##### 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 1934    
|          
|           |  | For the fiscal year ended December 31, 2004; or                                             
|          
|o          |  | 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 000-27212





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                   |  | 92618                                   
|(Address
    of principal executive offices) |  | (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







þ o þ o


o


þ o






DOCUMENTS INCORPORATED BY REFERENCE














---










Endocare, Inc.


Form 10-K


For the Fiscal Year Ended December 31, 2004


TABLE OF CONTENTS


|              |  |                                                                                                                  |  |                      |    |  |             | 
|------------- |  | ---------------------------------------------------------------------------------------------------------------- |  | -------------------- | -- |  | ----------- | 
|              |  |                                                                                                                  |  | Page                 |   
|              |  |                                                                                                                  |  |                      |   
|Part I       
|Item 1.       |  | Business                                                                                                         |  |                      | 1  | 
|Item 2.       |  | Properties                                                                                                       |  |                      | 23 | 
|Item 3.       |  | Legal Proceedings                                                                                                |  |                      | 23 | 
|Item 4.       |  | Submission of Matters to a Vote of Security Holders                                                              |  |                      | 24 | 
|             
|Part II      
|Item 5.       |  | Market for Registrants Common Equity, Related Stockholder
    Matters and Issuer Purchases of Equity Securities |  |                      | 25 | 
|Item 6.       |  | Selected Consolidated Financial Data                                                                             |  |                      | 26 | 
|Item 7.       |  | Managements Discussion and Analysis of Financial Condition
    and Results of Operations                        |  |                      | 26 | 
|Item 7A.      |  | Quantitative and Qualitative Disclosures About Market Risk                                                       |  |                      | 36 | 
|Item 8.       |  | Financial Statements and Supplementary Data                                                                      |  |                      | 36 | 
|Item 9.       |  | Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure                         |  |                      | 36 | 
|Item 9A.      |  | Controls and Procedures                                                                                          |  |                      | 36 | 
|Item 9B.      |  | Other Information                                                                                                |  |                      | 37 | 
|             
|Part III     
|Item 10.      |  | Directors and Executive Officers of the Registrant                                                               |  |                      | 37 | 
|Item 11.      |  | Executive Compensation                                                                                           |  |                      | 37 | 
|Item 12.      |  | Security Ownership of Certain Beneficial Owners and Management                                                   |  |                      | 38 | 
|Item 13.      |  | Certain Relationships and Related Transactions                                                                   |  |                      | 38 | 
|Item 14.      |  | Principal Accounting Fees and Services                                                                           |  |                      | 38 | 
|             
|Part IV      
|Item 15.      |  | Exhibits, Financial Statement Schedules                                                                          |  |                      | 38 | 
|              |  |                                                                                                                  |  | Signatures           |    |  | 42          | 
|              |  |                                                                                                                  |  | Financial Statements |    |  | F-1 to F-38 | 
|EXHIBIT 10.34
|EXHIBIT 10.35
|EXHIBIT 10.36
|EXHIBIT 10.37
|EXHIBIT 10.38
|EXHIBIT 10.39
|EXHIBIT 21.1 
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 
|EXHIBIT 32.2 



i



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PART I




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|        |         
|------- | --------
|Item 1. | Business

Overview










1



---



##### Table of Contents





Prostate Cancer/ Urology Market Background












| |                                   
| | ----------------------------------
| | Non-Cryosurgical Treatment Options





2



---



##### Table of Contents











| |                           
| | --------------------------
| | The History of Cryosurgery









| |                                            
| | -------------------------------------------
| | Endocare Cryosurgery Technology Development



3



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| |                                 
| | --------------------------------
| | Our System Solution: Cryocare CS

In April 2003 we unveiled our Cryocare CS System.


tm tm






| |                                                  
| | -------------------------------------------------
| | Key Clinical Advantages of Our Cryocare CS System





| |   |                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Effective for a broad range of low to high-risk prostate
    cancer patients. In low risk cases, the success of
    cryosurgery, including using our Cryocare CS System, is
    comparable to radiation therapy and radical surgery. In medium
    to high-risk cases, results of cryosurgery are at least
    equivalent and appear to be superior to radiation therapy and
    radical surgery.
|
| |  | High quality of life following treatment. Our minimally
    invasive procedure offers patients the shortest recovery period
    of any definitive 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.
    Cryosurgery is a potentially curative treatment option that can
    be used to treat these patients effectively with significantly
    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, cryosurgery can
    be repeated without increased morbidity.                                                                                                                                                   

Erectile Dysfunction Market Background




4



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| |                                   
| | ----------------------------------
| | Our Erectile Dysfunction Offerings





Marketing and Strategy




| |                      
| | ---------------------
| | Cryosurgical Products









5



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increasing awareness in the urological community regarding the
    clinical benefits of cryosurgery through our presence at major
    technical meetings and trade shows, publication of numerous
    scientific papers and articles on cryosurgery and formation of a
    scientific advisory board to provide guidance and counsel to us
    regarding clinical matters and physician education;
|
| |  | Conducting ongoing clinical studies to further demonstrate the
    safety and efficacy of cryosurgery as a primary treatment of
    cancer of the prostate, as well as its value in treating
    prostate cancer patients who have failed radiation;                                                                                                                                              
|
| |  | Conducting clinical studies to further demonstrate the safety
    and efficacy of cryosurgery as a treatment for renal tumors
    which is another important component of the urology market for
    cryosurgery;                                                                                                                                                                                 
|
| |  | Creating a significant number of new practicing cryosurgeons
    each year through our physician education program;                                                                                                                                                                                                                                                                               
|
| |  | Ensuring that reimbursement for cryosurgery by Medicare and
    other payors is appropriate given the costs and benefits of the
    treatment;                                                                                                                                                                                                                                                    
|
| |  | Driving patient awareness through our direct-to-consumer
    advertising programs; and                                                                                                                                                                                                                                                                                                            
|
| |  | Marketing our products to physicians and hospitals through our
    direct sales force.                                                                                                                                                                                                                                                                                                            



6



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| |   |                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Conducting numerous clinical studies to demonstrate the safety
    and efficacy of cryosurgery as a primary treatment for lung and
    liver tumors as well as for pain management of bone metastases;
|
| |  | Formation of a dedicated sales and marketing group focused on
    the opportunities for cryosurgical treatment approaches in these
    new markets; and                                               
|
| |  | Continuing to enhance our Cryocare Surgical System to improve
    its ease of use across a broad range of tissue ablation
    applications.                                                           





| |                              
| | -----------------------------
| | Erectile Dysfunction Products





Products




Prostate and Renal Cancer:




| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| |  | Cryocare Surgical System  A cryosurgical system with
    eight cryoprobe capability.              
|
| |  | Cryocare CS System  A cryosurgical system with
    onboard ultrasound.                            
|
| |  | CryoGuide  A computerized cryoprobe placement,
    simulation and guidance system for cryosurgery.
|
| |  | Cryoprobes  Disposable probes used with the Cryocare
    Surgical System.                         
|
| |  | FasTrac  Percutaneous access device that allows one
    step insertion of cryoprobes.             

Additional Cryosurgical Markets:




| |   |                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cryocare Surgical System  A cryosurgical system with
    eight cryoprobe capability specially configured for
    interventional radiology and oncology.

Erectile Dysfunction:




| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | RigiScan Monitor  A diagnostic tool for erectile
    dysfunction.
|
| |  | ErecAid Esteem System  A vacuum therapy system.                  
|
| |  | ErecAid Classic System  A vacuum therapy system.                 

Raw Materials




7



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Patents and Intellectual Property














Research Strategy






8



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Sales




|                                      |                                        |      |  |    |      |  |  |      |   |  |  |    |  
|------------------------------------- | -------------------------------------- | ---- |  | -- | ---- |  |  | ---- | - |  |  | -- | -
|                                      |                                        | 2002 |  |    | 2003 |  |  | 2004 |  
|                                      |                                        |      |  |    |      |  |  |      |  
|Cryoablation and urological products: |                                        |      |  |    |      |  |  |      |   |  |  |   
|                                      | Cryocare Surgical Systems              |      |  | *  |      |  |  | *    |   |  |  | *  |  
|                                      | Cryoprobes, disposables and procedures |      |  | 41 | %    |  |  | 59   | % |  |  | 68 | %
|                                      | Cardiac products (CryoCath)            |      |  | *  |      |  |  | *    |   |  |  | *  |  
|                                      | Urological products (Timm Medical)     |      |  | 41 | %    |  |  | 36   | % |  |  | 26 | %






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









|                    |        |                |        |       |      |   |        |       |  |   |        |       | 
|------------------- | ------ | -------------- | ------ | ----- | ---- | - | ------ | ----- |  | - | ------ | ----- | 
|                    |        | 2002           |        |       | 2003 |   |        | 2004  | 
|                    |        |                |        |       |      |   |        |       | 
|                    |        | (In thousands) |       
|United States       |        | $              | 26,369 |       |      | $ | 27,257 |       |  | $ | 29,601 |      
|International:      |        |                |        |       |      |   |        |       |  |   |        |      
|                    | China  |                |        | 402   |      |   |        | 469   |  |   |        | 557   | 
|                    | Canada |                |        | 2,104 |      |   |        | 331   |  |   |        | 818   | 
|                    | Other  |                |        | 2,041 |      |   |        | 2,440 |  |   |        | 1,709 | 
|                    |        |                |        |       |      |   |        |       | 
|Total international |        |                | 4,547  |       |      |   | 3,240  |       |  |   | 3,084  |      
|                    |        |                |        |       |      |   |        |       | 
|Total revenues      |        | $              | 30,916 |       |      | $ | 30,497 |       |  | $ | 32,685 |      
|                    |        |                |        |       |      |   |        |       | 

Reimbursement






9



---



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Backlog




Government Contracts




10



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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;                                                                                                            
|
| |  | 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.

11



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| |   |                                                                                      
| | - | -------------------------------------------------------------------------------------
| |  | 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










| |                   
| | ------------------
| | Anti-Kickback Laws



12



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| |                      
| | ---------------------
| | Patient Referral Laws





| |                             
| | ----------------------------
| | HIPAA and Other Privacy Laws









| |                                            
| | -------------------------------------------
| | Other United States Regulatory Requirements



Seasonality




13



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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






Available Information




Risks Related to Our Business


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.


We face risks related to investigations by the SEC and
DOJ.




14



---



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We may be unable to satisfy the requirements of Sarbanes 404,
or we or our auditors may identify significant deficiencies or
material weaknesses in our internal controls.




Our management members have spent considerable time and
effort dealing with internal and external investigations and
re-auditing of financial statements.




Our success will depend on our ability to attract and retain
key personnel.




We have a history of net losses, and we may never reach or
maintain profitability.




15



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| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | incur costs related to legal proceedings, including ongoing
    government investigations;                            
|
| |  | expand our sales and marketing activities as we attempt to gain
    market share for our Cryocare Surgical System; and
|
| |  | continue our research and development efforts to improve our
    existing products and develop new products.          



Our common stock was delisted from the Nasdaq Stock Market
and, as a result, trading of our common stock has become more
difficult.






Our success is reliant on the acceptance by doctors and
patients of the Cryocare Surgical System as a preferred
treatment for tumor ablation.




16



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If we are unable to continue to develop and 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.










Introduction of alternative therapies may affect our
revenues.




17



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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.




If we fail to protect our intellectual property rights, our
competitors may take advantage of our ideas and compete directly
against us.




Because the medical device industry is litigious, we may be
sued for allegedly violating the intellectual property rights of
others.








18



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We are dependent upon a number of third-party suppliers to
manufacture our products and the loss of any of these suppliers
could harm our business.




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.






We face risks relating to compliance with new federal
requirements regarding the transmission and retention of health
information.




19



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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 Stark law and other federal and
state anti-referral laws.










20



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If we become subject to product liability claims, we may be
required to pay damages that exceed our insurance coverage.




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.




Fluctuations in our future operating results may negatively
impact the market price of our common stock.






| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | market acceptance of our existing products, as well as products
    in development;                                                          
|
| |  | timing of payments received and the recognition of such payments
    as revenue under collaborative arrangements and strategic
    alliances;
|
| |  | ability to manufacture products efficiently;                                                                                                 
|
| |  | timing of our research and development expenditures;                                                                                         
|
| |  | timing of customer orders;                                                                                                                   
|
| |  | changes in reimbursement rates for our products and procedures
    by Medicare and other third-party payors;                                 
|
| |  | timing of regulatory approvals for new products;                                                                                             
|
| |  | outcomes of clinical studies by us or our competitors;                                                                                       
|
| |  | competition from other treatment modalities;                                                                                                 
|
| |  | physician and patient acceptance of cryosurgery; and                                                                                         
|
| |  | ability to obtain reimbursement for procedures in lung and liver
    cancer, and pain related to bone metasteses.                            

21



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Our stock price may be volatile and your investment could
decline in value.






| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | actual or anticipated variations in our operating results;                                                             
|
| |  | developments regarding government and third-party reimbursement;                                                       
|
| |  | changes in government regulation of our products and business
    practices;                                           
|
| |  | developments concerning government investigations of us;                                                               
|
| |  | developments concerning proprietary rights;                                                                            
|
| |  | developments concerning litigation or public concern as to the
    safety of our products or our competitors products;
|
| |  | technological innovations or introduction of new products by us
    or our competitors;                                
|
| |  | investor and analyst perception of us and our industry;                                                                
|
| |  | introduction of new competing technologies;                                                                            
|
| |  | general economic and market conditions; and                                                                            
|
| |  | physician and patient acceptance of cryosurgery.                                                                       



Future sales of shares of our common stock may negatively
affect our stock price.




Our intangible assets and goodwill could become impaired.






22



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Our facilities and systems are vulnerable to natural
disasters or other catastrophic events.









|        |           
|------- | ----------
|Item 2. | Properties












|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings



23



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| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | we would pay a total of $750,001, consisting of $1 in
    disgorgement and $750,000 in civil penalties;            
|
| |  | we would agree to a stipulated judgment enjoining future
    violations of securities laws; and                    
|
| |  | we would agree to maintain various improvements in our internal
    controls that have previously been implemented.










|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders



24



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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 |   |      | Low | 
|                             |                |      |   |      |     | 
|Year Ended December 31, 2004 |                |      |   |      |     |  |   |     
|                             | First Quarter  |      | $ | 4.40 |     |  | $ | 2.95 | 
|                             | Second Quarter |      |   | 4.00 |     |  |   | 2.49 | 
|                             | Third Quarter  |      |   | 3.24 |     |  |   | 2.10 | 
|                             | Fourth Quarter |      |   | 2.95 |     |  |   | 2.25 | 
|Year Ended December 31, 2003 |                |      |   |      |     |  |   |     
|                             | First Quarter  |      | $ | 3.10 |     |  | $ | 0.35 | 
|                             | Second Quarter |      |   | 6.35 |     |  |   | 2.42 | 
|                             | Third Quarter  |      |   | 5.70 |     |  |   | 3.50 | 
|                             | Fourth Quarter |      |   | 5.22 |     |  |   | 3.80 | 

Holders




Dividends




Recent Sales of Unregistered Securities




Issuer Purchases of Equity Securities




25



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|        |                                     
|------- | ------------------------------------
|Item 6. | Selected Consolidated Financial Data



|                                                         |                                       |                                       |         |        |        |   |         |        |        |   |         |        |        |      |         |        |        |   |         |        |        | 
|-------------------------------------------------------- | ------------------------------------- | ------------------------------------- | ------- | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                         |                                       | 2000                                  |         |        | 2001   |   |         | 2002   |        |   | 2003    |        |        | 2004 |        
|                                                         |                                       |                                       |         |        |        |   |         |        |        |   |         |        |        |      |        
|                                                         |                                       | (In thousands, except per share data) |        
|Revenues:                                                |                                       | $                                     | 6,568   |        |        | $ | 13,037  |        |        | $ | 30,916  |        |        | $    | 30,497  |        |        | $ | 32,685  |       
|Costs and expenses:                                      |                                       |                                       |         |        |        |   |         |        |        |   |         |        |        |      |         |        |        |   |         |       
|                                                         | Cost of revenues                      |                                       |         | 3,757  |        |   |         | 6,208  |        |   |         | 16,484 |        |      |         | 16,058 |        |   |         | 16,916 |       
|                                                         | Research and development              |                                       |         | 2,371  |        |   |         | 2,544  |        |   |         | 2,900  |        |      |         | 1,257  |        |   |         | 1,608  |       
|                                                         | Selling, general and administrative   |                                       |         | 13,436 |        |   |         | 15,728 |        |   |         | 33,770 |        |      |         | 47,189 |        |   |         | 34,961 |       
|                                                         | Goodwill impairment and other charges |                                       |         |       |        |   |         |       |        |   |         | 20,311 |        |      |         |       |        |   |         | 15,810 |       
|                                                         |                                       |                                       |         |        |        |   |         |        |        |   |         |        |        |      |        
|                                                         |                                       | Total costs and expenses              |         |        | 19,564 |   |         |        | 24,480 |   |         |        | 73,465 |      |         |        | 64,504 |   |         |        | 69,295 | 
|                                                         |                                       |                                       |         |        |        |   |         |        |        |   |         |        |        |      |        
|Loss from operations                                     |                                       |                                       | (12,996 | )      |        |   | (11,443 | )      |        |   | (42,549 | )      |        |      | (34,007 | )      |        |   | (36,610 | )     
|Gain(loss) on divestitures, net                          |                                       |                                       |        |        |        |   |        |        |        |   |        |        |        |      | 8,631   |        |        |   | (711    | )     
|Net loss                                                 |                                       | $                                     | (13,828 | )      |        | $ | (11,452 | )      |        | $ | (41,986 | )      |        | $    | (25,447 | )      |        | $ | (37,619 | )     
|Net loss per share of common stock  basic and diluted   |                                       | $                                     | (1.08   | )      |        | $ | (0.68   | )      |        | $ | (1.76   | )      |        | $    | (1.05   | )      |        | $ | (1.55   | )     
|                                                         |                                       |                                       |         |        |        |   |         |        |        |   |         |        |        |      |        
|Weighted-average shares of common stock outstanding      |                                       |                                       | 12,757  |        |        |   | 16,741  |        |        |   | 23,822  |        |        |      | 24,162  |        |        |   | 24,263  |       
|                                                         |                                       |                                       |         |        |        |   |         |        |        |   |         |        |        |      |        
|Balance Sheet Data:                                      |                                       |                                       |         |        |        |   |         |        |        |   |         |        |        |      |         |        |        |   |         |       
|Cash, cash equivalents and available-for-sale securities |                                       | $                                     | 22,016  |        |        | $ | 81,887  |        |        | $ | 40,361  |        |        | $    | 23,375  |        |        | $ | 7,830   |       
|Working capital                                          |                                       |                                       | 20,885  |        |        |   | 84,999  |        |        |   | 37,021  |        |        |      | 19,924  |        |        |   | 9,235   |       
|Total assets                                             |                                       |                                       | 29,183  |        |        |   | 95,094  |        |        |   | 92,628  |        |        |      | 71,997  |        |        |   | 34,374  |       
|Long-term obligations(1)                                 |                                       |                                       | 8,574   |        |        |   |        |        |        |   |        |        |        |      |        |        |        |   |        |       
|Total stockholders equity                               |                                       |                                       | 15,871  |        |        |   | 90,881  |        |        |   | 78,623  |        |        |      | 55,321  |        |        |   | 17,426  |       






|    |                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------
|(1) | Long-term obligations include convertible debentures, a note
    payable and other liabilities, net of current balances.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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 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 Related to Our
Business in Item 1 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.


26



---



##### Table of Contents



Overview








Strategy and Key Metrics












27



---



##### Table of Contents



Results of Operations




|                  |                                                    |                |        |        |      |   |        |        |  |   |        |        | 
|----------------- | -------------------------------------------------- | -------------- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                  |                                                    | Year Ended     |       
|                  |                                                    | December 31,   |       
|                  |                                                    |                |       
|                  |                                                    | 2002           |        |        | 2003 |   |        | 2004   | 
|                  |                                                    |                |        |        |      |   |        |        | 
|                  |                                                    | (In thousands) |       
|Revenues:         |                                                    |                |        |        |      |   |        |        |  |   |        |       
|                  | Cryocare Surgical Systems                          |                | $      | 3,422  |      |   | $      | 1,283  |  |   | $      | 1,403  | 
|                  | Cryoprobes, disposables and bundled procedure fees |                |        | 12,601 |      |   |        | 17,930 |  |   |        | 22,100 | 
|                  | Cardiac products (CryoCath)                        |                |        | 2,104  |      |   |        | 331    |  |   |        | 629    | 
|                  | Urological products (Timm Medical)                 |                |        | 12,789 |      |   |        | 10,953 |  |   |        | 8,553  | 
|                  |                                                    |                |        |        |      |   |        |        | 
|                  |                                                    | $              | 30,916 |        |      | $ | 30,497 |        |  | $ | 32,685 |       
|Cost of Revenues: |                                                    |                |        |        |      |   |        |        |  |   |        |       
|                  | Cryocare Surgical Systems                          |                | $      | 1,480  |      |   | $      | 466    |  |   | $      | 255    | 
|                  | Cryoprobes, disposables and bundled procedure fees |                |        | 8,111  |      |   |        | 10,626 |  |   |        | 13,330 | 
|                  | Cardiac products (CryoCath)                        |                |        | 1,539  |      |   |        | 399    |  |   |        |       | 
|                  | Urological products (Timm Medical)                 |                |        | 5,354  |      |   |        | 4,567  |  |   |        | 3,331  | 
|                  |                                                    |                |        |        |      |   |        |        | 
|                  |                                                    | $              | 16,484 |        |      | $ | 16,058 |        |  | $ | 16,916 |       
|                  |                                                    |                |        |        |      |   |        |        | 









28



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##### Table of Contents





|                                      |                          |                |        |        |      |   |        |        |  |   |        |        | 
|------------------------------------- | ------------------------ | -------------- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                      |                          | Year Ended     |       
|                                      |                          | December 31,   |       
|                                      |                          |                |       
|                                      |                          | 2002           |        |        | 2003 |   |        | 2004   | 
|                                      |                          |                |        |        |      |   |        |        | 
|                                      |                          | (In thousands) |       
|Cost of revenues                      |                          | $              | 16,484 |        |      | $ | 16,058 |        |  | $ | 16,916 |       
|Research and development              |                          |                | 2,900  |        |      |   | 1,257  |        |  |   | 1,608  |       
|Selling, general and administrative   |                          |                | 33,770 |        |      |   | 47,189 |        |  |   | 34,961 |       
|Goodwill impairment and other charges |                          |                | 20,311 |        |      |   |       |        |  |   | 15,810 |       
|                                      |                          |                |        |        |      |   |        |        | 
|                                      | Total costs and expenses |                | $      | 73,465 |      |   | $      | 64,504 |  |   | $      | 69,295 | 
|                                      |                          |                |        |        |      |   |        |        | 
|Gain (loss) on divestitures           |                          |                |       |        |      |   | 8,631  |        |  |   | (711   | )     
|Interest income, net                  |                          |                | 1,007  |        |      |   | 548    |        |  |   | 286    |       
|Minority interests                    |                          |                | (444   | )      |      |   | (619   | )      |  |   | (584   | )     



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2004 Compared to Year Ended
    December 31, 2003

Revenues.






Cost of Revenues.


Gross Margins.


Research and Development Expenses.


29



---



##### Table of Contents





Selling, General and Administrative Expenses.




Goodwill Impairment and Other Charges.


Interest Income, Net.


Minority Interests.


Gain (Loss) on Divestitures, Net.


Net Loss.




| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared to Year Ended
    December 31, 2002

Revenues.


30



---



##### Table of Contents









Cost of Revenues.




Gross Margins.


Research and Development Expenses.


Selling, General and Administrative Expenses.


31



---



##### Table of Contents









Goodwill Impairment and Other Charges.


Interest Income (Expense), Net.


Minority Interests.


Gain on Divestitures, Net.


Net Loss.


Liquidity and Capital Resources






32



---



##### Table of Contents









Contractual Obligations




|                                   |  |                        |       |  |      |   |       |           |  |   |           |  |  |   |     | 
|---------------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | --------- |  | - | --------- |  |  | - | --- | 
|                                   |  | Payments Due by Period |      
|                                   |  |                        |      
|                                   |  | Total                  |       |  | 2005 |   |       | 2006-2007 |  |   | 2008-2009 | 
|                                   |  |                        |       |  |      |   |       |           |  |   |           | 
|                                   |  | (In thousands)         |      
|Non-cancelable operating leases(1) |  | $                      | 1,580 |  |      | $ | 640   |           |  | $ | 810       |  |  | $ | 130 | 
|Purchase commitments(2)            |  |                        | 1,286 |  |      |   | 1,286 |           |  |   |          |  |  |   |    | 
|                                   |  |                        |       |  |      |   |       |           |  |   |           | 
|                                   |  | $                      | 2,866 |  |      | $ | 1,926 |           |  | $ | 810       |  |  | $ | 130 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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
    exercised these renewal options and if we entered into
    additional operating lease agreements. For more information, see
    Note 12 to our Consolidated Financial Statements.                                                                                                                                                                                                                       
|   
|(2) | These purchase commitments relate to agreements to purchase
    goods or services to manufacture our products. The agreements
    included in the table include open purchase orders in excess of
    $100,000. These obligations are not recorded in our consolidated
    financial statements until contract payment terms take effect.
    We expect to fund these commitments with cash flows from
    operations 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 as promised.

Critical Accounting Policies




33



---



##### Table of Contents



Revenue Recognition.










Purchase Accounting.




34



---



##### Table of Contents



Goodwill Impairment.


Impairment of Long-Lived Assets. Accounting for the
Impairment or Disposal of Long Lived Assets,


Legal and Other Loss Contingencies. Accounting for Contingencies,


Other Investments. The Equity Method of Accounting of Investments in Common
Stock,


35



---



##### Table of Contents





Income Taxes.


Inflation









|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk












|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure






Item 9A.     Controls and
Procedures


Evaluation of Disclosure Controls and
Procedures.


36



---



##### Table of Contents









Managements Annual Report on Internal Control
Over Financial Reporting.


Attestation Report of Registered Public Accounting
Firm.


Changes in Internal Controls.





Item 9B. Other Information







PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation



37



---



##### Table of Contents








|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accounting Fees and Services






PART IV







|         |                                        
|-------- | ---------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules

Financial Statements:




|                                                                                                             |  |      |             | 
|------------------------------------------------------------------------------------------------------------ |  | ---- | ----------- | 
|                                                                                                             |  | Page |            
|                                                                                                             |  |      |            
|Consolidated Financial Statements of the Company:                                                            |  |      |             | 
|Report of Independent Registered Public
    Accounting Firm                                                  |  |      | F-1         | 
|Consolidated Statements of Operations for
    the Years Ended December 31, 2002, 2003 and 2004               |  |      | F-2         | 
|Consolidated Balance Sheets as of
    December 31, 2003 and 2004                                             |  |      | F-3         | 
|Consolidated Statements of
    Stockholders Equity for the Years Ended December 31,
    2002, 2003 and 2004 |  |      | F-4 to F-5  | 
|Consolidated Statements of Cash Flows for
    the Years Ended December 31, 2002, 2003 and 2004               |  |      | F-6 to F-7  | 
|Notes to the Consolidated Financial
    Statements                                                           |  |      | F-8 to F-34 | 

Financial Statement Schedules:




Exhibit:


|            |        |  |             |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----------- | ------ |  | ----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |        |  | Description
|            |        |  |            
|            | 2.1(1) |  |             | Agreement and Plan of Reorganization, dated February 21,
    2002 by and among the Company, Timm Medical Technologies, Inc.,
    TMT Acquisition Corporation and certain stockholders of Timm
    Medical Technologies, Inc. Certain schedules and other
    attachments to this exhibit were omitted. We agree to furnish
    supplementally a copy of any omitted schedules or attachments to
    the Commission upon request.
|            | 2.2(2) |  |             | Agreement and Plan of Merger, dated June 30, 1999, by and
    among the Company, Advanced Medical Procedures, Inc., Advanced
    Medical Procedures, LLC, Gary M. Onik, M.D., Robert F.
    Byrnes and Jerry Anderson. Schedules and other attachments to
    this exhibit were omitted. We agree to furnish supplementally a
    copy of any omitted schedules or attachments to the Commission
    upon request.              

38



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##### Table of Contents



|            |            |  |             |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------- | ---------- |  | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |            |  | Description
|            |            |  |            
|            | 2.3(3)     |  |             | Asset Purchase Agreement, dated February 6, 2002, by and
    between the Company and Gary M. Onik, M.D. Certain
    schedules and other attachments to this exhibit were omitted. We
    agree to furnish supplementally a copy of any omitted schedules
    or attachments to the Commission upon request.                                                                                                                       
|            | 2.4(3)     |  |             | Asset Purchase Agreement, dated May 28, 2002, by and among
    the Company and Cryomedical Sciences, Inc. Certain schedules and
    other attachments to this exhibit were omitted. We agree to
    furnish supplementally a copy of any omitted schedules or
    attachments to the Commission upon request.                                                                                                                     
|            | 2.5(4)     |  |             | Partnership and Limited Liability Company Membership Interest
    Purchase Agreement, dated as of August  12, 2002, by
    and among the Company and U.S. Medical Development, Inc.,
    U.S.M.D., Ltd. and U.S.M.D. I, L.L.C. Certain schedules and
    other attachments to this exhibit were omitted. We agree to
    furnish supplementally a copy of any omitted schedules or
    attachments to the Commission upon request.
|            | 2.6(5)     |  |             | Amendment No. 1 to Partnership and Limited Liability
    Company Membership Interest Purchase Agreement, dated as of
    September 30, 2002, by and among the Company, Inc. and
    U.S. Medical Development, Inc., U.S.M.D., Ltd. and
    U.S.M.D. I, L.L.C.                                                                                                                                                                     
|            | 2.7(6)     |  |             | Agreement of Purchase and Sale, dated as of April 7, 2003,
    by and among American Medical Systems, Inc., the Company and
    Timm Medical Technologies, Inc.                                                                                                                                                                                                                                                                   
|            | 2.8(7)     |  |             | Asset Purchase and Technology License Agreement, dated as of
    April 29, 2003, by and between the Company and CryoCath
    Technologies Inc.                                                                                                                                                                                                                                                                                    
|            | 2.9(8)     |  |             | Agreement of Purchase and Sale, dated as of October 15,
    2003, by and between SRS Medical Corp. and Timm Medical
    Technologies, Inc.                                                                                                                                                                                                                                                                                        
|            | 2.10(9)    |  |             | Amendment No. 2 to Partnership and Limited Liability
    Company Membership Interest Purchase Agreement, dated as of
    February 27, 2004, by and among the Company and
    U.S. Medical Development, Inc., U.S.M.D., Ltd. and
    U.S.M.D. I, L.L.C                                                                                                                                                                             
|            | 2.11(9)    |  |             | Service Fee Agreement, dated as of February 26, 2004, by
    and among the Company and the Limited Partners of Mid-America
    Cryotherapy, L.P.                                                                                                                                                                                                                                                                                  
|            | 2.12(9)    |  |             | First Amendment to Agreement of Purchase and Sale, dated as of
    March 25, 2004, by and between SRS Medical Corp. and Timm
    Medical Technologies, Inc.                                                                                                                                                                                                                                                                       
|            | 2.13(10)   |  |             | First Amendment to Asset Purchase Agreement, dated as of
    August 18, 2004, by and between the Company and Gary
    Onik, M.D.                                                                                                                                                                                                                                                                                                  
|            | 3.1(2)     |  |             | Certificate of Amendment of Restated Certificate of
    Incorporation of the Company.                                                                                                                                                                                                                                                                                                                                             
|            | 3.2(2)     |  |             | Certificate of Designation of Series A Junior Participating
    Preferred Stock of the Company.                                                                                                                                                                                                                                                                                                                                   
|            | 3.3(2)     |  |             | Restated Certificate of Incorporation.                                                                                                                                                                                                                                                                                                                                                                                            
|            | 3.4(11)    |  |             | Amended and Restated Bylaws of the Company.                                                                                                                                                                                                                                                                                                                                                                                       
|            | 10.1(12)   |  |             | Lease Agreement, dated November 26, 2001 by and between the
    Company and the Irvine Company.                                                                                                                                                                                                                                                                                                                                   
|            | 10.11(12) |  |             | Form of Indemnification Agreement by and between the Company and
    its directors.                                                                                                                                                                                                                                                                                                                                               
|            | 10.12(12) |  |             | Form of Indemnification Agreement by and between the Company and
    its executive officers.                                                                                                                                                                                                                                                                                                                                      
|            | 10.13(13) |  |             | 1995 Director Option Plan (as amended and restated through
    March 2, 1999).                                                                                                                                                                                                                                                                                                                                                    
|            | 10.14(14) |  |             | 1995 Stock Plan (as amended and restated through
    December 30, 2003).                                                                                                                                                                                                                                                                                                                                                          
|            | 10.15(15) |  |             | 2002 Supplemental Stock Plan                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 10.16(4)   |  |             | Promissory Note, dated July 15, 2002, issued by
    U.S. Medical Development, Inc. to the Company.                                                                                                                                                                                                                                                                                                                                
|            | 10.17(5)   |  |             | First Amended and Restated Promissory Note, dated
    September 30, 2002, issued by U.S. Medical
    Development, Inc. to the Company.                                                                                                                                                                                                                                                                                            
|            | 10.18(16)  |  |             | Registration Rights Agreement, dated as of February 21,
    2002, by and among the Company and the parties listed on
    Schedule A thereto.                                                                                                                                                                                                                                                                                      
|            | 10.19(15)  |  |             | Registration Rights Agreement, dated as of May 28, 2002, by
    and between the Company and Cryomedical Sciences, Inc.                                                                                                                                                                                                                                                                                                            
|            | 10.20(15) |  |             | Letter Agreement, dated June 11, 1999, by and between the
    Company and Jerry Anderson.                                                                                                                                                                                                                                                                                                                                         

39



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##### Table of Contents



|            |            |  |             |                                                                                                                                                              
|----------- | ---------- |  | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |            |  | Description
|            |            |  |            
|            | 10.21(15)  |  |             | Blanket Purchase Agreement, effective April 1, 2002, by and
    between Timm Medical Technologies, Inc. and the
    U.S. Department of Veterans Affairs.     
|            | 10.22(15) |  |             | 2002 Executive Separation Benefits Plan.                                                                                                                     
|            | 10.23(17) |  |             | Employment Agreement, dated as of March 3, 2003, by and
    between the Company and William J. Nydam.                                                        
|            | 10.24(17) |  |             | Employment Agreement, dated as of March 25, 2003, by and
    between the Company and Katherine Greenberg.                                                    
|            | 10.25(11) |  |             | Employment Agreement, dated as of March 25, 2003, by and
    between the Company and Kevin Quilty.                                                           
|            | 10.26(11) |  |             | First Amendment to Employment Agreement, dated as of
    September 14, 2003, by and between the Company and
    Katherine Greenberg.                         
|            | 10.27(11)  |  |             | Consulting Agreement, dated as of August 27, 2003, by and
    between the Company and Craig T. Davenport.                                                    
|            | 10.28(18) |  |             | Employment Agreement, dated as of December 15, 2003, by and
    between the Company and Craig T. Davenport.                                                  
|            | 10.31(19) |  |             | Letter Agreement, dated as of June 9, 2004, by and between
    the Company and Katherine Greenberg.                                                          
|            | 10.32(20) |  |             | Employment Agreement, dated as of August 11, 2004, by and
    between the Company and Michael R. Rodriguez.                                                  
|            | 10.33(21) |  |             | General Release of All Claims, dated as of August 10, 2004,
    by and between the Company and Katherine Greenberg.                                          
|            | 10.33(22) |  |             | 2004 Stock Incentive Plan.                                                                                                                                   
|            | 10.34     |  |             | 2004 Non-Employee Director Option Program under 2004 Stock
    Incentive Plan.                                                                               
|            | 10.35     |  |             | Form of Award Agreement Under 2004 Stock Incentive Plan.                                                                                                     
|            | 10.36      |  |             | Stipulation of Settlement, dated as of November 1, 2004,
    relating to securities class action lawsuit.                                                    
|            | 10.37     |  |             | Description of Craig Davenport salary adjustment, effective
    December 2004.                                                                               
|            | 10.38      |  |             | Confidential Settlement Agreement and Release, dated as of
    December 14, 2004, by and between the Company and certain
    Underwriters at Lloyds, London.
|            | 10.39      |  |             | Release and Settlement Agreement, dated as of December 16,
    2004, by and between the Company and National Union Fire
    Insurance Company.               
|            | 10.40(23)  |  |             | Partnership Interest Purchase Agreement, dated as of
    December 30, 2004, by and between the Company and Advanced
    Medical Partners, Inc.               
|            | 21.1       |  |             | Subsidiaries of Registrant                                                                                                                                   
|            | 23.1       |  |             | Consent of Independent Registered Public Accounting Firm.                                                                                                    
|            | 24.1       |  |             | Power of Attorney, included on signature page.                                                                                                               
|            | 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.                                                              






| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| | * | We have requested confidential treatment with respect to certain
    portions of these documents.



| |   |                                                        
| | - | -------------------------------------------------------
| |  | Management contract or compensatory plan or arrangement



|    |                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------
|(1) | Previously filed as an exhibit to our Form 8-K filed on
    March 5, 2002.                                                        
|   
|(2) | Previously filed as an exhibit to our Registration Statement on
    Form S-3 filed on September 20, 2001 and
    October 31, 2001.
|   
|(3) | Previously filed as an exhibit to our Form 10-Q filed on
    August 14, 2002.                                                     
|   
|(4) | Previously filed as an exhibit to our Form 8-K filed on
    August 16, 2002.                                                      
|   
|(5) | Previously filed as an exhibit to our Form 8-K filed on
    October 15, 2002.                                                     
|   
|(6) | Previously filed as an exhibit to our Form 8-K filed on
    April 22, 2003.                                                       

40



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##### Table of Contents





|    |                                                                              
|--- | -----------------------------------------------------------------------------
|(7) | Previously filed as an exhibit to our Form 8-K filed on
    April 29, 2003.  
|   
|(8) | Previously filed as an exhibit to our Form 8-K filed on
    October 20, 2003.
|   
|(9) | Previously filed as an exhibit to our Form 10-Q filed on
    May 10, 2004.   



|     |                                                                                                    
|---- | ---------------------------------------------------------------------------------------------------
|(10) | Previously filed as an exhibit to our Form 10-Q filed on
    November 9, 2004.                     
|    
|(11) | Previously filed as an exhibit to our Form 10-K filed on
    March 15, 2004.                       
|    
|(12) | Previously filed as an exhibit to our Form 10-K filed on
    March 29, 2002.                       
|    
|(13) | Previously filed as an exhibit to our Registration Statement on
    Form S-8 filed on June 2, 1999.
|    
|(14) | Previously filed as an appendix to our Definitive Proxy
    Statement filed on December 3, 2003.   
|    
|(15) | Previously filed as an exhibit to our Form 10-K filed on
    December 3, 2003.                     
|    
|(16) | Previously filed as an exhibit to our Registration Statement on
    Form S-3 filed on May 15, 2002.
|    
|(17) | Previously filed as an exhibit to our Form 8-K filed on
    March 27, 2003.                        
|    
|(18) | Previously filed as an exhibit to our Form 8-K filed on
    December 16, 2003.                     
|    
|(19) | Previously filed as an exhibit to our Form 10-Q filed on
    August 9, 2004.                       
|    
|(20) | Previously filed as an exhibit to our Form 8-K filed on
    August 12, 2004.                       
|    
|(21) | Previously filed as an exhibit to our Form 8-K filed on
    September 1, 2004.                     
|    
|(22) | Previously filed as an appendix to our Definitive Proxy
    Statement filed on August 6, 2004.     
|    
|(23) | Previously filed as an exhibit to our Form 8-K filed on
    January 6, 2005.                       

Supplemental Information




41



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##### Table of Contents






SIGNATURES






| |               
| | --------------
| | Endocare, Inc.



| |     |                       
| | --- | ----------------------
| | By: | /s/ Craig T. Davenport

| |                                     
| | ------------------------------------
| |                                     
| | Craig T. Davenport                  
| | Chairman and Chief Executive Officer

POWER OF ATTORNEY






|                                                             |  |                                                                                                             |  |                |  | 
|------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                                    |  | Title                                                                                                       |  | Date          
|                                                             |  |                                                                                                             |  |               
|                                                            
|/s/ Craig T. DavenportCraig
    T. Davenport                 |  | Chairman and Chief Executive Officer (principal executive
    officer)                                      |  | March 15, 2005
|                                                            
|/s/ Michael R.
    RodriguezMichael
    R. Rodriguez         |  | Senior Vice President, Finance and Chief Financial Officer
    (principal financial and accounting officer) |  | March 15, 2005
|                                                            
|/s/ John R.
    Daniels, M.D.John
    R. Daniels, M.D.       |  | Director                                                                                                    |  | March 15, 2005
|                                                            
|/s/ Eric S. KentorEric
    S. Kentor                         |  | Director                                                                                                    |  | March 15, 2005
|                                                            
|/s/ Terrence A. NoonanTerrence
    A. Noonan                 |  | Director                                                                                                    |  | March 15, 2005
|                                                            
|/s/ Michael J.
    Strauss, M.D.Michael
    J. Strauss, M.D. |  | Director                                                                                                    |  | March 15, 2005
|                                                            
|/s/ Thomas R. TestmanThomas
    R. Testman                   |  | Director                                                                                                    |  | March 15, 2005

42



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##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














| |                          
| | -------------------------
| | /s/ Ernst & Young
    LLP






F-1



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                       |                                       |                                       |         |        |        |   |         |        |        |   |         |        |        | 
|------------------------------------------------------ | ------------------------------------- | ------------------------------------- | ------- | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                       |                                       | Years Ended December 31               |        
|                                                       |                                       |                                       |        
|                                                       |                                       | 2002                                  |         |        | 2003   |   |         | 2004   |       
|                                                       |                                       |                                       |         |        |        |   |         |        |       
|                                                       |                                       | (In thousands, except per share data) |        
|Total revenues                                         |                                       | $                                     | 30,916  |        |        | $ | 30,497  |        |        | $ | 32,685  |       
|Costs and expenses:                                    |                                       |                                       |         |        |        |   |         |        |        |   |         |       
|                                                       | Cost of revenues                      |                                       |         | 16,484 |        |   |         | 16,058 |        |   |         | 16,916 |       
|                                                       | Research and development              |                                       |         | 2,900  |        |   |         | 1,257  |        |   |         | 1,608  |       
|                                                       | Selling, general and administrative   |                                       |         | 33,770 |        |   |         | 47,189 |        |   |         | 34,961 |       
|                                                       | Goodwill impairment and other charges |                                       |         | 20,311 |        |   |         |       |        |   |         | 15,810 |       
|                                                       |                                       |                                       |         |        |        |   |         |        |       
|                                                       |                                       | Total costs and expenses              |         |        | 73,465 |   |         |        | 64,504 |   |         |        | 69,295 | 
|                                                       |                                       |                                       |         |        |        |   |         |        |       
|Loss from operations                                   |                                       |                                       | (42,549 | )      |        |   | (34,007 | )      |        |   | (36,610 | )     
|Gain (loss) on divestitures, net                       |                                       |                                       |        |        |        |   | 8,631   |        |        |   | (711    | )     
|Interest income, net                                   |                                       |                                       | 1,007   |        |        |   | 548     |        |        |   | 286     |       
|                                                       |                                       |                                       |         |        |        |   |         |        |       
|Loss before minority interests                         |                                       |                                       | (41,542 | )      |        |   | (24,828 | )      |        |   | (37,035 | )     
|Minority interests                                     |                                       |                                       | (444    | )      |        |   | (619    | )      |        |   | (584    | )     
|                                                       |                                       |                                       |         |        |        |   |         |        |       
|Net loss                                               |                                       | $                                     | (41,986 | )      |        | $ | (25,447 | )      |        | $ | (37,619 | )     
|                                                       |                                       |                                       |         |        |        |   |         |        |       
|Net loss per share of common stock  basic and diluted |                                       | $                                     | (1.76   | )      |        | $ | (1.05   | )      |        | $ | (1.55   | )     
|                                                       |                                       |                                       |         |        |        |   |         |        |       
|Weighted-average shares of common stock outstanding    |                                       |                                       | 23,822  |        |        |   | 24,162  |        |        |   | 24,263  |       
|                                                       |                                       |                                       |         |        |        |   |         |        |       



F-2



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


|                                     |                                                                                                                                                                          |                                            |        |          |        |  |       |          |        | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------ | -------- | ------ |  | ----- | -------- | ------ | 
|                                     |                                                                                                                                                                          | December 31                                |       
|                                     |                                                                                                                                                                          |                                            |       
|                                     |                                                                                                                                                                          | 2003                                       |        |          | 2004   | 
|                                     |                                                                                                                                                                          |                                            |        |          |        | 
|                                     |                                                                                                                                                                          | (In thousands, except share                |       
|                                     |                                                                                                                                                                          | and per share data)                        |       
|ASSETS                              
|Current assets:                      |                                                                                                                                                                          |                                            |        |          |        |  |       |         
|                                     | Cash and cash equivalents                                                                                                                                                |                                            | $      | 23,375   |        |  | $     | 7,830    |       
|                                     | Accounts receivable less allowances for doubtful accounts and
    sales returns of $1,078 and $74 at December 31, 2003 and
    2004, respectively                        |                                            |        | 2,974    |        |  |       | 3,319    |       
|                                     | Inventories                                                                                                                                                              |                                            |        | 2,019    |        |  |       | 2,828    |       
|                                     | Prepaid expenses and other current assets                                                                                                                                |                                            |        | 4,331    |        |  |       | 1,533    |       
|                                     | Assets held for sale                                                                                                                                                     |                                            |        | 3,654    |        |  |       | 10,459   |       
|                                     |                                                                                                                                                                          |                                            |        |          |        | 
|                                     |                                                                                                                                                                          | Total current assets                       |        |          | 36,353 |  |       |          | 25,969 | 
|Property and equipment, net          |                                                                                                                                                                          |                                            | 3,661  |          |        |  | 2,672 |         
|Goodwill                             |                                                                                                                                                                          |                                            | 9,878  |          |        |  |      |         
|Intangibles, net                     |                                                                                                                                                                          |                                            | 5,162  |          |        |  | 4,390 |         
|Investments and other assets         |                                                                                                                                                                          |                                            | 1,853  |          |        |  | 1,343 |         
|Assets held for sale                 |                                                                                                                                                                          |                                            | 15,090 |          |        |  |      |         
|                                     |                                                                                                                                                                          |                                            |        |          |        | 
|                                     |                                                                                                                                                                          | Total assets                               |        | $        | 71,997 |  |       | $        | 34,374 | 
|                                     |                                                                                                                                                                          |                                            |        |          |        | 
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                                                                          |                                            |        |          |        |  |       |         
|                                     | Accounts payable                                                                                                                                                         |                                            | $      | 2,568    |        |  | $     | 2,294    |       
|                                     | Accrued compensation                                                                                                                                                     |                                            |        | 3,719    |        |  |       | 3,396    |       
|                                     | Other accrued liabilities                                                                                                                                                |                                            |        | 6,971    |        |  |       | 7,668    |       
|                                     | Liabilities held for sale                                                                                                                                                |                                            |        | 3,181    |        |  |       | 3,376    |       
|                                     |                                                                                                                                                                          |                                            |        |          |        | 
|                                     |                                                                                                                                                                          | Total current liabilities                  |        |          | 16,439 |  |       |          | 16,734 | 
|Minority interests                   |                                                                                                                                                                          |                                            | 237    |          |        |  | 214   |         
|Stockholders equity:                |                                                                                                                                                                          |                                            |        |          |        |  |       |         
|                                     | Preferred stock, $.001 par value; 1,000,000 shares
    authorized; none issued and outstanding                                                                           |                                            |        |         |        |  |       |         |       
|                                     | Common stock, $.001 par value; 50,000,000 shares
    authorized; 24,183,254 and 24,342,482 shares issued and
    outstanding at December 31, 2003 and 2004, respectively |                                            |        | 24       |        |  |       | 24       |       
|                                     | Additional paid-in capital                                                                                                                                               |                                            |        | 171,875  |        |  |       | 169,400  |       
|                                     | Accumulated deficit                                                                                                                                                      |                                            |        | (114,379 | )      |  |       | (151,998 | )     
|                                     | Deferred compensation                                                                                                                                                    |                                            |        | (107     | )      |  |       |         |       
|                                     | Treasury stock at cost, 206,200 shares at December 31,
    2003                                                                                                          |                                            |        | (2,092   | )      |  |       |         |       
|                                     |                                                                                                                                                                          |                                            |        |          |        | 
|                                     |                                                                                                                                                                          | Total stockholders equity                 |        |          | 55,321 |  |       |          | 17,426 | 
|                                     |                                                                                                                                                                          |                                            |        |          |        | 
|                                     |                                                                                                                                                                          | Total liabilities and stockholders equity |        | $        | 71,997 |  |       | $        | 34,374 | 
|                                     |                                                                                                                                                                          |                                            |        |          |        | 



F-3



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIENCY)


(In thousands)


|                                                                                         |                                                       |              |        |   |            |  |    |                 |  |       |                 |             |  |             |         |         |          |       |      |              |  |               |                |     |   |        |      |   |  |  |        |   |  |  |         |         |  
|---------------------------------------------------------------------------------------- | ----------------------------------------------------- | ------------ | ------ | - | ---------- |  | -- | --------------- |  | ----- | --------------- | ----------- |  | ----------- | ------- | ------- | -------- | ----- | ---- | ------------ |  | ------------- | -------------- | --- | - | ------ | ---- | - |  |  | ------ | - |  |  | ------- | ------- | -
|                                                                                         |                                                       |              |        |   |            |  |    |                 |  |       |                 | Accumulated |  |             |         |         |          |       |     
|                                                                                         |                                                       |              |        |   |            |  |    |                 |  | Other |                 |             |  |             |         |         |         
|                                                                                         |                                                       | Common Stock |        |   |            |  |    |                 |  |       | Comprehensive   |             |  |             |         |         |          | Total |     
|                                                                                         |                                                       |              |        |   | Additional |  |    | Accumulated     |  |       | Receivable From |             |  | Income, Net |         |         | Deferred |       |      |              |  | Stockholders |               
|                                                                                         |                                                       | Shares       |        |   | Amount     |  |    | Paid-In Capital |  |       | Deficit         |             |  | Stockholder |         |         | of Tax   |       |      | Compensation |  |               | Treasury Stock |     |   | Equity |     
|                                                                                         |                                                       |              |        |   |            |  |    |                 |  |       |                 |             |  |             |         |         |          |       |      |              |  |               |                |     |   |        |     
|Balance at December 31, 2001                                                             |                                                       |              | 22,052 |   |            |  | 22 |                 |  |       | 138,337         |             |  |             | (46,946 | )       |          |       | (471 | )            |  |               |               |     |   |        |     |   |  |  | (61    | ) |  |  | 90,881  |        
|Comprehensive income (loss):                                                             |                                                       |              |        |   |            |  |    |                 |  |       |                 |             |  |             |         |         |          |       |      |              |  |               |                |     |   |        |      |   |  |  |        |   |  |  |         |        
|                                                                                         | Net loss                                              |              |        |  |            |  |    |                |  |       |                 |            |  |             |         | (41,986 | )        |       |      |             |  |               |                |    |   |        |      |  |  |  |        |  |  |  |         | (41,986 | )
|                                                                                         | Unrealized gain on available-for-sale securities, net |              |        |  |            |  |    |                |  |       |                 |            |  |             |         |        |          |       |      |             |  |               |                | 13  |   |        |      |  |  |  |        |  |  |  |         | 13      |  
|                                                                                         |                                                       |              |        |   |            |  |    |                 |  |       |                 |             |  |             |         |         |          |       |      |              |  |               |                |     |   |        |     
|Comprehensive income (loss)                                                              |                                                       |              |       |   |            |  |   |                 |  |       |                |             |  |             | (41,986 | )       |          |       |     |              |  |               | 13             |     |   |        |     |   |  |  |       |   |  |  | (41,973 | )      
|Common stock issued and options assumed in Timm Medical
    acquisition                  |                                                       |              | 1,620  |   |            |  | 2  |                 |  |       | 25,739          |             |  |             |        |         |          |       |     |              |  |               |               |     |   |        | (165 | ) |  |  |       |   |  |  | 25,576  |        
|Common stock issued for patents and covenant not to compete                              |                                                       |              | 220    |   |            |  |   |                 |  |       | 3,257           |             |  |             |        |         |          |       |     |              |  |               |               |     |   |        |     |   |  |  |       |   |  |  | 3,257   |        
|Stock options and warrants exercised                                                     |                                                       |              | 430    |   |            |  |   |                 |  |       | 2,033           |             |  |             |        |         |          |       |     |              |  |               |               |     |   |        |     |   |  |  |       |   |  |  | 2,033   |        
|Amortization of options issued to employees                                              |                                                       |              |       |   |            |  |   |                 |  |       |                |             |  |             |        |         |          |       |     |              |  |               |               |     |   |        | 33   |   |  |  |       |   |  |  | 33      |        
|Compensation related to issuance of options and warrants to
    consultants for services |                                                       |              |       |   |            |  |   |                 |  |       | 569             |             |  |             |        |         |          |       |     |              |  |               |               |     |   |        |     |   |  |  |       |   |  |  | 569     |        
|Repurchase of treasury stock                                                             |                                                       |              | (174   | ) |            |  |   |                 |  |       |                |             |  |             |        |         |          |       |     |              |  |               |               |     |   |        |     |   |  |  | (2,010 | ) |  |  | (2,010  | )      
|Forgiveness of receivable from stockholder                                               |                                                       |              |       |   |            |  |   |                 |  |       |                |             |  |             |        |         |          |       | 257  |              |  |               |               |     |   |        |     |   |  |  |       |   |  |  | 257     |        
|                                                                                         |                                                       |              |        |   |            |  |    |                 |  |       |                 |             |  |             |         |         |          |       |      |              |  |               |                |     |   |        |     
|Balance at December 31, 2002                                                             |                                                       |              | 24,148 |   |            |  | 24 |                 |  |       | 169,935         |             |  |             | (88,932 | )       |          |       | (214 | )            |  |               | 13             |     |   |        | (132 | ) |  |  | (2,071 | ) |  |  | 78,623  |        
|                                                                                         |                                                       |              |        |   |            |  |    |                 |  |       |                 |             |  |             |         |         |          |       |      |              |  |               |                |     |   |        |     
|Comprehensive income (loss)                                                              |                                                       |              |        |   |            |  |    |                 |  |       |                 |             |  |             |         |         |          |       |      |              |  |               |                |     |   |        |      |   |  |  |        |   |  |  |         |        
|Net loss                                                                                 |                                                       |              |       |   |            |  |   |                 |  |       |                |             |  |             | (25,447 | )       |          |       |     |              |  |               |               |     |   |        |     |   |  |  |       |   |  |  | (25,447 | )      
|                                                                                         | Unrealized gain on available for-sale securities, net |              |        |  |            |  |    |                |  |       |                 |            |  |             |         |        |          |       |      |             |  |               |                | (13 | ) |        |      |  |  |  |        |  |  |  |         | (13     | )
|                                                                                         |                                                       |              |        |   |            |  |    |                 |  |       |                 |             |  |             |         |         |          |       |      |              |  |               |                |     |   |        |     
|Comprehensive loss:                                                                      |                                                       |              |        |   |            |  |    |                 |  |       |                 |             |  |             | (25,447 | )       |          |       |     |              |  |               | (13            | )   |   |        |     |   |  |  |       |   |  |  | (25,460 | )      
|Stock options exercised                                                                  |                                                       |              | 35     |   |            |  |   |                 |  |       | 23              |             |  |             |        |         |          |       |     |              |  |               |               |     |   |        |     |   |  |  |       |   |  |  | 23      |        
|Issuance of restricted stock                                                             |                                                       |              | 5      |   |            |  |   |                 |  |       | 20              |             |  |             |        |         |          |       |     |              |  |               |               |     |   |        |     |   |  |  |       |   |  |  | 20      |        
|Compensation related to issuance of options to employees                                 |                                                       |              |        |   |            |  |   |                 |  |       | 1,780           |             |  |             |        |         |          |       |     |              |  |               |               |     |   |        | 25   |   |  |  |       |   |  |  | 1,805   |        
|Compensation related to issuance of options and warrants to
    consultants for services |                                                       |              |       |   |            |  |   |                 |  |       | 117             |             |  |             |        |         |          |       |     |              |  |               |               |     |   |        |     |   |  |  |       |   |  |  | 117     |        

F-4



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIENCY)  (Continued)


(In thousands)


|                                                                 |  |              |        |   |            |   |    |                 |  |       |                 |             |  |             |          |   |          |       |     |              |  |               |                |  |  |        |      |   |  |   |        |   |  |   |         |  
|---------------------------------------------------------------- |  | ------------ | ------ | - | ---------- | - | -- | --------------- |  | ----- | --------------- | ----------- |  | ----------- | -------- | - | -------- | ----- | --- | ------------ |  | ------------- | -------------- |  |  | ------ | ---- | - |  | - | ------ | - |  | - | ------- | -
|                                                                 |  |              |        |   |            |   |    |                 |  |       |                 | Accumulated |  |             |          |   |          |       |    
|                                                                 |  |              |        |   |            |   |    |                 |  | Other |                 |             |  |             |          |   |         
|                                                                 |  | Common Stock |        |   |            |   |    |                 |  |       | Comprehensive   |             |  |             |          |   |          | Total |    
|                                                                 |  |              |        |   | Additional |   |    | Accumulated     |  |       | Receivable From |             |  | Income, Net |          |   | Deferred |       |     |              |  | Stockholders |               
|                                                                 |  | Shares       |        |   | Amount     |   |    | Paid-In Capital |  |       | Deficit         |             |  | Stockholder |          |   | of Tax   |       |     | Compensation |  |               | Treasury Stock |  |  | Equity |     
|                                                                 |  |              |        |   |            |   |    |                 |  |       |                 |             |  |             |          |   |          |       |     |              |  |               |                |  |  |        |     
|Treasury stock received as repayment of loan previously forgiven |  |              | (5     | ) |            |   |   |                 |  |       |                |             |  |             |         |   |          |       |    |              |  |               |               |  |  |        |     |   |  |   | (21    | ) |  |   | (21     | )
|Forgiveness of receivable from stockholder                       |  |              |       |   |            |   |   |                 |  |       |                |             |  |             |         |   |          |       | 214 |              |  |               |               |  |  |        |     |   |  |   |       |   |  |   | 214     |  
|                                                                 |  |              |        |   |            |   |    |                 |  |       |                 |             |  |             |          |   |          |       |     |              |  |               |                |  |  |        |     
|Balance at December 31, 2003                                     |  |              | 24,183 |   |            | $ | 24 |                 |  | $     | 171,875         |             |  | $           | (114,379 | ) |          | $     |    |              |  | $             |               |  |  | $      | (107 | ) |  | $ | (2,092 | ) |  | $ | 55,321  |  
|                                                                 |  |              |        |   |            |   |    |                 |  |       |                 |             |  |             |          |   |          |       |     |              |  |               |                |  |  |        |     
|Net loss:                                                        |  |              |       |   |            |   |   |                 |  |       |                |             |  |             | (37,619  | ) |          |       |    |              |  |               |               |  |  |        |     |   |  |   |       |   |  |   | (37,619 | )
|                                                                 |  |              |        |   |            |   |    |                 |  |       |                 |             |  |             |          |   |          |       |     |              |  |               |                |  |  |        |     
|Stock options exercised                                          |  |              | 350    |   |            |   |   |                 |  |       | 92              |             |  |             |         |   |          |       |    |              |  |               |               |  |  |        |     |   |  |   |       |   |  |   | 92      |  
|Compensation related to issuance of options and warrants         |  |              |        |   |            |   |   |                 |  |       | 123             |             |  |             |         |   |          |       |    |              |  |               |               |  |  |        | 13   |   |  |   |       |   |  |   | 136     |  
|Treasury stock retired                                           |  |              |       |   |            |   |   |                 |  |       | (2,596          | )           |  |             |         |   |          |       |    |              |  |               |               |  |  |        |     |   |  |   | 2,596  |   |  |   |        |  
|Purchase of treasury stock                                       |  |              | (191   | ) |            |   |   |                 |  |       |                |             |  |             |         |   |          |       |    |              |  |               |               |  |  |        |     |   |  |   | (504   | ) |  |   | (504    | )
|Deferred compensation on options forfeited                       |  |              |       |   |            |   |   |                 |  |       | (94             | )           |  |             |         |   |          |       |    |              |  |               |               |  |  |        | 94   |   |  |   |       |   |  |   |        |  
|                                                                 |  |              |        |   |            |   |    |                 |  |       |                 |             |  |             |          |   |          |       |     |              |  |               |                |  |  |        |     
|Balance at December 31, 2004                                     |  |              | 24,342 |   |            | $ | 24 |                 |  | $     | 169,400         |             |  | $           | (151,998 | ) |          | $     |    |              |  | $             |               |  |  | $      |     |   |  | $ |       |   |  | $ | 17,426  |  
|                                                                 |  |              |        |   |            |   |    |                 |  |       |                 |             |  |             |          |   |          |       |     |              |  |               |                |  |  |        |     



F-5



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                     |                                                                                                  |                                                                                        |         |         |        |   |         |        |        |   |         |       |        |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------- | ------- | ------- | ------ | - | ------- | ------ | ------ | - | ------- | ----- | ------ | -
|                                                     |                                                                                                  | For the Years Ended December 31,                                                       |        
|                                                     |                                                                                                  |                                                                                        |        
|                                                     |                                                                                                  | 2002                                                                                   |         |         | 2003   |   |         | 2004   |       
|                                                     |                                                                                                  |                                                                                        |         |         |        |   |         |        |       
|                                                     |                                                                                                  | (In thousands)                                                                         |        
|Net loss                                             |                                                                                                  | $                                                                                      | (41,986 | )       |        | $ | (25,447 | )      |        | $ | (37,619 | )    
|                                                     | Cash flows from operating activities:                                                            |                                                                                        |         |         |        |   |         |        |        |   |         |       |       
|                                                     | Adjustments to reconcile net loss to net cash used in operating
    activities:                  |                                                                                        |         |         |        |   |         |        |        |   |         |       |       
|                                                     |                                                                                                  | Depreciation and amortization                                                          |         |         | 3,095  |   |         |        | 4,669  |   |         |       | 3,481  |  
|                                                     |                                                                                                  | Gain on sale of marketable securities                                                  |         |         |       |   |         |        | (12    | ) |         |       |       |  
|                                                     |                                                                                                  | Gain (loss) on divestitures, net                                                       |         |         |       |   |         |        | (8,631 | ) |         |       | 711    |  
|                                                     |                                                                                                  | Compensation expense related to issuance of options, warrants
    and restricted stock |         |         | 602    |   |         |        | 1,942  |   |         |       | 136    |  
|                                                     |                                                                                                  | Treasury stock received as repayment of loan previously forgiven                       |         |         |       |   |         |        | (21    | ) |         |       |       |  
|                                                     |                                                                                                  | Goodwill impairment and other charges                                                  |         |         | 20,311 |   |         |        |       |   |         |       | 15,810 |  
|                                                     |                                                                                                  | Loss on disposal of fixed assets                                                       |         |         |       |   |         |        |       |   |         |       | 139    |  
|                                                     |                                                                                                  | Minority interests                                                                     |         |         | 444    |   |         |        | 619    |   |         |       | 584    |  
|                                                     |                                                                                                  | Forgiveness of receivable from stockholder                                             |         |         | 257    |   |         |        | 214    |   |         |       |       |  
|                                                     | Changes in operating assets and liabilities, net of effects from
    purchases and divestitures: |                                                                                        |         |         |        |   |         |        |        |   |         |       |       
|                                                     |                                                                                                  | Accounts receivable                                                                    |         |         | 1,366  |   |         |        | 932    |   |         |       | (248   | )
|                                                     |                                                                                                  | Inventories                                                                            |         |         | (3,508 | ) |         |        | 644    |   |         |       | (1,516 | )
|                                                     |                                                                                                  | Prepaid expenses and other current assets                                              |         |         | (198   | ) |         |        | (1,292 | ) |         |       | 1,132  |  
|                                                     |                                                                                                  | Accounts payable                                                                       |         |         | 76     |   |         |        | 103    |   |         |       | (394   | )
|                                                     |                                                                                                  | Accrued compensation                                                                   |         |         | 423    |   |         |        | 1,042  |   |         |       | (150   | )
|                                                     |                                                                                                  | Other accrued liabilities                                                              |         |         | 4,255  |   |         |        | 1,615  |   |         |       | 846    |  
|                                                     |                                                                                                  |                                                                                        |         |         |        |   |         |        |       
|Net cash used in operating activities                |                                                                                                  |                                                                                        | (14,863 | )       |        |   | (23,623 | )      |        |   | (17,088 | )    
|                                                     |                                                                                                  |                                                                                        |         |         |        |   |         |        |       
|Cash flows from investing activities:                |                                                                                                  |                                                                                        |         |         |        |   |         |        |        |   |         |      
|                                                     | Acquisitions, net of cash acquired                                                               |                                                                                        |         | (24,092 | )      |   |         |       |        |   |         |      |       
|                                                     | Purchases of property and equipment                                                              |                                                                                        |         | (2,076  | )      |   |         | (276   | )      |   |         | (456  | )     
|                                                     | Intangibles                                                                                      |                                                                                        |         |        |        |   |         | (29    | )      |   |         |      |       
|                                                     | Partnership distributions to minority interests                                                  |                                                                                        |         | (776    | )      |   |         | (709   | )      |   |         | (739  | )     
|                                                     | Sale (purchase) of available-for-sale securities                                                 |                                                                                        |         | (22,171 | )      |   |         | 22,183 |        |   |         |      |       
|                                                     | Proceeds from divestitures                                                                       |                                                                                        |         |        |        |   |         | 9,480  |        |   |         | 2,388 |       
|                                                     | Other assets                                                                                     |                                                                                        |         | 246     |        |   |         | (1,250 | )      |   |         | 315   |       
|                                                     |                                                                                                  |                                                                                        |         |         |        |   |         |        |       
|Net cash (used in) provided by investing activities  |                                                                                                  |                                                                                        | (48,869 | )       |        |   | 29,399  |        |        |   | 1,508   |      
|                                                     |                                                                                                  |                                                                                        |         |         |        |   |         |        |       
|Cash flows from financing activities:                |                                                                                                  |                                                                                        |         |         |        |   |         |        |        |   |         |      
|                                                     | Stock options and warrants exercised                                                             |                                                                                        |         | 2,033   |        |   |         | 23     |        |   |         | 92    |       
|                                                     | Repurchase of treasury stock                                                                     |                                                                                        |         | (2,010  | )      |   |         |       |        |   |         | (504  | )     
|                                                     |                                                                                                  |                                                                                        |         |         |        |   |         |        |       
|Net cash provided by financing activities            |                                                                                                  |                                                                                        | 23      |         |        |   | 23      |        |        |   | (412    | )    
|                                                     |                                                                                                  |                                                                                        |         |         |        |   |         |        |       
|Net increase (decrease) in cash and cash equivalents |                                                                                                  |                                                                                        | (63,709 | )       |        |   | 5,799   |        |        |   | (15,992 | )    
|Cash and cash equivalents, beginning of year         |                                                                                                  |                                                                                        | 81,887  |         |        |   | 18,178  |        |        |   | 23,977  |      
|Less: Cash transferred to assets held for sale       |                                                                                                  |                                                                                        |        |         |        |   | (602    | )      |        |   | (155    | )    
|                                                     |                                                                                                  |                                                                                        |         |         |        |   |         |        |       
|Cash and cash equivalents, end of year               |                                                                                                  | $                                                                                      | 18,178  |         |        | $ | 23,375  |        |        | $ | 7,830   |      
|                                                     |                                                                                                  |                                                                                        |         |         |        |   |         |        |       

F-6



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##### Table of Contents







|                                |                                                                                     |                                  |   |        |      |  |   |      |  |  |   |     | 
|------------------------------- | ----------------------------------------------------------------------------------- | -------------------------------- | - | ------ | ---- |  | - | ---- |  |  | - | --- | 
|                                |                                                                                     | For the Years Ended December 31, |  
|                                |                                                                                     |                                  |  
|                                |                                                                                     | 2002                             |   |        | 2003 |  |   | 2004 | 
|                                |                                                                                     |                                  |   |        |      |  |   |      | 
|                                |                                                                                     | (In thousands)                   |  
|Non cash activities:            |                                                                                     |                                  |   |        |      |  |   |      |  |  |   |    
|                                | Transfer of inventory to property and equipment for placement at
    customer sites |                                  | $ | 2,902  |      |  | $ | 505  |  |  | $ | 951 | 
|                                | Common stock issued and options assumed in the acquisition of
    Timm Medical      |                                  |   | 25,741 |      |  |   |     |  |  |   |    | 
|                                | Common stock issued for patents and covenant not to compete                         |                                  |   | 3,257  |      |  |   |     |  |  |   |    | 
|                                | Change in unrealized gain on available-for-sale securities                          |                                  |   | 12     |      |  |   |     |  |  |   |    | 
|Other supplemental information: |                                                                                     |                                  |   |        |      |  |   |      |  |  |   |    
|                                | Interest paid                                                                       |                                  |   |       |      |  |   | 40   |  |  |   | 8   | 
|                                | Income taxes paid                                                                   |                                  |   | 2      |      |  |   | 2    |  |  |   | 2   | 



F-7



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Tabular numbers in thousands, except per share data)




|   |                                           
|-- | ------------------------------------------
|1. | Organization and Operations of the Company





|   |                                       
|-- | --------------------------------------
|2. | Recent Operating Results and Liquidity











|   |                                           
|-- | ------------------------------------------
|3. | Summary of Significant Accounting Policies



| |                            
| | ---------------------------
| | Principles of Consolidation



F-8



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                 
| | ----------------
| | Use of Estimates





| |                    
| | -------------------
| | Revenue Recognition











| |            
| | -----------
| | Inventories



F-9



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                       |                   |                |        |       |      |   |       |       | 
|---------------------- | ----------------- | -------------- | ------ | ----- | ---- | - | ----- | ----- | 
|                       |                   | December 31,   |       
|                       |                   |                |       
|                       |                   | 2003           |        |       | 2004 |  
|                       |                   |                |        |       |      |  
|                       |                   | (In thousands) |       
|Raw materials          |                   | $              | 1,978  |       |      | $ | 1,727 |      
|Work in process        |                   |                | 265    |       |      |   | 443   |      
|Finished goods         |                   |                | 1,173  |       |      |   | 1,036 |      
|                       |                   |                |        |       |      |  
|                       | Total inventories |                |        | 3,416 |      |   |       | 3,206 | 
|Less inventory reserve |                   |                | (1,397 | )     |      |   | (378  | )    
|                       |                   |                |        |       |      |  
|                       | Inventories, net  |                | $      | 2,019 |      |   | $     | 2,828 | 
|                       |                   |                |        |       |      |  



| |                       
| | ----------------------
| | Property and Equipment





|                                              |                                       |                |        |       |      |   |        |       | 
|--------------------------------------------- | ------------------------------------- | -------------- | ------ | ----- | ---- | - | ------ | ----- | 
|                                              |                                       | December 31,   |       
|                                              |                                       |                |       
|                                              |                                       | 2003           |        |       | 2004 |  
|                                              |                                       |                |        |       |      |  
|                                              |                                       | (In thousands) |       
|Equipment and computers                       |                                       | $              | 1,641  |       |      | $ | 1,504  |      
|Cryosurgical systems placed at customer sites |                                       |                | 5,904  |       |      |   | 5,778  |      
|Furniture and fixtures                        |                                       |                | 797    |       |      |   | 834    |      
|Leasehold improvements                        |                                       |                | 321    |       |      |   | 321    |      
|                                              |                                       |                |        |       |      |  
|                                              | Total property and equipment, at cost |                |        | 8,663 |      |   |        | 8,437 | 
|Accumulated depreciation and amortization     |                                       |                | (5,002 | )     |      |   | (5,765 | )    
|                                              |                                       |                |        |       |      |  
|                                              | Property and equipment, net           |                | $      | 3,661 |      |   | $      | 2,672 | 
|                                              |                                       |                |        |       |      |  



| |                                                                              
| | -----------------------------------------------------------------------------
| | Long-Lived Assets, Goodwill and Intangible Assets Subject to
    Amortization

Goodwill and
other Intangible Assets


F-10



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |  |              
|------------------------ |  | -------------
|Trade names              |  | 15 years     
|Domain names             |  | 5 years      
|Covenants not to compete |  | 3 to 5 years 
|Developed technology     |  | 15 years     
|Patents                  |  | 3 to 15 years





|           |  |   |       | 
|---------- |  | - | ----- | 
|2005       |  | $ | 550   | 
|2006       |  |   | 537   | 
|2007       |  |   | 472   | 
|2008       |  |   | 467   | 
|2009       |  |   | 467   | 
|Thereafter |  |   | 1,897 | 
|           |  |   |      
|           |  | $ | 4,390 | 
|           |  |   |      





|                         |                   |                |        |       |      |   |        |       | 
|------------------------ | ----------------- | -------------- | ------ | ----- | ---- | - | ------ | ----- | 
|                         |                   | December 31,   |       
|                         |                   |                |       
|                         |                   | 2003           |        |       | 2004 |  
|                         |                   |                |        |       |      |  
|                         |                   | (In thousands) |       
|Domain name              |                   | $              | 435    |       |      | $ | 435    |      
|Covenant not to compete  |                   |                | 592    |       |      |   | 352    |      
|Patents                  |                   |                | 6,113  |       |      |   | 5,875  |      
|                         |                   |                |        |       |      |  
|                         | Total intangibles |                |        | 7,140 |      |   |        | 6,662 | 
|Accumulated amortization |                   |                | (1,978 | )     |      |   | (2,272 | )    
|                         |                   |                |        |       |      |  
|                         | Intangibles, net  |                | $      | 5,162 |      |   | $      | 4,390 | 
|                         |                   |                |        |       |      |  

F-11



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |            
| | -----------
| | Investments





| |                   
| | ------------------
| | Product Warranties





| |                         
| | ------------------------
| | Research and Development





| |            
| | -----------
| | Advertising





| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                              
| | -----------------------------
| | Concentrations of Credit Risk



F-12



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments





| |                        
| | -----------------------
| | Risks and Uncertainties





| |                 
| | ----------------
| | Reclassification





| |                    
| | -------------------
| | Segment Information





| |                                             
| | --------------------------------------------
| | Off-Balance Sheet Financings and Liabilities





| |                                     
| | ------------------------------------
| | Capital Stock and Earnings Per Share





F-13



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |      
| | -----
| | Taxes





| |                         
| | ------------------------
| | Stock-Based Compensation

Accounting for Stock
Issued to Employees


Accounting for Stock-Based
Compensation  Translation and Disclosure.


|                                  |                                                                                                                        |                         |         |        |      |   |         |        |   |   |         |        |  
|--------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ----------------------- | ------- | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                  |                                                                                                                        | Year Ended December 31, |        
|                                  |                                                                                                                        |                         |        
|                                  |                                                                                                                        | 2002                    |         |        | 2003 |   |         | 2004   |  
|                                  |                                                                                                                        |                         |         |        |      |   |         |        |  
|                                  |                                                                                                                        | (In thousands)          |        
|Net loss, as reported(a)(c)       |                                                                                                                        | $                       | (41,986 | )      |      | $ | (25,447 | )      |   | $ | (37,619 | )     
|Reconciling items:                |                                                                                                                        |                         |         |        |      |   |         |        |   |   |         |       
|                                  | Add: Stock-based employee compensation expense determined under
    the intrinsic-value-based method for all awards(b) |                         |         | 33     |      |   |         | 25     |   |   |         | 136    |  
|                                  | Less: Stock-based compensation expense determined under the
    fair-value-based method for all awards expense(c)      |                         |         | (4,075 | )    |   |         | (2,313 | ) |   |         | (3,875 | )
|                                  |                                                                                                                        |                         |         |        |      |   |         |        |  
|Net adjustment                    |                                                                                                                        |                         | (4,042  | )      |      |   | (2,288  | )      |   |   | (3,739  | )     
|                                  |                                                                                                                        |                         |         |        |      |   |         |        |  
|Net loss, as adjusted             |                                                                                                                        | $                       | (46,028 | )      |      | $ | (27,735 | )      |   | $ | (41,358 | )     
|                                  |                                                                                                                        |                         |         |        |      |   |         |        |  
|Basic and diluted loss per share: |                                                                                                                        |                         |         |        |      |   |         |        |   |   |         |       
|                                  | As reported                                                                                                            |                         | $       | (1.76  | )    |   | $       | (1.05  | ) |   | $       | (1.55  | )
|                                  |                                                                                                                        |                         |         |        |      |   |         |        |  
|                                  | As adjusted                                                                                                            |                         | $       | (1.93  | )    |   | $       | (1.15  | ) |   | $       | (1.70  | )
|                                  |                                                                                                                        |                         |         |        |      |   |         |        |  

F-14



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                        |  |      |          |   |      |  |          |      |  |  |          |  
|----------------------- |  | ---- | -------- | - | ---- |  | -------- | ---- |  |  | -------- | -
|                        |  | 2002 |          |   | 2003 |  |          | 2004 | 
|                        |  |      |          |   |      |  |          |      | 
|Stock volatility        |  |      | 1.14     |   |      |  | 1.57     |      |  |  | 88.6     |  
|Risk-free interest rate |  |      | 4.3      | % |      |  | 3.4      | %    |  |  | 3.6      | %
|Expected life in years  |  |      | 5  years |   |      |  | 5  years |      |  |  | 5  years |  
|Stock dividend yield    |  |      |         |   |      |  |         |      |  |  |         |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | In the past, the Company 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 the Company issues options with exercise prices equal to
    or exceeding the fair values of the underlying common stock, no
    compensation expense is recorded for options issued to
    employees, except for compensation expense equal to the
    intrinsic value of unvested options assumed in the
    Companys 2002 acquisition of Timm Medical and amortized
    over the remaining vesting period. The 2004 amounts include a
    $0.1 million charge related to options held by the
    Companys former CFO, which will continue to vest for one
    year after separation in August 2004.                                                                                                      
|   
|(c) | Pursuant to APB No. 25, the reported net loss for 2003
    included $1.8 million in compensation expense relating to
    option settlements with two former executives in conjunction
    with their separation agreements (including a $1.7 million
    charge for replacement options recorded upon termination of the
    former CFO/ COO on July 31, 2003). Pursuant to
    SFAS No. 123/148, the fair value of the replacement
    options would have been recorded between the option modification
    date of March 3, 2003 and termination date. The
    $2.3 million expense for 2003 represents stock-based
    compensation determined under SFAS No. 123/148, less
    the $1.8 million recorded charge.







F-15



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|   |                              
|-- | -----------------------------
|4. | New Accounting Pronouncements





|   |                 
|-- | ----------------
|5. | Asset Impairment

Goodwill and Other Intangible
Assets,






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) A fourth quarter of 2002 impairment charge of
    $18.0 million to reduce the carrying value of goodwill for
    Timm Medical. The impairment resulted from the termination or
    abandonment of three of the acquired distribution agreements for
    urological products following the acquisition of Timm Medical
    due to performance and market acceptance issues and concern over
    the financial viability of their manufacturers. At the time of
    the acquisition, these arrangements were expected to account for
    approximately 60% of Timm Medicals annual revenue growth.

F-16



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) A third quarter of 2004 impairment charge of
    $5.9 million to reduce the carrying value of Timm
    Medicals goodwill ($3.1 million) and developed
    technology ($2.1 million) to fair value and an additional
    charge of approximately $.7 million for the estimated cost
    to sell Timm Medical. The interim impairment analysis in the
    third quarter of 2004 was required based on the Companys
    decision to actively market Timm Medical to potential buyers in
    July 2004 (see Note 7), as well as declining revenues,
    turnover in sales force, and below average growth as compared to
    general industry trends. The Company updated our impairment
    analysis effective October 1, 2004 and concluded no further
    impairment had occurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | c) A third quarter of 2004 impairment charge of
    $9.9 million to write-off the carrying value of goodwill
    ($9.8 million) and covenant not to compete
    ($.1 million) with respect to the pending divestiture of
    the mobile prostate treatment businesses (the Partnerships)
    based on a preliminary purchase offer (see Note 7). The
    goodwill primarily related to the distribution network provided
    by the Partnerships, which allowed the Company to further
    penetrate desired markets. Since investors in the mobile
    treatment businesses are comprised of urologists, the
    Partnerships facilitated the continued promotion of cryosurgery
    as the preferred treatment for prostate cancer. In addition,
    upon the Companys purchase of the Partnerships in
    September 2002, the seller (USMD) exited the cryosurgical
    operations and terminated its exclusive distribution agreement
    with the Company, allowing the Company to access a previously
    restricted market. After the Company sold the Partnerships in
    December 2004, the Company still expected to, and did, retain
    access to the service and distribution network through the
    Companys existing contracts and continue to benefit from
    the strategic value of a non-exclusive distribution arrangement
    with the buyer. However, since this economic benefit could not
    be quantified with reasonable accuracy, the Company recorded the
    $9.9 million charge to write off the excess of the carrying
    value of the Partnerships net assets over the preliminary
    purchase offer, less selling costs. See Note 7 for the loss
    recorded upon final sale in the fourth quarter of 2004.





|   |             
|-- | ------------
|6. | Acquisitions



| |                      
| | ---------------------
| | Business Combinations





F-17



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                       |                         |                |         |         |              |   |        |      |  
|-------------------------------------- | ----------------------- | -------------- | ------- | ------- | ------------ | - | ------ | ---- | -
|                                       |                         | Timm Medical   |         |         | Partnerships |  
|                                       |                         |                |         |         |              |  
|                                       |                         | (In thousands) |        
|Purchase consideration                 |                         | $              | 37,350  |         |              | $ | 11,734 |     
|Fair value of tangible assets acquired |                         |                | (1,041  | )       |              |   | (1,616 | )   
|Fair value of amortizable intangibles: |                         |                |         |         |              |   |        |     
|                                       | Developed technology    |                |         | (10,000 | )            |   |        |     |  
|                                       | Trademark               |                |         | (500    | )            |   |        |     |  
|                                       | Covenant not to compete |                |         |        |              |   |        | (240 | )
|                                       | Deferred compensation   |                |         | (165    | )            |   |        |     |  
|                                       |                         |                |         |         |              |  
|Goodwill (non-tax deductible)          |                         | $              | 25,644  |         |              | $ | 9,878  |     
|Purchase consideration                 |                         | $              | 37,350  |         |              | $ | 11,734 |     
|Fair value of common stock issued      |                         |                | (23,806 | )       |              |   |       |     
|Fair value of options assumed          |                         |                | (1,935  | )       |              |   |       |     
|                                       |                         |                |         |         |              |  
|Cash paid                              |                         |                | 11,609  |         |              |   | 11,734 |     
|Cash acquired                          |                         |                | (1,127  | )       |              |   | (396   | )   
|                                       |                         |                |         |         |              |  
|Net cash paid                          |                         | $              | 10,482  |         |              | $ | 11,338 |     
|                                       |                         |                |         |         |              |  





| |                
| | ---------------
| | Asset Purchases





F-18



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                      
|-- | -------------------------------------
|7. | Dispositions and Assets Held for Sale



| |                                                  
| | -------------------------------------------------
| | Divestitures of Non-Core Product Lines 
    2003





| |                        
| | -----------------------
| | Dura II Penile Implants





| |                                               
| | ----------------------------------------------
| | Cryosurgical Products for Cardiac Applications

tm tm




| |                                     
| | ------------------------------------
| | Urinary Incontinence and Urodynamics



F-19



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                            
| | ---------------------------
| | Assets Held for Sale  2004





| |                                                    
| | ---------------------------------------------------
| | Mobile Prostate Treatment Businesses (Partnerships)





| |             
| | ------------
| | Timm Medical



F-20



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                               |  |                |        |  |      |   |        | 
|---------------------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | 
|                                               |  | 2003           |        |  | 2004 |  
|                                               |  |                |        |  |      |  
|                                               |  | (In thousands) |       
|Assets:                                        |  |                |        |  |      |   |        | 
|Cash, inventories and other current assets     |  | $              | 2,143  |  |      | $ | 1,204  | 
|Property and equipment, net                    |  |                | 1,977  |  |      |   | 467    | 
|Goodwill, net                                  |  |                | 7,660  |  |      |   | 4,552  | 
|Intangibles, net                               |  |                | 6,583  |  |      |   | 4,170  | 
|Other assets                                   |  |                | 381    |  |      |   | 66     | 
|                                               |  |                |        |  |      |  
|Total assets                                   |  | $              | 18,744 |  |      | $ | 10,459 | 
|                                               |  |                |        |  |      |  
|                                              
|Liabilities:                                   |  |                |        |  |      |   |        | 
|Accounts payable and other current liabilities |  | $              | 607    |  |      | $ | 654    | 
|Other accrued liabilities                      |  |                | 2,574  |  |      |   | 2,042  | 
|Costs to sell                                  |  |                |       |  |      |   | 680    | 
|                                               |  |                |        |  |      |  
|Total liabilities                              |  |                | 3,181  |  |      |   | 3,376  | 
|                                               |  |                |        |  |      |  
|Net assets held for sale                       |  | $              | 15,563 |  |      | $ | 7,083  | 
|                                               |  |                |        |  |      |  



|   |                               
|-- | ------------------------------
|8. | Stock-Based Compensation Plans

Accounting for Stock Issued to Employees,




|                               |  |                         |           |               |                |   |       |           |               |  |                |   |  |               |       |  |                |  |           |   |  |   |      | 
|------------------------------ |  | ----------------------- | --------- | ------------- | -------------- | - | ----- | --------- | ------------- |  | -------------- | - |  | ------------- | ----- |  | -------------- |  | --------- | - |  | - | ---- | 
|                               |  | Year Ended December 31, |          
|                               |  |                         |          
|                               |  | 2002                    |           |               | 2003           |   |       | 2004      |              
|                               |  |                         |           |               |                |   |       |           |              
|                               |  |                         |           | Weighted-Avg. |                |   |       |           | Weighted-Avg. |  |                |   |  | Weighted-Avg. |      
|                               |  | Number of               |           |               | Exercise Price |   |       | Number of |               |  | Exercise Price |   |  | Number of     |       |  | Exercise Price | 
|                               |  | Options                 |           |               | Per Option     |   |       | Options   |               |  | Per Option     |   |  | Options       |       |  | Per Option     | 
|                               |  |                         |           |               |                |   |       |           |               |  |                |   |  |               |       |  |                | 
|Outstanding, beginning of year |  |                         | 2,700,057 |               |                | $ | 6.70  |           |               |  | 3,153,427      |   |  | $             | 8.50  |  |                |  | 5,118,752 |   |  | $ | 5.06 | 
|Granted                        |  |                         | 1,145,507 |               |                |   | 11.90 |           |               |  | 2,893,000      |   |  |               | 3.42  |  |                |  | 1,397,500 |   |  |   | 2.94 | 
|Cancelled                      |  |                         | (272,649  | )             |                |   | 10.99 |           |               |  | (892,675       | ) |  |               | 11.96 |  |                |  | (804,570  | ) |  |   | 5.32 | 
|Exercised                      |  |                         | (419,488  | )             |                |   | 4.52  |           |               |  | (35,000        | ) |  |               | 3.73  |  |                |  | (350,000  | ) |  |   | 0.26 | 
|Outstanding, end of year       |  |                         | 3,153,427 |               |                |   | 8.50  |           |               |  | 5,118,752      |   |  |               | 5.06  |  |                |  | 5,361,682 |   |  |   | 4.72 | 

F-21



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|               |  |                     |           |               |                     |  |      |                |  |        |                   |  |  |                |           |  |  |   |       | 
|-------------- |  | ------------------- | --------- | ------------- | ------------------- |  | ---- | -------------- |  | ------ | ----------------- |  |  | -------------- | --------- |  |  | - | ----- | 
|               |  | Options Outstanding |           |               |                    
|               |  |                     |           |               | Options Exercisable | 
|               |  |                     |           | Weighted-Avg. |                     |  |      |                |  |       
|               |  | Number              |           |               | Remaining           |  |      |                |  | Number |                   |  | 
|Range Of       |  | Outstanding at      |           |               | Contractual Life    |  |      | Weighted-Avg.  |  |        | Exercisable at    |  |  | Weighted-Avg.  |          
|Exercise Price |  | December 31, 2004   |           |               | (Number of Years)   |  |      | Exercise Price |  |        | December 31, 2004 |  |  | Exercise Price |          
|               |  |                     |           |               |                     |  |      |                |  |        |                   |  |  |                |          
|$ 0.18 -  2.03 |  |                     | 139,000   |               |                     |  | 2.61 |                |  | $      | 1.17              |  |  |                | 139,000   |  |  | $ | 1.17  | 
|2.06 -  4.00   |  |                     | 2,403,206 |               |                     |  | 8.59 |                |  |        | 2.47              |  |  |                | 636,127   |  |  |   | 2.44  | 
|4.02 -  6.19   |  |                     | 2,036,907 |               |                     |  | 8.53 |                |  |        | 4.41              |  |  |                | 980,101   |  |  |   | 4.60  | 
|6.94 -  9.00   |  |                     | 101,769   |               |                     |  | 5.25 |                |  |        | 8.64              |  |  |                | 99,611    |  |  |   | 8.68  | 
|10.19 - 13.88  |  |                     | 445,333   |               |                     |  | 7.06 |                |  |        | 12.21             |  |  |                | 331,675   |  |  |   | 12.29 | 
|14.35 - 21.23  |  |                     | 235,467   |               |                     |  | 6.90 |                |  |        | 16.63             |  |  |                | 186,189   |  |  |   | 16.70 | 
|               |  |                     |           |               |                     |  |      |                |  |        |                   |  |  |                |          
|0.18 - 21.23   |  |                     | 5,361,682 |               |                     |  | 8.15 |                |  | $      | 4.72              |  |  |                | 2,372,703 |  |  | $ | 6.01  | 
|               |  |                     |           |               |                     |  |      |                |  |        |                   |  |  |                |          







|   |                       
|-- | ----------------------
|9. | Equity Incentive Plans



| |              
| | -------------
| | Stock Options



2004 Stock Incentive Plan.


1995 Stock Plan.


F-22



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




1995 Director Option Plan.


2002 Supplemental Stock Plan.


Option Arrangements Outside of Plans.






F-23



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |         
| | --------
| | Warrants









| |                        
| | -----------------------
| | Stockholder Rights Plan



F-24



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |             
|--- | ------------
|10. | Income Taxes



|                                   |                                                      |                         |        |         |      |  |        |         |   | 
|---------------------------------- | ---------------------------------------------------- | ----------------------- | ------ | ------- | ---- |  | ------ | ------- | - | 
|                                   |                                                      | 2003                    |        |         | 2004 | 
|                                   |                                                      |                         |        |         |      | 
|                                   |                                                      | (In thousands)          |       
|Deferred tax assets (liabilities): |                                                      |                         |        |         |      |  |        |        
|                                   | Investment valuation reserves                        |                         | $      | 1,074   |      |  | $      |        |  
|                                   | Basis difference in intangible assets                |                         |        | (146    | )    |  |        | 778     |  
|                                   | Property and equipment allowances and depreciation   |                         |        | (320    | )    |  |        | 267     |  
|                                   | Inventory obsolescence and related allowances        |                         |        | 1,135   |      |  |        | 396     |  
|                                   | Accounts receivable allowances and revenue deferrals |                         |        | 1,049   |      |  |        | 226     |  
|                                   | Note receivable allowances                           |                         |        | 1,040   |      |  |        | 1,040   |  
|                                   | Installment sales                                    |                         |        | (849    | )    |  |        | (849    | )
|                                   | Other accrued liabilities                            |                         |        | 2,105   |      |  |        | 2,448   |  
|                                   | Accrued compensation                                 |                         |        | 1,397   |      |  |        | 1,511   |  
|                                   | Net operating loss and credit carryforwards          |                         |        | 33,808  |      |  |        | 43,094  |  
|                                   | Capital loss on carryforwards                        |                         |        |        |      |  |        | 5,279   |  
|                                   |                                                      |                         |        |         |      | 
|                                   |                                                      |                         | 40,293 |         |      |  | 54,190 |        
|                                   | Valuation allowance                                  |                         |        | (40,293 | )    |  |        | (54,190 | )
|                                   |                                                      |                         |        |         |      | 
|                                   |                                                      | Net deferred tax assets |        | $       |     |  |        | $       |  | 
|                                   |                                                      |                         |        |         |      | 





|                                |                    |                          |         |   |      |   |        |      |  |   |         |   | 
|------------------------------- | ------------------ | ------------------------ | ------- | - | ---- | - | ------ | ---- |  | - | ------- | - | 
|                                |                    | Years Ended December 31, |        
|                                |                    |                          |        
|                                |                    | 2002                     |         |   | 2003 |   |        | 2004 | 
|                                |                    |                          |         |   |      |   |        |      | 
|                                |                    | (In thousands)           |        
|Computed expected tax benefit   |                    | $                        | (14,275 | ) |      | $ | (8,442 | )    |  | $ | (12,479 | )
|Nondeductible expenses          |                    |                          | 244     |   |      |   | 302    |      |  |   | 102     |  
|Goodwill impairment             |                    |                          | 6,115   |   |      |   |       |      |  |   | 1,057   |  
|Increase in valuation allowance |                    |                          | 8,877   |   |      |   | 9,535  |      |  |   | 13,897  |  
|State taxes                     |                    |                          | (1,369  | ) |      |   | (1,395 | )    |  |   | (2,003  | )
|Other                           |                    |                          | 408     |   |      |   |       |      |  |   | (574    | )
|                                |                    |                          |         |   |      |   |        |      | 
|                                | Actual tax expense |                          | $       |  |      |   | $      |     |  |   | $       |  | 
|                                |                    |                          |         |   |      |   |        |      | 



F-25



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                                   
|--- | ----------------------------------
|11. | Collaborative and Other Agreements



| |                     
| | --------------------
| | Sanarus Medical Inc.







F-26



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                       
| | ----------------------
| | CryoFluor Therapeutics













| |                                                       
| | ------------------------------------------------------
| | Patent, Licensing, Royalty and Distribution Agreements



F-27



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|    |                              
|--- | -----------------------------
|12. | Commitments and Contingencies



| |       
| | ------
| | Leases



|                              |  |   |       | 
|----------------------------- |  | - | ----- | 
|Year ending December 31, 2005 |  | $ | 640   | 
|2006                          |  |   | 614   | 
|2007                          |  |   | 196   | 
|2008                          |  |   | 88    | 
|2009                          |  |   | 42    | 
|                              |  |   |      
|                              |  | $ | 1,580 | 
|                              |  |   |      



| |                                    
| | -----------------------------------
| | Employment and Severance Agreements





| |                
| | ---------------
| | Former Officers



| |                                                         
| | --------------------------------------------------------
| | Former Chief Executive Officer and Chairman of the Board



F-28



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                             
| | --------------------------------------------
| | Former Chief Financial and Operating Officer









| |                               
| | ------------------------------
| | Former Chief Financial Officer





| |                                        
| | ---------------------------------------
| | 2002 Executive Separation Benefits Plan



F-29



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                       
| | ----------------------
| | Employee Benefit Plans





| |              
| | -------------
| | Legal Matters





F-30



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












F-31



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|    |                           
|--- | --------------------------
|13. | Related Party Transactions



| |                  
| | -----------------
| | Loans to Officers









F-32



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                  
|--- | -----------------
|14. | Subsequent Events



F-33



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                            
|--- | -------------------------------------------
|15. | Quarterly Results of Operations (Unaudited)



|                                                     |         |               |        |        |               |   |        |               |   |   |               |        |   |   |        |        |  
|---------------------------------------------------- | ------- | ------------- | ------ | ------ | ------------- | - | ------ | ------------- | - | - | ------------- | ------ | - | - | ------ | ------ | -
|                                                     |         | Quarter Ended |        |        | Quarter Ended |   |        | Quarter Ended |   |   | Quarter Ended |       
|                                                     |         | March 31,     |        |        | June 30,      |   |        | September 30, |   |   | December 31,  |       
|                                                     |         | 2004          |        |        | 2004          |   |        | 2004          |   |   | 2004          |       
|                                                     |         |               |        |        |               |   |        |               |   |   |               |       
|Revenues                                             |         | $             | 7,382  |        |               | $ | 8,312  |               |   | $ | 8,365         |        |   | $ | 8,626  |       
|                                                     |         |               |        |        |               |   |        |               |   |   |               |       
|Cost of revenues                                     |         | $             | 4,234  |        |               | $ | 4,313  |               |   | $ | 4,274         |        |   | $ | 4,095  |       
|                                                     |         |               |        |        |               |   |        |               |   |   |               |       
|Gain on divestitures, net                            |         | $             |       |        |               | $ | 50     |               |   | $ | 54            |        |   | $ | (815   | )     
|                                                     |         |               |        |        |               |   |        |               |   |   |               |       
|Net loss                                             |         | $             | (8,623 | )      |               | $ | (5,620 | )             |   | $ | (19,257       | )      |   | $ | (4,119 | )     
|                                                     |         |               |        |        |               |   |        |               |   |   |               |       
|Net loss per share of common stock:                  |         |               |        |        |               |   |        |               |   |   |               |        |   |   |        |       
|                                                     | Basic   |               | $      | (0.36  | )             |   | $      | (0.23         | ) |   | $             | (0.80  | ) |   | $      | (0.17  | )
|                                                     | Diluted |               | $      | (0.36  | )             |   | $      | (0.23         | ) |   | $             | (0.80  | ) |   | $      | (0.17  | )
|Weighted average shares of common stock outstanding: |         |               |        |        |               |   |        |               |   |   |               |        |   |   |        |       
|                                                     | Basic   |               |        | 24,088 |               |   |        | 24,000        |   |   |               | 24,175 |   |   |        | 24,342 |  
|                                                     | Diluted |               |        | 24,088 |               |   |        | 24,000        |   |   |               | 24,175 |   |   |        | 24,342 |  

|                                                     |         |               |        |        |               |   |       |               |  |   |               |        |   |   |        |        |  
|---------------------------------------------------- | ------- | ------------- | ------ | ------ | ------------- | - | ----- | ------------- |  | - | ------------- | ------ | - | - | ------ | ------ | -
|                                                     |         | Quarter Ended |        |        | Quarter Ended |   |       | Quarter Ended |  |   | Quarter Ended |       
|                                                     |         | March 31,     |        |        | June 30,      |   |       | September 30, |  |   | December 31,  |       
|                                                     |         | 2003          |        |        | 2003          |   |       | 2003          |  |   | 2003          |       
|                                                     |         |               |        |        |               |   |       |               |  |   |               |       
|Revenues                                             |         | $             | 7,662  |        |               | $ | 7,490 |               |  | $ | 8,041         |        |   | $ | 7,304  |       
|                                                     |         |               |        |        |               |   |       |               |  |   |               |       
|Cost of revenues                                     |         | $             | 3,996  |        |               | $ | 3,470 |               |  | $ | 4,094         |        |   | $ | 4,498  |       
|                                                     |         |               |        |        |               |   |       |               |  |   |               |       
|Gain on divestitures, net                            |         | $             |       |        |               | $ | 9,944 |               |  | $ |              |        |   | $ | (1,313 | )     
|                                                     |         |               |        |        |               |   |       |               |  |   |               |       
|Net income (loss)                                    |         | $             | (6,088 | )      |               | $ | 1,662 |               |  | $ | (11,113       | )      |   | $ | (9,908 | )     
|                                                     |         |               |        |        |               |   |       |               |  |   |               |       
|Net income (loss) per share of common stock:         |         |               |        |        |               |   |       |               |  |   |               |        |   |   |        |       
|                                                     | Basic   |               | $      | (0.25  | )             |   | $     | 0.07          |  |   | $             | (0.46  | ) |   | $      | (0.41  | )
|                                                     | Diluted |               | $      | (0.25  | )             |   | $     | 0.07          |  |   | $             | (0.46  | ) |   | $      | (0.41  | )
|Weighted average shares of common stock outstanding: |         |               |        |        |               |   |       |               |  |   |               |        |   |   |        |       
|                                                     | Basic   |               |        | 24,152 |               |   |       | 24,156        |  |   |               | 24,182 |   |   |        | 24,183 |  
|                                                     | Diluted |               |        | 24,152 |               |   |       | 25,288        |  |   |               | 24,182 |   |   |        | 24,183 |  

F-34



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##### Table of Contents



ENDOCARE, INC. AND SUBSIDIARIES


SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS


|                                                     |  |                |       |           |            |   |       |       |            |            |   |            |            |   |        |   |  |   |       | 
|---------------------------------------------------- |  | -------------- | ----- | --------- | ---------- | - | ----- | ----- | ---------- | ---------- | - | ---------- | ---------- | - | ------ | - |  | - | ----- | 
|                                                     |  |                |       | Additions |            |   |       |      
|                                                     |  | Balance at the |       |           |            |   |       |       | Balance at |           
|                                                     |  | Beginning of   |       |           | Charges to |   |       |       |            |            |   | the End of |           
|                                                     |  | the Period     |       |           | Operations |   |       | Other |            | Deductions |   |            | the Period |  
|                                                     |  |                |       |           |            |   |       |       |            |            |   |            |            |  
|                                                     |  | (In thousands) |      
|2002                                                 |  |                |       |           |            |   |       |       |            |            |   |            |            |   |        |   |  |   |       | 
|Allowance for Doubtful Receivables and Sales Returns |  | $              | 668   |           |            | $ | 1,156 |       |            | $          |  |            |            | $ | (200   | ) |  | $ | 1,624 | 
|2003                                                 |  |                |       |           |            |   |       |       |            |            |   |            |            |   |        |   |  |   |       | 
|Allowance for Doubtful Receivables and Sales Returns |  | $              | 1,624 |           |            | $ | 658   |       |            | $          |  |            |            | $ | (296   | ) |  | $ | 1,986 | 
|2004                                                 |  |                |       |           |            |   |       |       |            |            |   |            |            |   |        |   |  |   |       | 
|Allowance for Doubtful Receivables and Sales Returns |  | $              | 1,986 |           |            | $ | (726  | )     |            | $          |  |            |            | $ | (1,186 | ) |  | $ | 74    | 






F-35



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##### Table of Contents



EXHIBIT INDEX


|            |            |  |             |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------- | ---------- |  | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |            |  | Description
|            |            |  |            
|            | 2.1(1)     |  |             | Agreement and Plan of Reorganization, dated February 21,
    2002 by and among the Company, Timm Medical Technologies, Inc.,
    TMT Acquisition Corporation and certain stockholders of Timm
    Medical Technologies, Inc. Certain schedules and other
    attachments to this exhibit were omitted. We agree to furnish
    supplementally a copy of any omitted schedules or attachments to
    the Commission upon request.  
|            | 2.2(2)     |  |             | Agreement and Plan of Merger, dated June 30, 1999, by and
    among the Company, Advanced Medical Procedures, Inc., Advanced
    Medical Procedures, LLC, Gary M. Onik, M.D., Robert F.
    Byrnes and Jerry Anderson. Schedules and other attachments to
    this exhibit were omitted. We agree to furnish supplementally a
    copy of any omitted schedules or attachments to the Commission
    upon request.                
|            | 2.3(3)     |  |             | Asset Purchase Agreement, dated February 6, 2002, by and
    between the Company and Gary M. Onik, M.D. Certain
    schedules and other attachments to this exhibit were omitted. We
    agree to furnish supplementally a copy of any omitted schedules
    or attachments to the Commission upon request.                                                                                                                       
|            | 2.4(3)     |  |             | Asset Purchase Agreement, dated May 28, 2002, by and among
    the Company and Cryomedical Sciences, Inc. Certain schedules and
    other attachments to this exhibit were omitted. We agree to
    furnish supplementally a copy of any omitted schedules or
    attachments to the Commission upon request.                                                                                                                     
|            | 2.5(4)     |  |             | Partnership and Limited Liability Company Membership Interest
    Purchase Agreement, dated as of August  12, 2002, by
    and among the Company and U.S. Medical Development, Inc.,
    U.S.M.D., Ltd. and U.S.M.D. I, L.L.C. Certain schedules and
    other attachments to this exhibit were omitted. We agree to
    furnish supplementally a copy of any omitted schedules or
    attachments to the Commission upon request.
|            | 2.6(5)     |  |             | Amendment No. 1 to Partnership and Limited Liability
    Company Membership Interest Purchase Agreement, dated as of
    September 30, 2002, by and among the Company, Inc. and
    U.S. Medical Development, Inc., U.S.M.D., Ltd. and
    U.S.M.D. I, L.L.C.                                                                                                                                                                     
|            | 2.7(6)     |  |             | Agreement of Purchase and Sale, dated as of April 7, 2003,
    by and among American Medical Systems, Inc., the Company and
    Timm Medical Technologies, Inc.                                                                                                                                                                                                                                                                   
|            | 2.8(7)     |  |             | Asset Purchase and Technology License Agreement, dated as of
    April 29, 2003, by and between the Company and CryoCath
    Technologies Inc.                                                                                                                                                                                                                                                                                    
|            | 2.9(8)     |  |             | Agreement of Purchase and Sale, dated as of October 15,
    2003, by and between SRS Medical Corp. and Timm Medical
    Technologies, Inc.                                                                                                                                                                                                                                                                                        
|            | 2.10(9)    |  |             | Amendment No. 2 to Partnership and Limited Liability
    Company Membership Interest Purchase Agreement, dated as of
    February 27, 2004, by and among the Company and
    U.S. Medical Development, Inc., U.S.M.D., Ltd. and
    U.S.M.D. I, L.L.C                                                                                                                                                                             
|            | 2.11(9)    |  |             | Service Fee Agreement, dated as of February 26, 2004, by
    and among the Company and the Limited Partners of Mid-America
    Cryotherapy, L.P.                                                                                                                                                                                                                                                                                  
|            | 2.12(9)    |  |             | First Amendment to Agreement of Purchase and Sale, dated as of
    March 25, 2004, by and between SRS Medical Corp. and Timm
    Medical Technologies, Inc.                                                                                                                                                                                                                                                                       
|            | 2.13(10)   |  |             | First Amendment to Asset Purchase Agreement, dated as of
    August 18, 2004, by and between the Company and Gary
    Onik, M.D.                                                                                                                                                                                                                                                                                                  
|            | 3.1(2)     |  |             | Certificate of Amendment of Restated Certificate of
    Incorporation of the Company.                                                                                                                                                                                                                                                                                                                                             
|            | 3.2(2)     |  |             | Certificate of Designation of Series A Junior Participating
    Preferred Stock of the Company.                                                                                                                                                                                                                                                                                                                                   
|            | 3.3(2)     |  |             | Restated Certificate of Incorporation.                                                                                                                                                                                                                                                                                                                                                                                            
|            | 3.4(11)    |  |             | Amended and Restated Bylaws of the Company.                                                                                                                                                                                                                                                                                                                                                                                       
|            | 10.1(12)   |  |             | Lease Agreement, dated November 26, 2001 by and between the
    Company and the Irvine Company.                                                                                                                                                                                                                                                                                                                                   
|            | 10.11(12) |  |             | Form of Indemnification Agreement by and between the Company and
    its directors.                                                                                                                                                                                                                                                                                                                                               
|            | 10.12(12) |  |             | Form of Indemnification Agreement by and between the Company and
    its executive officers.                                                                                                                                                                                                                                                                                                                                      
|            | 10.13(13) |  |             | 1995 Director Option Plan (as amended and restated through
    March 2, 1999).                                                                                                                                                                                                                                                                                                                                                    
|            | 10.14(14) |  |             | 1995 Stock Plan (as amended and restated through
    December 30, 2003).                                                                                                                                                                                                                                                                                                                                                          
|            | 10.15(15) |  |             | 2002 Supplemental Stock Plan                                                                                                                                                                                                                                                                                                                                                                                                      



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##### Table of Contents



|            |            |  |             |                                                                                                                                                              
|----------- | ---------- |  | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |            |  | Description
|            |            |  |            
|            | 10.16(4)   |  |             | Promissory Note, dated July 15, 2002, issued by
    U.S. Medical Development, Inc. to the Company.                                                           
|            | 10.17(5)   |  |             | First Amended and Restated Promissory Note, dated
    September 30, 2002, issued by U.S. Medical
    Development, Inc. to the Company.                       
|            | 10.18(16)  |  |             | Registration Rights Agreement, dated as of February 21,
    2002, by and among the Company and the parties listed on
    Schedule A thereto.                 
|            | 10.19(15)  |  |             | Registration Rights Agreement, dated as of May 28, 2002, by
    and between the Company and Cryomedical Sciences, Inc.                                       
|            | 10.20(15) |  |             | Letter Agreement, dated June 11, 1999, by and between the
    Company and Jerry Anderson.                                                                    
|            | 10.21(15)  |  |             | Blanket Purchase Agreement, effective April 1, 2002, by and
    between Timm Medical Technologies, Inc. and the
    U.S. Department of Veterans Affairs.     
|            | 10.22(15) |  |             | 2002 Executive Separation Benefits Plan.                                                                                                                     
|            | 10.23(17) |  |             | Employment Agreement, dated as of March 3, 2003, by and
    between the Company and William J. Nydam.                                                        
|            | 10.24(17) |  |             | Employment Agreement, dated as of March 25, 2003, by and
    between the Company and Katherine Greenberg.                                                    
|            | 10.25(11) |  |             | Employment Agreement, dated as of March 25, 2003, by and
    between the Company and Kevin Quilty.                                                           
|            | 10.26(11) |  |             | First Amendment to Employment Agreement, dated as of
    September 14, 2003, by and between the Company and
    Katherine Greenberg.                         
|            | 10.27(11)  |  |             | Consulting Agreement, dated as of August 27, 2003, by and
    between the Company and Craig T. Davenport.                                                    
|            | 10.28(18) |  |             | Employment Agreement, dated as of December 15, 2003, by and
    between the Company and Craig T. Davenport.                                                  
|            | 10.31(19) |  |             | Letter Agreement, dated as of June 9, 2004, by and between
    the Company and Katherine Greenberg.                                                          
|            | 10.32(20) |  |             | Employment Agreement, dated as of August 11, 2004, by and
    between the Company and Michael R. Rodriguez.                                                  
|            | 10.33(21) |  |             | General Release of All Claims, dated as of August 10, 2004,
    by and between the Company and Katherine Greenberg.                                          
|            | 10.33(22) |  |             | 2004 Stock Incentive Plan.                                                                                                                                   
|            | 10.34     |  |             | 2004 Non-Employee Director Option Program under 2004 Stock
    Incentive Plan.                                                                               
|            | 10.35     |  |             | Form of Award Agreement Under 2004 Stock Incentive Plan.                                                                                                     
|            | 10.36      |  |             | Stipulation of Settlement, dated as of November 1, 2004,
    relating to securities class action lawsuit.                                                    
|            | 10.37     |  |             | Description of Craig Davenport salary adjustment, effective
    December 2004.                                                                               
|            | 10.38      |  |             | Confidential Settlement Agreement and Release, dated as of
    December 14, 2004, by and between the Company and certain
    Underwriters at Lloyds, London.
|            | 10.39      |  |             | Release and Settlement Agreement, dated as of December 16,
    2004, by and between the Company and National Union Fire
    Insurance Company.               
|            | 10.40(23)  |  |             | Partnership Interest Purchase Agreement, dated as of
    December 30, 2004, by and between the Company and Advanced
    Medical Partners, Inc.               
|            | 21.1       |  |             | Subsidiaries of Registrant                                                                                                                                   
|            | 23.1       |  |             | Consent of Independent Registered Public Accounting Firm.                                                                                                    
|            | 24.1       |  |             | Power of Attorney, included on signature page.                                                                                                               
|            | 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.                                                              






| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| | * | We have requested confidential treatment with respect to certain
    portions of these documents.



| |   |                                                        
| | - | -------------------------------------------------------
| |  | Management contract or compensatory plan or arrangement



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##### Table of Contents





|    |                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------
|(1) | Previously filed as an exhibit to our Form 8-K filed on
    March 5, 2002.                                                        
|   
|(2) | Previously filed as an exhibit to our Registration Statement on
    Form S-3 filed on September 20, 2001 and
    October 31, 2001.
|   
|(3) | Previously filed as an exhibit to our Form 10-Q filed on
    August 14, 2002.                                                     
|   
|(4) | Previously filed as an exhibit to our Form 8-K filed on
    August 16, 2002.                                                      
|   
|(5) | Previously filed as an exhibit to our Form 8-K filed on
    October 15, 2002.                                                     
|   
|(6) | Previously filed as an exhibit to our Form 8-K filed on
    April 22, 2003.                                                       
|   
|(7) | Previously filed as an exhibit to our Form 8-K filed on
    April 29, 2003.                                                       
|   
|(8) | Previously filed as an exhibit to our Form 8-K filed on
    October 20, 2003.                                                     
|   
|(9) | Previously filed as an exhibit to our Form 10-Q filed on
    May 10, 2004.                                                        



|     |                                                                                                    
|---- | ---------------------------------------------------------------------------------------------------
|(10) | Previously filed as an exhibit to our Form 10-Q filed on
    November 9, 2004.                     
|    
|(11) | Previously filed as an exhibit to our Form 10-K filed on
    March 15, 2004.                       
|    
|(12) | Previously filed as an exhibit to our Form 10-K filed on
    March 29, 2002.                       
|    
|(13) | Previously filed as an exhibit to our Registration Statement on
    Form S-8 filed on June 2, 1999.
|    
|(14) | Previously filed as an appendix to our Definitive Proxy
    Statement filed on December 3, 2003.   
|    
|(15) | Previously filed as an exhibit to our Form 10-K filed on
    December 3, 2003.                     
|    
|(16) | Previously filed as an exhibit to our Registration Statement on
    Form S-3 filed on May 15, 2002.
|    
|(17) | Previously filed as an exhibit to our Form 8-K filed on
    March 27, 2003.                        
|    
|(18) | Previously filed as an exhibit to our Form 8-K filed on
    December 16, 2003.                     
|    
|(19) | Previously filed as an exhibit to our Form 10-Q filed on
    August 9, 2004.                       
|    
|(20) | Previously filed as an exhibit to our Form 8-K filed on
    August 12, 2004.                       
|    
|(21) | Previously filed as an exhibit to our Form 8-K filed on
    September 1, 2004.                     
|    
|(22) | Previously filed as an appendix to our Definitive Proxy
    Statement filed on August 6, 2004.     
|    
|(23) | Previously filed as an exhibit to our Form 8-K filed on
    January 6, 2005.