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  **UNITED STATES SECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549****Form 10-Q/A****(Amendment No. 1)**   (Mark One)  þ     **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE    SECURITIES EXCHANGE ACT OF 1934**   **FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005** **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: 001-15063****Endocare, Inc.***(Exact name of Registrant as Specified in Its Charter)*   **DELAWARE** **33-0618093***(State of Incorporation)* *(I.R.S. Employer I.D. No.)***201 TECHNOLOGY DRIVE, IRVINE, CALIFORNIA 92618***(Address of Principal Executive Office, Including ZipCode)***(949) 450-5400***(Registrant’s Telephone Number, Including Area Code)*    Indicate by check mark whether the Registrant (1) has filedall reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrantwas required to file such reports), and (2) has beensubject to such filing requirements for the past90 days.     (1) Yes þ          No o;          (2) Yes þ          No o     Indicate by check mark whether the registrant is an acceleratedfiler (as defined in Rule 12b-2 of the ExchangeAct).     Yes þ          No o     The number of shares of the Registrant’s common stock, parvalue $.001 per share, outstanding at July 20, 2005was 30,059,977.  

**Endocare, Inc.****INDEX**       ** Explanatory Note**  3  ** Part I. Financial    Information**     Item 1.      Condensed Consolidated Financial Statements    (Unaudited)  4        Condensed Consolidated Statements of    Operations — Three and six months ended June 30,    2005 and 2004  4        Condensed Consolidated Balance    Sheets — June 30, 2005 and December 31,    2004  5        Condensed Consolidated Statements of Cash    Flows — Six months ended June 30, 2005 and    2004  6        Notes to Condensed Consolidated Financial    Statements  7      Item 2.      Management’s Discussion and Analysis    of Financial Condition and Results of Operations  16      Item 4.      Controls and Procedures  24  ** Part II. Other    Information**     Item 6.      Exhibits  25 ** Signatures**  28  EXHIBIT 31.1 EXHIBIT 31.2 EXHIBIT 32.1 EXHIBIT 32.2
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EXPLANATORY NOTE     This amendment no. 1 on Form 10-Q/A amends our quarterlyreport on Form 10-Q for the quarter ended June 30,2005, which was originally filed with the SEC on August 9,2005. The purpose of this amendment no. 1 is to revise the itemsset forth below based on comments received from the SEC staff inconnection with the SEC staff’s review of a registrationstatement on Form S-2 that we originally filed onApril 5, 2005 and subsequently amended. Except as otherwiseexpressly stated, this amendment no. 1 does not reflect anyevents occurring after the filing of the originalForm 10-Q, nor does it modify or update in any way thedisclosures contained in the original Form 10-Q filing.This amendment no. 1 continues to speak as of the date of theoriginal Form 10-Q filing, except that we have included asexhibits updated certifications from our chief executive officerand chief financial officer, as exhibits 31.1, 31.2, 32.1and 32.2, respectively. This amendment no. 1 should be readin conjunction with our filings made with the SEC subsequent tothe date of the original Form 10-Q filing, including anyamendments to those filings.
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**PART I — FINANCIAL INFORMATION****Item 1.*****Condensed Consolidated Financial Statements*****ENDOCARE, INC. AND SUBSIDIARIES****CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**                    **Three Months Ended** **Six Months Ended**  **June 30,** **June 30,**       **2005** **2004** **2005** **2004**           **(Restated)**   **(Restated)**    **(Unaudited)**  **(In thousands, except per share data)**    Total revenues $9,078  $8,312  $18,205  $15,694     Costs and expenses:                     Cost of revenues  4,580   4,313   9,647   8,547      Research and development  585   452   906   988      Selling and marketing  4,167   5,014   8,195   9,527      General and administrative  3,661   4,075   7,921   10,742      Impairment charge  —   —   (583)  —                  Total costs and expenses  12,993   13,854   26,086   29,804                  Loss from operations  (3,915)  (5,542)  (7,881)  (14,110)    Interest income (expense), net  (282)  77   (822)  122                  Loss before minority interests  (4,197)  (5,465)  (8,703)  (13,988)    Minority interests  —   (155)  —   (255)                 Net loss $(4,197) $(5,620) $(8,703) $(14,243)                 Net loss per share — basic and diluted $(0.14) $(0.23) $(0.30) $(0.59)    Weighted average shares of common stock outstanding  30,044   24,000   28,969   24,095 The accompanying notes are an integral part of these condensedconsolidated financial statements.
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**ENDOCARE, INC. AND SUBSIDIARIES****CONDENSED CONSOLIDATED BALANCE SHEETS**             **June 30,** **December 31,**  **2005** **2004**       **(Unaudited)**    **(Restated)**    **(In thousands, except per**  **share data)****ASSETS**    Current assets:             Cash and cash equivalents $12,720  $7,985      Accounts receivable, net  3,925   3,904      Inventories, net  3,754   3,175      Prepaid expenses and other current assets  1,379   1,651              Total current assets  21,778   16,715      Property and equipment, net  2,245   3,139      Goodwill  4,552   4,552      Intangibles, net  7,983   8,560      Investments and other assets  1,039   1,409              Total assets $37,597  $34,375         **LIABILITIES AND STOCKHOLDERS’ EQUITY**    Current liabilities:             Accounts payable $2,628  $2,636      Accrued compensation  2,783   3,708      Other accrued liabilities  7,620   10,391              Total current liabilities  13,031   16,735     Common stock warrants  6,785   —              Total liabilities  19,816   16,735            Minority interests  —   214     Stockholders’ equity:             Preferred stock, $.001 par value; 1,000 shares    authorized; none issued and outstanding  —   —      Common stock, $.001 par value; 50,000 shares    authorized; 30,060 and 24,342 issued and outstanding as of    June 30, 2005 and December 31, 2004, respectively  30   24     Additional paid-in capital  178,452   169,400     Accumulated deficit  (160,701)  (151,998)            Total stockholders’ equity  17,781   17,426             Total liabilities and stockholders’ equity $37,597  $34,375        The accompanying notes are an integral part of these condensedconsolidated balance sheets.
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**ENDOCARE, INC. AND SUBSIDIARIES****CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**            **Six Months Ended**  **June 30,**     **2005** **2004**       **(Restated)**    **(Unaudited)**  **(In thousands)**    Cash flows from operating activities:            Net loss $(8,703) $(14,243)    Adjustments to reconcile net loss to net cash used in operating    activities:             Depreciation and amortization  1,804   1,971      Loss on disposals of fixed assets  12   13      Compensation expense related to issuance of options and warrants  45   14      Costs related to assets held for sale  (583)  —      Minority interests  (214)  255      Interest expense related to common stock warrants  1,105   —     Changes in operating assets and liabilities:             Accounts receivable  (21)  110      Inventories  (834)  (1,953)     Prepaid expenses and other current assets  (234)  (1,208)     Accounts payable  (8)  551      Accrued compensation  (925)  (484)     Other accrued liabilities  (2,090)  630             Net cash used in operating activities  (10,646)  (14,344)           Cash flows from investing activities:             Sales of property and equipment  —   220      Purchases of property and equipment  (162)  (398)     Proceeds from divestitures  850   2,500      Partnership distributions to minority interests  —   (383)     Decrease in other assets  —   270             Net cash provided by investing activities  688   2,209            Cash flows from financing activities:             Stock options and warrants exercised  108   32      Proceeds from sale of common stock and warrants, net of issuance    costs  14,585   —      Treasury stock received in settlement  —   (504)            Net cash provided by (used in) financing activities  14,693   (472)            Net increase (decrease) in cash and cash equivalents  4,735   (12,607)            Cash and cash equivalents, beginning of period  7,985   23,977             Cash and cash equivalents, end of period $12,720  $11,370            Non-cash activities:             Transfer of inventory to property and equipment $254  $236      Retirement of treasury shares held  —   2,596      Deferred compensation on options forfeited  —   94 The accompanying notes are an integral part of these condensedconsolidated financial statements.
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**ENDOCARE, INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS****(Tabular numbers in thousands, except per share data)****(Unaudited)****1.****Organization and Operations of the Company**     Endocare, Inc. (“Endocare”) is a medical devicecompany focused on developing, manufacturing and sellingcryoablation products with the potential to improve thetreatment of cancer and other tumors. In addition, we offervacuum therapy systems for non-pharmaceutical treatment oferectile dysfunction. Endocare was formed in 1990 as a researchand development division of Medstone International, Inc.(“Medstone”), a manufacturer of shockwave lithotripsyequipment for the treatment of kidney stones. Following itsincorporation under the laws of the state of Delaware in 1994,Endocare became an independent, publicly-owned corporation uponMedstone’s distribution of Endocare’s stock to theexisting stockholders on January 1, 1996.**2. ****Restatement of Unaudited Condensed Consolidated Financial    Statements as of and for the three and six months ended    June 30, 2005**     In order to correct the financial statements so that they complywith U.S. generally accepted accounting principles (inparticular, EITF 00-19, *Accounting for Derivative FinancialInstruments Indexed To, and Potentially Settled In, aCompany’s Own Stock*), our Unaudited CondensedConsolidated Statements of Operations, Unaudited CondensedConsolidated Balance Sheet and Unaudited Condensed ConsolidatedStatements of Cash Flows as of and for the three and six monthsended June 30, 2005 have been restated to reflect areclassification from equity to non-current liability of thewarrants that we issued in March 2005, and to reflect interestexpense to represent the change in the fair value of thewarrants during the respective periods, as described below inNote 5. As a result of this correction, our net loss forthe three and six months ended June 30, 2005 increased from$3.7 million to $4.2 million and from$7.6 million to $8.7 million, respectively, and ournet loss per share increased from $0.12 to $0.14 and from $0.26to $0.30, respectively.**3. ****Basis of Presentation**     Following the rules and regulations of the Securities andExchange Commission (the “SEC”) we have omittedfootnote disclosures in this report that would substantiallyduplicate the disclosures contained in our annual auditedfinancial statements. The accompanying condensed consolidatedfinancial statements should be read together with theconsolidated financial statements and the notes thereto includedin our December 31, 2004 Annual Report on Form 10-K,filed with the SEC on March 16, 2005.     The accompanying condensed consolidated financial statementsreflect all adjustments, consisting solely of normal recurringaccruals, needed to present fairly the financial results forthese interim periods. The condensed consolidated results ofoperations presented for the interim periods are not necessarilyindicative of the results for a full year. All intercompanytransactions and accounts have been eliminated in consolidation.**4. ****Changes to Plan of Sale — Timm Medical**     In July 2004, we began actively marketing Timm MedicalTechnologies, Inc. (Timm Medical), our wholly-owned subsidiary,and our equity interests in the mobile prostate treatmentbusinesses (collectively the Disposal Group) to potential buyersas part of an overall plan to raise additional capital. Inaccordance with SFAS No. 144, *Accounting for theImpairment or Disposal of Long-Lived Assets*, the assets andliabilities of the Disposal Group were classified as assets heldfor sale as of that date. In connection with the potential sale,we reduced the carrying value of these assets and liabilities tofair value less estimated cost to sell and suspendeddepreciation of fixed assets and amortization of intangibles asof July 31, 2004.
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**ENDOCARE, INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**As a result, we recorded an impairment charge of$15.8 million in the third quarter of 2004, of which$5.9 million related to the write-down of goodwill anddeveloped technology at Timm Medical.     We completed the sale of the mobile treatment businesses inDecember 2004. By the end of March 2005, we had not found asuitable buyer for Timm Medical. With the successful completionof a private placement of our common stock in March 2005 (seeNote 5) in which we raised $14.6 million in newcapital, we determined that we would no longer seek a buyer andceased all marketing efforts in April 2005. In accordance withSFAS No. 144, we measured Timm Medical’s assetsand liabilities individually at the (a) lower of itscarrying amount before they were classified as “held forsale,” adjusted for any depreciation(amortization) expense or impairment losses that would havebeen recognized had the net asset group been continuouslyclassified as held and used or (b) fair value atMarch 31, 2005. Based on this review, we recorded$0.4 million in depreciation of fixed assets andamortization of intangibles for the period from July 31,2004 to March 31, 2005 (included in general andadministrative expenses). We also recorded income of$0.6 million as a result of the elimination of theestimated costs to sell, which were previously reported as acomponent of the impairment charge. The condensed consolidatedbalance sheet at December 31, 2004 has been reclassified toreflect the Timm Medical assets and liabilities as held and used.     As of June 30, 2005, we retained three mobile treatmentbusinesses, all of which are inactive and are being dissolved.These residual interests are not significant and are accountedfor on the equity method.**5. ****Private Placement of Common Stock and Warrants**     On March 11, 2005, we completed a private placement of5,635,378 shares of our common stock and detachablewarrants to purchase 3,944,748 common shares at an offeringprice of $2.77 per share, for aggregate gross proceeds of$15.6 million. Transaction costs were $1.0 million,resulting in net proceeds of $14.6 million. 1,972,374 ofthe warrants have an initial exercise price of $3.50(Series A warrants) per share and 1,972,374 warrants havean initial exercise price of $4.00 (Series B warrants) pershare. We believe that the proceeds of this offering willprovide us with the means to eventually improve our business toa positive cash flow status.     The warrants initially are exercisable at any time during thenext five years for cash only. The warrants may be exercised ona cashless exercise basis in limited circumstances after thefirst anniversary of the closing date if there is not aneffective registration statement covering the resale of theshares underlying the warrants. Each warrant is callable byEndocare at a price of $0.01 per share underlying suchwarrant if Endocare’s stock trades above certain dollarthresholds ($6.50 for the Series A warrants and $7.50 forSeries B warrants) for 20 consecutive days commencing onany date after the effectiveness of the registration statement,provided that (a) we provide 30-day advanced written notice(Notice Period), (b) we simultaneously call all warrants onthe same terms and (c) all common shares issuable areregistered. Holders may exercise their warrants during theNotice Period and warrants which remain unexercised will beredeemed at $0.01 per share.     Upon exercise, we will pay transaction fees equal to 6% of thewarrant proceeds under an existing capital advisory agreement.     Pursuant to the terms of the registration rights agreement, wefiled with the SEC a registration statement on Form S-2under the Securities Act of 1933, as amended, on April 4,2005 covering the resale of all of the common stock purchasedand the common stock underlying the issued warrants. Suchregistration statement has not yet been declared effective.     The registration rights agreement further provides that if aregistration statement is not filed within 30 days ofclosing or does not become effective within 90 daysthereafter, then in addition to any other rights the holders mayhave, we will be required to pay each holder an amount in cash,as liquidated
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**ENDOCARE, INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**damages, equal to 1% per month of the aggregate purchaseprice paid by such holder. As of June 30, 2005 we haveincurred $109,000 of liquidated damages, which have beenincluded in general and administrative expenses.     In order to correct the financial statements so that they complywith U.S. generally accepted accounting principles, we haverestated the Unaudited Condensed Consolidated Balance Sheet asof June 30, 2005 to reclassify the warrants fromstockholders’ equity to non-current liabilities to reflectthe fact that the registration rights agreement into which weentered in connection with our issuance of the warrants requiresus to pay liquidated damages, which in some cases could exceed areasonable discount for delivering unregistered shares and thuswould require the warrants to be classified as a liability untilthe earlier of the date the warrants are exercised or expire.The restatement reduced stockholders’ equity atJune 30, 2005 by $6.8 million and increased interestexpense and net loss for the three and six months endedJune 30, 2005 by $0.5 million and $1.1 million,respectively. Additionally, net loss per share increased by$0.02 and $0.04 for the three and six months ended June 30,2005, respectively. In accordance with EITF 00-19, *Accountingfor Derivative Financial Instruments Indexed To, and PotentiallySettled In, a Company’s Own Stock,*we have allocated aportion of the offering proceeds to the warrants based on theirfair value. EITF 00-19 also requires that we revalue thewarrants as a derivative instrument periodically to compute thevalue in connection with changes in the underlying stock priceand other assumptions, with the change in value recorded asinterest expense or interest income. We determined the fairvalue of the warrants as follows as of June 30, 2005: •     First, we used the Black-Scholes option-pricing model with the    following assumptions: an expected life equal to the remaining    contractual term of the warrants (4.75 years); no dividends; a    risk free rate of 3.71%, which equals the yield on Treasury    bonds at constant (or fixed) maturity equal to the remaining    contractual term of the warrants; and volatility of 88.6%. Under    these assumptions, the Black-Scholes option-pricing model    yielded a value of $2.86 for each of the Series A warrants    and $2.78 for each of the Series B warrants, for an    aggregate value of $11.1 million;  •     Second, since the warrants are limited in the amount of    realizable profit to the holders as a result of the call    provision described above, we reduced the value of the warrants    to account for the probability that the stock price will reach    or exceed $6.50 and $7.50, respectively (*i.e.,*the prices    above which we have the right to call the Series A and    Series B warrants, effectively compelling the holders to    exercise their warrants). We used a statistical formula to    calculate the probability that our stock price will reach or    exceed $6.50 and $7.50, respectively. Based on this formula, we    calculated that, for the Series A warrants, the probability    that the stock price of $6.50 will be reached or exceeded is    approximately 37.3%. Similarly, we calculated that, for the    Series B warrants, the probability that the stock price of    $7.50 will be reached or exceeded is approximately 32.5%. Based    on these probabilities, we reduced the valuation of each of the    Series A warrants to $1.79 (which equals one minus 37.3%,    multiplied by $2.86) and we reduced the valuation of each of the    Series B warrants to $1.87 (which equals one minus 32.5%,    multiplied by $2.78). This yields an aggregate value of the    warrants equal to $7.2 million; and  •     Third, we further reduced the value of the warrants on the    assumption that our stock price on the day that the warrants are    exercised will be affected by dilution as a result of the    additional stock introduced into the market. Given that we have    approximately 30 million shares outstanding, we calculated    that the exercise of the warrants will result in dilution of    approximately 6%. Using the dilution figure of 6%, we reduced    the value of each of the Series A warrants to $1.68 and the    Series B warrants to $1.76. This yields an aggregate value    of the warrants equal to $6.8 million.     As a result of this fair value calculation, we recorded interestexpense of $0.5 million for the three months endedJune 30, 2005, which represents the change in the fairvalue of the warrants from March 31, 2005. This change wasprimarily due to an increase in the fair value of the underlyingcommon
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**ENDOCARE, INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**stock from $3.49 as of March 31, 2005 to $4.00 as ofJune 30, 2005. Total interest expense related to thewarrant valuation was $1.1 million for the six months endedJune 30, 2005.     Upon the earlier of the warrant exercise or expiration date, thewarrant liability will be reclassified into stockholders’equity. Until that time, the warrant liability will be recordedat fair value based on the methodology described above. Changesin fair value during each period will be recorded as interestincome or interest expense. Liquidated damages under theregistration rights agreement are expensed as incurred.     Two members of our management team made personal investmentstotaling $0.7 million in the aggregate, and a member of ourboard of directors invested $0.3 million.**6. ****Net Loss Per Share**     Basic net loss per share is computed by dividing net loss by theweighted average number of common shares outstanding for therespective periods. Diluted loss per share, calculated using thetreasury stock method, gives effect to the potential dilutionthat could occur upon the exercise of certain stock options andwarrants that were outstanding during the respective periodspresented. For periods when we reported a net loss, thesepotentially dilutive common shares were excluded from thediluted loss per share calculation because they wereanti-dilutive.**7. ****Stock-Based Compensation**     We have elected to follow Accounting Principles Board(APB) Opinion No. 25, *Accounting for Stock Issuedto Employees*, and related interpretations in accounting forour employee stock options. Under APB 25, if the exerciseprice of the employee and director stock options is less thanthe estimated fair value of the underlying stock on the date ofgrant, we record deferred compensation for the difference.     Option or stock awards issued to non-employees are recorded attheir fair value as determined by the Black-Scholesoption-pricing model in accordance with Emerging Issues TaskForce (EITF) 96-18, *Accounting for Equity InstrumentsThat Are Issued to Other Than Employees for Acquiring, or inConjunction with Selling, Goods and Services.* Such awardsare periodically revalued as the options vest and are recognizedas expense over the related service period or as performancegoals are achieved.     Pro forma information regarding our net loss is required bySFAS 123, as amended by SFAS No. 148,*Accounting for Stock-Based Compensation —Transition and Disclosure*, and has been determined as if wehad accounted for our employee stock options under the fairvalue method of SFAS 123, as amended by SFAS 148. Thepro forma effects of stock-based compensation on net loss andnet loss per share have been estimated at the date of grantusing the Black-Scholes option-pricing model.
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**ENDOCARE, INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**     The following table illustrates the effect on net losses if wehad applied the fair value recognition provisions ofSFAS 123 to stock-based compensation:                     **Three Months Ended** **Six Months Ended**  **June 30,** **June 30,**       **2005** **2004** **2005** **2004**           **(Restated)**   **(Restated)**      Net loss, as reported $(4,197) $(5,620) $(8,703) $(14,243)    Reconciling items:                     Add: Stock-based employee compensation expense determined under    the intrinsic-value-based method for all awards  —   4   —   13      Less: Stock-based compensation expense determined under the    fair-value-based method for all awards expense  (919)  (759)  (1,820)  (1,356)                 Net adjustment  (919)  (755)  (1,820)  (1,343)                 Net loss, as adjusted $(5,116) $(6,375) $(10,523) $(15,586)                 Basic and diluted loss per share:                      As reported $(0.14) $(0.23) $(0.30) $(0.59)                   As adjusted $(0.17) $(0.27) $(0.36) $(0.65)                  In December 2004, SFAS No. 123R, *Share-BasedPayment*, was issued (SFAS 123R). SFAS 123R is arevision of SFAS No. 123, *Accounting for StockBased Compensation*, and supersedes APB 25. Among otheritems, SFAS 123R eliminates the use of APB 25 and theintrinsic value method of accounting, and requires companies torecognize the cost of employee services received in exchange forawards of equity instruments, based on the grant date fair valueof those awards, in the financial statements. We are required toadopt SFAS 123R effective January 1, 2006.SFAS 123R permits companies to adopt its requirements usingeither a “modified prospective” method, or a“modified retrospective” method. Under the“modified prospective” method, compensation cost isrecognized in the financial statements beginning with theeffective date, based on the requirements of SFAS 123R forall share-based payments granted after that date, and based onthe requirements of SFAS 123 for all unvested awardsgranted prior to the effective date of SFAS 123R. Under the“modified retrospective” method, the requirements arethe same as under the “modified prospective” method,but also permits entities to restate financial statements ofprevious periods based on proforma disclosures made inaccordance with SFAS 123.     We currently use the Black-Scholes standard option pricing modelto measure the fair value of stock options granted to employees.While SFAS 123R permits us to continue to use such a model,the standard also permits the use of a “lattice”model. We have not yet determined which model we will use tomeasure the fair value of employee stock options upon theadoption of SFAS 123R.     SFAS 123R also requires that the benefits associated withthe tax deductions in excess of recognized compensation cost bereported as a financing cash flow, rather than as an operatingcash flow as required under current literature. This requirementwill reduce net operating cash flows and increase net financingcash flows in periods after the effective date. These futureamounts cannot be estimated, because they depend on, among otherthings, when employees exercise stock options. Also, we have notrecognized the benefits for excess tax deductions in ouroperating cash flows in prior periods due to the uncertainty ofwhen we will generate taxable income to realize such benefits.
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**ENDOCARE, INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**     We currently expect to adopt SFAS 123R effectiveJanuary 1, 2006; however, we have not yet determined whichof the aforementioned adoption methods we will use. The adoptionof SFAS 123R’s fair value method will have asignificant impact on our results of operations, although itwill have no impact on our overall financial position and cashflows. The impact of adoption of SFAS 123R cannot bepredicted at this time because it will depend on levels ofshare-based payments granted in the future. However, had weadopted SFAS 123R in prior periods, the impact of thatstandard would have approximated the impact of SFAS 123R asdescribed in the disclosure of pro forma net loss and loss pershare in the table above.**8. ****Inventories**     Inventories, consisting of raw materials, work-in-process andfinished goods, are stated at the lower of cost or market, withcost determined by the first-in, first-out method. Reserves forslow-moving and obsolete inventories are provided based onhistorical experience and product demand. We evaluate theadequacy of these reserves periodically.     The following is a summary of inventories:            **June 30,** **December 31,**  **2005** **2004**         Raw materials $1,981  $1,727     Work in process  390   446     Finished goods  1,939   1,560             Total inventories  4,310   3,733     Less inventory reserve  (556)  (558)            Inventories, net $3,754  $3,175        **9. ****Commitments and Contingencies*****Legal Matters***     In November 2002, we were named as a defendant, together withcertain former officers, one of whom is also a former boardmember, in a class-action lawsuit filed in the United StatesDistrict Court for the Central District of California. OnFebruary 2, 2003, the court issued an order consolidatingthis action with various other similar complaints and orderingplaintiffs to file a consolidated complaint, which was filed onOctober 31, 2003. The consolidated complaint asserted twoclaims for relief, alleging that the defendants violatedsections of the Securities Exchange Act of 1934 by purportedlyissuing false and misleading statements regarding our revenuesand expenses in press releases and SEC filings. Plaintiffssought class certification and unspecified damages from us, aswell as forfeiture and reimbursement of bonus compensationreceived by two of the individual defendants. On April 26,2004, the court issued an order denying our motion to dismissthe consolidated complaint. On November 8, 2004, weexecuted a settlement agreement with the lead plaintiffs andtheir counsel. Under the agreement, in exchange for a release ofall claims, certain individuals and we agreed to pay a total of$8.95 million in cash. Our directors and officers’liability insurance carriers funded the total amount of$8.95 million prior to December 31, 2004, subject toreservations of rights by the carriers. On February 7,2005, the Court issued a final order approving the agreement anddismissing the class-action lawsuit.     Of the $8.95 million settlement referred to above, ourprimary insurance carrier funded $1.25 million, our firstexcess insurance carrier funded $5 million and our secondexcess insurance carrier funded $2.7 million. As a resultof the insurance settlements disclosed in the current reports onForm  8-K that we filed on December 20, 2004 andFebruary 25, 2005, the amounts funded by our primaryinsurance carrier ($1.25 million) and our second excessinsurance carrier ($2.7 million) no longer are subject to
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**ENDOCARE, INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**reservations of rights. However, as disclosed in theForm 8-K filings, we remain in arbitration with the firstexcess insurance carrier. Therefore, the amount funded by ourfirst excess insurance carrier ($5 million) remains subjectto reservations of rights. If the first excess insurance carrierwere to prevail in its rescission claim, then we would berequired to repay $5 million to the first excess insurancecarrier.     On December 6, 2002, Frederick Venables filed a purportedderivative action against us and certain former officers,certain former board members and one current board member in theCalifornia Superior Court for the County of Orange allegingbreach of fiduciary duty, abuse of control, gross mismanagement,waste of corporate assets and unjust enrichment. Pursuant to astipulation filed on or about April 23, 2004 and approvedby the court, the deadline to respond to the complaint wasstayed until 2005. The complaint sought unspecified monetarydamages, equitable relief and injunctive relief based uponallegations that the defendants issued false and misleadingstatements regarding our revenues and expenses in press releasesand SEC filings. On December 6, 2004, we executed asettlement agreement with the plaintiff and his counsel. OnDecember 8, 2004, the Court issued a final order approvingthe agreement and dismissing the derivative lawsuit. Under theagreement, in exchange for the plaintiff’s release of allclaims, we paid a total of $0.5 million in cash prior toDecember 31, 2004 to cover the fees and expenses of theplaintiff’s counsel. The agreement also requires us tomaintain various corporate governance measures for a period ofat least two years, unless a modification is necessary in thegood faith business judgment of our Board of Directors.     The corporate governance measures include new signatureauthorization and approval policy and procedures, new salesorder processing and invoicing procedures, new contractsapproval and management policies and procedures, new creditpolicies, new purchasing controls, new policies and proceduresfor cash management, collections and disbursements, new policyfor recognition and recording of revenues and expenses, employeeattestations, employee training, creation of risk oversightcommittee, updated employee handbook, expanded corporatecompliance program, whistleblower hotline and upgradedaccounting and finance department.     We have been in settlement discussions with the staff of the SECregarding the terms of a settlement of the previously announcedinvestigation commenced by the SEC in January 2003 related toallegations that we and certain of our current and formerofficials and directors issued, or caused to be issued, falseand misleading financial statements in prior periods. Theproposed settlement which has been agreed upon by the staff andremains subject both to final approval by the SEC and courtapproval, includes the following principal terms: (i) wewould pay a total of $750,001, consisting of $1 in disgorgementand $750,000 in civil penalties (which has been accrued as ofDecember 31, 2004); (ii) we would agree to astipulated judgment enjoining future violations of securitieslaws; and (iii) we would agree to maintain variousimprovements in our internal controls that have previously beenimplemented. If approved, the proposed settlement would resolveall claims against us relating to the formal investigation thatthe SEC commenced in January 2003.     As previously announced, the Department of Justice (DOJ) isconducting an investigation into allegations that we and certainof our former officers, a former director and one currentemployee intentionally issued, or caused to be issued, false andmisleading statements regarding our financial results andrelated matters. The DOJ’s investigation is ongoing and isnot affected by the proposed settlement with the SEC describedabove.     In addition, we are, in the normal course of business, subjectto various other legal matters, which we believe will notindividually or collectively have a material adverse effect onour consolidated financial condition, results of operations orcash flows. However, the results of litigation and claims cannotbe predicted with certainty, and we cannot provide assurancethat the outcome of various legal matters will not have amaterial adverse effect on our consolidated financial condition,results of operations or cash flows. As of June 30, 2005,except for the matters indicated above for which we have accrued$2.2 million
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**ENDOCARE, INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**(of which $750,001 relates to the proposed settlement with theSEC and the balance of which relates to the directors’ andofficers’ liability insurance matters referred to above),we have not established a liability for contingencies in theconsolidated balance sheets since the likelihood of loss and thepotential liability cannot be reasonably estimated at this time.Management’s evaluation of the likelihood of an unfavorableoutcome with respect to these actions could change in thefuture. Our directors’ and officers’ liability andother insurance may fund certain losses, including defensecosts, related to the above litigation matters. These recoverieswill be recorded when the amounts are determined to berecoverable from the insurance carriers.     From time to time, we have received correspondence alleginginfringement of proprietary rights of third parties. Noassurance can be given that any relevant claims of third partieswould not be upheld as valid and enforceable, and therefore wecould be prevented from practicing the subject matter claimed orwould be required to obtain licenses from the owners of any suchproprietary rights to avoid infringement. We do not expect anymaterial adverse effect on our consolidated financial condition,results of operations, or cash flows because of such claims.**10. ****Income Taxes**     We reported no income tax expense for each of the six monthsended June 30, 2005 and 2004 due to our operating losses.The continuing operating losses resulted in an increase in thevaluation allowance of $3.0 million and $5.7 millionduring the six months ended June 30, 2005 and 2004,respectively. Due to our history of operating losses, managementhas determined that it is more likely than not that our deferredtax assets will not be realized through future earnings.Accordingly, valuation allowances were recorded to fully reservethe deferred tax assets as of June 30, 2005 and 2004.**11. ****Results of Operations**     Revenues and cost of revenues related to the following productsand services for the periods ended June 30, 2005 are asfollows:                    **Three Months Ended** **Six Months Ended**  **June 30,** **June 30,**       **2005** **2004** **2005** **2004**             Revenues:                     Cryocare Surgical Systems $120  $121  $263  $248      Cryoablation disposable products and procedure fees  6,557   5,948   13,046   11,009      Cardiac royalties (CryoCath)  230   162   441   293      Erectile dysfunction products (Timm Medical)  2,171   2,081   4,455   4,144                $9,078  $8,312  $18,205  $15,694     Cost of Revenues:                     Cryocare Surgical Systems $158  $38  $315  $82      Cryoablation disposable products and procedure fees  3,765   3,240   7,795   6,526      Cardiac royalties (CryoCath)  —   —   —   —      Erectile dysfunction products (Timm Medical)  657   1,035   1,537   1,939                $4,580  $4,313  $9,647  $8,547              
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**ENDOCARE, INC.****NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**     Revenues from the sales of cryoablation disposable products andcryoablation procedure fees are comprised of the following forthe periods ended June 30, 2005 and 2004:                   **Three Months Ended** **Six Months Ended**  **June 30,** **June 30,**       **2005** **2004** **2005** **2004**             Disposable products $1,689  $1,302  $2,809  $2,689     Procedure fees  4,868   4,646   10,237   8,320                $6,557  $5,948  $13,046  $11,009                   Cost of revenues for cryoablation disposable product sales andprocedure fees are combined for reporting purposes. Sales ofcryoablation disposable products and procedure fees bothincorporate similar inventory when sold and the Company does notseparately track the cost of disposals sold directly tocustomers and those consumed in cryoablation procedures.Cryoablation procedure services are provided to medicalfacilities upon request to facilitate the overall delivery ofour technology into the marketplace.**12. ****Recent Accounting Pronouncements**     In May 2005, the Financial Accounting Standards Board(FASB) issued Statement No. 154(SFAS No. 154), *Accounting Changes and ErrorCorrections*, which replaced APB Opinion No. 20,*Accounting Changes*, and FASB Statement No. 3,*Reporting Changes in Interim Financial Statements*.SFAS No. 154 requires retrospective application toprior periods’ financial statements of voluntary changes inaccounting principles and changes required by a new accountingstandard when the standard does not include specific transitionprovisions. Previous guidance required most voluntary changes inaccounting principle to be recognized by including in net incomeof the period in which the change was made the cumulative effectof changing to the new accounting principle.SFAS No. 154 carries forward existing guidanceregarding the reporting of the correction of an error and achange in accounting estimate. SFAS No. 154 iseffective for accounting changes and corrections of errors madein fiscal years beginning after December 15, 2005. Adoptionof SFAS No. 154 as of January 1, 2006 is notexpected to have a material effect on our consolidated financialposition or results of operations.     Other recent accounting pronouncements issued by the FASB(including its Emerging Issues Task Force), the AICPA, and theSEC did not, or are not believed by management to, have amaterial impact on our present or future consolidated financialstatements.
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**Item 2.*****Management’s Discussion and Analysis of Financial    Condition and Results of Operations***     *The following discussion and analysis should be read inconjunction with the unaudited condensed consolidated financialstatements and notes thereto included in Part I —Item 1 of this report, and the audited consolidatedfinancial statements and notes thereto, and Management’sDiscussion and Analysis of Financial Condition and Results ofOperations contained in the Annual Report on Form 10-K forthe fiscal year ended December 31, 2004, as amended.*     *This discussion contains forward-looking statements based onour current expectations. There are various factors —many beyond our control — that could cause our actualresults or the occurrence or timing of expected events to differmaterially from those anticipated in these forward-lookingstatements. Some of these factors are described below and otherfactors are described elsewhere in this Quarterly Report onForm 10-Q or in our Annual Report on Form 10-Kreferred to above. In addition, there are factors not describedin this Quarterly Report on Form 10-Q or in our AnnualReport on Form 10-K that could cause our actual results orthe occurrence or timing of expected events to differ materiallyfrom those anticipated in these forward-looking statements. Allforward-looking statements included in this Quarterly Report onForm 10-Q are based on information available to us as ofthe date hereof, and we assume no obligation to update any suchforward-looking statements.***Strategy, Key Metrics and Developments**     Our goal is to achieve a leading position in the prostate andrenal cancer markets, and further develop and increase theacceptance of our technology in the interventional radiology andoncology markets for treatment of liver and lung cancers andmanagement of pain from bone metastases. At the same time, weseek to achieve penetration across additional markets with ourproprietary cryoablation technology, while maintaining ourdominant position in vacuum technology for erectile dysfunction.     Our primary objective for our cryoablation business is to growmarket share, measured in terms of the number of proceduresperformed with our Cryocare Surgical System, which we calculateusing two primary components. The first component is that weinclude the actual number of cryoablation cases for which weperform the service element on behalf of the healthcarefacility. In the second, we compute a procedure case equivalentbased on sales of our cryoablation disposable products by usingthe expected disposable product usage for those sales.Accordingly, procedure growth is an important metric to which werefer in order to measure the success of our strategy. In thepast several years, we have been successful in increasing thenumber of procedures on a year-over-year basis. Most recently,in 2004 procedures increased 34.5 percent to 4,713 from3,504 in 2003. In 2005, our objective is to increase the numberof procedures at a significant rate which is comparable togrowth rates we have achieved historically.     In addition to being a key business metric, procedure growth isan important driver of revenue growth, because a significantpercentage of our revenues consists of sales of the disposableproducts used in procedures performed with the Cryocare SurgicalSystem, as shown below under “Results of Operations.”In 2003 we redirected our strategy for our cryoablation businessaway from emphasizing sales of Cryocare Surgical Systems andinstead towards seeking to increase recurring sales ofdisposable supplies.     The factors driving interest in and utilization of cryoablationby urologists include: •      increased awareness and acceptance of cryoablation by industry    thought leaders;  •      continued publication of clinical follow up data on the    effectiveness of cryoablation, including recently published    10-year data resulting from a study conducted by an affiliate of    Roper Hospital in Charleston, South Carolina;  •      increased awareness among patients of cryoablation and its    preferred outcomes as compared to other modalities;  •      the effectiveness of our dedicated cryoablation sales    force; and  •      our continued expenditure of funds on patient education and    advocacy.
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**Results of Operations**     Revenues and cost of revenues related to the following productsand services for the period ended June 30, 2005 are asfollows:                    **Three Months Ended** **Six Months Ended**  **June 30,** **June 30,**       **2005** **2004** **2005** **2004**             Revenues:                     Cryocare Surgical Systems $120  $121  $263  $248      Cryoablation disposable products and procedure fees  6,557   5,948   13,046   11,009      Cardiac royalties (CryoCath)  230   162   441   293      Erectile dysfunction products (Timm Medical)  2,171   2,081   4,455   4,144                $9,078  $8,312  $18,205  $15,694     Cost of Revenues:                     Cryocare Surgical Systems $158  $38  $315  $82      Cryoablation disposable products and procedure fees  3,765   3,240   7,795   6,526      Cardiac royalties (CryoCath)  —   —   —   —      Erectile dysfunction products (Timm Medical)  657   1,035   1,537   1,939                $4,580  $4,313  $9,647  $8,547                   The table below summarizes revenues from the sales ofcryoablation disposable products and cryoablation procedure feesfor the periods ended June 30, 2005 and 2004.     Cost of revenues for cryoablation disposable product sales andprocedure fees are combined for reporting purposes. Sales ofcryoablation disposable products and procedure fees bothincorporate similar inventory when sold and the Company does notseparately track the cost of disposals sold directly tocustomers and those consumed in cryoablation procedures.Cryoablation procedure services are provided to medicalfacilities upon request to facilitate the overall delivery ofour technology into the marketplace.                   **Three Months Ended** **Six Months Ended**  **June 30,** **June 30,**       **2005** **2004** **2005** **2004**             Disposable products $1,689  $1,302  $2,809  $2,689     Procedure fees  4,868   4,646   10,237   8,320                $6,557  $5,948  $13,046  $11,009                   We recognize revenues from sales of Cryocare Surgical Systems,disposable cryoablation products and other urological productswhen persuasive evidence of an arrangement exists, delivery hasoccurred, the fee is fixed and determinable, and collectibilityis reasonably assured.     We also contract with medical facilities to provide cryoablationservices and for the use of the Cryocare Surgical Systems incryoablation treatments for which we charged a per-procedurefee. The cryoablation services provided generally consist ofrental and transport of a Cryocare Surgical System, as well asthe services of a technician to assist the physician with theset-up, use and monitoring the equipment.     Cost of revenues consists of fixed and variable costs incurredin the manufacture of our products in addition to depreciationof Cryocare Surgical Systems placed in the field with customersunder our placement program or with our sales and servicepersonnel. We incur an additional cost of revenues in the formof a fee for equipment usage and other services when a procedureis performed on a system owned by an unrelated service provider.That portion of the procedure fee remitted to the third-partyservice
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provider is charged to cost of revenues when the procedure isperformed and billed. We retain a larger profit on proceduresperformed on systems owned by us where no outside service feesare incurred.     Research and development expenses are expensed when incurred andinclude expenses associated with the design and development ofnew products as well as significant enhancements to existingproducts. These expenses consist primarily of salaries andrelated benefits and overhead costs for staff engaged inresearch and development activities, costs for materials andsupplies used in performing research and development activities,costs of clinical trials conducted for the purpose of obtainingregulatory approval of our products, consulting and advisoryfees for outside service providers directly involved in researchand development activities, and depreciation on equipment useddirectly for research and development activities. Our researchand development efforts are periodically subject to significantnon-recurring expenses and fees that can cause some variabilityin our quarterly research and development expenses.     Sales and marketing expenses primarily consist of salaries,commissions and related benefits and overhead costs foremployees and activities in the areas of sales, marketing andcustomer service. Expenses associated with advertising, tradeshows, promotional and training costs related to marketing ourproducts are also classified as sales and marketing expenses.     General and administrative expenses primarily consist ofsalaries and related benefits and overhead costs for employeesand activities in the areas of legal affairs, finance,information technology, human resources and administration. Feesfor attorneys, independent auditors and certain other outsideconsultants are also included where their services are relatedto general and administrative activities. This category alsoincludes reserves for bad debt, and litigation losses lessamounts recoverable under our insurance policies. Litigationreserves and insurance recoveries are recorded when such amountsare probable and can reasonably be estimated.***Three Months Ended June 30, 2005 Compared to Three    Months Ended June 30, 2004***     *Revenues.* Revenues for the three months endedJune 30, 2005 increased 9.2 percent to$9.1 million compared to $8.3 million for the sameperiod in 2004. The increase in revenues was primarilyattributable to growth in sales of disposables and procedurefees related to our cryoablation business.     The number of cryoablation procedures performed, and relatedsales of disposable products used in these procedures, increased25.4 percent to 1,620 in the second quarter of 2005 from1,292 in the comparable period of 2004, while the relatedrevenues increased 10.2 percent to $6.6 million in thesecond quarter of 2005 from $5.9 million for the comparableperiod in 2004. Of the total procedures performed during thethree months ended June 30, 2005, 60.4 percent werethose in which we provided cryoablation services and39.6 percent were from the sale of disposable cryoablationproducts. This compares to 71.5 percent of cryoablationprocedures and 28.5 percent for sales of disposablecryoablation products during the three months endedJune 30, 2004. Contributing to growth in sales ofcryoablation products was an increase in sales to a marketserved by interventional radiologists, treating tumors in thelung and liver and pain resulting from metastases of cancer inthe bone. These procedures generally have a lower averageselling price than procedures performed by urologists onprostate and renal cancer, although cost of revenues are alsolower.     CyoCath royalty revenues also increased 42.0 percent or$68,000 over the same period in 2004 while revenues fromCryocare Surgical Systems remained flat due to our strategy ofpromoting adoption of our technology through an emphasis ongrowth in cryoablation procedures, rather than through sales ofcapital equipment.     Sales of our Timm Medical product lines increased4.3 percent to $2.2 million in the three months endedJune 30, 2005 from $2.1 million for the same period in2004. This increase is primarily due to increased domestic salesfrom increased focus on our erectile dysfunction sales force in2005.     *Cost of Revenues.* Cost of revenues for the three monthsended June 30, 2005 increased 6.2 percent to$4.6 million compared to $4.3 million for the sameperiod in 2004. The increase in cost of revenues resultedprimarily from growth in sales of cryoablation probes andprocedures. Cost of revenues related to
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our cryoablation probes and procedures increased16.2 percent to $3.8 million for the second quarter of2005 from $3.2 million for the same period in 2004. Thisincrease was also driven by an increase in the number ofcryoablation procedures for which we subcontract substantiallyall of the service to third party service providers at anadditional cost, partially offset by a 13.5 percentdecrease in the amount per procedure we pay to the third partyservice providers. During the three months ended June 30,2005 substantially all of our cryoablation procedures thatrequire a technician were performed by third party serviceproviders.     Cost of revenues for our Timm Medical product lines decreasedsubstantially to 30.3 percent for the three months endedJune 30, 2005 compared to 49.7 percent for the sameperiod in 2004. The primary cause of the decline was decreasesin manufacturing costs from changing the configuration of ourTimm Medical products as well as discounts taken from volumediscounts we received for buying larger quantities of rawmaterials.     *Gross Margins.* Gross margins on revenues increased to49.5 percent for the three months ended June 30, 2005compared to 48.1 percent for the same period in 2004. Thepositive trend in gross margins was related to factors includingcontinued reductions in manufacturing costs for our cryoablationdisposable products as well as a decline in the average fee wepaid to third parties to provide cryoablation procedures on ourbehalf, partially offset by an increase in cryoablationprocedures where we contracted with third parties to perform theprocedures. Gross margins for our Timm Medical product linesincreased due to higher domestic sales of erectile dysfunctionproducts and production cost reductions.     *Research and Development Expenses.* Research anddevelopment expenses for the three months ended June 30,2005 increased 29.4 percent to $0.6 million comparedto $0.5 million for the comparable period in 2004. Theincrease was primarily attributable to costs associated withinvestments in new technology. As a percentage of revenues,research and development expenses increased to 6.4 percentfrom 5.4 percent during the three months endedJune 30, 2004.     *Sales and Marketing Expenses.* Sales and marketingexpenses for the three months ended June 30, 2005 declined16.9 percent or $.8 million to $4.2 million ascompared to $5.0 million for the same period in 2004. Thedecline in sales and marketing expenses is primarily due to thereduction of staffing and consulting costs of $0.4 million,the reduction of advertising costs of $0.2 million and thereduction in proctor fees and related costs of$0.2 million. The reduction is due primarily to our June2004 cost reduction program as well as the consolidation ofcertain sales functions and territories, the elimination ofcertain marketing activities and the restructuring of our salesand marketing programs. The term “proctor fees” refersto the fees we pay physicians to train other physiciansregarding how to use our cryosurgical products.     *General and Administrative Expenses.* General andadministrative expenses for the three months ended June 30,2005 declined 10.2 percent or $0.4 million to$3.7 million as compared to $4.1 million for the sameperiod in 2004. The primary contributor to the decline ingeneral and administrative expenses was a reduction in costs forlegal, accounting and consulting totaling $0.8 millionwhich was offset by a $0.4 million reduction taken in thebad debt provision for the same period in 2004. Prior periodlegal and accounting costs were significantly higher due to agreater level of activity in 2004 related to investigations intoour historical accounting and financial reporting. While theseinvestigations have continued during 2005, the related costshave decreased.     *Interest Income (Expense), Net.* Interest expense, net,for the three months ended June 30, 2005 was$0.3 million compared to interest income of $77,000 for thesame period in 2004. Interest expense, net for the three monthsended June 30, 2005 includes $0.5 million in interestexpense recorded in connection with the change in the fair valueof common stock warrants issued in connection with our privateplacement in March 2005. This interest expense represents thechange in the fair value of the warrants from March 31,2005. Interest income (expense), net in the 2004 and 2005 periodalso includes $51,000 and $62,000 respectively, of interestincome on a note receivable for the sale of our urinaryincontinence product line in 2003 with the remaining interestincome in 2005 due primarily to interest earned from theinvestment of the $14.6 million in net proceeds from theMarch 2005 private placement.
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     *Net Loss.* Net loss for the three months endedJune 30, 2005 was $4.2 million or $0.14 per basicand diluted share on 30.0 million weighted average sharesoutstanding, compared to a net loss of $5.6 million, or$0.23 per basic and diluted share on 24.0 millionweighted average shares outstanding for the same period in 2004.***Six Months Ended June 30, 2005 Compared to Six Months    Ended June 30, 2004***     *Revenues.* Revenues for the six months ended June 30,2005 increased 16.0 percent to $18.2 million comparedto $15.7 million in 2004. Reasons for the revenue increaseinclude the number of cryoablation procedures performed, andrelated sales of disposable products used in these procedures inthe six months ended June 30, 2005 compared to the sameperiod in 2004. Procedures increased 32.4 percent to 3,112for the six months ended June 30, 2005 from 2,350 in thecomparable period of 2004, while the related revenues increasedat 18.5 percent to $13.0 million from$11.0 million for the comparable period in 2004. Of thetotal procedures performed during the six months endedJune 30, 2005, 66.2 percent were those during which weprovided cryoablation services and 33.8 percent were fromthe sale of disposable cryoablation products. This compares to72.0 percent for cryoablation procedures and28.0 percent for sales of disposable cryoablation productsduring the six months ended June 30, 2004. Cardiac royaltyrevenue increased 50.5 percent while the revenue from thesale of Cryocare Surgical Systems remained flat.     Sales of our Timm Medical product lines increased7.5 percent to $4.5 million in the six months endedJune 30, 2005 from $4.1 million for the same period in2004. This increase is primarily due to increased domestic salesfrom increased focus on our erectile dysfunction sales force in2005.     *Cost of Revenues.* Cost of revenues for the six monthsended June 30, 2005 increased 12.9 percent to$9.6 million compared to $8.5 million for the sameperiod in 2004. Cost of revenues related to our cryoablationprobes and procedures increased 19.4 percent to$7.8 million for 2005 from $6.5 million, for the sameperiod in the 2004. The increase was driven by an increase inthe number of cryoablation procedures for which we subcontractsubstantially all of the service to third party serviceproviders at an additional cost, partially offset by a15.1 percent decrease in the amount per procedure we pay tothe third party service providers. During the six months endedJune 30, 2005 substantially all of our cryoablationprocedures that require a technician were performed by thirdparty service providers.     Cost of revenues for our Timm Medical product lines decreasedsubstantially to 34.5 percent for the six months endedJune 30, 2005 compared to 46.8 percent for the sameperiod in June 2004. The primary cause of the decline wasdecreases in manufacturing costs from changing the configurationof our Timm Medical products as well as discounts taken fromvolume discounts we received for buying larger quantities of rawmaterials.     *Gross Margins. Gross*margins on revenues increased to47.0 percent for the six months ended June 30, 2005compared to 45.5 percent for the same period in 2004. Thepositive trend in gross margins was related to factors includingcontinued reductions in manufacturing costs for our cryoablationdisposable products as well as a decline in the average fee wepaid to third parties to provide cryoablation procedures on ourbehalf, partially offset by an increase in cryoablationprocedures where we contracted with third parties to perform theprocedures. Gross margins for our Timm Medical product linesincreased due to higher domestic sales of erectile dysfunctionproducts and production cost reductions.     *Research and Development.* Research and developmentexpenses for the six months ended June 30, 2005 decreased8.3 percent to $0.9 million compared to$1.0 million for the comparable period in 2004. Thedecrease was primarily attributable to a $0.2 millionreduction in consulting and staffing costs initiated in our June2004 cost reduction program offset by a $0.1 millionincrease in costs associated with investments in new technology.As a percentage of revenues, research and development expensesdecreased to 5.0 percent from 6.3 percent during thesix months ended June 30, 2004.     *Sales and Marketing.* Sales and marketing expenses for thesix months ended June 30, 2005 declined 14.0 percentor $1.3 million to $8.2 million as compared to$9.5 million for the same period in 2004. Driving thedecrease were staffing and consulting costs which decreased$0.7 million, advertising
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costs which decreased $0.2 million and proctor fees andrelated costs decreased $0.4 million. The term“proctor fees” refers to the fees we pay physicians totrain other physicians regarding how to use our cryosurgicalproducts.     *General and Administrative Expenses.* General andadministrative expenses for the six months ended June 30,2005 declined 26.3 percent or $2.8 million to$7.9 million as compared to $10.7 million for the sameperiod in 2004. The decline resulted from decreases in legal,accounting and consulting costs of $3.0 million andstaffing-related costs of $0.2 million and which wereoffset by a $0.4 million reduction taken in the bad debtprovision for the same period in 2004.     *Impairment Charge.* During the quarter endedSeptember 30, 2004, we recorded $15.8 million inimpairment charges to write down the goodwill and amortizableintangibles in conjunction with Timm Medical and our ownershipinterests in certain mobile prostate treatment businesses. Thecharge represented the excess of the carrying value of theseentities compared to their fair value, less estimated costs tosell. With the completion of a $15.6 million privateplacement of our common stock during the first quarter of 2005,management ceased actively marketing Timm Medical for sale andreversed $0.6 million of estimated costs to sell that hadbeen previously recorded to impairment charge.     *Interest Income (Expense), Net.* Interest expense, net,for the six months ended June 30, 2005 was$0.8 million compared to interest income of$0.1 million respectively, for the same period in 2004.Interest expense, net for the six months ended June 30,2005 includes $1.1 million in interest expense recorded inconnection with the change in the fair value of common stockwarrants issued in connection with our private placement inMarch 2005. This interest expense represents the change in thefair value of the warrants from March 11, 2005, the date ofissuance. Interest income (expense), net in the 2004 and 2005period also includes $51,000 and $62,000 respectively, ofinterest income on a note receivable for the sale of our urinaryincontinence product line in 2003 with the remaining interestincome in 2005 due primarily to interest earned from theinvestment of the $14.6 million in net proceeds from theMarch 2005 private placement.     *Minority Interests.* Minority interests represent earningsattributable to minority investors in the mobile prostatetreatment businesses we acquired in 2002. During the fourthquarter of 2004 and the first quarter of 2005 we sold ordissolved a majority of these businesses. The businessesdissolved or remaining during the first quarter of 2005 had nooperations and therefore no minority interest amounts wererecorded in the first or second quarter of 2005.     *Net Loss.* Net loss for the six months ended June 30,2005 was $8.7 million or $0.30 per basic and dilutedshare on 29.0 million weighted average shares outstanding,compared to a net loss of $14.2 million, or $0.59 perbasic and diluted share on 24.1 million weighted averageshares outstanding for the same period in 2004.**Liquidity and Capital Resources**     Since inception, we have incurred losses from operations andhave reported negative cash flows. As of June 30, 2005, wehad an accumulated deficit of approximately $160.7 millionand cash and cash equivalents of approximately$12.7 million.     We do not expect to reach break-even or cash flow positive in2005, and we expect to continue to generate losses fromoperations for the foreseeable future. These losses haveresulted primarily from our continued investment to gainacceptance of our technology. We believe the success of ourstrategy is reflected in the revenue growth for cryoprobes,disposables products and cryoablation procedure fees. Theserevenues comprised 40.8 percent of total revenues in 2002compared to 67.6 percent of total revenues in 2004representing a 75.4 percent increase from$12.6 million in 2002 to $22.1 million in 2004.     While we expected these losses to decline over time, our cashuse from quarter to quarter may fluctuate, due to timing issues,investments in inventory and the costs related to ongoinginvestigations and regulatory compliance discussed below.
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     We also continue to incur significant costs associated withongoing investigations and other matters related to historicalaccounting and financial reporting, including obligations toindemnify our former officers and former directors in connectionwith those investigations. Total professional services costs forthe six months ended June 30, 2005 were $2.9 millionand for the year ended December 31, 2004 were$7.8 million of which a large percentage of these costsrelate to these matters.     For the six months ended June 30, 2005 and the year endedDecember 31, 2004, $0.6 million and $2.3 million,respectively, of these costs also related to our efforts toachieve compliance with the integral control reportingrequirements of Section 404 of the Sarbanes-Oxley Act. Wealso face large cash expenditures in the future related to pastdue state and local tax obligations, for which we estimated andaccrued $3.4 million as of June 30, 2005. We currentlyare in negotiations with various states to resolve past duetaxes but have not yet entered into any settlement agreements.     On March 11, 2005, we issued 5,635,378 shares of ourcommon stock, warrants to purchase an additional1,972,374 shares of common stock at $3.50 per shareand warrants to purchase an additional 1,972,374 shares ofcommon stock at $4.00 per share for an aggregate gross cashproceeds of $15.6 million ($2.77 per share) lesstransaction costs of $1.0 million, in a private placementfinancing. We believe that the proceeds of this offering provideus with the means to eventually improve our business to apositive cash flow status.     We intend to continue investing in our sales and marketingefforts to physicians in order to raise awareness and gainfurther acceptance of our technology. This investment isrequired in order to increase the physician’s usage of ourtechnology in the treatment of prostate and renal cancers, lungand liver cancers and in the management of pain from bonemetastases. Such costs will be reported as current periodcharges under generally accepted accounting principles. We willuse existing cash reserves and the net proceeds from the$15.6 million private placement of our common stockdescribed above along with continued expense management effortsto finance our projected operating and cash flow needs.**Risks Related to Our Business**     *The risks and uncertainties described below are not the onlyones we face. For information regarding other risks related toour business, please see “Risks Related to OurBusiness” in our Annual Report on Form 10-K for thefiscal year ended December 31, 2004, as amended.Furthermore, additional risks and uncertainties not presentlyknown to us or that we currently deem immaterial may also impairour operations. The occurrence of any of these risks could harmour business. In that case, the trading price of our commonstock could decline, and you may lose all or part of yourinvestment.****We face risks related to investigations by the SEC and    DOJ.***     As previously reported, the SEC and the DOJ are conductinginvestigations into allegations that we and certain of ourcurrent and former officers and directors issued, or caused tobe issued, false and misleading statements regarding ourfinancial results for 2001 and 2002 and related matters,including whether we prematurely recognized revenue from thesale of Cryocare systems and improperly delayed posting ofexpenses. Although we have fully cooperated with thesegovernmental agencies in these matters and intend to continue tofully cooperate, these agencies may determine we have violatedfederal securities laws. We cannot predict when theseinvestigations will be completed or their outcomes. If it isdetermined that we have violated federal securities laws orother laws or regulations, we may face sanctions, including, butnot limited to, significant monetary penalties and injunctiverelief.     In addition, we are generally obliged under indemnificationagreements to the extent permitted by law, to pay the legal andother expenses for our directors and officers who are nameddefendants in legal proceedings related to their service.
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***Our management members have spent considerable time and    effort dealing with internal and external investigations.***     In addition to the challenges of the SEC investigation, the DOJinvestigation, a shareholder class-action and a derivativelawsuit and other legal proceedings described in our AnnualReport on Form 10-K filed on March 16, 2005, ourmanagement members have spent considerable time and effortdealing with internal and external investigations involving ourprevious internal controls, accounting policies and procedures,disclosure controls and procedures and corporate governancepolicies and procedures. The significant time and effort spenthas adversely affected our operations and may continue to do soin the future.***Our success will depend on our ability to attract and    retain key personnel.***     In order to execute our business plan, we need to attract,retain and motivate a significant number of highly qualifiedmanagerial, technical, financial and sales personnel. If we failto attract and retain skilled scientific and marketingpersonnel, our research and development and sales and marketingefforts will be hindered. Our future success depends to asignificant degree upon the continued services of key managementpersonnel, including Craig T. Davenport, our Chief ExecutiveOfficer, William J. Nydam, our President and Chief OperatingOfficer, and Michael R. Rodriguez, our Senior Vice President,Finance and Chief Financial Officer. None of our key managementpersonnel is covered by an insurance policy of which we are thebeneficiary.***Future sales of shares of our common stock may negatively    affect our stock price.***     Future sales of our common stock, including shares issued uponthe exercise of outstanding options and warrants or hedging orother derivative transactions with respect to our stock, couldhave a significant negative effect on the market price of ourcommon stock. These sales also might make it more difficult forus to sell equity securities or equity-related securities in thefuture at a time and price that we would deem appropriate. Wehad an aggregate of 30,059,977 shares of common stockoutstanding as of June 30, 2005, which included5,635,378 shares of our common stock that we issued onMarch 11, 2005 in connection a financing described in theForm 8-K that we filed on March 16, 2005. Investors inthat financing also received warrants to purchase an aggregateof 1,972,374 shares of our common stock at an exerciseprice of $3.50 per share and 1,972,374 shares of ourcommon stock at an exercise price of $4.00 per share. Weentered into a registration rights agreement in connection withthe financing pursuant to which we agreed to register for resaleby the investors the shares of common stock issued and issuableupon exercise of the warrants issued in the financing. We havefiled a registration statement with the SEC to register theseshares but the registration statement has not yet been declaredeffective. Once the registration statement is declaredeffective, the shares covered by the registration statement maybe sold, which could have a significant negative effect on themarket price of our common stock.***Our common stock was delisted from the Nasdaq Stock Market    and, as a result, trading of our common stock has become more    difficult.***     Our common stock was delisted from The Nasdaq Stock Market onJanuary 16, 2003 because of our failure to keep current infiling our periodic reports with the SEC. Trading is nowconducted in the over-the-counter market in the so-called“pink sheets.” Consequently, selling our common stockis more difficult because smaller quantities of shares can bebought and sold, transactions can be delayed and securityanalyst and news media coverage of us may be reduced. Thesefactors could result in lower prices and larger spreads in thebid and ask prices for shares of our common stock as well aslower trading volume. We have been in discussions with theAmerican Stock Exchange (“AMEX”) and Nasdaq regardingthe relisting of our common stock. We hope that our common stockwill be relisted with either AMEX, the Nasdaq SmallCap Market orthe Nasdaq National Market System by the end of 2005, but wecannot assure you that our common stock will be relisted withinany particular time period, or at all. As noted below, we mayeffectuate a reverse stock split in order to qualify our stockfor relisting.
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     As a result of the delisting of our common stock from The NasdaqStock Market, our common stock has become subject to the“penny stock” regulations, including Rule 15g-9under the Securities Exchange Act of 1934. That rule imposesadditional sales practice requirements on broker-dealers thatsell low-priced securities to persons other than establishedcustomers and institutional accredited investors. Fortransactions covered by this rule, a broker-dealer must make aspecial suitability determination for the purchaser and havereceived the purchaser’s written consent to the transactionprior to sale. Consequently, the rule may affect the ability ofbroker-dealers to sell our common stock and affect the abilityof holders to sell their shares of our common stock in thesecondary market. To the extent our common stock remains subjectto the penny stock regulations, the market liquidity for theshares will be adversely affected.***In order to qualify our stock for relisting, we may    effectuate a reverse stock split, which could adversely affect    our stockholders.***     In order to qualify our stock for relisting, we may effectuate areverse stock split. We believe that we currently satisfy all ofthe objective criteria for relisting on AMEX, and we believethat we currently satisfy all of the objective criteria forrelisting on the Nasdaq SmallCap Market and the Nasdaq NationalMarket System, except for the minimum bid price requirementapplicable to the Nasdaq National Market System. AMEX requires aminimum bid price of $3.00, the Nasdaq SmallCap Market requiresa minimum bid price of $4.00 and the Nasdaq National MarketSystem requires a minimum bid price of $5.00. As ofJune 30, 2005, the closing price for our common stock asreported on the “pink sheets”’ was $4.00 pershare. Of course, we cannot predict whether this share pricewill be maintained or increased in the future.     Any reverse stock split would require the prior approval of ourstockholders at a stockholders meeting, because our charterprohibits stockholder action by written consent. We recentlyannounced a special stockholders meeting to be held onAugust 30, 2005 for the purpose of obtaining approval for areverse stock split. As noted in the definitive proxy statementthat we filed with the SEC on July 18, 2005, we are askingour stockholders to approve the combination of any whole numberof shares of common stock between and including two and fiveinto one share of common stock, *i.e.*, each of thefollowing combination ratios: one for two, one for three, onefor four and one for five. If our stockholders approve thereverse stock split and our board decides to proceed with thereverse stock split, then the board will determine the exactratio within the range described in the previous sentence. Ifthe board does not implement a reverse stock split prior to theone-year anniversary of the special stockholders meeting, thenstockholder approval again would be required prior toimplementing any reverse stock split.     In many instances historically the markets have reactednegatively to the effectuation of a reverse stock split. Wecannot assure you that our stock will not be negatively affectedif our board decides to proceed with a reverse stock split.However, we believe that our circumstances and rationale for thereverse stock split differentiate us from many other companiesthat have effectuated reverse stock splits. Among other things,we would be effectuating a reverse stock split to qualify ourcommon stock for listing, whereas many other companies haveeffectuated reverse stock splits to avoid delisting in the faceof dire financial or operational circumstances.**Item 4.* ******Controls and Procedures***     (a) *Evaluation of Disclosure Controls and Procedures.*We maintain disclosure controls and procedures that aredesigned to ensure that information required to be disclosed inour reports pursuant to the Securities Exchange Act of 1934, asamended, is recorded, processed, summarized and reported withinthe time periods specified in the Securities and ExchangeCommission’s rules and forms and that such information isaccumulated and communicated to our management, including ourchief executive officer and chief financial officer, asappropriate, to allow for timely decisions regarding requireddisclosure. In designing and evaluating the disclosure controlsand procedures, management recognizes that any controls andprocedures, no matter how well designed and operated, canprovide only reasonable assurance of
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achieving the desired control objectives, and management isrequired to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures.     As required by Rule 13a-15(b) of the Securities ExchangeAct of 1934, as amended, we carried out an evaluation, under thesupervision and with the participation of our management,including our chief executive officer and chief financialofficer, of the effectiveness of the design and operation of ourdisclosure controls and procedures as of the end of the quartercovered by this report. Based on the foregoing, our chiefexecutive officer and chief financial officer concluded that ourdisclosure controls and procedures were effective at thereasonable assurance level.     As explained in Note 2 to the financial statements includedherein, in order to correct the financial statements so thatthey comply with U.S. generally accepted accounting principles,we have restated our unaudited condensed consolidated statementsof operations, unaudited condensed consolidated balance sheetand unaudited condensed consolidated statements of cash flows asof and for the three and six months ended June 30, 2005 toreflect a reclassification from equity to non-current liabilityof the warrants that we issued in March 2005, and to reflectinterest expense to represent the change in the fair value ofthe warrants since issuance, as described in Note 5 to thefinancial statements. Notwithstanding this restatement, ourmanagement continues to believe that our disclosure controls andprocedures were effective at a reasonable assurance level as ofJune 30, 2005. We believe that the restatements are theresult of different accounting judgments with respect to theproper application of generally accepted accounting principlesin an emerging area of accounting, rather than an indicationthat our disclosure controls and procedures were ineffective.The accounting ultimately applied in the restatement is one ofthree views discussed under Issue Summary No. 1 of theproposed Emerging Issues Task Force Statement No. 05-4 andthe Task Force has not yet publicly reached a consensus. It ispossible that the accounting reflected in the restatement maydiffer from the Task Force’s final consensus.     (b) *Changes in Internal Controls.*There was nochange in our internal control over financial reporting duringour second fiscal quarter for 2005 that has materially affected,or is reasonably likely to materially affect, our internalcontrol over financial reporting.**PART II — OTHER INFORMATION****Item 6.*****Exhibits.***     **Exhibit**  **No.** **Description**    2.1(1)     Agreement and Plan of Reorganization dated February 21,    2002, by and among the Company, 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, L.L.C., Gary M. Onik, M.D., Robert F.    Byrnes and Jerry Anderson. 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. 2.3(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.
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     **Exhibit**  **No.** **Description**    2.5(4)     Partnership and Limited Liability Company Membership Interest    Purchase Agreement, dated as of August 12, 2002, by and    among Endocare, Inc. and U.S. Medical Development, Inc.,    U.S.M.D., Ltd. and U.S.M.D. I, L.L.C. Certain schedules and    exhibits referenced in this exhibit have been 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    August 12, 2002, by and among Endocare, 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    CryoCathTechnologies 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 Endocare, Inc. 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 Endocare, Inc. 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 Endocare, Inc. 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. 4.1(12)     Form of Stock Certificate. 4.2(13)     Form of Series A Warrant. 4.3(13)     Form of Series B Warrant. 4.4(14)     Rights Agreement, dated as of March 31, 1999, between the    Company and U.S. Stock Transfer Corporation, which includes    the form of Certificate of Designation for the Series A    Junior Participating Preferred Stock as Exhibit A, the form    of Rights Certificate as Exhibit B and the Summary of    Rights to Purchase Series A Preferred Shares as    Exhibit C. 4.5(15)     Amendment No. 1 to Rights Agreement, dated as of    June 24, 2005, between the Company and U.S. Stock    Transfer Corporation. 10.1(16)     First Amendment to Employment Agreement with Craig T. Davenport,    dated as of April 28, 2005. 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.  *    Certain confidential portions of this exhibit were omitted and    provided separately to the SEC pursuant to a request for    confidential treatment. †    Management contract or compensatory plan or arrangement (1)     Previously filed as exhibits to our Form 8-K filed on    March 5, 2002.  (2)     Previously filed as exhibits to our Registration Statement on    Form S-3 filed on September 20, 2001.
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 (3)     Previously filed as exhibits to our Form 10-Q filed on    August 14, 2002.  (4)     Previously filed as exhibits 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 for the    year ended December 31, 1995. (13)     Previously filed as an exhibit to our Form 8-K filed on    March 16, 2005. (14)     Previously filed as an exhibit to our Form 8-K filed on    June 3, 1999. (15)     Previously filed as an exhibit to our Form 8-K filed on    June 28, 2005. (16)     Previously filed as an exhibit to our Form 8-K filed on    May 3, 2005.
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**SIGNATURES**     Pursuant to the requirements of the Securities Exchange Act of1934, the registrant has duly caused this amendment no. 1 onForm 10-Q/ A to be signed on its behalf by the undersigned,thereunto duly authorized.     ENDOCARE, INC. By:     /s/ CRAIG T. DAVENPORT       Craig T. Davenport *Chief Executive Officer and* *Chairman of the Board* *(Duly Authorized Officer)*Date: September 16, 2005
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**EXHIBIT INDEX**     **Exhibit**  **No.** **Description**    2.1(1)     Agreement and Plan of Reorganization dated February 21,    2002, by and among the Company, 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, L.L.C., Gary M. Onik, M.D., Robert F.    Byrnes and Jerry Anderson. 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. 2.3(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 Endocare, Inc. and U.S. Medical Development, Inc.,    U.S.M.D., Ltd. and U.S.M.D. I, L.L.C. Certain schedules and    exhibits referenced in this exhibit have been 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    August 12, 2002, by and among Endocare, 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    CryoCathTechnologies 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 Endocare, Inc. 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 Endocare, Inc. 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 Endocare, Inc. 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. 4.1(12)     Form of Stock Certificate. 4.2(13)     Form of Series A Warrant. 4.3(13)     Form of Series B Warrant.
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     **Exhibit**  **No.** **Description**    4.4(14)     Rights Agreement, dated as of March 31, 1999, between the    Company and U.S. Stock Transfer Corporation, which includes    the form of Certificate of Designation for the Series A    Junior Participating Preferred Stock as Exhibit A, the form    of Rights Certificate as Exhibit B and the Summary of    Rights to Purchase Series A Preferred Shares as    Exhibit C. 4.5(15)     Amendment No. 1 to Rights Agreement, dated as of    June 24, 2005, between the Company and U.S. Stock    Transfer Corporation. 10.1(16)     First Amendment to Employment Agreement with Craig T. Davenport,    dated as of April 28, 2005. 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.  *    Certain confidential portions of this exhibit were omitted and    provided separately to the SEC pursuant to a request for    confidential treatment. †    Management contract or compensatory plan or arrangement (1)     Previously filed as exhibits to our Form 8-K filed on    March 5, 2002.  (2)     Previously filed as exhibits to our Registration Statement on    Form S-3 filed on September 20, 2001.  (3)     Previously filed as exhibits to our Form 10-Q filed on    August 14, 2002.  (4)     Previously filed as exhibits 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 for the    year ended December 31, 1995. (13)     Previously filed as an exhibit to our Form 8-K filed on    March 16, 2005. (14)     Previously filed as an exhibit to our Form 8-K filed on    June 3, 1999. (15)     Previously filed as an exhibit to our Form 8-K filed on    June 28, 2005. (16)     Previously filed as an exhibit to our Form 8-K filed on    May 3, 2005.
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