<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 0-27212
ENDOCARE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0618093
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
7 STUDEBAKER, IRVINE, CALIFORNIA 92618
(Address of principal executive office) (Zip Code)
(949) 595-4770
(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. YES [X] NO [ ]
The number of shares of the Registrant's Common Stock, par value $.001 per
share, outstanding on November 10, 1998 was 10,408,354.
<PAGE> 2
ENDOCARE, INC.
FORM 10-Q, QUARTER ENDED SEPTEMBER 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
----
Part I. Financial Information
<S> <C> <C>
Item 1 Financial Statements (unaudited)
Condensed Statements of Operations for the three
and nine months ended September 30, 1998 and 1997 3
Condensed Balance Sheets at September 30, 1998
and December 31, 1997 4
Condensed Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997 5
Notes to Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosures About Market Risk None
Part II. Other Information
Item 1 Legal Proceedings 10
Item 2 Changes in Securities 11
Item 3 Defaults Upon Senior Securities 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 11
Signature Page 12
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
ENDOCARE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- -----------------------------
1998 1997 1998 1997
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Net product sales $ 261,282 $ 535,110 $ 970,260 $ 1,423,111
Revenue from collaborative
agreements 290,000 20,832 641,672 62,496
----------- ------------ ------------ -----------
Total revenues 551,282 555,942 1,611,932 1,485,607
----------- ------------ ------------ -----------
Costs and expenses:
Cost of product sales 183,688 349,525 687,993 930,568
Research and development 454,530 459,833 1,288,314 1,173,622
Selling, general and
administrative 1,143,748 901,615 3,275,695 2,411,533
----------- ------------ ------------ -----------
Total costs and
expenses 1,781,966 1,710,973 5,252,002 4,515,723
----------- ------------ ------------ -----------
Loss from operations (1,230,684) (1,155,031) (3,640,070) (3,030,116)
Other income, net 108,660 64,856 228,297 140,663
----------- ------------ ------------ -----------
Net loss $(1,122,024) $ (1,090,175) $ (3,411,773) $(2,889,453)
=========== ============ ============ ===========
Net loss per share of common
stock -- basic and diluted $ (.11) $ (.13) $ (.36) $ (.36)
=========== ============ ============ ===========
Shares of common stock used in
calculation of net loss per
share of common stock--
basic and diluted 10,423,000 8,244,000 9,585,000 7,960,000
=========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
ENDOCARE, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,612,057 $ 3,896,316
Accounts receivable, net 413,642 376,141
Inventories 887,749 925,592
Other current assets 77,661 64,237
----------- -----------
Total current assets 8,991,109 5,262,286
Property and equipment, net 277,177 238,192
Other assets 137,348 42,566
----------- -----------
Total assets $ 9,405,634 $ 5,543,044
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 709,158 $ 745,771
Accrued liabilities 1,302,776 781,007
----------- -----------
Total current liabilities 2,011,934 1,526,778
Other liabilities -- 83,339
----------- -----------
Shareholders' equity:
Common stock, $.001 par value 10,408 8,378
Additional paid-in capital 16,226,364 9,355,857
Accumulated deficit (8,843,072) (5,431,308)
----------- -----------
Total shareholders' equity 7,393,700 3,932,927
----------- -----------
Total liabilities and shareholders'
equity $ 9,405,634 $ 5,543,044
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
ENDOCARE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,411,773) $ (2,889,453)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 113,526 82,148
Amortization of warrant value 59,283 58,474
Changes in operating assets and liabilities:
Accounts receivable 37,501 333,163
Inventories (37,843) (558,819)
Accounts payable (36,613) 274,330
Accrued liabilities and other 330,224 240,226
------------ ------------
Net cash used in operating activities (2,945,695) (2,459,931)
------------ ------------
Cash flows from investing activities:
Purchases of property and
equipment (151,878) (188,275)
------------ ------------
Net cash used in investing activities (151,878) (188,275)
------------ ------------
Cash flows from financing activities:
Issuance of common stock 6,813,314 7,061,911
------------ ------------
Net cash provided by financing
activities 6,813,314 7,061,911
------------ ------------
Net increase in cash and cash
equivalents 3,715,741 4,413,705
Cash and cash equivalents, beginning
of period 3,896,316 476,854
------------ ------------
Cash and cash equivalents, end of
period $ 7,612,057 $ 4,890,559
============ ============
Non-Cash Transactions:
Conversion of note payable to
common stock $ -- $ 850,250
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
ENDOCARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Organization and Operations of the Company
Endocare, Inc. (the "Company" or "Endocare") designs, manufactures, and
markets an array of innovative, temperature-based surgical devices and
technologies primarily to treat prostate diseases, including prostate
cancer and prostate enlargement.
Since its formation in 1990, Endocare operated first as a research and
development department, then later as a division of Medstone International,
Inc. ("Medstone"). Effective January 1, 1996, Endocare became a totally
independent, publicly-owned corporation. At the beginning of 1996, Endocare
issued 5,616,528 shares of Endocare common stock to Medstone in exchange
for $500,000 cash and the accounts receivable, inventory, and other net
assets of the Endocare Division. On February 6, 1996, Medstone distributed
to existing Medstone shareholders a stock dividend of one share of Endocare
common stock for each share of Medstone common stock outstanding on
December 29, 1995.
2. Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
financial statements contain all adjustments necessary (consisting only of
normal recurring accruals) to present fairly the financial information
contained therein. These statements do not include all disclosures required
by generally accepted accounting principles and should be read in
conjunction with the audited financial statements and other information
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997. Financial results for this interim period are not
necessarily indicative of results to be expected for the full year 1998.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130),
and intends to adopt Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131) in 1998. Both standards may require financial statement disclosure,
but will not have a material effect on the Company's financial position or
results of operations. SFAS 130 establishes standards for the reporting and
display of comprehensive income. No additional financial statement
disclosure was required as a result of implementing SFAS 130 in the
Company's interim 1998 financial statements as other comprehensive
loss/income equaled net loss for all periods presented. SFAS 131 changes
the way companies report segment information and requires segments to be
determined and reported based on how management measures performance and
makes decisions about allocating resources. SFAS 131 will first be
reflected in the Company's 1998 annual financial statements.
3. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
4. Supplemental Financial Statement Data
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Inventories:
Raw materials $489,305 $628,466
Work in process 79,450 56,306
Finished goods 318,994 240,820
-------- --------
Total inventories $887,749 $925,592
======== ========
</TABLE>
6
<PAGE> 7
5. Net Loss Per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS 128) in the fourth quarter of 1997. SFAS 128
simplifies the computation of earnings per share ("EPS") previously
required in Accounting Principles Board (APB) Opinion No. 15, "Earnings Per
Share," by replacing primary and fully diluted EPS with basic and diluted
EPS. Under SFAS 128, basic EPS is calculated by dividing net earnings
(loss) by the weighted-average common shares outstanding during the period.
Diluted EPS reflects the potential dilution to basic EPS that could occur
upon conversion or exercise of securities, options, or other such items, to
common shares using the treasury stock method based upon the
weighted-average fair value of the Company's common shares during the
period. SFAS 128 was adopted by the Company in its year-end 1997 Annual
Report, and the adoption of SFAS 128 did not result in a restatement of the
Company's loss per share as previously reported for fiscal 1997 or 1996. In
accordance with SFAS 128, the income (numerator), shares (denominator) and
per share amount for the three months ended September 30, 1998 and 1997 are
$(1,122,024), 10,423,000 and $(.11) and $(1,090,175), 8,244,000, and
$(.13), respectively. The income (numerator), shares (denominator) and per
share amount for the nine months ended September 30, 1998 and 1997 are
$(3,411,773), 9,585,000 and $(.36) and $(2,889,453), 7,960,000 and $(.36),
respectively. Dilutive options were 973,000 and 865,000 for the three
months ended September 30, 1998 and 1997, respectively, and 950,000 and
842,000 for the nine months ended September 30, 1998 and 1997,
respectively. As the Company has been in a net loss position for the
periods presented, dilutive options were not used to compute diluted loss
per share as the effect was antidilutive. Consequently, diluted EPS are not
presented as they equal basic EPS.
6. Bank Line of Credit
In March 1998, Endocare entered into a one-year $1,000,000 line of credit
with a bank which bears interest at prime plus 1%. The line of credit is
secured by the Company's assets, excluding intellectual property, and is
subject to certain financial and other covenants. No amount is owed under
the line of credit as of September 30, 1998.
7. Common Stock
In January 1997, Endocare sold 2,218,714 shares of common stock at a price
of $3.50 per share in a private placement, with Oppenheimer & Co., Inc.
("Oppenheimer") acting as placement agent. After expenses, the net
contribution to the Company's capital was approximately $7,050,000. In
addition, under a borrowing facility with four partnerships managed by
Technology Funding, Inc., the partnerships converted $750,000 principal
amount and accrued interest into 320,000 shares of Endocare common stock.
Also, 12,000 additional shares of common stock were issued to the
Partnerships as an inducement to convert at that time.
In April 1998, Endocare sold 2,000,000 shares of common stock at a price of
$3.50 per share in a direct private placement. After estimated legal,
accounting, filing fees and other associated expenses of approximately
$150,000, the net contribution to the Company's capital was approximately
$6,850,000.
7
<PAGE> 8
ITEM 2.
ENDOCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the unaudited and audited
financial statements and notes thereto included in Part I--Item 1, the audited
financial statements, and notes thereto, and Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
General
Endocare designs, manufactures, and markets an array of innovative,
temperature-based surgical devices and technologies to treat prostate diseases,
including prostate cancer and prostate enlargement. In late 1995, Endocare began
marketing two new disposable product families, the Uroloop and Vaporbar
electrosurgical cutting elements. In May 1996, the Company introduced its new
CRYOcare cryosurgical system for the treatment of prostate cancer. In November
1996, Endocare signed a distribution agreement with Boston Scientific
Corporation granting that company exclusive world-wide marketing rights for
CRYOcare systems for urological applications.
Endocare currently is developing additional, innovative therapies for prostate
enlargement. The Company does not expect to be profitable in the near future
because of increased operating expenses from expanded research and development
efforts and support of clinical trials for products currently under development.
Since its formation in 1990, Endocare operated first as a research and
development department, then later as a division of Medstone International, Inc.
Effective January 1, 1996, Endocare was spun out and began operating as an
independent corporation.
Results of Operations
Product revenue for the three months ended September 30, 1998 decreased 51% to
$261,000 compared to $535,000 in 1997. This decrease was due primarily to fewer
unit sales of CRYOcare systems in the current quarter versus the same quarter
last year.
Product revenue for the nine months ended September 30, 1998 decreased 32% to
$970,000 compared to $1,423,000 in 1997. The decrease was attributed to a large
initial purchase by Boston Scientific Corporation of CRYOcare systems in the
first quarter of 1997. Such systems were used by Boston Scientific Corporation
to launch its market development efforts for CRYOcare systems for urological
applications.
Revenue from collaborative agreements for the three months ended September 30,
1998 increased to $290,000 compared to $21,000 in 1997. The increase was due to
additional non-refundable licensing fees from Boston Scientific Corporation and
the respective quarters' amortization of a lump-sum payment from Boston
Scientific Corporation based upon the distribution agreement.
Revenue from collaborative agreements for the nine months ended September 30,
1998 increased to $642,000 compared to $62,000 in 1997. The increase was due to
the reason described above.
Gross margin on product sales was 30% for the three months ended September 30,
1998, compared to 35% in 1997. The decline in gross margin resulted primarily
from product mix and additional infrastructure and personnel costs to support
manufacturing of the Company's existing and new products.
Gross margin on product sales for the nine months ended September 30, 1998 was
29% compared to 35% for the same period in 1997. The decrease is attributable to
the reasons described above.
Research and development expense of $455,000 for the three months ended
September 30, 1998 is comparable to $460,000 for the corresponding period in
1997.
8
<PAGE> 9
Research and development expense for the nine months ended September 30, 1998
increased 10% to $1,288,000 compared to $1,174,000 for the same period in 1997.
The increase reflects the investment the Company has made in the form of
additional personnel and related infrastructure to support general product
improvement and new product development efforts.
Selling, general and administrative expense increased 27% to $1,144,000 for the
three months ended September 30, 1998, compared to $902,000 for the same period
in 1997. The 1998 amount included costs for additional sales, marketing and
administrative personnel and related infrastructure to support existing and new
products.
Selling, general and administrative expense for the nine months ended September
30, 1998 increased 36% to $3,276,000 compared to $2,412,000 in the same period
in 1997. The increase is attributable to the reasons described above.
Other income (expense), net for the three months ended September 30, 1998
increased to $109,000 compared to $65,000 in 1997. The increase is due to
increased interest income on a higher balance of cash and cash equivalents.
Other income (expense), net for the nine months ended September 30, 1998
increased to $228,000 compared to $141,000 in 1997. The increase is due to
increased interest income on a higher balance of cash and cash equivalents.
Additionally, the nine months ended September 30, 1997 included $58,000 of
interest expense and other charges associated with the conversion of notes
payable to common stock in the first quarter of 1997.
Net loss for the three months ended September 30, 1998 was $1,122,000, or 11
cents per share on 10,423,000 weighted average shares outstanding, compared to a
net loss of $1,090,000 or 13 cents per share on 8,244,000 weighted average
shares outstanding for the same period in 1997. The increase in net loss
resulted from higher selling, general and administrative expenses.
Net loss for the nine months ended September 30, 1998 was $3,412,000 or 36 cents
per share on 9,585,000 weighted average shares outstanding, compared to a net
loss of $2,889,000 or 36 cents per share on 7,960,000 weighted average shares
outstanding for the same period in 1997. The increase in net loss is
attributable to the reason described above and higher research and development
costs partially offset by an increase in total revenues and other income.
Liquidity and Capital Resources
At September 30, 1998, Endocare's cash and cash equivalents balance was
$7,612,000, compared to $3,896,000 at December 31, 1997. The increase in cash
and cash equivalents resulted from a cash infusion of approximately $7,000,000
in April, 1998 from the sale of 2,000,000 shares of common stock in a direct
private placement.
Working capital has been used as Endocare's operations have increased in 1998.
Net accounts receivable increased to $414,000 at September 30, 1998, compared to
$376,000 at December 31, 1997. Inventory decreased to $888,000 at September 30,
1998, compared to $926,000 at the beginning of the year. Additions to property
and equipment during the first nine months of 1998 were approximately $152,000.
Working capital was provided as accounts payable and current liabilities
increased to $2,012,000 from $1,527,000 at December 31, 1997.
At September 30, 1998, Endocare's net working capital was $6,979,000 and the
ratio of current assets to current liabilities was 4.5 to 1.
In March 1998, Endocare entered into a one-year $1,000,000 line of credit with a
bank which bears interest at prime plus 1%. The line of credit is secured by the
Company's assets, excluding intellectual property, and is subject to certain
financial and other covenants. The Company is in compliance with such covenants
and no amount is owed under the line of credit at September 30, 1998.
Endocare anticipates renewing the line of credit in 1999.
With the April 1998 cash infusion of approximately $7,000,000 from the sale of
its common stock, the Company believes that its existing cash resources,
anticipated cash flow from future operations, and its $1,000,000 bank line of
credit, will provide sufficient resources to meet present and reasonably
foreseeable working capital requirements and other cash needs for the next
twelve months. Insofar as the Company elects to undertake or accelerate
significant research and development projects for new products or pursue
corporate acquisitions, it may require additional outside financing prior to
such time.
9
<PAGE> 10
Other Matter -- Year 2000
Many existing computer systems and applications, and other control devices, use
only two digits to identify a year in the date field, without considering the
impact of the upcoming change in the century. As a result, such systems and
applications could fail or create erroneous results unless corrected so that
they can process data related to the year 2000 and beyond. The Company relies on
its systems, applications and devices in operating and monitoring all major
aspects of its business, including financial systems (such as general ledger,
accounts payable, and payroll modules), customer services, infrastructure,
networks and telecommunications equipment, and end products. The Company has
initially assessed how it may be impacted by Year 2000 and has commenced a
comprehensive plan to address the following aspects of the Year 2000 problem:
information systems, non-information systems, products, suppliers and customers.
The plan as it relates to information systems, involves a combination of
software modification, upgrades and replacement. The Company has begun
remediation of its critical information systems, and the target date for
remediation of the critical information systems and remainder of its information
systems is March 31, 1999. The Company has completed the assessment and
development of remediation plans with respect to substantially all of the
Company's non-information systems and expects remediation to be complete by June
30, 1999. The Company has completed an assessment of its products and has
determined its products do not contain specific calendar year functions.
However, there can be no assurance that unforeseen problems will not be
encountered when the Company's products are used in conjunction with equipment
which is non-Year 2000 compliant. The Company is currently assessing Year 2000
issues with respect to major suppliers and customers and expects this process to
be completed by June 30, 1999; however, the Company can provide no assurance
that Year 2000 compliance plans will be successfully completed by suppliers and
customers in a timely manner.
The Company currently estimates that the costs associated with the Year 2000
issues will not have a material adverse effect on the results of operations or
financial position of the Company in any given year. Historical amounts spent on
assessment and remediation have not been material to the results of operations.
If the Company is not successful in implementing its Year 2000 compliance plan,
there may be a material adverse impact on the Company's results of operations
and financial condition. The Company believes its greatest risks related to the
Year 2000 issue involve interrupted product flow from suppliers and a possible
redirection or interruption of purchasing activities from key customers due to
their potential failure to fully address their own Year 2000 issues. Due to the
importance of addressing these risks, and the need for the Company to focus
attention to remediation efforts, the Company expects to develop contingency
plans to address those Year 2000 problems which may not be corrected by
implementation of the Company's Year 2000 compliance plan. Contingency plans are
expected to be complete by June 30, 1999.
This Form 10-Q contains forward looking statements. The Company's business and
results of operations are subject to risk and uncertainties including, but not
limited to, those discussed in the Company's Annual Report on Form 10-K and Form
S-3, filed with the Securities and Exchange Commission. Such risk factors
include, but are not limited to, limited operating history of the Company with a
history of losses; fluctuations in the Company's order levels; uncertainty
regarding market acceptance of the Company's new products; uncertainty of
product development and the associated risks related to clinical trials; the
Company's dependence on Boston Scientific Corporation as a distribution partner;
the rapid pace of technological change in the Company's industry; the Company's
limited sales, marketing and manufacturing experience; and, uncertainty relating
to third party reimbursement. The actual results that the Company achieves may
differ materially from any forward looking statements due to such risks and
uncertainties.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On November 27, 1996, Cryomedical Sciences, Inc. ("CMS") filed a
complaint in the Circuit Court for Montgomery County, Maryland against
the Company and Dr. Chang, the Company's then Vice President of
Research and Development and former employee of CMS. The suit alleges
that Dr. Chang breached his employment contract with CMS, that the
Company tortiously interfered with the employment contract and the
prospective business relations of CMS, misappropriated trade secrets
and confidential information, and competed unfairly with and conspired
against CMS. CMS is seeking injunctive relief and damages of at least
$10,000,000 and punitive damages of $20,000,000. On September 23,
1997, the court granted Dr. Chang's motion (which the Company joined)
to modify an earlier injunction prohibiting Dr. Chang from performing
services for the Company, based on the language contained in an
employment agreement between Dr. Chang and CMS that ostensibly
10
<PAGE> 11
prohibits Dr. Chang from working for a CMS competitor. Under the
modification obtained by Dr. Chang and the Company, Dr. Chang is
entitled to provide consulting services to the Company in the area of
stent technology, subject to certain restrictions and to periodic
review of Dr. Chang's activities by a neutral third party. The Company
is subject to the terms of this modified injunction, insofar as
necessary to enforce the restrictions on Dr. Chang's activities. No
other injunctive or other relief has been granted to CMS. On October
17, 1997, the Company filed a comprehensive motion for summary
judgment seeking dismissal of all claims against it brought by CMS, on
a variety of legal and undisputed factual grounds. Shortly thereafter,
on November 4, 1997, the parties filed a request that the court stay
all proceedings pending efforts to resolve the case through mediation.
The parties are currently negotiating the terms of a settlement of the
litigation. The Company continues to deny all allegations of
wrongdoing in the complaint and intends to defend the litigation
vigorously in the event that the settlement negotiations do not result
in a negotiated solution of the case. However, the costs of defending
the lawsuit could be material, and there can be no assurance that
damages, which could have a material adverse effect on the Company,
will not be assessed.
The Company, in the normal course of business, is subject to various
other legal matters. While the results of litigation and claims cannot
be predicted with certainty, the Company believes that the final
outcome of these other matters will not have a material adverse effect
on the Company's results of operations or financial condition.
Item 2. Changes in Securities
Stock Options
During the period from July 1, 1998 through September 30, 1998, the
Company granted stock options to 19 individuals covering an aggregate
of 867,500 shares of its common stock. All such options were granted
at exercise prices equaling fair market value on the date of grant,
and are exercisable over a ten year period. Of the options granted,
782,500 and 35,000 vest over a four year and one year period,
respectively, and 50,000 options vested immediately. No consideration
was paid for any of such options. Such grants were exempt from the
registration requirement of the Securities Act as not involving the
sale of a security.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None
11
<PAGE> 12
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.
Date: November 10, 1998 By: /s/ PAUL W. MIKUS
------------------------------------
Paul W. Mikus
Chief Executive Officer and President
(Duly Authorized Officer )
By: /s/ WILLIAM R. HUGHES
------------------------------------
William R. Hughes
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
Exhibit 27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 7,612,057
<SECURITIES> 0
<RECEIVABLES> 508,550
<ALLOWANCES> 94,908
<INVENTORY> 887,749
<CURRENT-ASSETS> 8,991,109
<PP&E> 757,382
<DEPRECIATION> 480,205
<TOTAL-ASSETS> 9,405,634
<CURRENT-LIABILITIES> 2,011,934
<BONDS> 0
0
0
<COMMON> 10,408
<OTHER-SE> 16,226,364
<TOTAL-LIABILITY-AND-EQUITY> 9,405,634
<SALES> 970,260
<TOTAL-REVENUES> 1,611,932
<CGS> 687,993
<TOTAL-COSTS> 687,993
<OTHER-EXPENSES> 4,564,009
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,411,773
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,411,773
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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