost of revenues

$



$
56


$
86Research and development






107



94Selling and marketing






630



702General and administrative


51



2,052



3,019Total

$
51


$
2,845


$
3,901       December 31,2005Net loss, as reported(a)

$
(13,679
)Add: Stock-based employee compensation expense included in
    reported net loss for all awards(b)


43Less: Total stock-based employee compensation expense determined
    under fair value based method for all awards


(3,696
)Net loss, as adjusted

$
(17,332
)Basic and diluted loss per share:As reported

$
(1.42
)As adjusted

$
(1.79
)     (a)
    
    In the past, we had issued stock options and warrants to
    consultants for services performed. Compensation expense for the
    fair value of these options was determined by the Black-Scholes
    option-pricing model and was charged to operations over the
    service period or as performance goals were achieved. Such
    expense was included in net loss as reported.(b)
    
    Since we issue options with exercise prices equal to or
    exceeding the fair values of the underlying common stock, no
    compensation expense was recorded for options issued to
    employees. The recorded expense generally related to
    compensation charges upon modification of vesting terms,
    cashless exercises, and other non-routine transactions. F-17




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   4.
    Recent
    Accounting Pronouncements  Accounting for Certain
    Hybrid Financial Instruments, an amendment of FASB Statements
    No. 133 and 140
  Fair Value Measurements
  The Fair Value Option for
    Financial Assets and Financial Liabilities
  Non controlling Interests
    in Consolidated Financial Statem - An Amendment of
    ARB No. 51
  Business
    Combinations
  No. 07-1, Accounting for Collaborative Arrangements (EITF 07-1). EITF 07-1 EITF 07-1 EITF 07-1 EITF 07-1
 F-18




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or
    Services Received for Use in Future Research and Development
    Activities (EITF 07-3), EITF 07-3 EITF 07-3
    5.
    Impairment
    of Goodwill and Other Intangible Assets  Goodwill and Other Intangible
    Assets,
    6.
    Private
    Placement of Common Stock and Warrants  May 2007
    Private Placement
    lock-up lock-up
  lock-up
  Fusion
    Capital Equity Purchase Agreement
  Recent Operating Results and
    Liquidity
 F-19




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    365-day
    March
    2005 Private Placement
      30-day
 F-20




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Form S-2 S-2 Form S-3, Form S-1,
  S-2
    No. 00-19, Accounting for Derivative Financial Instruments Indexed to,
    and Potentially Settled in, a Companys Own Stock
  No. 00-19-2, Accounting for Registration Payment Arrangements No. 00-19-2 Accounting for
    Contingencies. No. 00-19-2
 F-21




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    7.
    Dispositions
    and Discontinued Operations  Sale of
    Timm Medical  2006
  Accounting for the Impairment or
    Disposal of Long-Lived Assets,
        Assets:Cash, inventories and other current assets

$
1,041Property and equipment, net


71Goodwill, net


4,552Intangibles, net


3,680Other assets


65Total assets

$
9,409Liabilities:Accounts payable and other current liabilities


502Other accrued liabilities


486Total liabilities


988Net assets

$
8,421    F-22




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Cryoablation
    Products for Cardiac Applications  2003
  tm 12-year tm
    Urinary
    Incontinence and Urodynamics  2003
    8.
    Stock-Based
    Compensation Plans   F-23




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stock
    Options
    Year Ended December 31,2005


2006


2007Weighted-





Weighted-





Weighted-Average





Average





AverageNumber of


Exercise Price


Number of


Exercise Price


Number of


Exercise PriceOptions


Per Option


Options


Per Option


Options


Per OptionOutstanding, beginning of year


1,787,051


$
14.16



1,873,748


$
12.77



1,969,734


$
12.31Granted


516,421



9.57



372,087



8.51



69,056



5.46Cancelled/forfeited


(364,647
)


16.24



(247,489
)


11.07



(114,161
)


9.42Exercised


(65,077
)


6.29



(28,612
)


3.79



(166,667
)


6.75Outstanding, end of year


1,873,748



12.77



1,969,734



12.31



1,757,962



12.75Exercisable, end of year


870,315



16.25



1,139,632



14.53



1,305,882



14.27   Options Outstanding


Options ExercisableNumber


Weighted-Average





NumberOutstanding at


Remaining


Weighted-


Exercisable at


Weighted-Range Of

December 31,


Contractual Life


Average


December 31,


AverageExercise Price

2007


(Number of Years)


Exercise Price


2007


Exercise Price$ 4.95 -  $ 6.45


207,088



7.02


$
6.01



108,660


$
6.33$ 6.51 -  $ 8.16


298,280



7.39


$
7.44



191,812


$
7.64$ 8.20 -  $ 9.00


231,816



7.11


$
8.60



144,364


$
8.64$ 9.12 -  $ 9.93


211,672



7.94


$
9.72



124,502


$
9.63$10.05 -  $12.45


199,875



6.71


$
11.44



163,563


$
11.58$12.48 -  $12.60


12,250



5.79


$
12.53



11,312


$
12.53$12.81 -  $12.81


333,333



5.96


$
12.81



300,000


$
12.81$14.06 -  $37.31


179,632



3.54


$
23.57



177,653


$
23.67$37.32 -  $56.52


83,683



3.84


$
47.02



83,683


$
47.02$63.69 -  $63.69


333



3.85


$
63.69



333


$
63.69$ 4.95 -  $63.69


1,757,962



6.45


$
12.75



1,305,882


$
14.27    F-24




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2005


2006


2007Stock volatility


0.90



0.70



0.67Risk-free interest rate


4.0
%


4.6
%


4.7
%Expected life in years


5 years



6.25 years



6.25 yearsStock dividend yield










     Stock
    Units
      9.
    Equity
    Incentive Plans  Share-based
    payments
    004 Stock Incentive Plan.
 F-25




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    995 Stock Plan.
  995 Director Option Plan. 10-year
  2002 Supplemental Stock Plan.
  Employee Deferred Stock Unit Program. paid-in-capital.
 F-26




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  10-year
  Non-employee Directors Deferred Stock Unit
    Program. 10-year
    Option Arrangements Outside of Plans.
     F-27




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stockholder
    Rights Plan
    10.
    Income
    Taxes  Accounting for
    Uncertainty in Income Taxes, an interpretation of
    SFAS No. 109, Accounting for Income Taxes
    Years Ended December 31,2005


2006


2007(In thousands)Federal

$
(705
)

$
(163
)

$
State


(124
)


(29
)


Total

$
(829
)

$
(192
)

$
    F-28




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2006


2007(In thousands)Deferred tax assets (liabilities):Depreciation and amortization

$
448


$
454Nondeductible reserves and accruals


2,399



3,077Research and experimentation tax credit carryforwards


1,153



Net operating loss carryforwards


45,430



Capital loss carryforwards


16,064



Stock-based compensation


724



1,999Other


160



9166,378



5,621Valuation allowance


(66,378
)


(5,621
)Net deferred tax assets

$



$
     Years Ended December 31,2005


2006


2007(In thousands)Computed expected tax benefit

$
(5,327
)

$
(3,831
)

$
(3,042
)Nondeductible expenses


89



342



71Increase in valuation allowance


4,490



4,296



2,678State taxes


(81
)


(19
)


1Other






(980
)


292Actual tax expense (benefit)

$
(829
)

$
(192
)

$
      F-29




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      11.
    Collaborative
    and Other Agreements  Sanarus
    Medical Inc.
  paid-up paid-up
      CryoDynamics,
    LLC  Research & Development
    Agreement
     F-30




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Patent,
    Licensing, Royalty and Distribution Agreements
     F-31




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  12.
    Commitments
    and Contingencies  Leases
    Capital


OperatingLease


LeasesYear ending December 31, 2008

$
34


$
5492009


34



5662010


34



1382011


34



62012






2Thereafter






Total minimum lease payments

$
136


$
1,261Amount representing interest


(24
)Present value of minimum lease payments

$
112     Employment
    and Severance Agreements
    Former
    Officers
  Governmental
    Legal Proceedings
   F-32




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Employee
    Benefit Plans
    Legal
    Matters
    Governmental
    Legal Proceedings
  Form 8-K
   F-33




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Historical
    Option Granting Practices
      Shareholder
    Class Action and Derivative Lawsuits
  class-action class-action
   F-34




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Lawsuit
    with KPMG LLP
      Other
    Litigation
      13.
    Line of
    Credit  Recent
    Operating Results and Liquidity
 F-35




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
             F-36




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  14.
    Related
    Party Transactions     F-37




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  15.
    Quarterly
    Results of Operations (Unaudited)    Quarter Ended


Quarter Ended


Quarter Ended


Quarter EndedMarch 31,


June 30,


September 30,


December 31,2007


2007


2007


2007Revenues from continuing operations

$
7,546


$
7,901


$
7,326


$
6,914Cost of revenues from continuing operations

$
2,622


$
2,713


$
2,171


$
2,274Loss from continuing operations

$
(3,259
)

$
(2,264
)

$
(984
)

$
(2,435
)Net loss

$
(3,259
)

$
(2,264
)

$
(984
)

$
(2,435
)Loss from continuing operations per share of common
    stock  basic and diluted

$
(0.32
)

$
(0.21
)

$
(0.08
)

$
(0.21
)Net loss per share of common stock  basic and diluted

$
(0.32
)

$
(0.21
)

$
(0.08
)

$
(0.21
)Weighted average shares of common stock outstanding 
    basic and diluted


10,313



10,916



11,595



11,640   Quarter Ended


Quarter Ended


Quarter Ended


Quarter EndedMarch 31,


June 30,


September 30,


December 31,2006


2006


2006


2006Revenues from continuing operations

$
7,262


$
6,908


$
6,700


$
7,120Cost of revenues from continuing operations

$
3,766


$
3,256


$
2,677


$
2,644Loss from continuing operations

$
(5,174
)

$
(708
)

$
(2,149
)

$
(3,045
)Net loss

$
(4,929
)

$
(708
)

$
(2,149
)

$
(2,979
)Loss from continuing operations per share of common
    stock  basic and diluted

$
(0.51
)

$
(0.07
)

$
(0.21
)

$
(0.30
)Net loss per share of common stock  basic and diluted

$
(0.49
)

$
(0.07
)

$
(0.21
)

$
(0.29
)Weighted average shares of common stock outstanding 
    basic and diluted


10,047



10,055



10,058



10,177  F-38




---



##### Table of Contents



ENDOCARE,
    INC. AND SUBSIDIARIES
  SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS
  Balance at the


Additions





Balance atBeginning of


Charges to








the End ofthe Period


Operations


Other


Deductions


the Period(In thousands)2005Allowance for Doubtful Accounts and Sales Returns

$
74


$
10


$



$
(14
)

$
702006Allowance for Doubtful Accounts and Sales Returns

$
70


$
36


$



$
(22
)

$
842007Allowance for Doubtful Accounts and Sales Returns

$
84


$
8


$



$
(2
)

$
90      F-39




---



##### Table of Contents



EXHIBIT INDEX
  Exhibit No.

Description2
.1(1)

Stock Purchase Agreement, dated as of January 13, 2006, by
    and among Plethora Solutions Holdings plc, Endocare, Inc. and
    Timm Medical Technologies, Inc. The schedules and other
    attachments to this exhibit were omitted. The Company agrees to
    furnish a copy of any omitted schedules or attachments to the
    Securities and Exchange Commission upon request.2
.2(2)

$1,425,000 Secured Convertible Promissory Note, dated as of
    February 10, 2006, from Plethora Solutions Holdings plc to
    Endocare, Inc.3
.1(3)

Certificate of Amendment of Restated Certificate of
    Incorporation of the Company.3
.2(3)

Certificate of Designation of Series A Junior Participating
    Preferred Stock of the Company.3
.3(3)

Restated Certificate of Incorporation.3
.4(4)

Amended and Restated Bylaws of the Company.4
.1(5)

Form of Stock Certificate.4
.2(6)

Form of Series A Warrant.4
.3(6)

Form of Series B Warrant.4
.4(7)

Rights Agreement, dated as of March 31, 1999, between the
    Company and U.S. Stock Transfer Corporation, which includes the
    form of Certificate of Designation for the Series A Junior
    Participating Preferred Stock as Exhibit A, the form of
    Rights Certificate as Exhibit B and the Summary of Rights
    to Purchase Series A Preferred Shares as Exhibit C.4
.5(8)

Amendment No. 1 to Rights Agreement, dated as of
    September 24, 2005, between the Company and U.S. Stock
    Transfer Corporation.10
.1(9)

Lease Agreement, dated as of November 26, 2001, by and
    between the Company and The Irvine Company.10
.2(9)

Form of Indemnification Agreement by and between the Company and
    its directors.10
.3(9)

Form of Indemnification Agreement by and between the Company and
    its executive officers.10
.4(10)

1995 Director Option Plan (as amended and restated through
    March 2, 1999).10
.5(11)

1995 Stock Plan (as amended and restated through
    December 30, 2003).10
.6(13)

Employment Agreement, dated as of December 15, 2003, by and
    between the Company and Craig T. Davenport.10
.7(14)

Employment Agreement, dated as of August 11, 2004, by and
    between the Company and Michael R. Rodriguez.10
.8(15)

2004 Stock Incentive Plan.10
.9(16)

2004 Non-Employee Director Option Program under 2004 Stock
    Incentive Plan.10
.10(16)

Form of Award Agreement Under 2004 Stock Incentive Plan.10
.11(17)

Confidential Settlement Agreement and Release, dated as of
    February 18, 2005, by and between the Company and Great
    American E&S Insurance Company.10
.12(6)

Purchase Agreement, dated as of March 10, 2005, by and
    between the Company and the Investors (as defined therein).10
.13(6)

Registration Rights Agreement, dated as of March 10, 2005,
    by and between the Company and the Investors (as defined
    therein).10
.14(18)

First Amendment to Employment Agreement with Craig T. Davenport,
    dated as of April 28, 2005.10
.15(2)

Loan and Security Agreement, dated as of October 26, 2005,
    by and among the Company, Timm Medical Technologies, Inc. and
    Silicon Valley Bank.10
.16(2)

Commercialization Agreement, dated as of November 8, 2005,
    by and between the Company and CryoDynamics, LLC.10
.17(19)

Employment Agreement, dated as of January 17, 2006, by and
    between the Company and Clint B. Davis.10
.18(20)

Amendment to Loan Documents, dated as of April 24, 2006, by
    and between the Company and Silicon Valley Bank.10
.19(21)

Amendment to Loan Documents, dated as of February 10, 2006,
    between the Company, Timm Medical Technologies, Inc. and Silicon
    Valley Bank.




---



##### Table of Contents



Exhibit No.

Description10
.20(22)

Employee Deferred Stock Unit Program, effective as of
    May 18, 2006.10
.21(22)

Non-Employee Director Deferred Stock Unit Program, effective as
    of May 18, 2006.10
.22(23)

First Amendment to Lease, dated as of May 19, 2006, between
    the Company and The Irvine Company.10
.23(23)*

Customer Quote, dated as of January 9, 2006, to Advanced
    Medical Partners, Inc.10
.24(23)*

Amended and Restated Endocare Service Agreement, dated as of
    January 9, 2006, between the Company and Advanced Medical
    Partners, Inc.10
.25(24)

Common Stock Purchase Agreement, dated as of October 25,
    2006, by and between the Company and Fusion Capital
    Fund II, LLC.10
.26(24)

Registration Rights Agreement, dated as of October 25,
    2006, by and between the Company and Fusion Capital
    Fund II, LLC.10
.27(25)

Non-Prosecution Agreement, dated as of July 18, 2006, by
    and between the Company and the Department of Justice.10
.28(25)

Consent to Entry of Judgment, dated as of July 14, 2006, in
    favor of the Securities and Exchange Commission.10
.29(26)

Form of Retention Agreement.10
.30(27)

Amendment to Loan Documents, dated as of December 22, 2006,
    by and between Endocare, Inc. and Silicon Valley Bank.10
.31(28)

Standard Form of RSU Agreement under 2004 Stock Incentive Plan.10
.32(28)

Form of RSU Agreement used for Mr. Davenport under 2004
    Stock Incentive Plan.10
.33(28)

Summary Description of 2007 MICP.10
.34(29)

Amendment to Loan Documents, dated as of February 23, 2007,
    by and between the Company and Silicon Valley Bank.10
.35(30)

Common Stock Subscription Agreement, dated as of May 24,
    2007, by and between the Company and Frazier Healthcare V,
    L.P.10
.36(30)

Registration Rights Agreement, dated as of May 25, 2007, by
    and between the Company and Frazier Healthcare V, L.P.10
.37(31)

First Amendment to Employee Deferred Stock Unit Program, dated
    August 6, 2007.10
.38(31)

First Amendment to Non-Employee Director Deferred Stock Unit
    Program, dated August 6, 2007.10
.39(32)

Memorandum of Understanding, dated September 11, 2007,
    between the Company and KPMG LLP.10
.40

Description of Non-Employee Director Compensation, as amended on
    December 20, 2007.10
.41

Non-Employee Director RSU Program.10
.42

Form of RSU Agreement under Non-Employee Director RSU Program.21
.1(33)

Subsidiaries of the Company.23
.1

Consent of Independent Registered Public Accounting Firm.24
.1(34)

Power of Attorney.31
.1

Certification under Section 302 of the Sarbanes-Oxley Act
    of 2002 for Craig T. Davenport.31
.2

Certification under Section 302 of the Sarbanes-Oxley Act
    of 2002 for Michael R. Rodriguez.32
.1

Certification under Section 906 of the Sarbanes-Oxley Act
    of 2002 for Craig T. Davenport.32
.2

Certification under Section 906 of the Sarbanes-Oxley Act
    of 2002 for Michael R. Rodriguez.     
    
    Management contract or compensatory plan or arrangement.*
    
    Certain confidential portions of this exhibit were omitted and
    provided separately to the SEC pursuant to a request for
    confidential treatment.  (1)
    
    Previously filed as an exhibit to our
    Form 8-K
    filed on January 18, 2006.(2)
    
    Previously filed as an exhibit to our
    Form 10-K
    filed on March 16, 2006.(3)
    
    Previously filed as an exhibit to our Registration Statement on
    Form S-3
    filed on September 20, 2001.(4)
    
    Previously filed as an exhibit to our
    Form 10-K
    filed on March 16, 2004.(5)
    
    Previously filed as an exhibit to our
    Form 10-K
    for the year ended December 31, 1995.




---



##### Table of Contents



(6)
    
    Previously filed as an exhibit to our
    Form 8-K
    filed on March 16, 2005.(7)
    
    Previously filed as an exhibit to our
    Form 8-K
    filed on June 3, 1999.(8)
    
    Previously filed as an exhibit to our
    Form 8-K
    filed on June 28, 2005.(9)
    
    Previously filed as an exhibit to our
    Form 10-K
    filed on March 29, 2002.(10)
    
    Previously filed as an exhibit to our Registration Statement on
    Form S-8
    filed on June 2, 1999.(11)
    
    Previously filed as an appendix to our Definitive Proxy
    Statement filed on December 3, 2003.(12)
    
    Previously filed as an exhibit to our
    Form 10-K
    filed on December 3, 2003.(13)
    
    Previously filed as an exhibit to our
    Form 8-K
    filed on December 16, 2003.(14)
    
    Previously filed as an exhibit to our
    Form 8-K
    filed on August 12, 2004.(15)
    
    Previously filed as an appendix to our Definitive Proxy
    Statement filed on August 6, 2004.(16)
    
    Previously filed as an exhibit to our
    Form 10-K
    filed on March 16, 2005.(17)
    
    Previously filed as an exhibit to our
    Form 10-Q
    filed on May 10, 2005.(18)
    
    Previously filed as an exhibit to our
    Form 8-K
    filed on May 3, 2005.(19)
    
    Previously filed as an exhibit to our
    Form 8-K
    filed on January 12, 2006.(20)
    
    Previously filed as an exhibit to our
    Form 8-K
    filed on April 25, 2006.(21)
    
    Previously filed as an exhibit to our
    Form 8-K
    filed on May 10, 2006.(22)
    
    Previously filed as an exhibit to our
    Form 8-K
    filed on May 22, 2006.(23)
    
    Previously filed as an exhibit to our
    Form 10-Q
    filed on August 8, 2006.(24)
    
    Previously filed as an exhibit to our
    Form 8-K
    filed on October 30, 2006.(25)
    
    Previously filed as an exhibit to our
    Form 10-Q
    filed on November 9, 2006.(26)
    
    Previously filed as an exhibit to our
    Form 8-K
    filed on December 13, 2006.(27)
    
    Previously filed as an exhibit to our
    Form 10-Q
    filed on December 22, 2006.(28)
    
    Previously filed as an exhibit to our
    Form 8-K
    filed on February 27, 2007.(29)
    
    Previously filed as an exhibit to our
    Form 8-K
    filed on February 28, 2007.(30)
    
    Previously filed as an exhibit to our
    Form 8-K
    filed on May 29, 2007.(31)
    
    Previously filed as an exhibit to our
    Form 8-K
    filed on August 8, 2007.(32)
    
    Previously filed as an exhibit to our
    Form 10-Q
    filed on November 6, 2007.(33)
    
    Not applicable because the Company does not have any
    subsidiaries that constitute significant
    subsidiaries under
    Rule 1-02(w)
    of
    Regulation S-X.(34)
    
    Included on the signature page of this
    Form 10-K.