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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(Amendment No. 1)
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(Mark One) |
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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FOR THE TRANSITION PERIOD
FROM TO . |
COMMISSION FILE NUMBER: 001-15063
Endocare, Inc.
(Exact name of Registrant as Specified in Its Charter)
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DELAWARE
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33-0618093 |
(State of Incorporation) |
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(I.R.S. Employer I.D. No.) |
201 TECHNOLOGY DRIVE, IRVINE, CALIFORNIA 92618
(Address of Principal Executive Office, Including Zip
Code)
(949) 450-5400
(Registrants 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 þ No o; (2) Yes þ No o.
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange
Act). Yes þ No o
The number of shares of the Registrants common stock, par
value $.001 per share, outstanding at April 4, 2005
was 29,987,756
Endocare, Inc.
INDEX
2
EXPLANATORY NOTE
This amendment no. 1 on Form 10-Q/ A amends our quarterly
report on Form 10-Q for the quarter ended March 31,
2005, which was originally filed with the SEC on May 10,
2005. The purpose of this amendment no. 1 is to revise the items
set forth below based on comments received from the SEC staff in
connection with the SEC staffs review of a registration
statement on Form S-2 that we originally filed on
April 5, 2005 and subsequently amended. Except as otherwise
expressly stated, this amendment no. 1 does not reflect any
events occurring after the filing of the original
Form 10-Q, nor does it modify or update in any way the
disclosures contained in the original Form 10-Q filing.
This amendment no. 1 continues to speak as of the date of the
original Form 10-Q filing, except that we have included as
exhibits updated certifications from our chief executive officer
and chief financial officer, as exhibits 31.1, 31.2, 32.1
and 32.2, respectively. This amendment no. 1 should be read in
conjunction with our filings made with the SEC subsequent to the
date of the original Form 10-Q filing, including any
amendments to those filings.
3
PART I FINANCIAL INFORMATION
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Item 1. |
Condensed Consolidated Financial Statements |
ENDOCARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months Ended | |
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March 31, | |
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2005 | |
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2004 | |
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(Restated) | |
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(In thousands, except | |
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per share data) | |
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(Unaudited) | |
Total revenues
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$ |
9,126 |
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$ |
7,382 |
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Costs and expenses:
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Cost of revenues
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5,067 |
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4,234 |
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Research and development
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321 |
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536 |
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Selling, general and administrative
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8,288 |
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11,180 |
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Impairment charge
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(583 |
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Total costs and expenses
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13,093 |
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15,950 |
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Loss from operations
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(3,967 |
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(8,568 |
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Interest income (expense), net
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(539 |
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45 |
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Loss before minority interests
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(4,506 |
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(8,523 |
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Minority interests
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(100 |
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Net loss
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$ |
(4,506 |
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$ |
(8,623 |
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Net loss per share basic and diluted
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$ |
(0.18 |
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$ |
(0.36 |
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Weighted average shares of common stock outstanding
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25,601 |
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24,088 |
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
ENDOCARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31, | |
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December 31, | |
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2005 | |
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2004 | |
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(Unaudited) | |
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(Restated) | |
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(In thousands, except | |
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per share data) | |
ASSETS |
Current assets:
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Cash and cash equivalents
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$ |
17,490 |
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$ |
7,985 |
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Accounts receivable, net
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4,236 |
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3,904 |
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Inventories, net
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3,253 |
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3,175 |
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Prepaid expenses and other current assets
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1,199 |
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1,651 |
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Total current assets
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26,178 |
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16,715 |
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Property and equipment, net
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2,612 |
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3,139 |
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Goodwill
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4,552 |
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4,552 |
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Intangibles, net
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8,197 |
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8,560 |
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Investments and other assets
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1,039 |
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1,409 |
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Total assets
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$ |
42,578 |
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$ |
34,375 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities:
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Accounts payable
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$ |
2,957 |
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$ |
2,636 |
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Accrued compensation
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3,118 |
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3,708 |
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Other accrued liabilities
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8,190 |
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10,391 |
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Total current liabilities
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14,265 |
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16,735 |
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Common stock warrants
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6,331 |
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Total liabilities
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20,596 |
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16,735 |
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Minority interests
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214 |
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Stockholders equity:
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Preferred stock, $.001 par value; 1,000 shares
authorized; none issued and outstanding
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Common stock, $.001 par value; 50,000 shares
authorized; 29,988 and 24,342 issued and outstanding as of
March 31, 2005 and December 31, 2004, respectively
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30 |
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24 |
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Additional paid-in capital
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178,456 |
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169,400 |
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Accumulated deficit
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(156,504 |
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(151,998 |
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Total stockholders equity
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21,982 |
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17,426 |
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Total liabilities and stockholders equity
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$ |
42,578 |
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$ |
34,375 |
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The accompanying notes are an integral part of these condensed
consolidated balance sheets.
5
ENDOCARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three Months Ended | |
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March 31, | |
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2005 | |
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2004 | |
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(In thousands) | |
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(Unaudited) | |
Net cash used in operating activities
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$ |
(6,050 |
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$ |
(10,645 |
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Cash flows from investing activities:
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Sales of property and equipment
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210 |
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Purchases of property and equipment
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(34 |
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(160 |
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Proceeds from divestitures
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850 |
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2,500 |
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Partnership distributions to minority interests
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(195 |
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Increase in other assets
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(71 |
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Net cash provided by investing activities
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816 |
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2,284 |
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Cash flows from financing activities:
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Stock options and warrants exercised
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22 |
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Proceeds from sale of common stock and warrants, net of issuance
costs
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14,717 |
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Treasury stock received in settlement
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(504 |
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Net cash provided by (used in) financing activities
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14,739 |
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(504 |
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Net increase (decrease) in cash and cash equivalents
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9,505 |
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(8,865 |
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Cash and cash equivalents, beginning of period
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7,985 |
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23,977 |
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Cash and cash equivalents, end of period
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$ |
17,490 |
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$ |
15,112 |
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Non-cash activities:
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Transfer of inventory to property and equipment
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$ |
289 |
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$ |
113 |
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Retirement of treasury shares held
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2,593 |
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Deferred compensation on options forfeited
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94 |
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
ENDOCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular numbers in thousands, except per share data)
(Unaudited)
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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
Medstones distribution of Endocares stock to the
existing stockholders on January 1, 1996.
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2. |
Restatement of Unaudited Condensed Consolidated Financial
Statements as of and for the three months ended March 31,
2005 |
In order to correct the financial statements so that they comply
with U.S. generally accepted accounting principles (in
particular, EITF 00-19, Accounting for Derivative
Financial Instruments Indexed To, and Potentially Settled In, a
Companys Own Stock), our Unaudited Condensed
Consolidated Statement of Operations and Unaudited Condensed
Consolidated Balance Sheet as of and for the three months ended
March 31, 2005 have been restated to reflect a
reclassification from equity to non-current liability of the
warrants that we issued in March 2005, and to reflect interest
expense to represent the change in the fair value of the
warrants since issuance, as described below in Note 5. As a
result of this correction, our net loss for the three months
ended March 31, 2005 increased from $3.9 million to
$4.5 million and our net loss per share increased from
$0.15 to $0.18.
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.
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4. |
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 5) 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
7
ENDOCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
April 2005. In accordance with SFAS No. 144, we
measured Timm Medicals 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.
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5. |
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.
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 Endocares 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.
Upon exercise, we will pay transaction fees equal to 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.
In order to correct the financial statements so that they comply
with U.S. generally accepted accounting principles, we have
restated the Unaudited Condensed Consolidated Balance Sheet as
of March 31, 2005 to reclassify the warrants from
stockholders equity to non-current liabilities effective
March 11, 2005 to reflect the fact that the registration
rights agreement into which we entered in connection with our
issuance of the warrants requires us to pay liquidated damages,
which in some cases
8
ENDOCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
could exceed a reasonable discount for delivering unregistered
shares and thus would require the warrants to be classified as a
liability until the earlier of the date the warrants are
exercised or expire. In accordance with EITF 00-19,
Accounting for Derivative Financial Instruments Indexed To,
and Potentially Settled In, a Companys Own Stock, we
have allocated a portion of the offering proceeds to the
warrants based on their fair value. EITF 00-19 also
requires that we revalue the warrants as a derivative instrument
periodically to compute the value in connection with changes in
the underlying stock price and other assumptions, with the
change in value recorded as interest expense or interest income.
The restatement reduced stockholders equity as of
March 31, 2005 by $6.3 million and increased interest
expense and net loss for the three months ended March 31,
2005 by $0.6 million. Additionally, net loss per share
increased by $0.03 for the three months ended March 31,
2005. We determined the fair value of the warrants as follows as
of March 11, 2005 (the issuance date):
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First, we used the Black-Scholes option-pricing model with the
following assumptions: an expected life equal to the contractual
term of the warrants (five years); no dividends; a risk free
rate of 4.22%, which equals the five-year yield on Treasury
bonds at constant (or fixed) maturity; and volatility of 90.5%.
Under these assumptions, the Black-Scholes option-pricing model
yielded a value of $2.09 for each of the Series A warrants
and $2.03 for each of the Series B warrants, for an
aggregate value of $8.1 million; |
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Second, since the warrants are limited in the amount of
realizable profit to the holders as a result of the call
provision described above, we reduced the value of the warrants
to account for the probability that the stock price will reach
or exceed $6.50 and $7.50, respectively (i.e., the prices
above which we have the right to call the Series A and
Series B warrants, effectively compelling the holders to
exercise their warrants). We used a statistical formula to
calculate the probability that our stock price will reach or
exceed $6.50 and $7.50, respectively. Based on this formula, we
calculated that, for the Series A warrants, the probability
that the stock price of $6.50 will be reached or exceeded is
approximately 28.2%. Similarly, we calculated that, for the
Series B warrants, the probability that the stock price of
$7.50 will be reached or exceeded is approximately 22.9%. Based
on these probabilities, we reduced the valuation of each of the
Series A warrants to $1.50 (which equals one minus 28.2%,
multiplied by $2.09) and we reduced the valuation of each of the
Series B warrants to $1.56 (which equals one minus 22.9%,
multiplied by $2.03). This yields an aggregate value of the
warrants equal to $6.0 million; and |
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Third, we further reduced the value of the warrants on the
assumption that our stock price on the day that the warrants are
exercised will be affected by dilution as a result of the
additional stock introduced into the market. Given that we have
approximately 30 million shares outstanding, we calculated
that the exercise of the warrants will result in dilution of
approximately 6%. Using the dilution figure of 6%, we reduced
the value of each of the Series A warrants to $1.41 and the
Series B warrants to $1.47. This yields an aggregate value
of the warrants equal to $5.7 million. |
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We performed the same calculations as of March 31, 2005 to
revalue the warrants as of that date. In using the Black-Scholes
option pricing model, we used an underlying stock price of $3.49
per share and a risk free rate of 4.18% with all other input
assumptions remaining substantially the same as at
March 11, 2005. The resulting aggregate value of the
warrants as of March 31, 2005 equaled $6.3 million.
The change in fair value of $0.6 million was recorded as
interest expense for the three months ended March 31, 2005
and is primarily due to an increase in the fair value of the
underlying common stock from $3.00 per share to $3.49 per share
from March 11, 2005 to March 31, 2005.
Upon the earlier of the warrant exercise or expiration date, the
warrant liability will be reclassified into stockholders
equity. Until that time, the warrant liability will be recorded
at fair value based on the methodology described above. Changes
in fair value during each period will be recorded as interest
income
9
ENDOCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
or interest expense. Liquidated damages under the registration
rights agreement will be expensed as incurred and will be
included in selling, general and administrative services.
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.
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.
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7. |
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.
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 Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Restated) | |
|
|
|
|
| |
|
|
Net loss, as reported
|
|
$ |
(4,506 |
) |
|
$ |
(8,623 |
) |
Reconciling items:
|
|
|
|
|
|
|
|
|
|
Add: Stock-based employee compensation expense determined under
the intrinsic-value-based method for all awards
|
|
|
2 |
|
|
|
8 |
|
|
Less: 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
|
|
$ |
(5,405 |
) |
|
$ |
(9,269 |
) |
|
|
|
|
|
|
|
Basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(0.18 |
) |
|
$ |
(0.36 |
) |
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$ |
(0.21 |
) |
|
$ |
(0.38 |
) |
|
|
|
|
|
|
|
10
ENDOCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. 123Rs 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.
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.
11
ENDOCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of inventory:
|
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Raw materials
|
|
$ |
1,760 |
|
|
$ |
1,727 |
|
Work in process
|
|
|
287 |
|
|
|
446 |
|
Finished goods
|
|
|
1,734 |
|
|
|
1,560 |
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
3,781 |
|
|
|
3,733 |
|
Less inventory reserve
|
|
|
(528 |
) |
|
|
(558 |
) |
|
|
|
|
|
|
|
|
Inventories, net
|
|
$ |
3,253 |
|
|
$ |
3,175 |
|
|
|
|
|
|
|
|
|
|
9. |
Commitments and Contingencies |
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 plaintiffs 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
plaintiffs 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
12
ENDOCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 DOJs 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. Managements 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.
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.
13
|
|
Item 2. |
Managements 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 IItem 1 of this report, and the audited
consolidated financial statements and notes thereto, and
Managements 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,
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 on
Form 10-Q or 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.
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.; |
14
|
|
|
|
|
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. |
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
15
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 (Expense), Net. Interest expense, net,
for the three months ended March 31, 2005 was
$0.5 million compared to interest income of $45,000 for the
three months ended March 31, 2004. Interest expense, net
for the three months ended March 31, 2005 includes
$0.6 million in interest expense recorded in connection
with the change in the fair value of common stock warrants
issued in connection with our private placement on
March 11, 2005. This interest expense represents the change
in the fair value of the warrants from the issuance date of
March 11, 2005. Interest expense, net in the 2005 period
also includes $62,000 of interest income on a note receivable
for the sale of our urinary incontinence product line in 2003.
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 $4.5 million or $0.18 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 $156.5 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
16
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 physicians 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 on Form 10-K for 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 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.
17
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|
|
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 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
Commissions rules 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
Act 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.
As explained in Note 2 to the financial statements included
herein, in order to correct the financial statements so that
they comply with U.S. generally accepted accounting principles,
we have restated our unaudited condensed consolidated statement
of operations and unaudited condensed consolidated balance sheet
as of and for the three months ended March 31, 2005 to
reflect a reclassification from equity to non-current liability
of the warrants that we issued in March 2005, and to reflect
interest expense to represent the change in the fair value of
the warrants since issuance, as described in Note 5 to the
financial statements. Notwithstanding this restatement, our
management continues to believe that our disclosure controls and
procedures were effective at a reasonable assurance level as of
March 31, 2005. We believe that the restatements are the
result of different accounting judgments with respect to the
proper application of generally accepted accounting principles
in an emerging area of accounting, rather than an indication
that our disclosure controls and procedures were ineffective.
The accounting ultimately applied in the restatement is one of
three views discussed under Issue Summary No. 1 of the
proposed Emerging Issues Task Force Statement No. 05-4 and
the Task Force has not yet publicly reached a consensus. It is
possible that the accounting reflected in the restatement may
differ from the Task Forces final consensus.
(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.
18
PART II OTHER INFORMATION
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
2 |
.1(1) |
|
Agreement and Plan of Reorganization dated February 21,
2002, by and among the Company, Technologies, Inc., TMT
Acquisition Corporation and certain stockholders of Timm Medical
Technologies, Inc. Certain schedules and other attachments to
this exhibit were omitted. We agree to furnish supplementally a
copy of any omitted schedules or attachments to the Commission
upon request. |
|
|
2 |
.2(2) |
|
Agreement and Plan of Merger dated June 30, 1999, by and
among the Company, Advanced Medical Procedures, Inc., Advanced
Medical Procedures, L.L.C., Gary M. Onik, M.D., Robert F.
Byrnes and Jerry Anderson. Certain schedules and other
attachments to this exhibit were omitted. We agree to furnish
supplementally a copy of any omitted schedules or attachments to
the Commission upon request. |
|
|
2 |
.3(3) |
|
Asset Purchase Agreement, dated February 6, 2002, by and
between the Company and Gary M. Onik, M.D. Certain
schedules and other attachments to this exhibit were omitted. We
agree to furnish supplementally a copy of any omitted schedules
or attachments to the Commission upon request. |
|
|
2 |
.4(3) |
|
Asset Purchase Agreement dated May 28, 2002, by and among
the Company and Cryomedical Sciences, Inc. Certain schedules and
other attachments to this exhibit were omitted. We agree to
furnish supplementally a copy of any omitted schedules or
attachments to the Commission upon request. |
|
|
2 |
.5(4) |
|
Partnership and Limited Liability Company Membership Interest
Purchase Agreement, dated as of August 12, 2002, by and
among Endocare, Inc. and U.S. Medical Development, Inc.,
U.S.M.D., Ltd. and U.S.M.D. I, L.L.C. Certain schedules and
exhibits referenced in this exhibit have been omitted. We agree
to furnish supplementally a copy of any omitted schedules or
attachments to the Commission upon request. |
|
|
2 |
.6(5) |
|
Amendment No. 1 to Partnership and Limited Liability
Company Membership Interest Purchase Agreement, dated as of
August 12, 2002, by and among Endocare, Inc. and
U.S. Medical Development, Inc., U.S.M.D., Ltd. and
U.S.M.D. I, L.L.C. |
|
|
2 |
.7(6) |
|
Agreement of Purchase and Sale, dated as of April 7, 2003,
by and among American Medical Systems, Inc., the Company and
Timm Medical Technologies, Inc. |
|
|
2 |
.8(7) |
|
Asset Purchase and Technology License Agreement, dated as of
April 29, 2003, by and between the Company and
CryoCathTechnologies Inc. |
|
|
2 |
.9(8) |
|
Agreement of Purchase and Sale, dated as of October 15,
2003, by and between SRS Medical Corp. and Timm Medical
Technologies, Inc. |
|
|
2 |
.10(9) |
|
Amendment No. 2 to Partnership and Limited Liability
Company Membership Interest Purchase Agreement, dated as of
February 27, 2004, by and among Endocare, Inc. and
U.S. Medical Development, Inc., U.S.M.D., Ltd. and
U.S.M.D. I, L.L.C. |
|
|
2 |
.11(9) |
|
Service Fee Agreement, dated as of February 26, 2004, by
and among Endocare, Inc. and the Limited Partners of Mid-America
Cryotherapy, L.P. |
|
|
2 |
.12(9) |
|
First Amendment to Agreement of Purchase and Sale, dated as of
March 25, 2004, by and between SRS Medical Corp. and Timm
Medical Technologies, Inc. |
|
|
2 |
.13(10) |
|
First Amendment to Asset Purchase Agreement, dated as of
August 18, 2004, by and between Endocare, Inc. and Gary
Onik, M.D. |
|
|
3 |
.1(2) |
|
Certificate of Amendment of Restated Certificate of
Incorporation of the Company. |
|
|
3 |
.2(2) |
|
Certificate of Designation of Series A Junior Participating
Preferred Stock of the Company. |
|
|
3 |
.3(2) |
|
Restated Certificate of Incorporation. |
|
|
3 |
.4(11) |
|
Amended and Restated Bylaws of the Company. |
|
|
10 |
.1(14) |
|
Description of William J. Nydam salary adjustment, effective
February 2005. |
|
|
10 |
.2(14) |
|
Description of Michael R. Rodriguez salary adjustment, effective
February 2005. |
19
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
|
10 |
.3(14) |
|
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 Program |
|
|
10 |
.5(12) |
|
2005 Management Incentive Compensation Program |
|
|
10 |
.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. |
|
(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. |
|
|
(14) |
Previously filed as an exhibit to our Form 10-Q filed on
May 10, 2005. |
|
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this amendment no. 1 on
Form 10-Q/A to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
By: |
/s/ CRAIG T. DAVENPORT |
|
|
|
|
|
Craig T. Davenport |
|
Chief Executive Officer and |
|
Chairman of the Board |
|
|
(Duly Authorized Officer) |
|
Date: September 16, 2005
21
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
2 |
.1(1) |
|
Agreement and Plan of Reorganization dated February 21,
2002, by and among the Company, Technologies, Inc., TMT
Acquisition Corporation and certain stockholders of Timm Medical
Technologies, Inc. Certain schedules and other attachments to
this exhibit were omitted. We agree to furnish supplementally a
copy of any omitted schedules or attachments to the Commission
upon request. |
|
|
2 |
.2(2) |
|
Agreement and Plan of Merger dated June 30, 1999, by and
among the Company, Advanced Medical Procedures, Inc., Advanced
Medical Procedures, L.L.C., Gary M. Onik, M.D., Robert F.
Byrnes and Jerry Anderson. Certain schedules and other
attachments to this exhibit were omitted. We agree to furnish
supplementally a copy of any omitted schedules or attachments to
the Commission upon request. |
|
|
2 |
.3(3) |
|
Asset Purchase Agreement, dated February 6, 2002, by and
between the Company and Gary M. Onik, M.D. Certain
schedules and other attachments to this exhibit were omitted. We
agree to furnish supplementally a copy of any omitted schedules
or attachments to the Commission upon request. |
|
|
2 |
.4(3) |
|
Asset Purchase Agreement dated May 28, 2002, by and among
the Company and Cryomedical Sciences, Inc. Certain schedules and
other attachments to this exhibit were omitted. We agree to
furnish supplementally a copy of any omitted schedules or
attachments to the Commission upon request. |
|
|
2 |
.5(4) |
|
Partnership and Limited Liability Company Membership Interest
Purchase Agreement, dated as of August 12, 2002, by and
among Endocare, Inc. and U.S. Medical Development, Inc.,
U.S.M.D., Ltd. and U.S.M.D. I, L.L.C. Certain schedules and
exhibits referenced in this exhibit have been omitted. We agree
to furnish supplementally a copy of any omitted schedules or
attachments to the Commission upon request. |
|
|
2 |
.6(5) |
|
Amendment No. 1 to Partnership and Limited Liability
Company Membership Interest Purchase Agreement, dated as of
August 12, 2002, by and among Endocare, Inc. and
U.S. Medical Development, Inc., U.S.M.D., Ltd. and
U.S.M.D. I, L.L.C. |
|
|
2 |
.7(6) |
|
Agreement of Purchase and Sale, dated as of April 7, 2003,
by and among American Medical Systems, Inc., the Company and
Timm Medical Technologies, Inc. |
|
|
2 |
.8(7) |
|
Asset Purchase and Technology License Agreement, dated as of
April 29, 2003, by and between the Company and
CryoCathTechnologies Inc. |
|
|
2 |
.9(8) |
|
Agreement of Purchase and Sale, dated as of October 15,
2003, by and between SRS Medical Corp. and Timm Medical
Technologies, Inc. |
|
|
2 |
.10(9) |
|
Amendment No. 2 to Partnership and Limited Liability
Company Membership Interest Purchase Agreement, dated as of
February 27, 2004, by and among Endocare, Inc. and
U.S. Medical Development, Inc., U.S.M.D., Ltd. and
U.S.M.D. I, L.L.C. |
|
|
2 |
.11(9) |
|
Service Fee Agreement, dated as of February 26, 2004, by
and among Endocare, Inc. and the Limited Partners of Mid-America
Cryotherapy, L.P. |
|
|
2 |
.12(9) |
|
First Amendment to Agreement of Purchase and Sale, dated as of
March 25, 2004, by and between SRS Medical Corp. and Timm
Medical Technologies, Inc. |
|
|
2 |
.13(10) |
|
First Amendment to Asset Purchase Agreement, dated as of
August 18, 2004, by and between Endocare, Inc. and Gary
Onik, M.D. |
|
|
3 |
.1(2) |
|
Certificate of Amendment of Restated Certificate of
Incorporation of the Company. |
|
|
3 |
.2(2) |
|
Certificate of Designation of Series A Junior Participating
Preferred Stock of the Company. |
|
|
3 |
.3(2) |
|
Restated Certificate of Incorporation. |
|
|
3 |
.4(11) |
|
Amended and Restated Bylaws of the Company. |
|
|
10 |
.1(14) |
|
Description of William J. Nydam salary adjustment, effective
February 2005. |
|
|
10 |
.2(14) |
|
Description of Michael R. Rodriguez salary adjustment, effective
February 2005. |
|
|
10 |
.3(14) |
|
Confidential Settlement Agreement and Release, dated as of
February 18, 2005, by and between the Company and Great
American E&S Insurance Company. |
22
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
10 |
.4(12) |
|
2004 Management Incentive Compensation Program |
|
10 |
.5(12) |
|
2005 Management Incentive Compensation Program |
|
10 |
.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. |
|
(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. |
|
|
(14) |
Previously filed as an exhibit to our Form 10-Q filed on
May 10, 2005. |
|
23