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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-Q (Mark One)R
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005OR£
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM      TO      .
 COMMISSION FILE NUMBER:
001-15063 Endocare, Inc. (Exact name of Registrant as Specified in Its Charter
 DELAWARE(State of Incorporation)
    
    33-0618093(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) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. (1) Yes R No £; (2) Yes R No £. Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes R No £ The number of shares of the Registrants common stock, par value $.001 per share, outstanding
at April 4, 2005 was 29,987,756




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Endocare, Inc.
INDEX Part I. Financial InformationItem 1. Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Statements of Operations- Three months ended March 31, 2005 and 2004
    
    
    3Condensed Consolidated Balance Sheets- March 31, 2005 and December 31, 2004
    
    
    4Condensed Consolidated Statements of Cash Flows- Three months ended March 31, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    12Item 4. Controls and Procedures
    
    
    12Part II. Other InformationItem 1. Legal Proceedings
    
    
    14Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    14Item 3. Defaults Upon Senior Securities
    
    
    14Item 4. Submission of Matters to a Vote of Security Holders
    
    
    14Item 5. Other Information
    
    
    14Item 6. Exhibits
    
    
    14Signatures
    
    
    17EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 10.3EXHIBIT 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 (In thousands, except per share data)
(Unaudited)
 Three Months EndedMarch 31,2005
    
    
    2004Total revenues
    
    $
    9,126
    
    
    $
    7,382Costs and expenses:Cost of revenues
    
    
    5,067
    
    
    
    4,234Research and development
    
    
    321
    
    
    
    536Selling, general and administrative
    
    
    8,288
    
    
    
    11,180Impairment charge
    
    
    (583
    )
    
    
    Total costs and expenses
    
    
    13,093
    
    
    
    15,950Loss from operations
    
    
    (3,967
    )
    
    
    (8,568
    )Interest income, net
    
    
    112
    
    
    
    45Loss before minority interests
    
    
    (3,855
    )
    
    
    (8,523
    )Minority interests
    
    
    
    
    
    
    (100
    )Net loss
    
    $
    (3,855
    )
    
    $
    (8,623
    )Net loss per share  basic and diluted
    
    $
    (0.15
    )
    
    $
    (0.36
    )Weighted average shares of common stock outstanding
    
    
    25,601
    
    
    
    24,088
 The accompanying notes are an integral part of these condensed consolidated financial statements. 3




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ENDOCARE, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except per share data)
 March 31,
    
    
    December 31,2005
    
    
    2004(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    17,490
    
    
    $
    7,985Accounts receivable, net
    
    
    4,236
    
    
    
    3,904Inventories, net
    
    
    3,253
    
    
    
    3,175Prepaid expenses and other current assets
    
    
    1,199
    
    
    
    1,651Total current assets
    
    
    26,178
    
    
    
    16,715Property and equipment, net
    
    
    2,612
    
    
    
    3,139Goodwill
    
    
    4,552
    
    
    
    4,552Intangibles, net
    
    
    8,197
    
    
    
    8,560Investments and other assets
    
    
    1,039
    
    
    
    1,409Total assets
    
    $
    42,578
    
    
    $
    34,375LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,957
    
    
    $
    2,636Accrued compensation
    
    
    3,118
    
    
    
    3,708Other accrued liabilities
    
    
    8,190
    
    
    
    10,391Total current liabilities
    
    
    14,265
    
    
    
    16,735Minority interests
    
    
    
    
    
    
    214Total liabilities
    
    
    14,265
    
    
    
    16,949Stockholders equity:Preferred stock, $.001 par value; 1,000 shares authorized; none issued and outstanding
    
    
    
    
    
    
    Common stock, $.001 par value; 50,000 shares authorized; 29,988 and 24,342 issued and
outstanding as of March 31, 2005 and December 31, 2004, respectively
    
    
    30
    
    
    
    24Additional paid-in capital
    
    
    184,136
    
    
    
    169,400Accumulated deficit
    
    
    (155,853
    )
    
    
    (151,998
    )Total stockholders equity
    
    
    28,313
    
    
    
    17,426Total liabilities and stockholders equity
    
    $
    42,578
    
    
    $
    34,375
 The accompanying notes are an integral part of these condensed consolidated balance sheets. 4




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ENDOCARE, INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
(Unaudited
 Three Months Ended March 31,2005
    
    
    2004Net cash used in operating activities
    
    $
    (6,050
    )
    
    $
    (10,645
    )Cash flows from investing activities:Sales of property and equipment
    
    
    
    
    
    
    210Purchases of property and equipment
    
    
    (34
    )
    
    
    (160
    )Proceeds from divestitures
    
    
    850
    
    
    
    2,500Partnership distributions to minority interests
    
    
    
    
    
    
    (195
    )Increase in other assets
    
    
    
    
    
    
    (71
    )Net cash provided by investing activities
    
    
    816
    
    
    
    2,284Cash flows from financing activities:Stock options and warrants exercised
    
    
    22
    
    
    
    Proceeds from sale of common stock, net of issuance costs
    
    
    14,717
    
    
    
    Treasury stock received in settlement
    
    
    
    
    
    
    (504
    )Net cash
provided by (used in) financing activities
    
    
    14,739
    
    
    
    (504
    )Net increase (decrease) in cash and cash equivalents
    
    
    9,505
    
    
    
    (8,865
    )Cash and cash equivalents, beginning of period
    
    
    7,985
    
    
    
    23,977Cash and cash equivalents, end of period
    
    $
    17,490
    
    
    $
    15,112Non-cash activities:Transfer of inventory to property and equipment
    
    $
    289
    
    
    $
    113Retirement of treasury shares held
    
    
    
    
    
    
    2,593Deferred compensation on options forfeited
    
    
    
    
    
    
    94
 The accompanying notes are an integral part of these condensed consolidated financial statements. 5




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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 device company focused on developing, manufacturing
and selling cryosurgical products with the potential to improve the treatment of cancer and other
tumors. In addition, we offer vacuum therapy systems for non-pharmaceutical treatment of erectile
dysfunction. Endocare was formed in 1990 as a research and development division of Medstone
International, Inc. (Medstone), a manufacturer of shockwave lithotripsy equipment for the
treatment of kidney stones. Following its incorporation under the laws of the state of Delaware in
1994, Endocare became an independent, publicly-owned corporation upon Medstones distribution of
Endocares stock to the existing stockholders on January 1, 1996. 2. Basis of Presentation Following the rules and regulations of the Securities and Exchange Commission (the SEC) we
have omitted footnote disclosures in this report that would substantially duplicate the disclosures
contained in our annual audited financial statements. The accompanying condensed consolidated
financial statements should be read together with the consolidated financial statements and the
notes thereto included in our December 31, 2004 Annual Report on Form 10-K, filed with the SEC on
March 16, 2005. The accompanying condensed consolidated financial statements reflect all adjustments, consisting
solely of normal recurring accruals, needed to present fairly the financial results for these
interim periods. The condensed consolidated results of operations presented for the interim periods
are not necessarily indicative of the results for a full year. All intercompany transactions and
accounts have been eliminated in consolidation. 3. Changes to Plan of Sale  Timm Medical In July 2004, we began actively marketing Timm Medical Technologies, Inc. (Timm Medical), our
wholly-owned subsidiary, and our equity interests in the mobile prostate treatment businesses
(collectively the Disposal Group) to potential buyers as part of an overall plan to raise
additional capital. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, the assets and liabilities of the Disposal Group were classified as assets held
for sale as of that date. In connection with the potential sale, we reduced the carrying value of
these assets and liabilities to fair value less estimated cost to sell and suspended depreciation
of fixed assets and amortization of intangibles as of July 31, 2004. 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 and developed technology at Timm Medical. We completed the sale of the mobile treatment businesses in December 2004. By the end of March
2005, we had not found a suitable buyer for Timm Medical. With the successful completion of a
private placement of our common stock in March 2005 (see Note 4) where we raised $14.7 million in
new capital, we determined that we would no longer seek a buyer and have ceased all marketing
efforts in April 2005. In accordance with SFAS No. 144, we
measured Timm Medicals assets and liabilities
individually at the (a) lower of its carrying amount before they were classified as held for
sale, adjusted for any depreciation (amortization) expense or impairment losses that would have
been recognized had the net asset group been continuously classified as held and used or (b) fair
value at March 31, 2005. Based on this review, we recorded $0.4 million in depreciation of fixed
assets and amortization of intangibles for the period from July 31, 2004 to March 31, 2005
(included in selling, general and administrative expenses). We also recorded income of $0.6 million
as a result of the elimination of the estimated costs to sell, which were previously reported as a
component of the impairment charge. The condensed consolidated balance sheet at December 31, 2004
has been reclassified to reflect the Timm Medical assets and liabilities as held and used. At March 31, 2005, we retained 3 mobile treatment businesses, all of which are inactive and
are being dissolved. These residual interests are not significant and are accounted for on the
equity method. 4. Private Placement of Common Stock and Warrants On March 11, 2005, we completed a private placement of 5,635,378 shares of our common stock
and detachable warrants to purchase 3,944,748 common shares at an
offering price of $2.77 per share,
for aggregate gross proceeds of $15.6 million. Transaction costs were $0.9 million, resulting in
net proceeds of $14.7 million. 1,972,374 of the warrants have an initial exercise price of $3.50
(Series A warrants) per share and 1,972,374 warrants have an initial exercise price of $4.00
(Series B warrants) per share. We believe that the proceeds of this offering will provide us with the means
to improve our business to a positive cash flow status sometime in 2006. The warrants initially are exercisable at any time during the next five years for cash only.
The warrants may be exercised on a cashless exercise basis in limited circumstances after the first
anniversary of the closing date if there is not an effective registration statement covering the
resale of the shares underlying the warrants. Each warrant is callable by Endocare at a price of
$0.01 per share underlying such warrant if Endocares stock trades above certain dollar thresholds
($6.50 for the Series A warrants and $7.50 for Series B warrants) for 20 consecutive days
commencing on any date after the effectiveness of the registration statement, provided that (a) we
provide 30-day advance written notice (Notice Period), (b) we simultaneously call all warrants on
the same terms and (c) all common shares issuable are registered. Holders may exercise their
warrants during the Notice Period and warrants which remain unexercised will be redeemed at $0.01
per share. In accordance with EITF 00-19, Accounting for Derivative Financial Instruments Indexed
To, and Potentially Settled In a Companys Own Stock, (EITF 00-19), we have allocated a portion of
the offering proceeds to the warrants based on their fair value estimated using the Black-Scholes
option-pricing model with the following assumptions: no dividends; risk-free interest rate of 3.9%;
expected life of 3 years and volatility of 95%. The fair value of the warrants was estimated to be
$3.2 million on the closing date of the transaction and was recorded as additional paid-in capital.
Upon exercise, we will pay transaction fees equal 6% of the warrant proceeds under an existing
capital advisory agreement. Pursuant to the terms of the registration rights agreement, we filed with the SEC a
registration statement on Form S-2 under the Securities Act of 1933, as amended on April 4, 2005,
covering the resale of all of the common stock purchased and the common stock underlying the issued
warrants. Such registration statement has not yet been declared effective. The registration rights agreement further provides that if a registration statement is not
filed within 30 days of closing or does not become effective within 90 days thereafter, then in
addition to any other rights the holders may have, we will be required to pay each holder an amount
in cash, as liquidated damages, equal to 1% per month of the aggregate purchase price paid by such
holder. Two members of our management team made personal investments totaling $0.7 million in the
aggregate, and a member of our board of directors invested $0.3 million. 5. Net Loss Per Share Basic net loss per share is computed by dividing net loss by the weighted average number of
common shares outstanding for the respective periods. Diluted loss per share, calculated using the
treasury stock method, gives effect to the potential dilution that could occur upon the exercise of
certain stock options that were outstanding during the respective periods presented. For periods
when we reported a net loss, these potentially dilutive common shares were excluded from the
diluted loss per share calculation because they were anti-dilutive. 6. Stock-Based Compensation We
have elected to follow Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees,and related interpretations in accounting for our employee stock
options. Under APB 25, if the exercise price of the employee and director stock options is less
than the estimated fair value of the underlying stock on the date of grant, we record deferred
compensation for the difference. Option or stock awards
 issued to non-employees are recorded at their fair value as determined
by the Black-Scholes option-pricing model in accordance with Emerging
Issues Task Force (EITF) 96-18, Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods and
Services.Such awards are periodically
revalued as the options vest and are recognized as expense over the
related service period or as performance goals are achieved. Pro forma information regarding our net loss is required by SFAS 123,as amended by SFAS No.
148, Accounting for Stock-Based Compensation  Transition and Disclosure,and has been determined
as if we had accounted for our employee stock options under the fair value method of SFAS 123, as
amended by SFAS 148. The pro forma effects of stock-based compensation on net loss and net loss
per share have been estimated at the date of grant using the Black-Scholes option-pricing model. 6




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The following table illustrates the effect on net losses if we had applied the fair value
recognition provisions of SFAS 123 to stock-based compensation: Three months endedMarch 31,2005
    
    
    2004Net loss, as reported
    
    $
    (3,855
    )
    
    $
    (8,623
    )Reconciling items:Add: Stock-based employee compensation
expense determined under the
intrinsic-value-based method for all awards
    
    
    2
    
    
    
    8Less: Stock-based compensation expense
determined under the fair-value-based method
for all awards expense
    
    
    (901
    )
    
    
    (654
    )Net adjustment
    
    
    (899
    )
    
    
    (646
    )Net loss, as adjusted
    
    $
    (4,754
    )
    
    $
    (9,269
    )Basic and diluted loss per share:As reported
    
    $
    (0.15
    )
    
    $
    (0.36
    )As adjusted
    
    $
    (0.19
    )
    
    $
    (0.38
    )
 In December 2004, SFAS No. 123R, Share-Based Payment, was issued. SFAS No. 123R is a
revision of SFAS No. 123, Accounting for Stock Based Compensation, and supersedes APB 25. Among
other items, SFAS 123R eliminates the use of APB 25 and the intrinsic value method of accounting,
and requires companies to recognize the cost of employee services received in exchange for awards
of equity instruments, based on the grant date fair value of those awards, in the financial
statements. We are required to adopt SFAS 123R effective January 1, 2006. SFAS 123R permits
companies to adopt its
requirements using either a modified prospective method, or a modified retrospective
method. Under the modified prospective method, compensation cost is recognized in the financial
statements beginning with the effective date, based on the requirements of SFAS 123R for all
share-based payments granted after that date, and based on the requirements of SFAS 123 for all
unvested awards granted prior to the effective date of SFAS 123R. Under the modified
retrospective method, the requirements are the same as under the modified prospective method,
but also permits entities to restate financial statements of previous periods based on proforma
disclosures made in accordance with SFAS 123. We currently utilize the Black-Scholes standard option pricing model to 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 to measure the fair value of employee stock options upon the adoption of SFAS 123R. SFAS 123R also requires that the benefits associated with the tax deductions in excess of
recognized compensation cost be reported as a financing cash flow, rather than as an operating cash
flow as required under current literature. This requirement will reduce net operating cash flows
and increase net financing cash flows in periods after the effective date. These future amounts
cannot be estimated, because they depend on, among other things, when employees exercise stock
options. Also, we have not recognized the benefits for excess tax deductions in our operating cash
flows in prior periods due to the uncertainty of when we will generate taxable income to realize
such benefits. We currently expect to adopt SFAS 123R effective January 1, 2006; however, we have not
yet determined which of the aforementioned adoption methods we will use. The adoption of SFAS No.
123Rs fair value method will have a significant impact on our results of operations, although it
will have no impact on our overall financial position and cash flows. The impact of adoption of
SFAS No. 123R cannot be predicted at this time because it will depend on levels of share-based
payments granted in the future. However, had we adopted SFAS No. 123R in prior periods, the impact
of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure
of pro forma net loss and loss per share in the table above. 7. Inventories Inventories, consisting of raw materials, work-in-process and finished goods, are stated at
the lower of cost or market, with cost determined by the first-in, first-out method. Reserves for
slow-moving and obsolete inventories are provided based on historical experience and product
demand. We evaluate the adequacy of these reserves periodically. The following is a summary of inventory: March 31,
    
    
    December 31,2005
    
    
    2004Raw materials
    
    $
    1,760
    
    
    $
    1,727Work in process
    
    
    287
    
    
    
    446Finished goods
    
    
    1,734
    
    
    
    1,560Total inventories
    
    
    3,781
    
    
    
    3,733Less inventory reserve
    
    
    (528
    )
    
    
    (558
    )Inventories, net
    
    $
    3,253
    
    
    $
    3,175
 7




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8. Commitments and Contingencies Legal Matters In November 2002, we were named as a defendant, together with certain former officers, one of
whom is also a former board member, in a class-action lawsuit filed in the United States District
Court for the Central District of California. On February 2, 2003, the court issued an order
consolidating this action with various other similar complaints and ordering plaintiffs to file a
consolidated complaint, which was filed on October 31, 2003. The consolidated complaint asserted
two claims for relief, alleging that the defendants violated sections of the Securities Exchange
Act of 1934 by purportedly issuing false and misleading statements regarding our revenues and
expenses in press releases and SEC filings. Plaintiffs sought class certification and unspecified
damages from us, as well as forfeiture and reimbursement of bonus compensation received by two of
the individual defendants. On April 26, 2004, the court issued an order denying our motion to
dismiss the consolidated complaint. On November 8, 2004, we executed a settlement agreement with
the lead plaintiffs and their counsel. Under the agreement, in
exchange for a release of all 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 to reservations of rights by the carriers (see below).
On February 7, 2005, the Court issued a final order approving the agreement and dismissing the
class-action lawsuit. On December 6, 2002, Frederick Venables filed a purported derivative action against us and
certain former officers, certain former board members and one current board member in the
California Superior Court for the County of Orange alleging breach of fiduciary duty, abuse of
control, gross mismanagement, waste of corporate assets and unjust enrichment. Pursuant to a
stipulation filed on or about April 23, 2004 and approved by the court, the deadline to respond to
the complaint was stayed until 2005. The complaint sought unspecified monetary damages, equitable
relief and injunctive relief based upon allegations that the defendants issued false and misleading
statements regarding our revenues and expenses in press releases and SEC filings. On December 6,
2004, we executed a settlement agreement with the plaintiff and his counsel. On December 8, 2004,
the Court issued a final order approving the agreement and dismissing the derivative lawsuit. Under
the agreement, in exchange for the plaintiffs release of all claims, we paid a total of $0.5
million in cash prior to December 31, 2004 to cover the fees and expenses of the plaintiffs
counsel. The agreement also requires us to maintain various corporate governance measures for a
period of at least two years, unless a modification is necessary in the good faith business
judgment of our Board of Directors. As of November 2002, when we notified our insurance carriers of various claimed violations of
federal securities laws, we carried $20 million of directors and officers liability insurance
coverage under four policies with limits of $5 million each. The primary carrier subsequently
reimbursed our defense and litigation settlement costs up to the limits of its $5 million policy. However, the three excess
carriers, representing $15 million of the $20 million of coverage, filed arbitration complaints
seeking rescission of the policies. As previously reported, in December 2004 and February 2005, we reached settlement with
two of the three excess carriers to reimburse us for current and future legal defense and
litigation settlement costs. We are currently engaged in arbitration proceedings with the remaining
carrier in an effort to resolve this matter, but we cannot assure you that this matter will be
resolved in our favor. These claims relate to a previous policy year and do not impact our current
coverage limits. We
have been in settlement discussions with the staff of the SEC regarding
 the terms of a settlement of the previously announced investigation
commenced by
the SEC in January 2003 related to allegations that we and certain of
our current and former officials and directors issued, or caused to
be issued, false and misleading financial statements in prior periods. The proposed settlement currently under discussion, which must be agreed upon by the staff
and will then be subject both to final approval by the SEC and court approval, includes the
following principal terms: (i) we would pay a total of $750,001, consisting of $1 in disgorgement
and $750,000 in civil penalties (which has been accrued as of December 31, 2004); (ii) we would
agree to a stipulated judgment enjoining future violations of securities laws; and (iii) we would
agree to maintain various improvements in our internal controls that have previously been
implemented. If approved, the proposed settlement would resolve all claims against us relating to
the formal investigation that the SEC commenced. As previously announced, the Department of Justice (DOJ) is conducting an investigation into
allegations that we and certain of our former officers, a former director and one current employee
intentionally issued, or caused to be issued, false and misleading
statements regarding our financial results and related matters. The DOJs
investigation is ongoing and is not affected by the proposed settlement with the SEC described
above. In addition, we are, in the normal course of business, subject to various other legal matters,
which we believe will not individually or collectively have a material adverse effect on our
consolidated financial condition, results of operations or cash
flows. However, the results of litigation and claims cannot
be predicted with certainty, and we cannot provide assurance that the outcome of various legal
matters will not have a material adverse effect on our consolidated financial condition, results of
operations or cash flows. As of March 31, 2005, except for the matters indicated above for which we
have accrued $2.2 million (of which $750,001 relates to the proposed settlement with the SEC and
the balance of which relates to the directors and officers liability insurance matters referred
to above), we have not established a liability for contingencies in the consolidated balance sheets
since the likelihood of loss and the potential liability cannot be reasonably estimated at this
time. Managements evaluation of the likelihood of an unfavorable outcome with respect to these
actions could change in the future. Our directors and officers liability and other insurance may
fund certain losses, including defense costs, related to the above litigation matters. These
recoveries will be recorded when the amounts are determined to be recoverable from the insurance
carriers. From time to time, we have received correspondence alleging infringement of proprietary rights
of third parties. No assurance can be given that any relevant claims of third parties would not be
upheld as valid and enforceable, and therefore we could be prevented from practicing the subject
matter claimed or would be required to obtain licenses from the owners of any such proprietary
rights to avoid infringement. We do not expect any material adverse
effect on our consolidated
financial condition, results of operations, or cash flows because of such claims. 9. Income Taxes We reported no income tax expense for each of the three months ended March 31, 2005 and 2004
due to our operating losses. The continuing operating losses resulted in an increase in the
valuation allowance of $1.8 million and $3.4 million during the three months ended March 31, 2005
and 2004, respectively. Due to our history of operating losses, management has determined that it
is more likely than not that our deferred tax assets will not be realized through future earnings.
Accordingly, valuation allowances were recorded to fully reserve the deferred tax assets as of
March 31, 2005 and 2004. 8




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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 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 onForm 10-Kfor the fiscal year ended December 31, 2004. 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 onForm 10-Qor 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 onForm 10-Kthat 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 onForm 10-Qare based
on information available to us as of the date hereof, and we assume no obligation to update any
such forward-looking statements. Private Placement In March 2005, we closed a private placement of 5,635,378 shares of our common stock for $2.77
per share, for aggregate gross proceeds of $15.6 million. In addition, we issued 1,972,374
warrants to purchase common stock at an initial exercise price of $3.50 and 1,972,374 warrants to
purchase common stock at an initial exercise price of $4.00. We are obligated to register these
shares within 90 days of such closing. We believe that the proceeds of this offering provide us
with the means to eventually improve our business to a positive cash flow status. Strategy, Key Metrics and Developments Our goal is to achieve a leading position in the prostate and renal cancer markets, and
further develop and increase the acceptance of our technology in the interventional radiology and
oncology markets for treatment of liver and lung cancers and management of pain from bone
metastases. At the same time, we seek to achieve penetration across additional markets with our
proprietary cryosurgical technology, while maintaining our dominant position in vacuum technology
for erectile dysfunction. Our primary objective for our cryosurgical business is to grow market share, measured in terms
of the number of procedures performed with our Cryocare Surgical System. Accordingly, procedure
growth is an important metric to which we refer in order to measure the success of our strategy. In
the past several years, we have been successful in increasing the number of procedures on a
year-over-year basis. Most recently, in 2004 procedures increased 34.5 percent to 4,713 from 3,504
in 2003. In 2005, our objective is to increase the number of procedures at a significant rate which
is comparable to growth rates we have achieved historically. In addition to being a key business metric, procedure growth is an important driver of revenue
growth, because a significant percentage of our revenues consists of sales of the disposable
supplies used in procedures performed with the Cryocare Surgical System, as shown below under
Results of Operations. In 2003 we redirected our strategy for our cryosurgical business away from
emphasizing sales of Cryocare Surgical Systems and instead towards seeking to increase recurring
sales of disposable supplies. The factors driving interest in and utilization of cryoablation by 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, S.C.;
    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. 9




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Results of Operations Three Months Ended March 31, 2005 Compared to Three Months Ended March 2004 Revenues.Revenues for the three months ended March 31, 2005 increased 23.6 percent to $9.1
million compared to $7.4 million for the same period in 2004. The increase in revenues was
primarily attributable to growth in sales of disposables and procedure fees related to our
cryosurgical business. The number of cryosurgical procedures performed, and related sales of disposable products used
in these procedures, grew significantly in the three months ended March 31, 2005 compared to the
same period in 2004. Procedures increased 41.0 percent to 1,492 in the first quarter of 2005 from
1,058 in the comparable period of 2004, while the related revenues increased at a corresponding
40.5 percent increase to $6.3 million in the first quarter of 2005 from $4.5 million for the
comparable period in 2004. Contributing to growth in sales of cryosurgical products was an increase
in sales to a market served by interventional radiologists, treating tumors in the lung and liver
and pain resulting from metastases of cancer in the bone. Offsetting this increase is a decline in
revenues from other product lines including international urological sales and Cryocare Surgical
Systems. Sales of our Timm Medical product lines increased 9.5 percent to $2.3 million in the three
months ended March 31, 2005 from $2.1 million for the same period in 2004. This increase is
primarily due to a 9.5 percent increase in the average selling price of our Timm Medical product
line. Cost
of Revenues.Cost of revenues for the three months ended
March 31, 2005 increased 19.7
percent to $5.1 million compared to $4.2 million for the same period in 2004. The increase in cost
of revenues resulted primarily from growth in sales of cryosurgical probes and procedures. Cost of
revenues related to our cryosurgical probes and procedures increased
18.0 percent to $4.2 million
for the first quarter of 2005 from $3.5 million, compared to the same period in the 2004. This
increase was also partly driven by an increase in the number of cryosurgical procedures for which
we subcontract a portion of the service to third party service providers at an additional cost. Gross Margins.Gross margins on revenues increased to 44.5 percent for the three months ended March 31, 2005
compared to 42.6 percent for the same period in 2004. The positive trend in gross margins was
related to factors including continued reductions in manufacturing costs for our cryoablation
disposable products as well as a decline in the average fee we paid to third parties to provide
cryoablation procedures on our behalf, partially offset by a slight increase in the percentage of
procedures where we contracted with third parties to perform the procedures. Gross margins for our
Timm Medical product lines increased due to higher average selling prices and production cost
reductions. Research and Development Expenses.Research and development expenses for the three months
ended March 31, 2005 decreased 40.1 percent to $0.3 million compared to $0.5 million for the
comparable period in 2004. The decrease was primarily attributable to a $0.2 million reduction in
consulting and staffing costs initiated in our June 2004 cost reduction program. As a percentage of
revenues, research and development expenses decreased to
3.5 percent from 7.3 percent during the
three months ended March 31, 2004. Selling, General and Administrative Expenses.Selling, general and administrative expenses for
the three months ended March 31, 2005 declined 25.9 percent or $2.9 million to $8.3 million as
compared to $11.2 million for the three months ended March 31, 2004. Legal, accounting and
consulting cost reductions comprised $2.2 million of the decline with the remaining $0.7 million
decrease resulting primarily from staffing-related reductions. Prior period legal and accounting
costs were significantly higher due to a greater level of activity in the first quarter of 2004
related to investigations into our historical accounting and financial reporting. These
investigations have continued during the first quarter of 2005 but
our related costs were much lower. Impairment Charge. During the quarter ended September 30, 2004, we recorded $15.8 million in
impairment charges to write down the goodwill and amortizable intangibles in conjunction with Timm
Medical and our ownership interests in certain mobile prostate treatment businesses. The charge
represented the excess of the carrying value of these entities compared to their fair value, less
estimated costs to sell. With the successful completion of a
$15.6 million private placement of our common stock during the first quarter of 2005, management ceased actively marketing
Timm Medical for sale and reversed $0.6 million of estimated costs to sell
that had been previously recorded to impairment charge. Interest Income, Net.Interest income, net, for the three months ended March 31, 2005 was $0.1
million compared to $45,000 for the three months ended March 31,
2004. Interest income in the 2005 period includes
$62,000 related to interest payments on a note receivable for the
sale of our urinary incontinence product line in 2003. 10




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Minority Interests.Minority interests represent earnings attributable to minority investors
in the mobile prostate treatment businesses we acquired in 2002. During the fourth quarter of 2004
and the first quarter of 2005 we sold or dissolved a majority of these businesses. The businesses
dissolved or remaining during the first quarter of 2005 had no operations and therefore no minority
interest amounts were recorded in the first quarter of 2005. Net Loss.Net loss for the three months ended March 31, 2005 was $3.9 million or $0.15 per
basic and diluted share, compared to a net loss of $8.6 million, or $0.36 per basic and diluted
share for the same period in 2004. Liquidity and Capital Resources Since inception, we have incurred losses from operations and have reported negative cash
flows. As of March 31, 2005, we had an accumulated deficit of approximately $155.9 million and cash
and cash equivalents of approximately $17.5 million. We do not expect to reach break-even or cash flow positive in 2005, and we expect to continue
to generate losses from operations for the foreseeable future. These losses, which are expected to
decline over time, have resulted primarily from our continued investment to gain acceptance of our
technology. The success of our strategy is reflected in the revenue
growth for cryoprobes,
disposables and bundled procedure fees. These items comprised 40.8 percent of total revenues in
2002 compared to 67.6 percent of total revenues in 2004
representing a 75.4 percent increase from
$12.6 million in 2002 to $22.1 million in 2004. We also continue to incur significant costs associated with ongoing investigations and other
matters related to historical accounting and financial reporting, including obligations to
indemnify our former officers and former directors in connection with those investigations. These
costs, primarily legal, audit and accounting support fees, totaled $0.8 million (net of insurance
reimbursement) for the first quarter of 2005 and $7.1 million for 2004. For the first quarter of 2005 and the year ended December 31, 2004, $0.3 million and $2.3
million, respectively, of these costs also related to our efforts to achieve compliance with
Sarbanes 404. We also face large cash expenditures in the future related to past due state and
local tax obligations, for which we estimated and accrued
$3.4 million as of March 31, 2005. We currently are in
negotiations with various states to resolve past due taxes but have not yet entered into any settlement agreements On March 11, 2005, we issued 5,635,378 shares of our common stock, warrants to purchase an
additional 1,972,374 shares of common stock at $3.50 per share and warrants to purchase an
additional 1,972,374 shares of common stock at $4.00 per share for an
aggregate gross cash proceeds
of $15.6 million ($2.77 per share) less transaction costs of
$0.9 million, in a private placement financing. We intend to continue investing in our sales and marketing efforts to physicians in order to
raise awareness and gain further acceptance of our technology. This investment is required in order
to increase the physicians usage of our technology in the treatment of prostate and renal cancers,
lung and liver cancers and in the management of pain from bone metastases. Such costs will be
reported as current period charges under generally accepted accounting principles. We will use
existing cash reserves and the net proceeds from the $15.6 million private placement of our common
stock described above along with continued expense management efforts to finance our projected
operating and cash flow needs. Risks Related to Our Business The risks and uncertainties described below are not the only ones we face. For information
regarding other risks related to our business, please see Risks Related to Our Business in our
Annual Report onForm 10-Kfor the fiscal year ended December 31, 2004. Furthermore, additional
risks and uncertainties not presently known to us or that we currently deem immaterial may also
impair our operations. The occurrence of any of these risks could harm our business. In that case,
the trading price of our common stock could decline, and you may lose all or part of your
investment. We face risks related to investigations by the SEC and DOJ. As previously reported, the SEC and the DOJ are conducting investigations into allegations
that we and certain of our former officers and a former director and one current employee issued,
or caused to be issued, false and misleading statements regarding our financial results and related
matters. Although we have fully cooperated with these governmental agencies in these matters and
intend to continue to fully cooperate, these agencies may determine we have violated federal
securities laws. We cannot predict when these 11




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investigations will be completed or their outcomes. If it is determined that we have violated
federal securities laws or other laws or regulations, we may face sanctions, including, but not
limited to, significant monetary penalties and injunctive relief. In addition, we are generally obliged under indemnification agreements to the extent permitted
by law, to pay the legal and other expenses for our directors and officers who are named defendants
in legal proceedings related to their service. 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 DOJ investigation, a shareholder
class-action and a derivative lawsuit and other legal proceedings
described in our Annual Report on
Form 10-K filed on March 16, 2005, our management members have spent considerable time and effort
dealing with internal and external investigations involving our previous internal controls,
accounting policies and procedures, disclosure controls and procedures and corporate governance
policies and procedures. The significant time and effort spent has adversely affected our
operations and may continue to do so in 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 qualified managerial, technical, financial and sales personnel. If we fail to
attract and retain skilled scientific and marketing personnel, our research and development and
sales and marketing efforts will be hindered. Our future success depends to a significant degree
upon the continued services of key management personnel, including Craig T. Davenport, our Chief
Executive Officer, William J. Nydam, our President and Chief Operating Officer, and Michael R.
Rodriguez, our Senior Vice President, Finance and Chief Financial Officer. None of our key
management personnel is covered by an insurance policy of which we are the beneficiary. Future sales of shares of our common stock may negatively affect our stock price. Future sales of our common stock, including shares issued upon the exercise of outstanding
options and warrants or hedging or other derivative transactions with respect to our stock, could
have a significant negative effect on the market price of our common stock. These sales also might
make it more difficult for us to sell equity securities or equity-related securities in the future
at a time and price that we would deem appropriate. We had an aggregate of 29,987,756 shares of
common stock outstanding as of March 31, 2005, which included 5,635,378 shares of our common stock
that we issued on March 11, 2005 in connection a financing described in the Form 8-K that we filed
on March 16, 2005. Investors in that financing also received warrants to purchase an aggregate of
1,972,374 shares of our common stock at an exercise price of $3.50 per share and 1,972,374 shares
of our common stock at an exercise price of $4.00 per share. We entered into a registration rights
agreement in connection with the financing pursuant to which we agreed to register for resale by
the investors the shares of common stock issued and issuable upon exercise of the warrants issued
in the financing. We have filed a registration statement with the SEC to register these shares but
the registration statement has not yet been declared effective. Once the registration statement is
declared effective, the shares covered by the registration statement may be sold, which could have
a significant negative effect on the market price of our common stock. 
 Item 3.Quantitative and Qualitative Disclosures About Market Risk The primary objective of our investment activities is to preserve principal while at the same
time maximizing the income we receive from our invested cash without significantly increasing risk
of loss. Our financial instruments include cash, cash equivalents, accounts receivable, accounts
payable and accrued liabilities. At March 31, 2005, the carrying values of our financial
instruments approximated their fair values. Our policy is not to enter into derivative financial
instruments. In addition, we do not enter into any futures or forward contracts and therefore, we
do not have significant market risk exposure with respect to commodity prices. Although we transact our business in U.S. dollars, future fluctuations in the value of the
U.S. dollar may affect the price competitiveness of our products. However, we do not believe that
we currently have any significant direct foreign currency exchange rate risk and have not hedged
exposures denominated in foreign currencies or any other derivative financial instruments. 
 Item 4.Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures.We maintain disclosure controls and
procedures that are designed to ensure that information required to be disclosed in our reports
pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commissions rules 12




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and forms and that such information is accumulated and communicated to our management,
including our chief executive officer and chief financial officer, as appropriate, to allow for
timely decisions regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. As required by Rule 13a-15(b) of the Securities Exchange of 1934, as amended, we carried out
an evaluation, under the supervision and with the participation of our management, including our
chief executive officer and chief financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the quarter covered by this
report. Based on the foregoing, our chief executive officer and chief financial officer concluded
that our disclosure controls and procedures were effective at the reasonable assurance level. (b) Changes in Internal Controls.There was no change in our internal control over financial
reporting during our first fiscal quarter for 2005 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting. 13




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##### Table of Contents



PART II  OTHER INFORMATION 
 Item 1.Legal Proceedings We incorporate by reference the information contained in note 8 Commitments and
Contingencies-Legal Matters to the condensed consolidated financial statements included above in
Item 1 of Part I. 
 Item 2.Unregistered Sales of Equity Securities and Use of Proceeds On March 16, 2005 we filed a report on Form 8-K to report our issuance of 5,635,378 shares of
common stock, warrants to purchase an additional 1,972,374 shares of common stock at $3.50 per
share and warrants to purchase an additional 1,972,374 shares of common stock at $4.00 per share
for an aggregate cash purchase price of $15.6 million ($2.77 per share). 
 Item 3.Defaults Upon Senior Securities Not applicable. 
 Item 4.Submission of Matters to a Vote of Security Holders None. 
 Item 5.Other Information None. 
 Item 6.Exhibits. ExhibitNo.
    
    Description2.1(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.
 14




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##### Table of Contents



ExhibitNo.
    
    Description2.7(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.10.1
    
    Description of William J. Nydam salary adjustment, effective February 2005.10.2
    
    Description of Michael R. Rodriguez salary adjustment, effective February 2005.10.3
    
    Confidential Settlement Agreement and Release, dated as of February 18, 2005, by and
between the Company and Great American E&S Insurance Company.10.4(12)
    
    2004 Management Incentive Compensation Program10.5(12)
    
    2005 Management Incentive Compensation Program10.6(13)
    
    Purchase Agreement, dated as of March 10, 2005, by and between the Company and the
Investors (as defined therein).10.7(13)
    
    Registration Rights Agreement, dated as of March 10, 2005, by and between Endocare and the
Investors (as defined therein).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.
 15




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
    
    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 8-K filed on March 1, 2005.(13)
    
    Previously filed as an exhibit to our Form 8-K filed on March 16, 2005. 16




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ENDOCARE, INC.By:
    
    /s/ CRAIG T. DAVENPORTCraig T. DavenportChief Executive Officer andChairman of the Board(Duly Authorized Officer)By:
    
    /s/ MICHAEL R. RODRIGUEZMichael R. RodriguezSenior Vice President, Finance andChief Financial Officer(Principal Financial and Accounting Officer)
 Date: May 9, 2005 17




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EXHIBIT INDEX ExhibitNo.
    
    Description2.1(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.
 18




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ExhibitNo.
    
    Description3.3(2)
    
    Restated Certificate of Incorporation.3.4(11)
    
    Amended and Restated Bylaws of the Company.10.1
    
    Description of William J. Nydam salary adjustment, effective February 2005.10.2
    
    Description of Michael R. Rodriguez salary adjustment, effective February 2005.10.3
    
    Confidential Settlement Agreement and Release, dated as of February 18, 2005, by and
between the Company and Great American E&S Insurance Company.10.4(12)
    
    2004 Management Incentive Compensation Program10.5(12)
    
    2005 Management Incentive Compensation Program10.6(13)
    
    Purchase Agreement, dated as of March 10, 2005, by and between the Company and the
Investors (as defined therein).10.7(13)
    
    Registration Rights Agreement, dated as of March 10, 2005, by and between Endocare and the
Investors (as defined therein).31.1
    
    Certification under Section 302 of the Sarbanes-Oxley Act of 2002 for Craig T. Davenport.31.2
    
    Certification under Section 302 of the Sarbanes-Oxley Act of 2002 for Michael R. Rodriguez.32.1
    
    Certification under Section 906 of the Sarbanes-Oxley Act of 2002 for Craig T. Davenport.32.2
    
    Certification under Section 906 of the Sarbanes-Oxley Act of 2002 for Michael R. Rodriguez.
   
    
    Management contract or compensatory plan or arrangement(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. 19




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(12)
    
    Previously filed as an exhibit to our Form 8-K filed on March 1, 2005.(13)
    
    Previously filed as an exhibit to our Form 8-K filed on March 16, 2005. 20