##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007
 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 Zip Code)
 (949) 450-5400  (Registrants Telephone Number, Including Area Code)
 þ o þ o
  o þ o
 o þ




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##### 



Endocare, Inc.
 INDEX
 Part I. Financial InformationItem 1. Condensed Consolidated Financial Statements (Unaudited)
    
    
    3Condensed Consolidated Statements of Operations  Three and six months ended June 30,
2007 and 2006
    
    
    3Condensed Consolidated Balance Sheets  June 30, 2007 and December 31, 2006
    
    
    4Condensed Consolidated Statements of Cash Flows  Six months ended June 30, 2007 and 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26Part II. Other InformationItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3. Defaults Upon Senior Securities
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 5. Other Information
    
    
    28Item 6. Exhibits
    
    
    28Signatures
    
    
    29EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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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 June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)(In thousands, except per share data)Total revenues
    
    $
    7,901
    
    
    $
    6,908
    
    
    $
    15,447
    
    
    $
    14,170Costs and expenses:Cost of revenues
    
    
    2,713
    
    
    
    3,256
    
    
    
    5,335
    
    
    
    7,021Research and development
    
    
    621
    
    
    
    475
    
    
    
    1,236
    
    
    
    1,486Selling and marketing
    
    
    4,099
    
    
    
    3,904
    
    
    
    7,862
    
    
    
    7,673General and administrative
    
    
    2,845
    
    
    
    2,072
    
    
    
    6,674
    
    
    
    6,067Total costs and expenses
    
    
    10,278
    
    
    
    9,707
    
    
    
    21,107
    
    
    
    22,247Loss from operations
    
    
    (2,377
    )
    
    
    (2,799
    )
    
    
    (5,660
    )
    
    
    (8,077
    )Interest expense related to common stock
warrants
    
    
    
    
    
    
    1,908
    
    
    
    
    
    
    
    1,696Interest income, net
    
    
    113
    
    
    
    183
    
    
    
    139
    
    
    
    349Loss from continuing operations before taxes
    
    
    (2,264
    )
    
    
    (708
    )
    
    
    (5,521
    )
    
    
    (6,032
    )Tax benefit on continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    151Loss from continuing operations
    
    
    (2,264
    )
    
    
    (708
    )
    
    
    (5,521
    )
    
    
    (5,881
    )Income from discontinued operations
(including gain on disposal of $0.5 million in
2006), net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245Net loss
    
    $
    (2,264
    )
    
    $
    (708
    )
    
    $
    (5,521
    )
    
    $
    (5,636
    )Net (loss) income per share  basic and diluted:Continuing operations
    
    $
    (0.07
    )
    
    $
    (0.02
    )
    
    $
    (0.17
    )
    
    $
    (0.20
    )Discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0.01Weighted average shares of common stock
outstanding
    
    
    32,748
    
    
    
    30,166
    
    
    
    31,854
    
    
    
    30,155
  3




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ENDOCARE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)(In thousands, exceptper share data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    7,245
    
    
    $
    1,811Accounts receivable, net
    
    
    5,079
    
    
    
    4,161Inventories, net
    
    
    2,597
    
    
    
    2,260Prepaid expenses and other current assets
    
    
    1,862
    
    
    
    1,284Total current assets
    
    
    16,783
    
    
    
    9,516Property and equipment, net
    
    
    786
    
    
    
    1,040Intangibles, net
    
    
    3,328
    
    
    
    3,613Investments and other assets
    
    
    982
    
    
    
    2,077Total assets
    
    $
    21,879
    
    
    $
    16,246LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,384
    
    
    $
    3,393Accrued compensation
    
    
    2,911
    
    
    
    3,000Line of credit
    
    
    1,123
    
    
    
    Other accrued liabilities
    
    
    3,379
    
    
    
    3,594Total current liabilities
    
    
    10,797
    
    
    
    9,987Other long term liabilities
    
    
    194
    
    
    
    74Common stock warrants
    
    
    
    
    
    
    1,307Stockholders equity:Preferred stock, $0.001 par value; 1,000
shares authorized; none issued and
outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value; 50,000
shares authorized; 34,785 and 30,679
issued and outstanding as of June 30,
2007 and December 31, 2006, respectively
    
    
    35
    
    
    
    31Additional paid-in capital
    
    
    197,190
    
    
    
    181,289Accumulated deficit
    
    
    (186,337
    )
    
    
    (176,442
    )Total stockholders equity
    
    
    10,888
    
    
    
    4,878Total liabilities and stockholders equity
    
    $
    21,879
    
    
    $
    16,246
  4




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ENDOCARE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months Ended June 30,2007
    
    
    2006(Unaudited)(In thousands)Cash flows from operating activities:Net loss
    
    $
    (5,521
    )
    
    $
    (5,636
    )Adjustments to reconcile net loss to net cash used in operating activities:Gain on divestiture
    
    
    
    
    
    
    (418
    )Depreciation and amortization
    
    
    613
    
    
    
    857Loss on sale of placement units and other fixed assets
    
    
    52
    
    
    
    Extinguishment of payroll tax liabilities
    
    
    (121
    )
    
    
    (869
    )Stock-based compensation
    
    
    1,576
    
    
    
    1,858Net interest expense related to common stock warrants
    
    
    
    
    
    
    (1,696
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (918
    )
    
    
    540Inventories
    
    
    (407
    )
    
    
    305Prepaid expenses and other assets
    
    
    516
    
    
    
    531Accounts payable
    
    
    (7
    )
    
    
    (279
    )Accrued compensation
    
    
    79
    
    
    
    (1,045
    )Other liabilities
    
    
    (95
    )
    
    
    (1,561
    )Net cash used in operating activities
    
    
    (4,233
    )
    
    
    (7,413
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (56
    )
    
    
    (86
    )Proceeds from divestitures
    
    
    
    
    
    
    7,277Net cash provided by (used in) investing activities
    
    
    (56
    )
    
    
    7,191Cash flows from financing activities:Stock options exercised
    
    
    
    
    
    
    108Net borrowings on line of credit
    
    
    1,123
    
    
    
    Proceeds from sale of common stock
    
    
    8,600
    
    
    
    Net cash provided by financing activities
    
    
    9,723
    
    
    
    108Net increase (decrease) in cash and cash equivalents
    
    
    5,434
    
    
    
    (114
    )Cash and cash equivalents, beginning of period
    
    
    1,811
    
    
    
    8,108Cash and cash equivalents, end of period
    
    $
    7,245
    
    
    $
    7,994Non-cash activities:Transfer of inventory to property and equipment for placement at customer sites
    
    $
    174
    
    
    $
    361Transfer of Cryocare Surgical Systems from property and equipment to inventory
for sale
    
    $
    105
    
    
    $
    376Note receivable received in divestiture
    
    $
    
    
    
    $
    1,425Adoption of FSP 00-19-2:Reduction of retained earnings
    
    $
    4,373
    
    
    $
    Increase in additional paid-in capital
    
    $
    5,680
    
    
    $
    Reduction of common stock warrant liability
    
    $
    1,307
    
    
    $
    
  5




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Endocare, Inc. and Subsidiary
 
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Tabular numbers in thousands, except per share data)  (Unaudited)
 1. Organization and Operations
  Sale of Timm Medical
 2. Basis of Presentation
   3. Recent Operating Results and Liquidity
  Commitments and Contingencies Commitments and Contingencies.
 6




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Private Placement of Common
Stock and Warrants, Bank Line of Credit.
    7




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4. Sale of Timm Medical
 Accounting for the
Impairment or Disposal of Long-Lived Assets,
   Assets:Cash, inventories and other current assets
    
    $
    1,041Property and equipment, net
    
    
    71Goodwill, net
    
    
    4,552Intangibles, net
    
    
    3,680Other assets
    
    
    65Total assets
    
    
    9,409Liabilities:Accounts payable and other current liabilities
    
    
    502Other accrued liabilities
    
    
    486Total liabilities
    
    
    988Net assets
    
    $
    8,421
  8




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5. Private Placement of Common Stock and Warrants
 May 2007 Private Placement
    Fusion Capital Equity Purchase Agreement
 Recent Operating Results and Liquidity
   9




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March 2005 Private Placement
        Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Companys Own Stock
 10




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Accounting for
Registration Payment Arrangements Accounting for Contingencies.
 6. Bank Line of Credit
 Recent Operating Results and Liquidity
     11




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##### Table of Contents



7. Capital Stock and Net Loss Per Share
   8. Stock-Based Compensation
 Share-Based Payment
  9. Inventories
  12




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June 30,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    1,865
    
    
    $
    1,750Work in process
    
    
    614
    
    
    
    300Finished goods
    
    
    723
    
    
    
    778Total inventories
    
    
    3,202
    
    
    
    2,828Less: inventory reserve
    
    
    (605
    )
    
    
    (568
    )Inventories, net
    
    $
    2,597
    
    
    $
    2,260
 10. Commitments and Contingencies
 Legal Proceedings
 Governmental Investigations and Legal Proceedings
   Lawsuit with KPMG LLP
  Other Litigation
  13




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11. Income Taxes
 Accounting for Uncertainty in Income Taxes an interpretation of SFAS No. 109 Accounting for
Income Taxes
  Balance as of January 1, 2007
    
    $
    240,000Additions based on tax positions related to the current year
    
    
    Additions for tax positions of prior years
    
    
    Reductions for tax positions of prior years
    
    
    Settlements
    
    
    Balance as of June 30, 2007
    
    $
    240,000
   14




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12. Results of Operations
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Cryoablation disposable products
    
    $
    5,417
    
    
    $
    3,397
    
    
    $
    10,620
    
    
    $
    5,808Cryocare Surgical Systems
    
    
    521
    
    
    
    225
    
    
    
    998
    
    
    
    445Other
    
    
    115
    
    
    
    12
    
    
    
    149
    
    
    
    226,053
    
    
    
    3,634
    
    
    
    11,767
    
    
    
    6,275Cryoablation procedure fees
    
    
    1,746
    
    
    
    3,135
    
    
    
    3,488
    
    
    
    7,598Cardiac royalties (CryoCath)
    
    
    102
    
    
    
    139
    
    
    
    192
    
    
    
    297$
    7,901
    
    
    $
    6,908
    
    
    $
    15,447
    
    
    $
    14,170Costs of Revenues:Cryoablation disposable products and procedure fees
    
    $
    2,353
    
    
    $
    3,028
    
    
    $
    4,746
    
    
    $
    6,424Cryocare Surgical Systems
    
    
    360
    
    
    
    228
    
    
    
    589
    
    
    
    597$
    2,713
    
    
    $
    3,256
    
    
    $
    5,335
    
    
    $
    7,021
  13. Recent Accounting Pronouncements
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included in Part I  Item 1 of this
report, and the audited consolidated financial statements and notes thereto, and Managements
Discussion and Analysis of Financial Condition and Results of Operations contained in the Annual
Report on Form 10-K for the fiscal year ended December 31, 2006.
 This discussion contains forward-looking statements based on our current expectations. There
are various factors  many beyond our control  that could cause our actual results or the
occurrence or timing of expected events to differ materially from those anticipated in these
forward-looking statements. Some of these factors are described below and other factors are
described elsewhere in this Quarterly Report on Form 10-Q or under Risk Factors in our Annual
Report on Form 10-K referred to above. In addition, there are factors not described in this
Quarterly Report on Form 10-Q or in our Annual Report on Form 10-K that could cause our actual
results or the occurrence or timing of expected events to differ materially from those anticipated
in these forward-looking statements. All forward-looking statements included in this Quarterly
Report on Form 10-Q are based on information available to us as of the date hereof, and we assume
no obligation to update any such forward-looking statements.
 Overview
   15




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Strategy, Key Metrics and Developments
     16




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Results of Operations
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Cryoablation disposable products
    
    $
    5,417
    
    
    $
    3,397
    
    
    $
    10,620
    
    
    $
    5,808Cryocare Surgical Systems
    
    
    521
    
    
    
    225
    
    
    
    998
    
    
    
    445Other
    
    
    115
    
    
    
    12
    
    
    
    149
    
    
    
    226,053
    
    
    
    3,634
    
    
    
    11,767
    
    
    
    6,275Cryoablation procedure fees
    
    
    1,746
    
    
    
    3,135
    
    
    
    3,488
    
    
    
    7,598Cardiac royalties (CryoCath)
    
    
    102
    
    
    
    139
    
    
    
    192
    
    
    
    297$
    7,901
    
    
    $
    6,908
    
    
    $
    15,447
    
    
    $
    14,170Costs of Revenues:Cryoablation disposable products and procedure fees
    
    $
    2,353
    
    
    $
    3,028
    
    
    $
    4,746
    
    
    $
    6,424Cryocare Surgical Systems
    
    
    360
    
    
    
    228
    
    
    
    589
    
    
    
    597$
    2,713
    
    
    $
    3,256
    
    
    $
    5,335
    
    
    $
    7,021
 17




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Share Based Payment
 Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006
 Revenues
 Three Months EndedJune 30,(dollars in thousands)
    
    2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeCryoablation disposable products
    
    $
    5,417
    
    
    $
    3,397
    
    
    $
    2,020
    
    
    
    59.5
    %Cryocare Surgical Systems
    
    
    521
    
    
    
    225
    
    
    
    296
    
    
    
    131.6
    %Other
    
    
    115
    
    
    
    12
    
    
    
    103
    
    
    
    858.3
    %6,053
    
    
    
    3,634
    
    
    
    2,419
    
    
    
    66.6
    %Cryoablation procedure fees
    
    
    1,746
    
    
    
    3,135
    
    
    
    (1,389
    )
    
    
    (44.3
    )%Cardiac royalties (CryoCath)
    
    
    102
    
    
    
    139
    
    
    
    (37
    )
    
    
    (26.6
    )%$
    7,901
    
    
    $
    6,908
    
    
    $
    993
    
    
    
    14.4
    %
 18




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##### Table of Contents



Cost of Revenues
 Three Months EndedJune 30,(dollars in thousands)
    
    2007
    
    2006
    
    $ ChangeThree months ended
    
    $
    2,713
    
    
    $
    3,256
    
    
    $
    (543
    )Percent of revenues
    
    
    34.3
    %
    
    
    47.1
    %
  Gross Profit and Gross Margin
 Three Months EndedJune 30,(dollars in thousands)
    
    2007
    
    
    2006
    
    
    $ ChangeCryoablation disposable products and procedure fees
    
    $
    4,810
    
    
    $
    3,504
    
    
    $
    1,306Cryocare surgical systems
    
    
    161
    
    
    
    (3
    )
    
    
    164Cardiac royalties (CryoCath) and other
    
    
    217
    
    
    
    151
    
    
    
    66$
    5,188
    
    
    $
    3,652
    
    
    $
    1,536
 19




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##### Table of Contents



Three Months Ended
    
    
    PercentageJune 30,
    
    
    Point(percent of revenues)
    
    2007
    
    
    2006
    
    
    ChangeCryoablation disposable products and procedure fees
    
    
    60.9
    %
    
    
    50.7
    %
    
    
    10.2
    %Cryocare Surgical Systems
    
    
    2.0
    %
    
    
    
    
    
    
    2.0
    %Cardiac royalties (CryoCath)
    
    
    2.8
    %
    
    
    2.2
    %
    
    
    0.6
    %65.7
    %
    
    
    52.9
    %
    
    
    12.8
    %
  Research and Development Expenses
 Three Months EndedJune 30,(dollars in thousands)
    
    2007
    
    2006
    
    $ Change
    
    % ChangeResearch and development expenses
    
    $
    621
    
    
    $
    475
    
    
    $
    146
    
    
    
    30.7
    %Percent of total revenues
    
    
    7.9
    %
    
    
    6.9
    %
  Selling and Marketing Expenses
 Three Months EndedJune 30,(dollars in thousands)
    
    2007
    
    2006
    
    $ Change
    
    % ChangeSelling and marketing expenses
    
    $
    4,099
    
    
    $
    3,904
    
    
    $
    195
    
    
    
    5.0
    %Percent of total revenues
    
    
    51.9
    %
    
    
    56.5
    %
  General and Administrative Expenses
 Three Months EndedJune 30,(dollars in thousands)
    
    2007
    
    2006
    
    $ Change
    
    % ChangeGeneral and administrative expenses
    
    $
    2,845
    
    
    $
    2,072
    
    
    $
    773
    
    
    
    37.3
    %Percent of total revenues
    
    
    36.0
    %
    
    
    30.0
    %
 20




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.
 Interest Expense Related to Common Stock Warrants.
 Three Months EndedJune 30,(dollars in thousands)
    
    2007
    
    2006
    
    $ Change
    
    % ChangeInterest expense
related to common stock
warrants
    
    $
    
    
    
    $
    (1,908
    )
    
    $
    (1,908
    )
    
    
    (100.0
    %)Percent of total revenues
    
    
    
    
    
    
    (27.6
    )%
 Accounting for Registration Payment Arrangements Private Placement of Common
Stock and Warrants
 Interest Income, Net
 Three Months EndedJune 30,(dollars in thousands)
    
    2007
    
    2006
    
    $ Change
    
    % ChangeInterest income, net
    
    $
    113
    
    
    $
    183
    
    
    $
    (70
    )
    
    
    (38.3
    )%Percent of total revenues
    
    
    1.4
    %
    
    
    2.6
    %
  Net Loss
 Three Months EndedJune 30,(dollars in thousands)
    
    2007
    
    2006
    
    $ Change
    
    % ChangeNet loss
    
    $
    (2,264
    )
    
    $
    (708
    )
    
    $
    1,556
    
    
    
    219.8
    %Percent of total revenues
    
    
    (28.7
    )%
    
    
    (10.2
    )%
  21




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Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
 Revenues
 Six Months EndedJune 30,(dollars in thousands)
    
    2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeCryoablation disposable products
    
    $
    10,620
    
    
    $
    5,808
    
    
    $
    4,812
    
    
    
    82.9
    %Cryocare Surgical Systems
    
    
    998
    
    
    
    445
    
    
    
    553
    
    
    
    124.3
    %Other
    
    
    149
    
    
    
    22
    
    
    
    127
    
    
    
    577.3
    %11,767
    
    
    
    6,275
    
    
    
    5,492
    
    
    
    87.5
    %Cryoablation procedure fees
    
    
    3,488
    
    
    
    7,598
    
    
    
    (4,110
    )
    
    
    (54.1
    )%Cardiac royalties (CryoCath)
    
    
    192
    
    
    
    297
    
    
    
    (105
    )
    
    
    (35.4
    )%$
    15,447
    
    
    $
    14,170
    
    
    $
    1,277
    
    
    
    9.0
    %
     Cost of Revenues
 Six Months EndedJune 30,(dollars in thousands)
    
    2007
    
    2006
    
    $ ChangeSix months ended
    
    $
    5,335
    
    
    $
    7,021
    
    
    $
    (1,686
    )Percent of revenues
    
    
    34.5
    %
    
    
    49.5
    %
  Gross Profit and Gross Margin
 Six Months EndedJune 30,(dollars in thousands)
    
    2007
    
    
    2006
    
    
    $ ChangeCryoablation disposable products and procedure fees
    
    $
    9,362
    
    
    $
    6,982
    
    
    $
    2,380Cryocare surgical systems
    
    
    409
    
    
    
    (152
    )
    
    
    561Cardiac royalties (CryoCath) and other
    
    
    341
    
    
    
    319
    
    
    
    22$
    10,112
    
    
    $
    7,149
    
    
    $
    2,963
 22




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##### Table of Contents



Six Months Ended
    
    
    PercentageJune 30,
    
    
    Point(percent of revenues)
    
    2007
    
    
    2006
    
    
    ChangeCryoablation disposable products and procedure fees
    
    
    60.6
    %
    
    
    49.3
    %
    
    
    11.3
    %Cryocare surgical systems
    
    
    2.7
    %
    
    
    (1.1
    %)
    
    
    3.8
    %Cardiac royalties (CryoCath) and other
    
    
    2.2
    %
    
    
    2.3
    %
    
    
    (0.1
    )%65.5
    %
    
    
    50.5
    %
    
    
    15.0
    %
  Research and Development Expenses
 Six Months EndedJune 30,(dollars in thousands)
    
    2007
    
    2006
    
    $ Change
    
    % ChangeResearch and development expenses
    
    $
    1,236
    
    
    $
    1,486
    
    
    $
    (250
    )
    
    
    (16.8
    )%Percent of total revenues
    
    
    8.0
    %
    
    
    10.5
    %
  Selling and Marketing Expenses
 Six Months EndedJune 30,(dollars in thousands)
    
    2007
    
    2006
    
    $ Change
    
    % ChangeSelling and marketing expenses
    
    $
    7,862
    
    
    $
    7,673
    
    
    $
    189
    
    
    
    2.5
    %Percent of total revenues
    
    
    50.9
    %
    
    
    54.1
    %
  General and Administrative Expenses
 Six Months EndedJune 30,(dollars in thousands)
    
    2007
    
    2006
    
    $ Change
    
    % ChangeGeneral and administrative expenses
    
    $
    6,674
    
    
    $
    6,067
    
    
    $
    607
    
    
    
    10.0
    %Percent of total revenues
    
    
    43.2
    %
    
    
    42.8
    %
 23




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##### Table of Contents



Commitments and Contingencies. .
 Interest Expense Related to Common Stock Warrants
 Six Months EndedJune 30,(dollars in thousands)
    
    2007
    
    2006
    
    $ Change
    
    % ChangeInterest expense related to common stock warrants
    
    $
    
    
    
    $
    (1,696
    )
    
    $
    (1,696
    )
    
    
    (100.0
    %)Percent of total revenues
    
    
    
    
    
    
    (12.0
    %)
 Accounting for Registration Payment Arrangements Private Placement of Common Stock and
Warrants
 Interest Income, Net
 Six Months EndedJune 30,(dollars in thousands)
    
    2007
    
    2006
    
    $ Change
    
    % ChangeInterest income, net
    
    $
    139
    
    
    $
    349
    
    
    $
    (210
    )
    
    
    (60.2
    )%Percent of total revenues
    
    
    0.9
    %
    
    
    2.5
    %
  Net Loss
 Six Months EndedJune 30,(dollars in thousands)
    
    2007
    
    2006
    
    $ Change
    
    % ChangeNet loss
    
    $
    (5,521
    )
    
    $
    (5,636
    )
    
    $
    (115
    )
    
    
    (2.0
    )%Percent of total revenues
    
    
    (35.7
    )%
    
    
    (39.8
    )%
  24




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##### Table of Contents



Liquidity and Capital Resources
  Commitments and Contingencies Commitments and Contingencies.
  Private Placement of Common Stock and Warrants,
    25




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
  Changes in Internal Controls.
 26




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  In order to qualify our stock for relisting, our Board has approved a one-for-three
reverse stock split to be become effective on August 20, 2007; this reverse stock split could
adversely affect our stockholders.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
   Number of SharesFor
    
    
    AbstainJohn R. Daniels, M.D.
    
    
    22,758,048
    
    
    
    165,667Craig T. Davenport
    
    
    22,651,648
    
    
    
    272,067David L. Goldsmith
    
    
    22,707,348
    
    
    
    216,367Eric S. Kentor
    
    
    22,758,048
    
    
    
    165,667Terrence A. Noonan
    
    
    22,707,848
    
    
    
    215,867Thomas R. Testman
    
    
    22,757,348
    
    
    
    166,367
  Number of SharesFor
    
    
    21,747,512Against
    
    
    748,600Abstain
    
    
    427,603
  Number of SharesFor
    
    
    22,751,715Against
    
    
    140,925Abstain
    
    
    31,075
 27




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##### Table of Contents



Item 5. Other Information
  
 Item 6. Exhibits
  28




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##### Table of Contents



SIGNATURES
  ENDOCARE, INC.By:
    /s/ CRAIG T. DAVENPORTCraig T. DavenportChief Executive Officer, President and
Chairman of the Board
(Duly Authorized Officer) By:
    /s/ MICHAEL R. RODRIGUEZMichael R. RodriguezSenior Vice President, Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)  29




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Description2.1(1)
    
    Stock Purchase Agreement, dated as of January 13, 2006, by and among the Company, Plethora
Solutions Holdings plc and Timm Medical Technologies, Inc. The schedules and other
attachments to this exhibit were omitted. The Company agrees to furnish a copy of any
omitted schedules or attachments to the Securities and Exchange Commission upon request.2.2(2)
    
    $1,425,000 Secured Convertible Promissory Note, dated as of February 10, 2006, from
Plethora Solutions Holdings plc to the Company.3.1(3)
    
    Certificate of Amendment of Restated Certificate of Incorporation of the Company.3.2(3)
    
    Certificate of Designation of Series A Junior Participating Preferred Stock of the Company.3.3(3)
    
    Restated Certificate of Incorporation.3.4(4)
    
    Amended and Restated Bylaws of the Company.4.1(5)
    
    Form of Stock Certificate.4.2(6)
    
    Form of Series A Warrant.4.3(6)
    
    Form of Series B Warrant.4.4(7)
    
    Rights Agreement, dated as of March 31, 1999, between the Company and U.S. Stock Transfer
Corporation, which includes the form of Certificate of Designation for the Series A Junior
Participating Preferred Stock as Exhibit A, the form of Rights Certificate as Exhibit B
and the Summary of Rights to Purchase Series A Preferred Shares as Exhibit C.4.5(8)
    
    Amendment No. 1 to Rights Agreement, dated as of September 24, 2005, between the Company
and U.S. Stock Transfer Corporation.10.1(9)
    
    Common Stock Subscription Agreement, dated as of May 24, 2007, by and between Endocare,
Inc. and Frazier Healthcare V, L.P.10.2(9)
    
    Registration Rights Agreement, dated as of May 25, 2007, by and between Endocare, Inc. and
Frazier Healthcare V, L.P.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.
 
 (1)
    
    Previously filed as an exhibit to our Form 8-K filed on January 18, 2006.(2)
    
    Previously filed as an exhibit to our Form 10-K filed on March 16, 2006. 30




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##### Table of Contents



(3)
    
    Previously filed as an exhibit to our Registration Statement on Form S-3 filed on September 20, 2001.(4)
    
    Previously filed as an exhibit to our Form 10-K filed on March 15, 2004.(5)
    
    Previously filed as an exhibit to our Form 10-K for the year ended December 31, 1995.(6)
    
    Previously filed as an exhibit to our Form 8-K filed on March 16, 2005.(7)
    
    Previously filed as an exhibit to our Form 8-K filed on June 3, 1999.(8)
    
    Previously filed as an exhibit to our Form 8-K filed on June 28, 2005.(9)
    
    Previously filed as an exhibit to our Form 8-K filed on May 29, 2007 31